14 August 2014

Tanzania Sets Up Special Unit to Scrutinise Gas Revenues and Wealth Fund

Photo: Ophir Energy
A gas rig run by Ophir Energy.

Dar es Salaam — Tanzania's government is forming a special unit to monitor its natural resource revenues from major gas discoveries that promise to lift the country from poverty and free it from dependency on foreign aid in the coming decades.

The east African nation has enough natural gas, more than 50.5 trillion cubic feet discovered so far, to provide energy independence and bring significant export revenues. But Tanzania lacks experience in exploiting oil and gas, so relies on contracts with foreign companies such as Statoil of Norway and ExxonMobile to develop its immense offshore finds.

At the same time, the country has a poor track record on corruption and has seen limited benefits from its wealth in gold, diamonds and uranium, raising considerable citizen concern over prospects for the millions of dollars in gas revenues expected to flow into the Tanzanian treasury.

Tanzania's Controller and Auditor General (CAG) Ludovic Utouh said in an interview that his office is seeking technical support from Norway and the Netherlands to help train auditors on how to manage and oversee the lucrative sector.

"We are very excited and hope these institutions would help our people acquire necessary skills and knowledge to audit revenues from this industry," Utouh said.

Utouh said the natural gas and oil industry is a new field, and his office needs to develop expertise in setting up the legal frameworks for monitoring the industry and for the highly specialised form of auditing required to evaluate complex contracts.

The unit should begin operations next year. It also will audit the new Sovereign Wealth Fund (SWF), which the government plans to establish as a way to ensure that gas revenues are invested for the benefit of present and future generations, not merely absorbed into the government's annual operating budget, he said.

The Auditor General's move comes after a Parliamentary Committee on Public Accounts earlier this year instructed his office to audit all the contracts, called Production Sharing Agreements, struck between Tanzania's national oil company and outside investors.

"The audit of contracts is very crucial to ensure accountability, and since the audit reports are made public it will help to instill a sense of accountability" said Zitto Kabwe, the parliamentary committee chairman.

ACCOUNTABILITY AND FAIRNESS

While the government has said it aims to get 60-85 percent of profitable gas in its production agreements struck with companies, one Statoil contract recently leaked showed a far smaller share, at no more than 50 percent, raising questions over whether Tanzania was treated fairly.

Under Tanzania's constitution, the Controller and Auditor General's office is independent of the administration. Its mandate is to ensure that public monies are spent wisely and it can audit government accounts annually.

While gas resource hold out the promise to lift Tanzania from poverty, analysts say the development costs to process and distribute gas from the deep offshore fields are high, hence the country is unlikely to see significant revenues for about 10 years.

But Natural Resource Governance Institute (NRGI), an advocacy group for natural resource transparency which is working with Tanzania on structuring its SWF, said audits are an essential part of achieving transparency on natural resource revenues and their investment, and starting to train auditors now is wise since gaining expertise in complex industries will take time.

"For sovereign wealth funds, holding independent audits is one of the main recommendations we have," said Thomas Lassourd, an economic analyst for NRGI.

In the interview, Utouh provided no figures on how many staff would need to be trained, beyond saying that it would be an on-going process and one that would require massive investment to ensure there is sufficient skilled manpower.

Rakesh Rajani, the head of Twaweza, a local governance think tank, welcome the move as crucial to keep up with the skills of powerful multinationals. He called for all natural resource contracts to be made public to instill greater public confidence in the process.

"The idea that contracts should be secret for business reasons is outdated and discredited ... if there's nothing to hide, there's no reason to keep contracts secret," he said.

Editing by Stella Dawson: stella.dawson@thomsonreuters.com

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InFocus

Tanzania to Scrutinise Gas Revenues

A gas rig run by Ophir Energy.

The government lacks experience in exploiting oil and gas, and will rely on the new unit to monitor contracts with foreign companies tasked with developing its immense offshore ... Read more »