FOLLOWING massive discoveries of natural gas, Tanzania’s economy has started to get dividends from the resource, but some experts have already cautioned on misconceptions and management of community expectations.
Tanzania Extractive Industries Transparency Initiative (TEITI), says since the country struck natural gas fields for the first time in 1974. So far, proven reserves are estimated at 55.08 trillion cubic feet (tcf).
The country currently exploits a small amount of its vast gas resources at Songosongo in Lindi Region and Mnazi Bay in Mtwara Region. The gas currently produced is used to generate electricity and its share to Gross Domestic Product (GDP), is still small, with some sources putting it at 1.8 per cent as of 2014.
However, after the start of major production of natural gas in the next ten to 15 years, the gas sector is poised to over-take the mining sector’s contribution to the national economy. In its latest report, TEITI pointed out several challenges for the government that have so far been created following massive discoveries of the hydrocarbons.The challenges includes policy, legal and institutional frameworks to manage the industry more effectively. Memories are still fresh on what high community expectations caused in Mtwara, when hundreds took to the streets demanding for a fair share of the cake.
The people went arounds chanting that ‘no gas should come out’ claiming that some of the government officials have colluded with international oil companies and stolen the proceeds from natural gas.
The situation turned violent and the government had to use force to calm the situation. Such a scenario calls for intensive public education and transparency for the people to understand thoroughly the situation on the ground.
The nation also needs human resources with the requisite skills and knowledge in the industry as well as development of natural gas infrastructure and development of domestic market and managing export market. They also includes revenue management, high government and public expectations; health, safety and environmental protection.
Presenting a paper at forum earlier this year, the governor of the Bank of Tanzania (BoT), Professor, Benno Ndulu, said earlier this year that the amount of natural gas discovered is finite.
“Once the exploitation starts the current known reserves are expected to last for approximately 25 to 30 years, but further discoveries may extend the life of exploitation,” Prof Ndulu said in a paper.
The governor had a view that since the natural gas is not infinite, there was need for the nation to make judicious use of the proceeds for the diversification of the economy. “Natural gas alone will not meet the twin challenges of employment and sustained growth. In order to attain middle income status by 2025 (Vision 2025), Tanzania will require a diversified economy,” he argues.
The diversified economy comprises some natural resources, industries, services and an increasingly productive agricultural sector. The governor said that the country’s vision could be achieved if key policy areas in the gas management chain are properly addressed and strong institutions are put in place.
Experience in many parts of the world has shown that finding gas and bringing it to production is a risky, technologically complex and capital intensive operation.
In many cases the normal practice is for the governments to use specialised gas companies to shoulder the risks of exploration and large up-front capital of investment necessary to bring the gas to production.
The government then negotiates a Production Sharing Agreement (PSA), with these companies. The government’s share of income from gas exports will be determined by two parameters.
These are--distribution rent per unit of gas exported from Tanzania (export price-cost of extraction, liquefiction, transport and re-gasification). The second parameter is the fraction of this distributed rent secured by government through negotiated royalty, profit share and corporate tax arrangement. Other observers say that for the country to maximize the benefits from gas sector there is need to get the contacts right.
This can be through a well designed fiscal regime to ensure Tanzania gets what it deserves from exploitation of natural gas through--royalties, profit shares and corporate tax arrangements.
Local entrepreneurs have repeatedly called for a clear strategy to domesticate the supply chain through local capacity building. This could include the ability to provide all services in the process of gas mining to maximise among Tanzanian entrepreneurs.
Local participation in the sector can be enhanced by integrating the local firms into natural the supply chains of multinational firms so that they can generate demand for skilled labour and other intermediate inputs. The country should also focus on developing required domestic firms capabilities to deliver reliably to quality specifications and in sufficient volumes.
In his book ‘An Enterprise map of Tanzania’ John Sutton (2012), identifies the existing firms in Tanzania, some of which have potential to develop necessary capabilities to supply into extractive industries. These includes those involved with food processing, cement, building materials and a number of specified areas of metals. Natural gas can be exported to earn foreign exchange taking advantage of rising global demands for clean energy.
It can be used to generate electricity in the domestic economy--abundant, reliable and cheap energy would offer comparative advantage to those industries that use energy. It can also be used to produce ferltiliser to be used in the agricultural sector-- increasing productivity in agricultural sector is important for economic diversification and inclusive growth.
