3.0 CHAPTER THREE
3.1 POLICY ISSUES AND STATEMENTS
3.1.1 Upstream Activities
Upstream activities include exploration, appraisal, development and production stages of oil and gas operations. In order to achieve sustainable natural gas supply, upstream activities need to be aligned with mid and downstream activities. Detailed policy issues on natural gas upstream activities will be addressed under Petroleum Policy.
Exploration and Production
Issue: Optimize exploration and production activities in a socially, economically and environmentally responsible manner.
Effective strategy is required to enhance exploration and production of natural gas. Exploration and production activities generate both fiscal and non-fiscal benefits. For Tanzania to maximize such benefits, these activities must be undertaken in the most efficient and effective manner in line with national development plans, strategies, priorities and sectoral linkages.
It is through competition among licensees, operators and suppliers, that cost effective choices can be achieved. Competition enables selection of the most capable operators, the most efficient, the best quality, and the most reliable suppliers thereby ensuring high levels of productivity. This fundamental consideration justifies the principle of open bidding and enables the country to maximize its returns to society both for the current and the future generations. It is essential that a framework be established that supports fair competition with a view of improving efficiency and productivity in natural gas operations and maximizing the countrys benefits from its natural gas resources.
Objective: To ensure sustainable exploration and production of natural gas resource.
Policy Statements:
The Government shall:
(i) Participate strategically in upstream activities through its National company responsible for development of petroleum or its subsidiaries;
(ii) Ensure promotion of investment in exploration and production of natural gas resources;
(iii) Ensure adoption of modern technologies for exploration and production of natural gas;
(iv) Ensure competitiveness in the grant of petroleum licenses to promote productivity and maximize the countrys benefits from its natural gas resources unless under exceptional cases for national interest;
(v) Ensure natural gas is produced efficiently and effectively with minimal flaring activities where necessary; and
(vi) Ensure adoption of optimized production profile to ensure high recovery of natural gas.
3.1.2 Midstream and Downstream Activities
The mid-stream and downstream segment of the natural gas industry involves gas processing, liquefaction, transportation, storage, regasification, distribution and other ancillary services. These activities are inherently natural monopolies and therefore subjected to regulations. Specific regulations will be needed for the midstream and downstream natural gas industry.
A. Natural Gas Infrastructure
Issue: Optimizing investment for natural gas infrastructure to serve the domestic and regional markets.
Natural gas infrastructure covers processing, liquefaction, transportation, storage and distribution facilities, which form the natural gas supply chain. The Government considers such facilities to be of strategic significance to the industry and national economy. During the infancy stage, the main natural gas infrastructure will be owned by the Government through its National company responsible for development of petroleum or its subsidiaries.
The provision of service by a monopoly service provider raises the issue of access to common facilities and services by third parties. Ensuring non-discriminatory access is a critical issue which requires owners and operators of facilities such as processing plants, offloading platforms and pipelines to provide services to all customers in a transparent manner.
Objective: To promote development of facilities for natural gas processing, liquefaction, transportation, storage and distribution to ensure reliability of supply.
Policy Statements:
The Government shall:
(i) Participate strategically through its National company responsible for development of petroleum or its subsidiaries to develop and operate major infrastructure for natural gas;
(ii) Ensure that all natural gas processing activities are undertaken in common facilities onshore in the most cost effective manner;
(iii) Ensure separation (unbundling of operations) of value chain activities in order to promote efficiency;
(iv) Facilitate establishment of storage facilities and associated regasification terminals;
(v) Establish a licensing regime for gas suppliers, distributors and marketers who will obtain their gas supplies from the natural gas aggregator who will be national company responsible for development of petroleum or its subsidiaries; and
(vi) Ensure transparent and non-discriminatory terms and conditions are developed and enforced to promote access to service by third parties.
B. Natural Gas for Domestic Market
Issue: Supply and utilization of natural gas for local consumption.
