[Premium] Tanzanian Politics Threaten Gas: AfDB

Natural gas and oil are forecast to contribute more to economic growth in east Africa this and next year but political and regulatory issues in Tanzania may dim prospects there.

Tanzania's developing natural gas sector plus neighbouring Uganda and Kenya’s oil export prospects should drive the regional economy, which grew by 5.9% in 2017, according to a report by the African Development Bank (AfDB) released March 12 in the Kenyan capital Nairobi. 

"Kenya, Rwanda, and Tanzania are expected to drive the region's growth further in 2018 and 2019," said AfDB's East Africa Economic Outlook 2018. "Potential exploitation of the oil and gas discoveries in Uganda, Kenya, Tanzania, and Ethiopia offer growth opportunities," it said, while adding that enhanced regional integration through the east African Community and the Common Market for Eastern and Southern Africa should also promote growth.

Mozambique has greater gas reserves and production but the AfDB classes it as a southern African country.

So in the bank’s eastern region, Tanzania with its 57 trillion ft³ of reserves – mostly offshore – has the only developed natural gas industry, although existing production is small and all onshore. State Tanzania Petroleum Development Corporation said that gas demand, used mainly in power generation, doubled from 145mn ft³/d in 2016 to 300mn ft³/d in 2017. In addition, Kenya expects to start oil exports this year; this January, its government said it had revived a plan to build a 700-MW power plant likely to run on imported gas, but financing is not yet clear.

Uganda is to build an oil export pipeline to a port in Tanzania that may start operating in 2020; UK firm Tullow Oil said January 2018 it expects a final investment decision to be taken by end-June 2018 with Total/Cnooc on the upstream component of that project. Further north, Ethiopia has gas reserves which it plans to export by pipe through its eastern neighbour Djibouti and liquefy for Asia, but financing of that scheme is far less clear cut. 

AfDB though warns that Tanzania "risks slower growth from uncertainty in the business environment and a recent reduction in foreign and domestic investment, particularly in the extractive sectors following regulatory changes and several high-profile disputes with international investors."

Tanzanian president John Magufuli has demanded more economic benefits to his country from its extractive sector: in June 2017 he approved two bills that increase mining royalties and force companies to renegotiate contracts, while parliament – dominated by his party – has launched an investigation into the extent to which natural gas is benefiting the country, a move viewed wryly by investors. The government is also locked in a dispute over its power purchase agreement with Symbion, an American company, which means that Symbion's 120-MW gas-fired power plant is not producing.

In January, Magufuli's government raised objections over a proposed $130mn sale of shares by Canadian producer Orca in its Tanzanian gas producing subsidiary to locally-listed Swala Oil and Gas.

Last year Acacia Mining, majority-owned by Canada’s Barrick Gold, was accused of tax evasion and was hit with a whopping $190bn [sic] tax bill.  In February the company outlined a plan to sell its shares in some or all its operations in the country.

Mozambique urged to improve finances

AfDB's Southern Africa Outlook, launched on the same day in Pretoria, urges Mozambique to fast-track new natural gas production – Sasol is already producing gas onshore, while the region's first floating LNG is under development and due to launch in 2022, while a separate onshore LNG project last month secured country approval – and to improve its budget management.  On the latter point, the Mozambican government met creditors at the offices of a London law firm on March 20. 

The meeting related to three secret loans totalling $2bn contracted by the government in 2013-15 that have been criticised by the International Monetary Fund and international agencies.

Tim Jones, economist at UK-based Jubilee Debt Campaign, a non-government organisation, said March 20 that the Mozambican government’s London proposal was that they receive lower payments for the next few years. He criticised it because: “It would still leave the Mozambique people having to pay for secret debts they had no say over, and that they have received no benefit from.”  In February 2018 Mozambique's attorney general announced that legal action will be taken against the government officials who contracted the secret loans.