Wednesday, September 19, 2012


Reported by Samuel Kamndaya

Dar es Salaam. The oil and gas sector was reeling in shock yesterday following a government decision to review its contracts. Ophir Energy, a UK-based oil and gas exploration firm that has operations in Mafia Island and Ruvuma basin, was the hardest hit: Its shares at the London Stock Exchange (LSE) tumbled by 6.2 per cent on Monday. Energy and Minerals Minister Sospeter Muhongo announced at the weekend that he had directed the board of the Tanzania Petroleum Development Corporation to review the production agreements with the firms to ensure the country got a “fairer share”.

Analysts praised the decision, describing it as a milestone in the country’s efforts to benefit more from its resources.

Industry sources told The Citizen that investors are always cautious about policy statements but the decision was right. The chief executive officer of Tanzania Securities, Mr Moremi Marwa, said: “To investors, the minister’s statement was discouraging for it supposes that we are a country that lacks consistent and sustainable policies.....However, as a Tanzanian, I’m in complete support of the initiative because it seeks to make sure that Tanzania benefits more from its rich natural resources.”

He was quick to allay fears that the review may hurt Tanzania’s investment climate. “Foreign investors do undertake a thorough analysis of the risks associated with investing in a country,” he said, “so I’m certain the aspect of consistence and sustainability of Tanzania’s policies was well considered by all investors.”

Ophir Energy issued a statement declaring that it has met all requirements for operating in Tanzania and welcomes the review process. The firm’s remarks echoed a collective statement through the Tanzania Chamber of Mines and Energy (TCME) that it had no problem with the government reviewing the production sharing agreements because they are “public documents in public domain”.

But the TCME chairman, Mr Joseph Kahama, urged the government to work with the firms in a transparent and participatory manner and set a timeline for the exercise. “The production sharing agreements are public documents in the public domain and so we have no problem with the review,” he said. “We can only urge the government to desist from doing this unilaterally. Consultations must be made in a timely and transparent manner.”

Ophir Energy and its partner BG Group have made six consecutive gas finds off Tanzania and recently raised their estimate of total resources to between 13.5 and 21 trillion cubic feet. The find is enough to sustain a liquefied natural gas project to export the commodity on tankers.

But, in an interesting rejoinder, the Shadow Finance and Economic Affairs minister, Mr Zitto Kabwe, said the minister’s remarks were unfortunate and bent on creating unnecessary uncertainty in the sector.

In a statement emailed to The Citizen, he added: “These irresponsible statements by the minister for Energy and Minerals will cost our country dearly not only in developing the crucial oil and gas sector but also in attracting foreign direct investment. What is needed in Tanzania is transparency of contracts, sanctity of contracts and building the crucial capacity of TPDC and not mere words from the minister who actually signs the contracts.”

According to Mr Kabwe, the review of the contracts will earn the country no points and the only winner in the process will be the minister, who will gain only short-lived publicity.

“What the minister is unaware of is the fact that many reviews have been done and nothing has been done about it,” he added, noting that the Parliamentary committee on Public Organisations (POAC) had asked TPDC through the office of the Controller and Auditor General to audit all contracts.

Of the 26 contracts, though, only four were reportedly audited and one (PanAfrica Energy) was found to have inflated costs to the tune of $26 million.

Mr Kabwe added: “The review will add nothing except a short-lived publicity for the minister for his cowboy approach while throwing the sector into huge uncertainty and slowing down momentum. The oil and gas companies are very cautious and one thing is certain: They don’t work in uncertain environments where contracts are under threat of being revoked.”

What Tanzania needs is transparency, he said. The contracts must be made public and the new law must give Parliament the powers to approve the contracts. “That is the transformation we need to ensure that our country benefits from its resources,” he said. “If the minister is serious about walking the talk, he must bring these amendments to Parliament, instead of uttering irresponsible statements in press conferences.”

According to Mr Kabwe, the other radical transformation Tanzania needs is to enact the Petroleum Revenue Management Act.

As Tanzania is competing with neighbouring Mozambique to build the first Liquefied Natural Gas plant to supply the Far East Asian markets, he added, it was time the country started walking the talk instead of making statements that discourage investors.


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