Geza Ulole
JF-Expert Member
- Oct 31, 2009
- 59,062
- 79,089
Lindi LNG plant may be non-starter, experts warn
ippmedia.com/en/business/lindi-lng-plant-may-be-non-starter-experts-warn
One cause for concern is that the country’s fiscal and external positions continue to deteriorate, in part due to the decision of donors and multilateral organizations to halt programmed budget support.
Foreign commercial borrowing is also not only expensive but also increasingly becoming unpredictable. Increased non-concessional loans would as well increase the external debt burden, which hit slightly over US$16 billion (about 34.8trn/-) in April 2016.
At the then exchange rate, that’s 5.3trn/- over the current government budget of 29.5trn/-. Already the government is under pressure to ensure sustainability of the public debt stock, whose servicing is both a fiscal headache for the new administration and a financial constraint.
The government is currently spending an average of 140bn/- a month to service external debt, which increased by nearly 2.4trn/- in the first five months of the new administration.Treasury plans to spend 8trn/- on national debt servicing in the current financial year.
“Public debt portfolio is exposed to exchange rate risk due to dominance of external debt. The proportion of public external debt remains high at about three quarters of the total public debt with debt servicing in the next 12 months standing at about 1.6 per cent of GDP or US$773.5 million,” BoT notes in the recently released Financial Stability Report.
Borrowing from domestic sources is discouraged because apart from being expensive it also leads to crowding out the private sector as lenders, mostly banking institution, prefer the more secure government securities. It also makes borrowing expensive.
The involvement of multinationals in the project is currently uncertain since they seem undecided and are not in a hurry to commit their resources largely due to policy inconsistence issues. Tanzania is also facing stiff competition from Mozambique in luring strategic investors to help its huge gas reserves.
Tanzania’s natural gas reserves are currently put at over 50 trillion cubic feet, mainly found in Ruvuma basin in Lindi and Mtwara regions as well as parts of Coast Region. Mozambique, on the other hand, has 160 trillion cubic feet, in the same Ruvuma basin.
Tanzania is not only blessed with abundant natural resources, it is also strategically located in the Great Lakes region, has a sizeable market with about 50 million people and enjoys peace and stability that would all make it one of the most dynamic economies in Africa.
However, it has one of the narrowest tax bases, which greatly constrains the government to mobilize the requisite revenue to finance economic and development projects.
The financing of the LNG plant debate follows the recent statement by Energy and Minerals minister Prof Sospeter Muhongo that the government will invest about $30 billion (over 60trn/-) Lindi project.
According to him, the government will be required to construct about 200 kilometres of gas pipes from the sea to the off shore placed plant. The minister did not point out how the ambitious project was going to be financed but admitted that raising the requisite funds would not be easy and it could take many years to accomplish the venture.
The Manager of Natural Resources at the East and Southern Africa Governance Institute, Silas Olan’g, said the government should first address the debt issues and provide the foundation for definite sales agreements with LNG customers.
Olan’g noted that the impact of reckless borrowing is that when the revenues finally start flowing they will initially be spent in servicing the debt rather than developing and diversifying the economy.
He said the government’s weak bargaining position means the size of the revenues over the whole life of the LNG project could be seriously reduced.
“The greater financial risk Tanzania now faces will almost certainly be more expensive to raise financing for the project. The crunch can also raise questions over long-term contract stability,” he told ‘Property Watch’.
Despite the locating the site for the project being an important milestone towards realising a LNG development in Tanzania, he warned that it is not a commitment to a final investment decision by the partners because it could be subject to further project definition and analysis.
A pending land dispute and security concerns due to the selected site being located in the open sea makes the site, which has a natural harbour, ideal for the project.
According to Olan’g, if the government finds itself in serious debt repayment problems, will they revoke contracts or demand new terms? These are elements that could make the investors demand greater protection or revenues.
He articulated that the country’s weaker credit rating will mean increasing debt for any project – not just LNG project– will be more expensive, harming government’s plans for diversified economic development through industry, tourism, electricity, agriculture and infrastructure.
A consultant at the Centre for International Forestry Research (CIFOR), Dr Martin Kijazi, said he was worried if the LNG project will bring positive outcomes since the extractive sector in Tanzania has shown unsatisfactory contribution to the economy. He said mining agreements have resulted in limited government revenue despite the industry’s perceived profits increase.
“For the country’s extractive revenues to benefit the poor there has to be a responsive and accountable revenue collection, equitable budget process and expenditure in sectors that will transform the rural economy such as agriculture, health and education,” Dr Kijazi stressed.
Tanzania produces around 300 million ft3 of natural gas to fire electricity plants. However, the state petroleum company, Tanzania Petroleum Development Corporation (TPDC) predicts that this could more than triple by 2020, enabling the country to export liquefied gas to regional and Asian markets.
However, Prof Muhongo admitted that this is not an easy task because it will take some years.
“We are expected to transport the gas from the sea, it is between 100 and 200 kilometres,” Prof Muhongo noted.
There have been substantial natural gas discoveries in Tanzania’s offshore in the southern coast since 2010 that have the ability to transform the country into one of the world’s largest LNG exporters.
