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There's need to get prepared and avoid proverbial resource curse

Discussion in 'Jukwaa la Siasa' started by nice 2, Jan 26, 2012.

  1. nice 2

    nice 2 JF-Expert Member

    Jan 26, 2012
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    Thursday, 26 January 2012 10:24

    By Zitto Kabwe, Guest Columnist
    Dar es Salaam.*
    In letter to the International Monetary Fund (IMF) last December, the minister for Finance and Economic Affairs Mustafa Mkulo confirmed the fact that in the near future Tanzania will be a significant exporter of natural gas.

    This is the first official confirmation about the vast reserve of natural gas in the country. It is estimated that Tanzania would confirm around 60 trillion cubic feet of natural gas from the current 7 trillion.

    Mozambique, just south of Mtwara Region, has already confirmed 30 trillion cf of natural gas. Tanzania is expected to receive foreign investments (FDI) of around $7 billion from just one company (Ophir Energy and its partners British Gas).

    Other multinational companies like Petrobras and a Norweigean Statoil are in drilling programmes in 2012 and expectedly more discoveries and potential FDIs will be announced.

    Thus, it is an obvious fact that Tanzania might start exporting natural gas by 2020. These exports would be four times more than current export earnings, will be two times the GDP. But is the country prepared?

    Mr Mkulo says there are discussions on how to position the country to take advantage of the potential resource wealth. True there are talks about this topic but not discussions. The government has not seriously initiated multi stakeholders discussions on the eventuality of the the gas economy.

    It is high time now that the nation starts to talk, discuss and dialogue about the country’s vast natural gas reserve and its exploitation so that it benefits the country and its people.

    Many people hope the discovery of massive natural gas reserves will make Tanzania rich and end poverty. That it will be a catalyst for speedier economic growth. But this will be possible only if efforts are made to avoid the resource curse.

    To avoid the curse a country needs to prepare itself so well to address issues of contracts for exploitation of the resource, revenue management and curb rent seeking behaviour (which is rampant already in Tanzania due to foreign aid and gold exports). Mr Mkulo committed to IMF that the Natural Gas MasterPlan will be finished by June 2012.

    A natural Gas MasterPlan deals with the planned use of the gas discovery; how much to use domestically for power generation; how much for fertilizer making; how much for home use and how much to export.

    Thus the masterplan must have opinions of various stakeholders and it must be aligned with a Power system masterplan as well as the overall National Development Vision. Yet there is no open discussion about the masterplan and it is worrying if the June deadline commited to the IMF will be met. The ministry of Energy must start engaging stakeholders in the energy sector including legislators in the Parliament Energy and Mining Committee into completion of the Natural Gas MasterPlan.

    It is expected that petroleum revenue management bill will be enacted before large exploitation of the natural gas starts. Tanzania so far has very generous fiscal incentives to oil exploration companies. But these incentives have been given in an ad hoc manner as there is no specific law to govern revenue streams from hydrocarbons.

    Moreover, as is the case with revenue from gold mining and other minerals, proper use of funds is the most critical issue.

    Petroleum revenue management bill must provide for the regions where oil/gas will be found to benefit from the resource. *

    Mr Mkulo has proposed for the future revenue generations fund as it is done in Norway and other countries. These are very critical issues to be discussed in the near future in order to ensure Tanzania benefits from the expected wealth.

    Tanzania must avoid a Nigerian situation where the country has exported Oil worth $250 billion since 1970 but Nigerians are still poor.

    Two important things must be considered in the anticipated “gas economy”. The first is the human capital. Tanzania has very few experts on hydrocarbons such as engineers, geologists as well as energy economists andlawyers.

    It is highly suggested that a university be established in Mtwara to train Tanzanians on these areas. Vocational training is of paramount importance to the middle and lower cadres in the sector.
    Otherwise Tanzania will find itself importing welders as experts.

    Second is the reforms of the Tanzania Petroleum Development Corporation (TPDC). As it stands TPDC is now a regulator of upstream and a participant to the ventures with free carried interest. It is highly suggested that a National Oil and Gas Company (Petroleum Corporation of Tanzania – Petrotan) be established and actively participate in the sector as an investor with huge stakes.

    These reforms should be done as early as practical to enable the country prepare well for the exploitation of the resource wealth from hydrocarbons.

    Tanzania must from the begginning institutionalise governance issues in the oil and gas by ensuring transparency in contracts as well as total commitment to Extractive Industry Transparency Initiative (EITI).

    The EITI bill must be brought to Parliament to ensure transparency and accountability.
    These will lay a strong foundation for country to avoid a resource curse and ensure trust from citizens about their natural resources wealth, the trust that waned in mining sector.