Tanzania: Why Liquefied Natural Gas Project Faces Delay in Tanzania

Dar es Salaam — The envisaged liquefied natural gas (LNG) plant project could be delayed further following the temporary suspension of talks on the Host Government Agreement (HGA).

The HGA is a legal agreement between a foreign investor and the local government which is designed to reduce financial and political risks posed to investors by sudden changes in national law.

The HGA outlines issues pertaining to tax and other revenues to be accrued from the project, participation of Tanzanians in the project and how to deal with various challenges that may emanate during the implementation phase of the project. Initially, the HGA was to be negotiated between April and September 2019. The LNG project manager from Tanzania Petroleum Development Corporation (TPDC), Mr Felix Nanguka, told The Citizen earlier in the week that the temporary suspension of the negotiations was meant to pave the way for completion of a review of the production sharing agreements (PSAs) of existing contracts.

"Some PSA issues seemed to contradict or overlap with other contracts, so Parliament was tasked with forming a special team to review them before proceeding with the HGA negotiations," he said.

Mr Nanguka, however, was not categorical on when the PSA review would be completed for HGA negotiations to resume.

The audit firm Deloitte initially forecast LNG exports to begin in 2027, and bring in annual revenues of about $5 billion (Sh11.5 trillion). National Bureau of Statistics (NBS) data shows that natural gas revenues from local sales in 2018 amounted $63.09 million.

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Mr Nanguka said the government had already approved compensation to people who will have to relocate from 2,077 hectares where the LNG complex will be built in Lindi Region.

"The Ministry of Finance and Planning has already approved Sh5.07 billion for compensating 693 individuals. They will be paid soon."

Shell Tanzania, which manages Block 1 and 3 of natural gas reserves, said it was waiting for the PSA review to ensure that appropriate commercial, technical and legal foundations are laid down before a globally competitive LNG industry is developed in Tanzania.

"The HGA negotiations commenced in April this year and are currently on pause to allow finalisation of PSA reviews within government," Shell Tanzania external relations manager Patricia Mhondo said.

"We are continuing to engage with the government and are supportive of the HGA process as it is an important step in agreeing the key commercial, technical and legal principles for the next phase of this important project," she added.

Equinor Tanzania country manager Mette Ottoy told The Citizen earlier this year that actual construction of the LNG plant would start within three of concluding the HGA negotiations. The construction will take four to five years, and the plant is expected to operate for more than 30 years.

Equinor and partner ExxonMobil have invested more than $2 billion at Block 2 where over 20 trillion cubic feet of natural gas have been discovered.

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