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Tanzania Gas Project Faces Further Delays

December 2, 2019

 

 

Tanzania has suspended talks between the government and foreign investors in the oil and gas sector that would have set the tone for the review of Production Sharing Agreements (PSAs). The suspension is blamed on delays by the Attorney General's chambers.

 

In 2018, the government ordered the review of laws and policy, putting the liquefied natural gas (LNG) project sector on hold.

 

The $30 billion LNG project has been in the planning for the past five years. Construction is set to start in 2022. The plant is expected to add 10 per cent gas to Tanzania's domestic use.

 

Speaking to The EastAfrican, Felix Nanguka, Tanzania Petroleum Development Corporation (TPDC) LNG project manager said, "Negotiations have been temporarily suspended to allow for the PSA on gas review.

 

There was overlapping between issues that were negotiated in the existing contracts.


 
"Since all gas existing contracts need to be reviewed, the government decided to suspend negotiations for a little while to allow for smooth co-ordination between PSA review and negotiations," he said.

 

Mr Nanguka added that talks on the project will resume once the PSA's review is complete, "but we cannot predict when the talks will resume. It is the government interest to expedite the exercise in order to have the LNG project as scheduled."

 

Last month, Tanzania's Minister for Energy Medard Kalemani told stakeholders at an oil and gas congress in Dar es Salaam that the government is working with Norwegian oil and gas firm Equinor, and Royal Dutch Shell to ensure that the LNG project is implemented according to the timeline.

 

PSAs set out the terms under which exploration and production can take place.

 

According to the oil and gas authority, the government's objective is to negotiate terms with the oil and gas industry that are fair and balanced, bearing in mind the risks associated with exploration and the state's legitimate desire for revenues as owner of a depleting, non-renewable, natural resource.

 

In 2017, President John Magufuli endorsed a clause in the Natural Wealth and Resources Contracts law that allows the government to renegotiate or remove terms from agreements deemed by it to be "unconscionable".

 

The move to a full review of existing contracts and redrafting where necessary to ensure maximum benefit for Tanzania, came after a special Parliamentary Committee discovered massive loopholes of tax evasion, unfair contracts, and manipulation by companies to decrease payments to the government.

 

Similar observations were found during a special committee investigation of the mining sector in 2017.

Analysts say that further delays in setting up the LNG export facility could affect the country's chances of attracting foreign direct investments.

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