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How gas players sabotaged Sh1.7trn project

29th April 2012
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January Makamba

The government seems to have warded off a renewed dirty campaign by two prominent gas firms against a project for the construction of a new natural gas pipeline from Mnazi Bay in Mtwara region to Dar es Salaam.

Now the government is finalising a financing credit agreement with Exim Bank of China amounting to USD 1.058 billion (Sh1.693trn) so the project could take off.

In a positive development, The Guardian on Sunday has learnt that a team involving senior officers in finance, legal and technical areas from the Tanzania Petroleum Development Corporation (TPDC), the Ministry of Energy and Minerals, the Attorney General’s Chambers and the Ministry of Finance has been in Beijing, China, for the past two weeks working on key points of the proposed agreement before the two parties sign it.

The planned 24 to 36-inch gas pipeline would be 532 kilometres long from Mnazi Bay to Dar es Salaam via Somanga Fungu and would have the capacity to transmit 210 million standard cubic feet of gas a day. The project would also involve the construction of two processing plants at Mnazi Bay and Songosongo which would be able to produce up to 2000 megawatts of electricity.

The current gas pipeline from Songosongo to Dar es Salaam, which is owned by Songas and operated by Pan African Energy, has the capacity to transmit 105 million cubic feet of gas a day.

Mnazi Bay has proven gas deposits amounting to 2.5 trillion cubic feet. There are proven gas reserves totaling 7.5 trillion cubic feet but exploration in several on and offshore areas has been going on in the southern part of the country. On April 19, 2012 chairperson of the parliamentary standing committee for Energy and Minerals January Makamba told the National Assembly that implementation of the gas pipeline project faced delays, which risked the availability of reliable power.

Makamba noted that an agreement for the project’s financial credit was yet to be signed, stating that his committee had been told that one of the major factors for the said delays were doubts raised by the Chinese financiers due to a dirty campaign mounted by Pan Africa Energy and Songas against the project.

However, The Guardian on Sunday has established that government machinery has fought off the campaign to avoid further project delays. Sources at the ministries of Finance and Energy and Minerals told this paper this week that the government had to give clarification to the Chinese prospective financiers following contradictory information gathered from some gas stakeholders during the first stage of project’s evaluation.

“The first key stage of negotiations for the loan was on technical aspects between the employer and the contractor, where matters such as designs and costs to be involved were discussed, documented and submitted to the financier for consideration,” noted one well-placed source.

The source added: “Upon receipt of all the necessary documents the financier (Exim Bank) decided to undertake evaluation of the project by gathering additional information from gas stakeholders, including Songas and Pan African Energy, who noted that the project was not viable.”

The project employer is the Tanzania government through TPDC whereas the contractor is China Petroleum and Technology Development Corporation (CPTDC) a unit of Chinese Natural Petroleum Corporation (CNPC).

Asked about specific areas targeted by the Songas and Pan African Energy dirty campaigns, Makamba told this paper that his committee was told by senior government officials that the two companies persistently argued that there were neither enough gas reserves to make the pipeline project viable nor was there a developed gas market.

“We were also told that, due to the information gathered from Songas and Pan African Energy, the Chinese deemed it important to sign gas sale agreements so as to establish commitment from potential buyers such as the national power utility, Tanesco, and industry owners, but we understand that TPDC finally managed to convince the Chinese, who have thus dropped the precondition,” said Makamba.

The Guardian on Sunday has also established that the Chinese decided to conduct a second evaluation and following assurances from TPDC on various contentious matters it was decided that the process to finalise the financial credit agreement should go on. “A number of issues which resulted from delays in the implementation of the project were discussed at length during the visit of the Chinese Vice-Minister for Commerce, Li Jinzao, late last month.

“These discussions were crucial for the project was in serious jeopardy as international financial institutions such as the International Monetary Fund and the World Bank were querying the project’s viability based on Songas’ and Pan African Energy’s misinformation,” a credible source in the Ministry of Finance said.

Further government information related to the project suggests that a visit by senior officers from the IMF and the World Bank responsible for African affairs was in line with the Briton Woods institutions’ close follow-up with a view to shooting down the project.

The new pipeline, when fully operational, is expected to help the government reduce power expenses by USD 850 million (Sh1.36trn), which slightly exceeds ten per cent of the 2011/12 budget amounting to Sh13.5 trn/-. The government has been spending heavily on emergency power generation by using costly heavy fuel oil (HFO), diesel and, alternatively, Jet A1.

From September 2011 this paper has been reporting exclusively on Songas’ and Pan African Energy’s displeasure at the new gas pipeline project, viewing it as about to bring their gas industry monopoly in the country to an end.

Although their top executives have persistently denied any wrongdoing, they have been involving themselves in several controversial correspondences with the Ministry of Energy and Minerals.

One such correspondence threatened last year that 35 million cubic feet of gas would be reduced from the amount transmitted daily from Songosongo to Dar es Salaam should the ministry press ahead with the proposed expansion of the existing processing plant at Songosongo island.

SOURCE: GUARDIAN ON SUNDAY
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