Tanzania: Leaked Agreement Shows Tanzania May Not Get a Good Deal for Gas

Photo: Trygve Bolstad/UN

Natural gas pipeline.

Natural gas is on the scene in Tanzania, and expectations are sky high. There are those who see this as the end of aid dependency, or the solution to the government's perennial money troubles. And of course, there are others who see this as a personal opportunity to get rich quick. But not everybody's expectations ..............................................................................



can or will be met.
Nobody knows exactly how much gas there is in Tanzania, though the latest discoveries brought the estimated deposits up to 51 trillion cubic feet (tcf). Equally, nobody knows how much of this it will be possible (and economic) to extract, and how much revenue will flow to the government as a result.
The IMF has had a go at working this out, in a paper published earlier this year. The results are expressed cautiously, surrounded by references to uncertainty, but suggest that the Tanzanian government could be looking at a peak of US$5-6bn revenue each year between 2029 and 2044. Given that for the past few years, official aid to Tanzania has ranged between $2-3bn annually, and the total tax revenue in the 2014/15 Tanzanian government budget is just over $6bn, we're talking potentially a lot of money. As the IMF report concluded:
"If a large-scale gas project goes ahead, the potential fiscal revenue would be substantial, and would facilitate government spending on priority investment. [This] could have a transformational impact on the economy."
More money for schools, hospitals, roads, etc. - so it's all good then.
Not so fast. As strong as the economic potential may be, unless the politics are right, the opportunity could easily be wasted.
There are worries that the Tanzanian government lacks either the capacity or the will to negotiate deals with investors that protect the interests of the Tanzanian public.
When a Production Sharing Agreement (PSA) between the state-owned Tanzania Petroleum Development Corporation (TPDC) and the Norwegian firm Statoil was leaked a couple of weeks ago, it revealed contract terms that are significantly less favourable to the government than had been expected. The terms were less favourable than either those of TPDC's model PSA or the assumptions used by the IMF in their analysis.
Exactly how much this contract will cost the government depends on how much gas the company produces, but it could easily be in the hundreds of millions of dollars per year. If production reaches 500 million cubic feet per day, the government could be losing as much $400m per year under this deal, compared to the model PSA. If production reaches 1,000 million cubic feet per day - which is very possible - the loss rises to over $900m per year[1]. And that's just from one deal.
Another indication of the scale involved here is that since the Norwegian government is Statoil's majority shareholder, the extra revenue to the Norwegian government from this deal could be worth more than double the total of all Norwegian aid to Tanzania since independence[2].
But perhaps just as worrying is the resounding silence that met the leak. It has not been covered in the Tanzanian media, even when reporting on gas-related issues or Statoil's other activities. And aside from a brief reference in a relatively obscure parliamentary committee report (pdf, Swahili) (which itself did not attract media coverage), no leading politician has stood up to publicly make noise about the deal.
Those in the know are discussing it in hushed tones on the side-lines of meetings, in the more private corners of social media, or in coded language. The vast majority are not in the know.