Natural gas is one of our abundant natural resources which could be utilized in a number of applications including, thermal applications in industries/ institutions and electric power generation, as well as transport and households for cooking. In this regard the Government considers facilitating wide utilization of this indigenous resource domestically to minimize the use of foreign currency for importing petroleum products.
Objective: To develop and serve the domestic market for natural gas to minimize dependency from imported petroleum products.
Policy Statements:
The Government shall:
(i) Facilitate reliability in production, efficient utilization and value addition of the countrys natural gas resource;
(ii) Promote production of natural gas based Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGL) for domestic market; and
(iii) Promote establishment of industrial parks for natural gas industries.
C. Liquefied Natural Gas (LNG) Business
Issue: Maximizing gains from LNG value chain (Liquefaction, Shipping, Regasification and Storage).
The market for natural gas is more mature and strong in developed economies. Generally, the main incentives for international oil and gas companies to invest in deep sea exploration in developing countries is usually to get an export oriented market in the absence of the well developed local market. Tanzania intends to participate in LNG trading globally. Although large volumes of natural gas are required to justify LNG investment, with the latest discoveries in Tanzania, world market prices and demand for LNG justifies such investments.
Objective: To ensure the effective participation of Government and Tanzanians in the LNG business.
Policy Statements:
The Government shall:
(i) Through its entities, strategically invest in the LNG value chain to optimize benefits from natural gas;
(ii) Ensure that all LNG facilities are located onshore wherever possible through common facilities;
(iii) Ensure domestic market is given first priority over the export market;
(iv) Ensure efficient technologies in LNG production; and
(v) Ensure appropriate LNG trading for regional and international market.
3.1.3 Management of Natural Gas Revenue
Issue: Managing revenue arising from natural gas with a view to benefit the present and future generations of Tanzanians.
Natural gas resource is a potential source of revenue to the Government. However, if not properly managed such resource is likely to be a curse instead of a blessing.
Since natural gas is a finite resource, it is crucial that the revenue is managed in a manner that will bring about lasting benefits and welfare to the Tanzanian society. Revenues from natural gas resource can be aligned with the national development vision by directing them into strategic investments such as infrastructure.
Successful management of this resource will require putting in place mechanisms of governance to mitigate spending pressure and preclude rent seeking opportunities; fiscal management to mitigate effects of revenue volatility due to changes in production levels or fluctuation of global oil and gas prices; and economic diversification and linkages with other sectors.
Natural Gas Revenue Fund will be established to ensure transparency and accountability over collection, allocation and management of the natural gas revenue. The fund will be structured to provide for stabilization of revenue transfer to the Government for public expenditure in strategic areas and for domestic savings for future investment. In addition, sound fiscal management of the natural gas revenue spending shall be in accordance with national development plans and strategies.
Objective: To ensure effective management of natural gas revenue to achieve the national development goals.
Policy Statements:
The Government shall:
(i) Establish Natural Gas Revenue Fund for development of natural gas industry and national strategic projects;
(ii) Ensure fiscal regime in the natural gas industry supports development of the industry; and
(iii) Ensure the local communities benefit from revenue emanating from the natural gas activities in their localities.
3.1.4 Natural Gas Pricing
Issue: Appropriate pricing structure to sustain supply and demand sides.
Pricing of natural gas is a critical element for sustainable natural gas industry. The Government envisages to establish an appropriate pricing mechanism to be based on a set of key principles, including cost reflectivity, prudently incurred costs, reliability and quality of service; fair return on invested capital, and capacity allocation to the most valued use.
Objective: To ensure that prices of natural gas and related services are economically efficient and promote natural gas industry growth.
Policy Statements:
The Government shall:
(i) Ensure an appropriate pricing structure is in place which encourages economic use of the system capacities in the natural gas value chain;
(ii) Ensure the pricing structure provides incentives for promoting investments while sustaining supply and demand for natural gas; and
(iii) Ensure that natural gas prices to strategic industries and households are affordable and predictable.
