Tuesday, March 6, 2012


By Honest Ngowi,

Among the current economic news in Tanzania is the announcements of oil and gas discoveries in various parts of the country. The latest announcement of gas discovery is by the Norway’s Statoil.

Some of the natural gas fields in Tanzania are Songo Songo Island, Mnazi Bay, Mkuranga and Kiliwani North.

At Songo Songo the proven reserves are to the tunes of 1.10 trillion standard cubic feet. At Mnazi Bay vicinities are estimated at 2.2 trillion standard cubic feet. Some of the companies involved in this new economic undertaking in the country include Tanzania Petroleum Development Corporation (TPDC), Songas Limited (Songas), Pan African Energy Tanzania Limited (PAT), Maurel et Prom (M&P and Norway’s Statoil.

By February 2012, it was only two gas fields - Songo Songo and Mnazi Bay - that were producing. Among the key discussion issues in this unfolding opportunity is on whether Tanzania is ready to be an oil and gas economy. Some perspectives are outlined in this article.

Oil and gas production is a long term economic activity. It can be looked at from the commodity chain analysis point of view.

There are many chains and nodes in the whole process. After the exploration stage, it requires some more preparations before oil and gas are actually available in the market. Preparatory activities include but are not limited to construction of the necessary infrastructure to accommodate this new type of economic undertaking. These include roads and pipelines to and from the production sites and markets.

Factors of production

There will also be a need for a number of buildings for accommodation, offices, storages and even recreation.

There will be a maximisation of benefits of the oil and gas economy if local firms and institutions will be able to participate in these preparatory activities that pose a number of economic opportunities. Tanzania can benefit from the preparatory activities if its companies and institutions are involved in supply factor inputs in terms of materials, labour and finance.
However, this calls for readiness in terms of competitive capacities to deliver. Short of competitive capacities, the country will not be able to benefit from local contents. It takes appropriate level of education and skills for the country to benefit by way of ensuring high level of local content in the preparatory and other stages. The extent to which the country is ready for this is questionable. Partly, we are yet to see strategic educational programmes geared for gas and oil economy.

The preparatory stages of oil and gas production will be followed by actual production. For oil at least, it will be crude and has to be processed before it is consumed. Tanzania stands to make most as oil and gas economy if there will be domestic value addition. Oils processing within the boundaries of this republic will have many and far-reaching implications. These include more direct and indirect jobs creation, revenues generations and many other multiplier effects.

It is however not clear whether Tanzania is ready for domestic processing and value addition of its forthcoming black gold. The necessary infrastructure for domestic value addition of crude oil including adequate and reliable electricity is out of place. Also out of place in adequate quantity and quality is the local labour force with skills, knowledge, talents and experience to process the liquid gold within Tanzania. This implies that earnings associated to value addition labour force may not be enjoyed by Tanzanian sons and daughters.

The desire for as much local labour force as possible in the local oil and gas fields should not be seen to be xenophobic. It is an important aspect in a country suffering from high rates of unemployment and poverty. The needed legal, institutional and regulatory framework that will offer carrots – as opposed to sticks – for domestic value addition of oil do not seem to be in place either.

Oil and gas flows in pipelines should be proportionally and closely correlated with cash in-flows in the government coffers. This will only happen if revenues from all nodes of the oil and gas commodity chains are properly tapped. These include but are not limited to various kinds of tax and none tax revenues such royalties and dividends.
Inter alia, it takes oil and gas-specific revenues estimation and collection skills, knowledge, experience, techniques and expertise for an economy to tap revenues from pipelines. Gas and oil production functions are very peculiar compared to other functions.

Things like allowable and none-allowable costs as well deemed capital goods in this sub sector have to be very well known by revenues authorities in general and Tanzania Revenue Authority (TRA) in particular. Something similar to the Tanzania Mineral Audit Agency (TMAA) may partly help in making sure that the revenues from the oil and gas pipelines are finding their ways to the government coffers accordingly.

Management of oil revenue
Assuming that revenues from oil and gas pipelines will be tapped, the next stage will be having the needed oil and gas revenues management skills. This is important because oil and gas are finite and none-renewable resources that on earth did not come to stay forever. The issue here is sustaining the benefits that would have been accrued beyond the lifespan of these resources.
There is a need to invest the much awaited revenues in many carefully calculated and diversified portfolios so as to keep on benefitting even when these finite resources will be no more. Intergenerational thinking is important in this aspect. Concepts such as oil fund as is the case for Norway for example and even newly born South Sudan should be worked out proactively rather than reactively.
There is an urgent need to be pro-active rather than reactive if we as a people and nation are to optimise all the potentials embedded in the unfolding oil and gas fields.

There is a need for strategic thinking, planning and implementation in the bid to make Tanzania ready for the unfolding gas and oil economy. Short of that, the country stands to be a laughing stock of the world if it lets go of all these potentials amidst abject poverty.

The author is a senior lecturer, researcher and consultant in Economics and Business at Mzumbe University Dar es Salaam Business School

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