/Daily News.
Tanzania Extractive Industries Transparency Initiative (TEITI), says since the country struck natural gas fields for the first time in 1974. So far, proven reserves are estimated at 55.08 trillion cubic feet (tcf).
The country currently exploits a small amount of its vast gas resources at Songosongo in Lindi Region and Mnazi Bay in Mtwara Region. The gas currently produced is used to generate electricity and its share to Gross Domestic Product (GDP), is still small, with some sources putting it at 1.8 per cent as of 2014.
However, after the start of major production of natural gas in the next ten to 15 years, the gas sector is poised to over-take the mining sector’s contribution to the national economy. In its latest report, TEITI pointed out several challenges for the government that have so far been created following massive discoveries of the hydrocarbons.
The challenges includes policy, legal and institutional frameworks to manage the industry more effectively. Memories are still fresh on what high community expectations caused in Mtwara, when hundreds took to the streets demanding for a fair share of the cake.
The people went arounds chanting that ‘no gas should come out’ claiming that some of the government officials have colluded with international oil companies and stolen the proceeds from natural gas.
The situation turned violent and the government had to use force to calm the situation. Such a scenario calls for intensive public education and transparency for the people to understand thoroughly the situation on the ground.
The nation also needs human resources with the requisite skills and knowledge in the industry as well as development of natural gas infrastructure and development of domestic market and managing export market. They also includes revenue management, high government and public expectations; health, safety and environmental protection.
Presenting a paper at forum earlier this year, the governor of the Bank of Tanzania (BoT), Professor, Benno Ndulu, said earlier this year that the amount of natural gas discovered is finite.
“Once the exploitation starts the current known reserves are expected to last for approximately 25 to 30 years, but further discoveries may extend the life of exploitation,” Prof Ndulu said in a paper.
The governor had a view that since the natural gas is not infinite, there was need for the nation to make judicious use of the proceeds for the diversification of the economy. “Natural gas alone will not meet the twin challenges of employment and sustained growth. In order to attain middle income status by 2025 (Vision 2025), Tanzania will require a diversified economy,” he argues.
The diversified economy comprises some natural resources, industries, services and an increasingly productive agricultural sector. The governor said that the country’s vision could be achieved if key policy areas in the gas management chain are properly addressed and strong institutions are put in place.
Experience in many parts of the world has shown that finding gas and bringing it to production is a risky, technologically complex and capital intensive operation.
In many cases the normal practice is for the governments to use specialised gas companies to shoulder the risks of exploration and large up-front capital of investment necessary to bring the gas to production.
The government then negotiates a Production Sharing Agreement (PSA), with these companies. The government’s share of income from gas exports will be determined by two parameters.
These are--distribution rent per unit of gas exported from Tanzania (export price-cost of extraction, liquefiction, transport and re-gasification). The second parameter is the fraction of this distributed rent secured by government through negotiated royalty, profit share and corporate tax arrangement. Other observers say that for the country to maximize the benefits from gas sector there is need to get the contacts right.
This can be through a well designed fiscal regime to ensure Tanzania gets what it deserves from exploitation of natural gas through--royalties, profit shares and corporate tax arrangements.
Local entrepreneurs have repeatedly called for a clear strategy to domesticate the supply chain through local capacity building. This could include the ability to provide all services in the process of gas mining to maximise among Tanzanian entrepreneurs.
Local participation in the sector can be enhanced by integrating the local firms into natural the supply chains of multinational firms so that they can generate demand for skilled labour and other intermediate inputs. The country should also focus on developing required domestic firms capabilities to deliver reliably to quality specifications and in sufficient volumes.
In his book ‘An Enterprise map of Tanzania’ John Sutton (2012), identifies the existing firms in Tanzania, some of which have potential to develop necessary capabilities to supply into extractive industries. These includes those involved with food processing, cement, building materials and a number of specified areas of metals. Natural gas can be exported to earn foreign exchange taking advantage of rising global demands for clean energy.
It can be used to generate electricity in the domestic economy--abundant, reliable and cheap energy would offer comparative advantage to those industries that use energy. It can also be used to produce ferltiliser to be used in the agricultural sector-- increasing productivity in agricultural sector is important for economic diversification and inclusive growth.
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