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National policy on natural gas grossly inadequate

24th November 2013
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Though the National Gas Policy of Tanzania seems to receive general praise from the media (see the Editorial of The Guardian 23rd November 2013) various experts analysis may tell a different story. As a geologist with firsthand knowledge in the extractive industries (mining, oil and gas) regarding the contents of the National Natural Gas Policy I cannot hide my disappointments.

The policy falls short of the expected quality in terms of assuring an increased local content and participation of the local business community as well as the state in owning the gas resource. The main hitch of this inadequacy may lie in the decision of the Government to create a policy that leaves out the most important section of the industry - the upstream.

As the Natural Gas Policy of Tanzania describes it, upstream activities include exploration, appraisal, development and production stages of oil and gas. The mid- and down-stream activities of the industry involve gas processing, liquefaction, transportation, storage, degasification, distribution and other auxiliary services.

Although we can not engage on the wisdom of the Government in issuing first the mid-stream-downstream policy and delaying the upstream policy, it is clear that this policy falls short of creating an environment of building local capacity to participate in this business.

The policy seems to leave the country on the losing side, and I strongly think this policy will only be useful if the upstream element is added so as to enable Tanzania and its citizens to benefit from the natural gas resource right from the beginning.

Oil and gas are natural resources found on similar geological environments, and investing in exploration, development and exploitation must follow the same processes, hence it is common for many countries like those who have been successful in the development of these resources to have policy instruments taken as Oil and Gas Policy. And in some instances a separate Natural Gas Policy may be coined to put more emphasis on the development of the natural gas resource.

In Section 3 of the Natural Gas Policy of Tanzania, the policy rightly recognizes that the natural gas industry involves up-, mid- and downstream segments. Apart from this precious recognition the policy goes into restricting itself to the mid and downstream sections of the business, promising that upstream activities will be guided by a separate Policy document that may later be developed.

In this regard important linkages between activities in the entire natural gas value chain are left out without a policy to guide investment that guarantees the Government and Tanzanians participation right from the beginning. In many successful countries upstream activities are the most guided to ensure local business capacities are built.

They do this though National Oil and Gas Companies that are supported by the Government to conduct flourishing exploration, development and value addition activities and trading. Leaving out upstream activities tends to create and perpetuate illicit outflow of financial proceeds from the natural gas industry as the local content and participation is minimized.

It is amazing and surprising that Tanzania decided to have a Natural Gas Policy that attends only the mid and down-stream segments of the natural gas industry, leaving the up-stream segment in a free fall that will be the channel for international investments domination. The local content that is the hope for the State and International Oil and Gas companies’ win-win situation is completely disregarded in this policy and left to be attended later.

Questions are being asked why on earth would one postpone the primary and main part of the resource ownership that ensures more future benefits to concentrate on the secondary (derivative) part of the whole milking of the cow?

Why did the Government coin a Natural Gas Policy that does not ensure ownership in the entire natural gas value chain? Why did exploration and development activities of natural gas exclude at this point in time and only promised to be attended later? This leaves most experts hallucinating.

If we go to the contents of the mid and downstream National Natural Gas Policy of Tanzania we notice that the policy brilliantly recognizes in section 2.4 that natural gas is National resource that belongs to the people of the United Republic of Tanzania, and must be managed in a way that benefits the entire Tanzanian society, for present and future generations.

And also in section 2.4.1 it correctly articulates the objective as to provide guidance for the sustainable development and utilization of the natural gas resource and maximization of the benefits therefrom, and contribute to the transformation and diversification of the Tanzanian economy. Yes these are great statements of hope and anticipation and no wonder the media praises the policy.

Again, reading the specific objectives in section 2.4.2 one gets an impression of a policy that will promote local content. Some of the positive statements include: 1- to develop a competitive and efficient domestic and export market for natural gas, and ensure that the Government and Tanzanians participate effectively in the natural gas business; 2- to ensure that Government and Tanzanians have sufficient capacity to participate effectively in the natural gas value chain; 3- to ensure that development of natural gas industry regionally and internationally benefits Tanzania; and 4- to ensure maximization of benefits from the natural gas industry through PPP projects.

As said in the preceding remarks these objectives though marred in inconsistencies they however, paint a bright future of the localization of the business and therefore offering a possible local content development but only in one segment of the natural gas industry.

Reading further in the policy issues and statements, the policy fails to articulate how it will promote effective Government and Tanzanians’ participation to warrant a better local content that ensures the state and the people participate effectively in the mid and downstream natural gas industry, securing increased national benefits.

Furthermore, all the policy statements restrict Government and Tanzanians’ participation in investments only to strategic projects.

Why would local participation be restricted to strategic investment projects? The policy must seek to assist Tanzanians to participate effectively and efficiently in mid and downstream projects otherwise the policy fails to meet expectations of the public as it is in many countries of the world that have successfully developed their natural gas resources to benefit the local economy.

In Norway for example, Government policy directs and guides the state to have direct financial interest in the country's petroleum and gas operations in the entire value chain. 90% of oil and gas exploration, development and downstream businesses are under the state, managed by the national and oil and gas companies.

This is because the policy is specific in terms of promoting and assisting local companies and state companies in the entire value chain (from upstream, mid stream and downstream). Many other countries like India, Brazil, Angola, along with Trinidad and Tobago have similar policies that ensure local content is maximized.

