Book to influence Tanzania as future petro-state

23Dec 2019
The Guardian
Book to influence Tanzania as future petro-state

SHARING a noble goal to avert the massive discovery of natural gas in Tanzania from becoming a curse rather than a blessing, 27 renowned multinational researchers have written a valuable book to the country and other stakeholders worldwide.

Being an outcome of a five-year research program, the recently launched book, titled: “Governing Petroleum Resources Prospects and Challenges for Tanzania”, analyzes the long-term process of how a country develops the institutions that govern resources, the choice  it makes and incentive structures governing the choices.

Compelling sentiment to the writing of the book is summarized by the authors as follows: ‘’Tanzania is currently on a path to become a petroleum producer. Huge deposits of natural gas have been discovered offshore the southern coast of Tanzania. The gas discoveries to date are of scale far larger than anything seen in the mining sector.’’

With this, come expectations of significant petroleum revenues and prospects of natural gas-driven structural transformation, and improved economic and social conditions for Tanzanians

The researchers intend “to contribute valuable and relevant evidence to assist the country’s leaders and policy-makers to successfully navigate the transition to a new petro-state and avoid the resource curse that has sorely afflicted other resource-rich developing countries.”

Previous research has shown that many countries that are rich in resources have experienced the “resource curse’’ or ‘’paradox of plenty’’, wherein their resource abundance has resulted in deepening poverty, non-democratic government and violent conflicts.

The researchers of the book argue that resource curse could manifest itself even long before the actual extraction and production of a resource commences. The “pre-resource curse’’ is experienced during the period between discovery of a major resource endowment and its production.

“Pre-source curse’’ results from too high expectations about the amount of future revenues that will flow from the resource once it is extracted and commercialized. Political effects can include increased corruption, reduced transparency in natural management, and the roll-back of democratic rights.

It’s against that background that researchers working under the aegis of REPOA, the Norwegian Chr. Michelsen Institute, with funds from the Norwegian Embassy in Tanzania, introduce the book with a chapter, called “Petroleum resources, institutions and politics.”

Basically, case studies submitted in the book cover three major themes—Fiscal management related to the tax regime for the extractive sector and to public expenditure; Local content policies, practices and sector linkages to ensure economic benefits from the petroleum sector are retained in the country; and the politics that shape petroleum policies, including the influence of different stakeholder groups.

Shedding light on the resource curse at the book launch, the Repoa Executive Director, Dr Donald Mmari, said resources had been turned into tools for the elite to exercise control, power and political hegemony, citing the 1960s cessation of Biafra state in Nigeria, frequent criminal acts on oil infrastructure in Russia, cessation of Chechnya and insurgence in the diamond mining countries of Angola, Sierra Leone and Liberia.

Drawing a contrast for countries where resources have been a curse and countries where they were tamed to become a blessing, Dr Mmari cited the oil exporting countries of Norway, Malaysia and the Netherlands that have used the resources for the benefit of their own people.

Norwegian Ambassador to Tanzania, Elisabeth Jacobsen, said managing oil and gas was’’ no easy task’’.

For many countries, turning resource wealth into improved welfare for its citizens has proven challenging, with resources often becoming a curse rather than a blessing.

At the book launch, Ambassador Jacobsen said petroleum-rich countries were most likely to prosper when there is a stable legal framework and predictable legal framework based on international standards and that transparency, accountability and democratic environment were key factors.

The ambassador said though Norway could not claim to be model to all, its development as a petro-state shows what is possible when resources are used for the benefit of citizens.

“The role of an informed and active public debate cannot be overstated; to achieve responsible management of petroleum resources people must be able to hold the authorities accountable. This entails that civil society organizations are given the space to work effectively with the petroleum sector,’’ the Norwegian envoy says in her forewords to the book.

In concluding remarks, a chapter on civil society’s role in petroleum governance aptly states that “a well-coordinated space for civil society organizations” participation is likely to support the government in managing public expectations’’ raised by massive discovery of gas.

However, Prof Sufian Bukururu says much as governance was important, it was not the sole factor to success in the petroleum industry.

“Norway’s success can’t be solely attributed to the strength of its governance but there are other factors beyond it.”

Prof Bukururu,  who was among  three panelists during the launch of the book  in Dar es Salaam, argued that the oil-rich Australia, Canada and the Netherlands were fully aware of the governance component but they are yet to reach Norway’s  success because of other factors.

The book launch was also attended by the NORAD Director-General, Jon Lomoy, formerly the Norwegian ambassador to Tanzania.

Prof Bukururu, formerly the Tanzania Petroleum Development Corporation chair, said the external factors were important to the success of oil and gas as was governance component and that there was abundant literature on the subject.

‘’For the sake of completeness, I humbly request the Norwegian Ambassador to support a comparative study of external forces¬ -- the dominant players in the sector. The starting point could be the role played by ExxonMobil [and IMF] in Chad, international oil companies and World Bank In Mozambique; the part of development  partners in Ghana and Uganda and the detailed Development Partner’s Plan of Action for natural gas industry in Tanzania,’’ Prof Bukururu said.

