The Tanzanian government has started working on strategies to prepare the economy to accommodate huge investments in the natural gas sector in anticipation of major commercial discoveries in the next five years.
The imminent commercial discoveries, whose quantity is yet to be determined, will result into “multi-billion dollar foreign direct investments,” according to the minister of Finance and Economic Affairs Mustafa Mkulo.
He said the discovery will also add significant revenue flows to government coffers and take a big part of the country’s export volumes, which will make Tanzania a “gas economy”.
The country has proven natural gas deposits of about 7 trillion cubic feet (cf). It is estimated that Tanzania will confirm around 60 trillion cubic feet of natural gas from the current 7 trillion cf.
About 3.5 trillion cf of the reserves have already been commercialised with natural gas wells being drilled in Songo Songo and Mnazi Bay gas fields.
Tanzania’s gas reserves border those of Mozambique in the Ruvuma basin where commercial natural gas reserves of about $800b have been discovered by Eni SpA and Anadarko Petroleum Corp.
To prepare the economy for major gas investments, the government is drafting a natural gas master plan as well as a gas and petroleum revenue management Bill. The Bill will cover the budget treatment of gas revenue.
Also the tax regime will be reviewed to ensure adequate cover for the gas sector. This will go hand in hand with development of staff expertise in the Tanzania Revenue Authority (TRA) on tax issues associated with the development and exploitation of gas.
The government is also considering “possible launch of a future generations fund to save a portion of the resource wealth,” added Mr Mkulo.
The government is planning to carry a big project of constructing a gas pipeline from Mnazi Bay in Mtwara to Dar es Salaam to carry fuel for electricity generation purposes. The project would be funded by Exim Bank of China at $1.058b and expected to be operational by the end of 2012.
The project includes construction of gas processing plants at Mnazi Bay and at Songosongo, and the pipeline would be technically able to transport a maximum of 700 million standard cubic feet per day, which can generate up to 3,500MW of power.
“Given the scale of the project, the government will ensure that it has a high rate of economic return, and will share with the IMF the technical and economic evaluation of the project,” he said.
The reports for huge gas deposits have drawn the interest of the world’s largest oil and gas exploration companies such as BP, Petrobras, Statoil, Exxon Mobil and Shell.
Experts say Tanzania will be a focus of drilling this year. Analysts say the amount of investment in gas exploration and infrastructure will run into billions of dollars. Petrobas and Ophir Energy Plc alone are spending close to $2 million per day.
Tanzanian government last June abolished the Value Added Tax on petroleum products imported to be used as fuel by gas and oil exploration companies.
The East African deposits found so far are large enough to justify construction of at least eight LNG production trains, according to estimates by the firms.
Experts say, the gas industry development will be a boost to the predominantly agriculture economy by stimulating other sectors such as supply services and thus rendering a variety of employment to the youth.
However, they urge the government to be keen to avoid future remorse over blunder contracts like those previously seen in the mining sector.
Legal frameworks needed
“It is high time we open up new areas for revenue sources. However, we would like to see the government taking charge as a large player just like South Africa and Norway, whose economies are thriving smoothly on their natural resources,” Dr Razack Lokina, a lecturer at University of Dar es Salaam said.
The Energy and Minerals Parliamentary Committee chairman, Mr January Makamba, said it was important for government to set up legal framework first.
“We need to develop technical schools and faculties in universities specifically to develop enough skilled personnel for the industry such as gas economists, petroleum engineers, auditors and so forth,” Mr Makamba said.