The fundamental issues and policy statements of this policy as described in section 3.1 of the policy are therefore limited to regulating and directing nine mid and downstream issues that do not necessarily ensure state and local ownership of the natural gas business.

Examples of issues among others include: 1. Development of Natural Gas Infrastructure, 2. Natural Gas for the Domestic and Export Market, 3. Management of Natural Gas Revenue, 4. Natural Gas Pricing, 5. Security of Natural Gas Infrastructure and Supply, 6. Linkages with Other Strategic Sectors, and 7. Local Content and Capacity Building.

On the issue of the development of the gas infrastructure the objective is to develop facilities for natural gas processing, liquefaction, transportation, storage and distribution so as to optimizing investment for natural gas infrastructure to serve domestic, regional and international markets.

he Policy states that the Government shall participate strategically through its National companies (i.e. through PPP) to develop and operate major infrastructure for natural gas. I am not sure whether participation in gas infrastructure development does ensure national and peoples’ ownership of the natural gas resource.

On the issue of natural gas supply for domestic and export markets the objective is to develop a competitive and efficient domestic and export market for natural gas, and ensure that the Government and Tanzanians participate effectively in the natural gas business by strategically investing in the (gas to liquid) GTL and (liquefied natural gas) LNG value chain, efficient cross border trading of natural gas products and other natural gas projects.

Again, why is strategic investment sought and not investment in any project? Is this policy statement enough to ensure increased national benefits and resource ownership as it is in many other countries?

The management of natural gas revenue is another issue that this policy offers guidance, with the objective of offering transparent, effective and efficient natural gas revenue management that arises from natural gas, to ensure that benefits are spread from the present to future generations of Tanzanians.

In order to manage gas revenue, the government intends to establish a Natural Gas Revenue Fund for the development and growth of natural gas industry. The Policy also seeks to ensure that local communities benefit from natural gas activities in their respective localities. Well, this is a brilliant arrangement to share revenues but it does not guarantee in any way the intention of the nation to ensure natural gas resources are owned and shared by all Tanzanians.

The final example is capacity building activity that aims at increasing local content in the mid and downstream sections of the natural gas industry. The policy stipulates that it wants to develop the capacity of Tanzanians to participate strategically in the natural gas value chain thus empowering Tanzanians to benefit from the natural gas industry.

The policy statement indicates among other statements that the Government wants to work with International Oil and Gas Companies to ensure opportunities for supply of goods and services, employment and investments are made available to Tanzanians. Yes, this is yet another good policy endeavor but needs to cover the entire gas industry from upstream to downstream and also must utilize the National Oil and Gas Company.

Discussing the role of the Government in the natural gas industry in Tanzania the policy highlights that it requires the involvement of the Government in directing resources and leading other players towards a desired development direction.

And the policy therefore restricts the government in investment participation and ownership in strategic infrastructure. It goes on directing the establishment of a designated National Oil and Gas Company (NOGC) to take new roles and responsibilities in the light of natural gas discoveries and the need for development of the industry.

It seems this mid and downstream Natural Gas Policy gives responsibility to the National Oil and Gas Company to undertake upstream activities like exploration and development. The NOGC is directed to undertake upstream activities by a mid-downstream Gas Policy. I believe these are some of the many superfluous narrations of the National Natural Gas Policy of Tanzania that will be corrected and leveled when a Natural Gas Policy that takes care of the entire spectrum of the gas industry is developed.

The above discussion provides some examples on the deficiencies of this policy document in ensuring strong local participation in the gas industry, in other words the policy fails to ensure a strong State and Tanzanians’ ownership of the natural gas resource of the country as it is in Brazil, India or Norway.

I presume that the Government might have missed the mark when it avoided to create a Natural Gas Policy that entails the entire natural gas business chain beginning with the upstream through mid stream to downstream. Hence this National Natural Gas Policy may not be the muarobaini (permanent cure) for the public outcry that natural gas resource must bring more benefit to the nation and its people.

People and the public may continue to demand that the gas resource found in Tanzania must truly belong to the people of the United Republic of Tanzania as the policy narrates. It is when a Policy that addresses all sections of the gas industry (up-to-mid-to-downstream) is put in place to address issues of local content and participation, that in time people will begin to understand and public expectation may begin to be properly managed.

In many countries of the world that have been successful in utilizing their natural gas and indeed their oil and gas resources the main feature of their policies that brought this success are policy initiatives that promote local content.

Tanzania also needs a holistic natural gas policy framework that provides clear and robust mechanisms for local content, participation and local capability development including capacity building.

The policy must maximize the depth and breadth of local ownership, control and financing, in order to increase local value-capture from all parts of the value chain created from the resource. The local content must also maximize the level of usage of local goods and services, people, businesses and financing.

In the Local Capability Development the impact of the ongoing sector activities, through the transfer of technology and know-how and local expert availability must be maximized. The local content must also support and maximize utilization and development of Tanzanian nationals, businesses owned by nationals and the capital market in every aspect of the industry’s activities. This Policy fails to articulate all these needs.

Finally it may be wise for the government to accelerate the creation of the Policy and Legal Framework that will regulate upstream activities of the natural gas industry. It will also be valuable and appropriate to merge these two policies to ensure a streamlined development and management of the natural gas industry in Tanzania.

The author is MP for Igunga and a former Commissioner for Minerals. 

SOURCE: GUARDIAN ON SUNDAY