However, he conceded that poor governance in the petroleum sector could have adversely affected other oil exporting countries such as Angola, Bolivia, Equatorial Guinea and Gabon.                                                                                                                                                                                                                                                                 Reviewing a study on prospects and challenges for the petroleum sector in Tanzania, at the launch of the book, Prof Odd-HelgeFjeldstad, co-editor, cited  major global and national changes, which had taken place since 2014 with huge impact to Tanzania as a potential petro-state,

Globally, dramatic drop in oil and gas prices, coupled with reduced demand for natural gas and the expansion of US gas supply at a time when a national policy, action and decisions are making Tanzania less attractive to investment, reduce the chance of exporting natural gas,

Commending the book at the launch ceremony, ProfFjelstad said it had studied a “Country in Action” and that Instead of making general studies on the institutions in Tanzania, the researchers worked on specific institutions.

The book analyzes the long-term process of how a country develops the institutions that govern resources, the choices it makes in doing so, and the incentive structures governing those choices.

The well- researched book provides an in-depth empirical evidence of opportunities and challenges facing Tanzania, governance, revenue and expenditure management, local content development, and the integration of the petroleum sector into the economy.

Tanzania and international oil companies (IOCs) have been urged to expedite negotiations and ensure timely execution of a liquefied natural gas (LNG) project essential to build trust between the government of Tanzania and IOCs.

 Tanzania expects a fair deal that will optimize the government’s share of revenue for the benefit of its people while IOCs require a conducive business environment, including sanctity of contracts, and stable and predictable legal, fiscal and commercial agreements.

LNG has potential to transform the Tanzanian economy. However, the process of extracting offshore gas is complex, technically challenging and costly.

The book cautions that “delays in reaching final investment decision between the Tanzanian government and the IOCs, oil price volatility, and the increasing saturation of global LNG markets may weaken the value of Tanzania’s prospective exports”.

The size of the offshore reserves in Tanzania has attracted the interest of international petroleum companies, However, due to continued volatility in global oil and gas prices, and to changes in the national policy and legislative environment since 2015, Tanzania’s  offshore discoveries, which account for about 80% of the country’s total reserves are yet to be developed.

Tanzania still has an opportunity to tap into global markets for gas as negotiations between the government and IOCs to inject about $30 billion in the LNG project are still going on.

The book describes Tanzania public finances as ‘’ healthy’’, and  the country, seems to be on the right path towards meeting the East Africa Monetary Union requirement that the overall fiscal deficit does not exceed 3per cent of GDP by fiscal year 2020/21.

However, it cautions Tanzania against basing  its public finance plans on the expectations of a future gas windfall, that is likely to put Tanzania at risk of pre-resource curse which has plagued many countries, where too much expectations of future revenues following large discoveries has triggered-off problems.

.As the LNG-export timing is unpredictable, public expectations must be well managed to avoid the risk of turning the resource blessing into a pre-resource curse.

Regardless of how quickly the current deadlock between the Tanzanian government and the IOCs is broken, an investment decision is not likely to be taken before 2022, with LNG gas exports from Tanzania, expected to start at the end of the decade.

Lomoy said the most important challenge to Tanzania was to close the implementation gap in the gas industry.

Unfortunately, “global business time is not as patient as Tanzanian time,’’ said Lomoy, who was on an official visit to Tanzania, with 50 years of relations with Norway.

Assistant Commissioner for Gas in the Ministry of Energy, Sebastian Shana, said the government had invested heavily in the gas industry and had made reforms in law and regulations to increase the private-sector participation in the industry.

The book shows that the role of the Tanzanian government in governing investments in the extractive sector has been gradually strengthened, from the laissez faire approach of early colonial times to a detailed legislation in recent years, including regulation for employment conditions, environment, taxation, local content and corporate social responsibility standards.

Tanzania is in the process of strengthening institutions for petroleum governance and developing new ones, including regulatory agencies, legislation, treaties and contracts. However, the government has to institute institutions that safeguard the country against the pre-resource curse and at the same time ensure that natural resources are translated into prosperity and inclusive development, prudently managing revenues, investing in economic and social infrastructure.

The Tanzanian government is looking for best policies and institutional designs to ensure benefits of future petroleum revenues are enjoyed by citizens.

 One option is to establish a petroleum fund with the aim of transferring petroleum wealth into long-term revenues

The direct financial return of a petroleum fund is the same for developing and developed countries. For instance, using incomes from petroleum to invest in infrastructure, education and health creates higher social returns to developing than for a developed country.

However, Tanzania has been warned against establishing petroleum funds or buying foreign assets from gas money.

Instead, it has to use the funds to establish gas-intensive industries such as fertilizer and improve the gas distribution infrastructure.

The book cites drawbacks of forming petroleum funds in Angola and Chad.

The funds were set up as part of agreements with the World Bank.

The funds involved financing of a pipeline from land-locked Chad to a port in Cameroon.

However, when political tensions erupted in Chad, the fund was raided by the president and spent the fund on the military, causing the World Bank to suspend relations with the regime.

In Angola, a son of the then President Jose’ Eduardo dos Santos became the head of board of directors. The appointment raised serious questions about the fund’s independence from political elites.

Tanzania has been counseled to prioritize development of gas-intensive industries so as to effectively harness the socioeconomic potential of natural gas and develop its gas-distribution infrastructure. Building strong institutions in commercial, regulatory and policy areas is pivotal to ensuring sustainable development of the petroleum sector.

The former Bank of Tanzania Governor, Prof Benno Ndulu, has written on the back cover of the  marvelous book that ‘’this book comes at a right time when the Government of the United Republic of Tanzania is making concerted efforts to transform its economy and to maximize the benefits of its natural resources to the citizens.

He has recommended the 162-page book for academics, researchers, policy-makers, and development practitioners from both the public and private sectors.

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