5 November 2014
Tanzania may not get a good deal for gas
Leaked agreement shows Tanzania may not get a good deal for gas
By Ben Taylor
is an analyst and blogger, writing mainly about Tanzanian media and politics
at mtega.com. He works for
but writes here in a personal capacity his views do not necessarily
represent those of Twaweza.
Natural gas is on the scene in Tanzania, and expectations are sky high. There
are those who see this as the end of aid dependency, or the solution to the
government's perennial money troubles. And of course, there are others who
see this as a personal opportunity to get rich quick. But not everybody's
expectations can or will be met.
Nobody knows exactly how much gas there is in Tanzania, though the latest
discoveries brought the estimated deposits up
51 trillion cubic feet (tcf). Equally, nobody knows how much of this
it will be possible (and economic) to extract, and how much revenue will
flow to the government as a result.
The IMF has had a go at working this out, in a
earlier this year. The results are expressed cautiously, surrounded by references
to uncertainty, but suggest that the Tanzanian government could be looking
at a peak of US$5-6bn revenue each year between 2029 and 2044. Given that
for the past few years, official aid to Tanzania has ranged between $2-3bn
annually, and the total tax revenue in the 2014/15 Tanzanian government budget
is just over $6bn, we're talking potentially a lot of money. As the IMF report
"If a large-scale gas project goes ahead, the potential fiscal revenue would
be substantial, and would facilitate government spending on priority investment.
[This] could have a transformational impact on the economy."
More money for schools, hospitals, roads, etc. so it's all good
Not so fast. As strong as tthe economic potential may be, unless the politics
are right, the opportunity could easily be wasted.
There are worries that the Tanzanian government lacks either the capacity
or the will to negotiate deals with investors that protect the interests
of the Tanzanian public. When a
Sharing Agreement (PSA) between the state-owned Tanzania Petroleum
Development Corporation (TPDC) and the Norwegian firm Statoil was leaked
a couple of weeks ago, it revealed contract terms that are significantly
less favourable to the government than had been expected. The terms were
less favourable than either those of TPDC's model PSA or the assumptions
used by the IMF in their analysis.
Exactly how much this contract will cost the government depends on how much
gas the company produces, but it could easily be in the hundreds of millions
of dollars per year. If production reaches 500 million cubic feet per day,
the government could be losing as much $400m per year under this deal, compared
to the model PSA. If production reaches 1,000 million cubic feet per day
which is very possible the loss rises to to over $900m per
year. And that's just from one deal.
Another indication of the scale involved here is that since the Norwegian
majority shareholder, the extra revenue to the Norwegian government from
this deal could be worth more than double the total of all Norwegian aid
to Tanzania since independence.
But perhaps just as worrying is the resounding silence that met the leak.
It has not been covered in the Tanzanian media, even when reporting on
other activities. And aside from a brief reference in a relatively
parliamentary committee report (pdf, Swahili) (which itself did not attract
media coverage), no leading politician has stood up to publicly make noise
about the deal.
Those in the know are discussing it in hushed tones on the side-lines of
meetings, in the more private corners of social media, or in coded language.
The vast majority are not in the know.
This does not bode well. One of the big political risks with oil and gas
is that it can be seen by politicians and senior officials as 'easy' money
that doesn't come with the kind of scrutiny that taxpayers demand when they
pay their taxes and donors demand when they provide aid. Unless somebody
the media, politicians, civil socieety steps up to fill the
gap, decision makers in government will bbe left free to make whatever decisions
they choose, unencumbered by any need to protect the public interest. The
Statoil PSA may well have cost Tanzania several billion dollars yet
it appears no-one is trying to holld those responsible to account.
So why the silence? It may be that the media and the politicians don't understand
the significance of the deal, don't have the capacity to pick apart the leaked
PSA's legal language to find the meat. It's certainly not easy to do.
Alternatively, it may be that they don't care. Or it may be that they are
Zitto Kabwe, an outspoken opposition MP, posted a quote on
"Not a single developing country that derives the bulk of its export earnings
from oil and gas is a democracy,"
Larry Diamond and Jack Mosbacher.
In Tanzania, I fear we may be about to find out why.
 These figures are calculated based on 500MMscfd / 1000MMscfd
of "profit gas", which refers to the value of gas produced after the company's
costs have been deducted.
 Statoil has a 65% stake in the PSA, of which the Norwegian
government owns 67%.Â The calculation is therefore as follows: 65%
x 67% x $900m x 15years = $5.9bn. Norway has given approximately $2.5bn in
aid to Tanzania since 1961 (Source: World Bank).