Tanzania's NSSF steps in to rescue $1.2b gas pipeline project

Engineers inspect the Songo Songo gas plant in Tanzania. The entry of NSSF into Pan Africa Energy will help the company raise $300 million in counterpart funds needed to start a $1.2 billion gas pipeline. PHOTO | FILE | NATION MEDIA GROUP 

By ERICK KABENDERA The EastAfrican

In Summary

• While the deal would help contributors get more returns from the multi-billion dollar oil and gas sector, it presents a risk that will have to be assessed during due diligence, that is if Orca accepts the proposal.
• The NSSF plans to deepen its interests in the energy sector with an investment in a 300MW power plant from Mkuranga to Dar es Salaam.

Tanzania’s National Social Security Fund has approached Canada’s Orca Exploration Group to acquire a majority shareholding in its subsidiary Pan African Energy (Tanzania) Ltd, deepening the fund’s exposure in the energy sector.

The entry of NSSF into Pan Africa Energy will help the company raise $300 million in counterpart funds needed to start a $1.2 billion gas pipeline that is being financed by the Export Import (Exim) Bank of China.

READ: $1.2b project to end Tanzania power rationing

“Following my meeting with Mwinsheshe Saidi, your CFO in Tanzania, I write to express NSSF’s interest in acquiring Orca’s assets in Tanzania,” says NSSF’s chief executive Ramadhan Dau, in a letter dated June 18, to Pan Africa Energy Group CFO Robert Wynne.

Orca owns a licence for two blocks near Songo Songo island through PAE, which in turn operates a gas processing facility on the island on behalf of Songas Ltd.

The blocks contain the Songo Songo gas field, which feeds the processing facility that is linked to Dar es Salaam via a 207km pipeline.

The new pipeline is being built from Mtwara to Somanga Funga in southeastern Tanzania and onto Dar es Salaam but will require Pan African Energy to sink two more wells to feed the pipeline with enough gas to ensure its viability.

The NSSF would provide this additional investment — over $300 million in two years — that would help generate 1,000 Megawatts more of power for supply to Tanesco. The power company already owes Pan Africa Energy $69 million for supplies.

“The pipeline would be put on hold if an investor is not found,” people familiar with the matter said, adding that NSSF would hire a consultant to manage the pipeline.

While the deal would help contributors get more returns from the multi-billion dollar oil and gas sector, it presents a risk that will have to be assessed during due diligence, that is if Orca accepts the proposal.

Pan Africa Energy assets are estimated at $81 million.

Subiro Mwapinga, an independent oil and gas consultant, said NSSF would achieve a better strategic fit by teaming up with the Tanzania Petroleum Development Company to develop its own wells instead of buying a 51 per cent stake in PAE.

The NSSF plans to deepen its interests in the energy sector with an investment in a 300MW power plant from Mkuranga to Dar es Salaam.

In the expression of interest in Orca Assets, the NSSF CEO said the fund had acquired 100 acres of land in Mkuranda and completed geotechnical and hydrological surveys, which were done by the University of Dar es Salaam in readiness for signing of a power purchase agreement with Tanesco.

In January the NSSF board approved a $150 million loan to Tanesco for construction of a 400KV transmission line from Somanga Fungu to Dar es Salaam.

Expansion

“Acquisition of your assets in Tanzania would, therefore, be part of our programme to expand our investments in the energy sector in the country,” Dr Dau said, asking for preliminary discussions in the United Kingdom or Canada and signing of an agreement to enable NSSF to look into PAE accounts. He said NSSF expects to conclude the deal by the end of the year.

Its investments have raised fears of NSSF asset concentration in one sector of the economy, which would jeopardise payments to workers should market shocks undermine returns in that sector.

The Tanzania pensions industry is at a crossroads, with the government waiting for advice from the International Labour Organisation on how to structure four other schemes that run parallel to the NSSF.

The review could see the Parastatal Pensions Fund (PPF), Local Authorities Pensions Fund (LAPF), Government Employee Provident Fund (GEPF) and Public Service Pensions Fund (PSPF) converted into one public sector pensions fund to improve efficiencies and another set up for the private sector.

A review of the pension funds’ accounts is being carried out by the government and the ILO, and is expected to be complete in 2015.

“It is hard to say anything substantial until the ILO study is completed and we discuss the way forward. The government has engaged ILO and the evaluation is expected to be completed after 18 months,” said Social Security Regulatory Authority (SSRA) director general Irene Isaka.

Main opposition party Chadema supports the merger of the schemes, saying this would consolidate resources and enable them to invest in more sectors.

Labour and Employment Minister Gaudensia Kabaka, however, said it was early days yet to talk of the merger. “You cannot say the idea is in the pipeline if the Bill has not been tabled or proposed,” said Ms Kabaka.

Last month, the government moved to harmonise payments from pension schemes by requiring the funds to use a uniform formula when disbursing funds to members.

“That is a crucial step towards the next phase which I believe would be merging the social security funds. The best arrangement is to have one fund covering civil servants and another one covering the private and informal sectors,” the Parliamentary Public Accounts Committee chairman Zitto Kabwe said.

ILO is encouraging East African Community member states to consider establishing a uniform pension scheme to complement free movement of labour in the region by ensuring continuity of old age savings when workers change jobs from one country to another