18 June 2017

Tanzania: Tanesco Faces Cut-Off Over Sh53 Billion Gas Debt

Dar es Salaam — A natural gas producer has threatened to pull the plug on the Tanzania Electric Power Company (Tanesco) over a $24 million (Sh53 billion) debt, sparking new fears of a blackout, The Citizen On Sunday can reveal.

Maurel & Prom, a natural gas firm in Mnazi Bay, supplied the state power utility with a total of 5,713 MMscf of natural gas from August, 2016 to May, this year.

The natural gas was supplied to Mtwara and Dar es Salaam power generating stations, but the bills are yet to be serviced, The Citizen can report.

Because of the unpaid bills, the firms has said it is finding it difficult to maintain its wells in Mnazi Bay.

A well that supplies natural gas to Mtwara hasn't been maintained since 2006, when it started production.

Maurel & Prom says it has made it abundantly clear that it isn't going to take risks on technical issues, saying it will shut down production.

Power that is generated in Dar es Salaam is fed into the national grid, but that from Mtwara serves the Southern regions of Lindi and Mtwara.

Mr Christophe Maitre, the gas supplier's general manager for Tanzania and Namibia, said 4,985 MMscf of natural gas worth $19.55 million, equivalent to Sh43.01 billion, was supplied to Tanesco through the Tanzania Petroleum Development Corporation (TPDC) between January to May this year; 728 MMscf worth $4.71 million, equal to Sh10.36 billion, was supplied to the Mtwara Station from August last year.

"Other wells MB2, MB3, MB4 and MS 1X were tested in April this year. They were found to have their reservoir pressure reduced by 10 per cent. The testing will be repeated in October; we understand the government's current situation, but my company will not take risks if maintenance is further delayed," he said.

"Regular maintenance is important because it provides the magnitude of required repairs. We are not supposed to wait for unbearable leakages, which will force us to shut down production because that will be a huge blow to power generation ability, specifically to Southern regions," he added.

Contacted for comment, Tanesco acting public relations manager Leila Muhaji said the state firm would not discuss such issues in the media because they had already engaged M &P for negotiations.

"We are disappointed that they have taken such issues to the media while we are still at the negotiating table. However, we will not use the platform for that purpose; we respect terms and conditions of our discussions," she said.

But Mr Maitre blamed Tanesco for taking the issue lightly. He said maintenance work requires financial comfortability, saying when $1 million is estimated, the actual requirement may exceed $10 million.

TPDC acting managing director Kapuulya Musomba said he wasn't aware of the dispute, but expressed hope that the issue would be resolved amicably.

"I don't believe that we will reach such stage requiring shutting down of the wells. Much engagement will be done according to contractual stipulations," he said in a telephone interview.

According to Mr Maitre, the company came into the country in 2004 and invested $550 million, about Sh1.21 trillion, in natural gas exploration, out of which $400 million, equivalent to Sh880 billion was spent on unviable projects in Bingwa, Rufiji and Mafia (BRM) and Mandawa. He said the $400 million was a loss to his company as nothing was discovered in the four areas.

"We expected to conduct smooth business after acquiring the $150 million (Sh330 billion) Mnazi Bay project from Artumas in 2009," he said. In September 12, 2014 the Gas Sales Agreement (GSA) was signed requiring that 80 MMscf to 130 MMscf of natural gas was to be supplied per day, but currently an average of 40MMscf is being supplied per day.

Mr Maitre said an average of 2.33 MMscf were supplied to Tanesco's Mtwara plant per day instead of 10 MMscf per day, which was agreed in the deal signed with Artumas in 2014.

"I understand that by June, 2018 TPDC and Gasco will increase nomination capacity to 75 MMscf per day; though we have agreed to delay implementing the GSA, Tanesco has to service their debt to increase our ability to conduct major maintenance to facilities at Mnazi Bay," he said.

For his part, M&P deputy managing director Elias Kilembe said the GSA has provisions requiring the government to pay for undelivered natural gas after the commencement of commercial operations.

"Under normal circumstances, the government was supposed to pay penalties for undelivered natural gas. We have put into consideration, if it is hard for Tanesco to pay for natural gas it received and used, what would be the matter for the undelivered amount?" he questioned.

However, Mr Musomba said nothing has changed as far as TPDC's cooperation with Gasco to improve the amount of natural gas supplied to Tanesco was concerned. He said plans were on course to ensure Kinyerezi II start operating in December this year, and that a study was underway to establish how other regions, including Mbeya, Mwanza, Mara, Arusha and Dodoma would be connected.

Mr Maitre said since 2009, Maurel and Prom has paid the Energy and Water Utility Regulatory Authority (Ewura) a total of $284,658.21 equivalent to Sh626 million as the one per cent charges to natural gas sold to Tanesco; $5.6 million, equal to Sh12.32 billion, was as excise duty paid to Mtwara and Madimba at the rate of $0.45 per Scf.

Also, the local government authority was paid $315 738.46 equal to Sh694.6 million as service levy charged at 0.3 per cent of total revenue generated from sold natural gas and that $19 million equivalent to Sh41.8 billion was paid to the government as Value Added Tax, (VAT).

"We have been complying with country rules and regulations by paying all taxes, levies and duties amid the financial difficulties we are facing; Tanesco should also show its commitment on this issue," said Mr Maitre.

Responding to transparency concerns raised in this paper's previous edition, Mr Maitre said natural gas differed with the oil as it could hardly be diverted to other clients and that daily sales were shared to relevant authorities including the Tanzania Revenue Authority (TRA), Ewura and TPDC, hence nothing could be hidden.

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