Tanzania is estimated to hold about 57 trillion cubic feet (tcf) of proven natural gas reserves.
ippmedia.com/en/business/lindi-lng-plant-may-be-non-starter-experts-warnOne cause for concern is that the country’s fiscal and external positions continue to deteriorate, in part due to the decision of donors and multilateral organizations to halt programmed budget support.
Foreign commercial borrowing is also not only expensive but also increasingly becoming unpredictable. Increased non-concessional loans would as well increase the external debt burden, which hit slightly over US$16 billion (about 34.8trn/-) in April 2016.
At the then exchange rate, that’s 5.3trn/- over the current government budget of 29.5trn/-. Already the government is under pressure to ensure sustainability of the public debt stock, whose servicing is both a fiscal headache for the new administration and a financial constraint.
The government is currently spending an average of 140bn/- a month to service external debt, which increased by nearly 2.4trn/- in the first five months of the new administration.Treasury plans to spend 8trn/- on national debt servicing in the current financial year.
“Public debt portfolio is exposed to exchange rate risk due to dominance of external debt. The proportion of public external debt remains high at about three quarters of the total public debt with debt servicing in the next 12 months standing at about 1.6 per cent of GDP or US$773.5 million,” BoT notes in the recently released Financial Stability Report.
Borrowing from domestic sources is discouraged because apart from being expensive it also leads to crowding out the private sector as lenders, mostly banking institution, prefer the more secure government securities. It also makes borrowing expensive.
The involvement of multinationals in the project is currently uncertain since they seem undecided and are not in a hurry to commit their resources largely due to policy inconsistence issues. Tanzania is also facing stiff competition from Mozambique in luring strategic investors to help its huge gas reserves.
Tanzania’s natural gas reserves are currently put at over 50 trillion cubic feet, mainly found in Ruvuma basin in Lindi and Mtwara regions as well as parts of Coast Region. Mozambique, on the other hand, has 160 trillion cubic feet, in the same Ruvuma basin.
Tanzania is not only blessed with abundant natural resources, it is also strategically located in the Great Lakes region, has a sizeable market with about 50 million people and enjoys peace and stability that would all make it one of the most dynamic economies in Africa.
However, it has one of the narrowest tax bases, which greatly constrains the government to mobilize the requisite revenue to finance economic and development projects.
The financing of the LNG plant debate follows the recent statement by Energy and Minerals minister Prof Sospeter Muhongo that the government will invest about $30 billion (over 60trn/-) Lindi project.
According to him, the government will be required to construct about 200 kilometres of gas pipes from the sea to the off shore placed plant. The minister did not point out how the ambitious project was going to be financed but admitted that raising the requisite funds would not be easy and it could take many years to accomplish the venture.
The Manager of Natural Resources at the East and Southern Africa Governance Institute, Silas Olan’g, said the government should first address the debt issues and provide the foundation for definite sales agreements with LNG customers.
Olan’g noted that the impact of reckless borrowing is that when the revenues finally start flowing they will initially be spent in servicing the debt rather than developing and diversifying the economy.
He said the government’s weak bargaining position means the size of the revenues over the whole life of the LNG project could be seriously reduced.
“The greater financial risk Tanzania now faces will almost certainly be more expensive to raise financing for the project. The crunch can also raise questions over long-term contract stability,” he told ‘Property Watch’.
Despite the locating the site for the project being an important milestone towards realising a LNG development in Tanzania, he warned that it is not a commitment to a final investment decision by the partners because it could be subject to further project definition and analysis.
A pending land dispute and security concerns due to the selected site being located in the open sea makes the site, which has a natural harbour, ideal for the project.
According to Olan’g, if the government finds itself in serious debt repayment problems, will they revoke contracts or demand new terms? These are elements that could make the investors demand greater protection or revenues.
He articulated that the country’s weaker credit rating will mean increasing debt for any project – not just LNG project– will be more expensive, harming government’s plans for diversified economic development through industry, tourism, electricity, agriculture and infrastructure.
A consultant at the Centre for International Forestry Research (CIFOR), Dr Martin Kijazi, said he was worried if the LNG project will bring positive outcomes since the extractive sector in Tanzania has shown unsatisfactory contribution to the economy. He said mining agreements have resulted in limited government revenue despite the industry’s perceived profits increase.
“For the country’s extractive revenues to benefit the poor there has to be a responsive and accountable revenue collection, equitable budget process and expenditure in sectors that will transform the rural economy such as agriculture, health and education,” Dr Kijazi stressed.
Tanzania produces around 300 million ft3 of natural gas to fire electricity plants. However, the state petroleum company, Tanzania Petroleum Development Corporation (TPDC) predicts that this could more than triple by 2020, enabling the country to export liquefied gas to regional and Asian markets.
However, Prof Muhongo admitted that this is not an easy task because it will take some years.
“We are expected to transport the gas from the sea, it is between 100 and 200 kilometres,” Prof Muhongo noted.
There have been substantial natural gas discoveries in Tanzania’s offshore in the southern coast since 2010 that have the ability to transform the country into one of the world’s largest LNG exporters.
Tanzania is estimated to hold about 57 trillion cubic feet (tcf) of proven natural gas reserves.
