Songo Songo gas plant. Picture: File By JOSEPH MWAMUNYANGE Posted Sunday, November 27 2011 at 13:37 The Tanzanian government has lost millions of dollars due to lopsided production sharing agreements and absence of legislation for the gas sector. The Parliamentary Committee on Energy and Minerals recently told to parliament that gas producer Songas, in collaboration with PanAfrican Energy, deliberately constructed the original gas pipeline with a smaller than optimal diameter so they could at a later stage apply to upgrade the pipeline. January Makamba, the chairman of the committee, said Songas, working with Globeleq, arranged that the expansion be done in such a way that it was only Globeleq that could provide funding for the exercise. "The government secured funding from the World Bank at an interest rate of 0.75 per cent, but Songas/Globeleq wanted to fund the project 100 per cent and earn an interest of 22 per cent," he said. The requirements for the gas pipeline were known to the government in 2000, long before it started negotiating with Songas to develop the infrastructure. The government's original plan was to construct a pipeline from Songongo to Somanga, with a diameter of 18 inches against that suggested by Songas of 10 inches, and another one from Somanga to Dar es Salaam with a 16 inch diameter instead of 12 inches. The committee discovered that between 2004 and 2009, PanAfrican Energy Tanzania Ltd, the company that transports the gas, paid into its own account some $28.1 million as refunds for costs it incurred. "PanAfrican Energy denied the government earnings of $20.1 million by illegally reimbursing the $28.1 million as costs to itself. As our committee was preparing this report, Pan African Energy hadn't come up with any plausible explanation for this," said Mr Makamba. According to the gas agreement, PanAfrican Energy, whose mandate is the exploration, transportation and distribution of gas, should jointly work with the Tanzania Petroleum Development Company (TPDC) in selling extra gas and divide income between themselves. Other issues raised were that PanAfrican Energy claimed that it had been providing information on operational costs to its partner on a monthly basis during all the time that they had been working together when this was not the case. The committee discovered that even though the production sharing agreement (PSA) gave Tanzania Petroleum Development Company (TPDC) the power to inspect and audit the annual accounts of PanAfrican Energy, the TPDC had not conducted such audits for several years. "PanAfrican Energy on its own account admitted that it had erroneously included $28,053,680 as operational costs. But it defended itself by saying that had TPDC undertaken regular audits as per the PSA, this anomaly would have been discovered much earlier," said Mr Makamba. The Committee recommended that the PSA be reviewed as it was not beneficial to the country. According to the Committee's conclusions, Songas too would have inflated the cost of infrastructure for processing natural gas from Songo Songo to Dar es Salaam from just $16 million in December 2006, to $36 million in April 2007, had it not been for the intervention of the Energy and Water Utilities Regulatory Authority. The Committee also vindicated Ewura by absolving it of any wrongdoing in its quest to ensure the law was adhered to by Pan African Energy and other stakeholders in the gas sector. "Ewura was bombarded with accusations that it was delaying the gas pipeline upgrade project. But in April this year, Songas agreed to the regulator's conditions," said Mr Makamba.