31 December 2012

Tanzania: It Was a Year for Politicians to Prepare for Gas Debate in 2013

If you are a politician with little understanding of the gas sector,then 2013 is not the year for you. Many Risk Analysis reports released in 2012 ending today have always indicted majority Members of Parliament for example,for having little understanding of the Gas sector,yet-many reports from respected institutions have pointed the sector out as one that may impact Tanzania's economic and political life for many years to many.

Next year is one when the Gas Management Bill will be passed.A Member of Parliament who will not have a more sophisticated understanding of this sector will definitely have failed the country when this important debate starts.Many analysts say such politicians will only end up with political statements which shall only hurt the sector.

A political leader who will not have the strength to pay attention to detail will also not be able to break down the complexities of such a sector imminently important to this country. Tanzania continues to witness major changes in the gas sector, something witnessed by the Parliamentary Committee on Energy and Minerals when they met with various licensed and unlicensed stakeholders early this year.

This sector is also the main generator of electricity currently in use in Tanzania and its contribution is very apparent. Through the use of gas from the Songosongo project for electricity generation over the past six years, the government has been able to make savings of $ 2.5 billion that would have otherwise gone into diesel imports for electricity generation.

The demand for gas in the country has been increasing day by day, mainly because of the fact that it is an affordable energy source in terms of electricity generation, running plants and domestic use and is also environmentally friendly. Plans for electricity generation in the country show that there are three additional plants expected to be commissioned in the next two years.

There is the 240 MW Kinyerezi project that will need 50 million cubic feet of gas per day, the 230 MW Somangafungu project that will need 50 million cubic feet of gas per day and the 100MW Jacobsen project that will need 20 million cubic feet of gas per day.

Also many industries in the Mikocheni industrial area (Dar es Salaam) have applied for gas connections and TPDC plans to start construction of a gas pipeline to the Mikocheni area. However the existing SONGAS pipeline is small and does not have the capacity to meet requirements so there is the need to construct a bigger pipeline.

Therefore, as the country prepares for such a vibrant gas regime, the question this year was whether the government would be able to connect its gas policies and master plan to poverty reduction initiatives. Some experts explained that in a scenario whereby gas resources are productively utilised, the major winners are households involved in the service sector especially the public sector.

But they added that to equally benefit should be other sectors where individuals who are involved in the exportable agricultural or manufactured commodities are thriving. "The impact of gas resources depends on whether it is used to improve productivity of the economy and remove supply constraints,"noted one of the Parliamentary Committee reports.

"Tanzania's natural gas deposits are expected to last for 100 years and it is anticipated that when the country starts producing seriously for export, the currency will appreciate against other major trading currencies," notes energy economist Dr Lenny Kasoga at University of Dar es Salaam.

In an interview , the Director General of Tanzania Petroleum Development Corporation(TPDC), Mr Yona Kilagane, said that in order to connect the gas policy to other government policies aimed at fighting poverty, they have submitted the draft to Research and Poverty Alleviation (REPOA) to align it with government policies which aim at fighting poverty.

Dr Kasoga said he believes that appreciation of the real exchange rate would have a negative impact on the rural households producing cash crops for export. He further argued that at the national level, poverty would be reduced most when the gas is mainly spent on infrastructure development..

"But if spent on unproductive activities, poverty at the national level would even be higher than if the country did not have a vibrant gas regime," he said. "In particular, we find a real exchange rate appreciation that, in turn, leads to a significant reduction in exports especially in the traditional exports.

However, if oil resources are used on productive activities, we note that it could be reversed," they said. He said they should not neglect other sectors like agriculture and also focus directly on industrial development would result into industrialisation failure because of the high wages and uncompetitive exchange rate.

They suggest that monetary authorities should depreciate the exchange rate through build-up of foreign reserves (that is in a market determined foreign exchange environment). This would support a wide range of export commodities (agriculture and manufactured goods) and reduce dependence on export of gas, failure to do so is likely to result into the wiping out of other export commodities.

"The gas sector has an important role to play in our fight against poverty," he said. The economists argue that gas discoveries, through the policy, should benefit marginalised people living in remote areas and youth participation.

Parallel to the preparation of the policy and a law, he said, officials from his ministry and the TPDC, in collaboration with lead consultant from Trinidad and Tobago, were in the final stages of completing a draft strategic plan and use of natural gas. The discovery of gas in the country Songosongo gas was discovered by Agip Spa in 1974.

Initial evaluations conducted by Agip Spa indicated that this gas did not have commercial significance and therefore decided to leave the area. In 1975, the government, through TPDC, decided to re-evaluate the exploration findings and drilled exploratory gas wells numbers 3, 4, 5, 7 and 9.

Exploration results showed that gas could be viably exploited. These wells were maintained by TPDC using revenue collected from income generated under the business of importing and distributing petroleum products, which at that time was conducted by TPDC, and that manner of maintenance continued until 1997 when the wells were handed over to SONGAS.

The gas resource and where it is located The main gas resource is located in the southern parts of our country, particularly in the southern coastal areas of Tanzania (Songosongo, Mnazi Bay and the deep sea).

The Songosongo area is estimated to have a gas reserve of 2 trillion cubic feet (2Tcf) of which 880 billion cubic feet have been confirmed, while Mnazi Bay is estimated to have a gas reserve of 5 trillion cubic feet (5Tcf) of which 262 billion cubic feet have been confirmed.

The Songosongo gas is found in areas referred to by contract agreements governing the project as 'Songosongo Gas Field' or 'Contract Area' or 'Development License Area.' This area is divided into two main sections - two Discovery Blocks having five producing wells and seven Adjoining Blocks with no wells.

Within the Discovery Blocks there are proven resources and there are unproven areas where work needs to be done to produce gas. Gas development structure in the country The structure for developing natural gas in the country is divided into two main parts referred to as:Upstream - gas exploration and production,Midstream and downstream - petroleum and gas processing, distribution and consumption.

Upstream - gas exploration and production Petroleum and gas exploration in the country is regulated by the Petroleum Exploration Act, 1980 and relevant agreements are drawn up under Model Production Sharing Agreements (MPSAs) and the National Energy Policy.

Under this structure, the investor pays all exploration costs. TPDC is obliged to share costs after a discovery has been made. The life of the contract agreement is based on a work plan agreed to by the government, TPDC and the investor.

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