3.1.5 Security of Natural Gas Supply
Issue: Security of natural gas supply in the domestic market.
Natural gas is an important source of energy for power generation, manufacturing industries, transportation, commercial and households for thermal applications. With the increasing dependence on natural gas supply, it is critical to ensure reliability of supply is maintained. To achieve this necessary measures must be taken including natural gas infrastructure development, defining terms of infrastructure access, managing contractual commitments, prioritizing allocation of natural gas in the event of insufficiency as well as monitoring of production and storage facilities. These measures require the establishment of framework for security of supply including protocols for natural gas allocation that are transparent, non-discriminatory and consistent with the requirements of developing domestic natural gas markets.
Objective: To align natural gas supply and demand to ensure reliability.
Policy Statements:
The Government shall:
(i) Ensure sufficient production and rational utilization of natural gas to sustain supply to the domestic market; and
(ii) Ensure optimal investment for the national natural gas infrastructure to ensure reliability of energy supply to the country.
3.1.6 Linkages with Other Strategic Sectors
Issue: Mainstreaming natural gas resource utilization in other strategic sectors.
Natural gas can be used to stimulate development in other sectors of the economy such as agriculture, transport, mineral, commercial and industrial and contribute to the socio-economic benefits. In addition, activities in the natural gas industry, such as exploration, construction and system operations which further create demand for labour, goods and services. The use of natural gas as an alternative to woodfuel reduces pressure on forests, which cause rains and hence supporting agricultural activities, power generation and other sectors.
Objective: To promote linkages between the natural gas industry with other strategic sectors of the economy to accelerate socio-economic transformation.
Policy Statements:
The Government shall:
(i) Ensure growth of the natural gas industry supports strategic investments in other sectors of the economy; and
(ii) Promote private sector participation for rapid development of strategic industries such as petrochemicals, steel and other energy intensive industries.
3.1.7 Local Content and Capacity Building
Issue: Empowerment of Tanzanians to benefit from the natural gas industry.
Local content in Tanzania context refers to added value brought to Tanzanians through activities of the natural gas industry. These may be measured and undertaken through employment and training of local workforce; investments in developing supplies and services locally; and procuring supplies of services locally. Currently, most goods and services are supplied by foreign companies due to inadequate capital and requisite skills to Tanzanians. Participation of Tanzanians in areas where natural gas activities are intensive is important for industry stability, integration into local economies and poverty reduction.
Tanzania can maximize these benefits through strategic participation in the natural gas value chain. Successful maximization of local content benefits require implementation of proper policies, strategies, action plans, continuous consultation with key stakeholders and strengthening capacity of various institutions such as Local Government Authorities (LGAs) and Community Based Organizations (CBOs).
Objective: To develop capabilities of Tanzanians to participate strategically in the natural gas value chain.
Policy Statements:
The Government shall:
(i) Ensure that opportunities for supply of goods and services, employment and investments are made available to Tanzanians and local companies;
(ii) Promote joint venture arrangements between Tanzanians and foreign companies in implementing projects in the natural gas industry;
(iii) Ensure that capabilities of Tanzanians are developed in the natural gas value chain through skills development, transfer of technology and applied research;
(iv) Strengthen capacity of national company responsible for development of petroleum to participate strategically in the natural gas industry;
(v) Establish oil and natural gas center of excellence and strengthen capabilities of the training institutions to impart requisite skills to Tanzanians; and
(vi) Review mandates of Tanzania Petroleum Development Corporation (TPDC) to ensure effective management of the natural gas industry.
3.1.8 Corporate Social Responsibility
Issue: Addressing immediate needs of local communities
Companies implementing projects and activities in the natural gas industry are required to contribute in the development process of the local communities through their Corporate Social Responsibility policies. It is in the interest of both parties to avoid or mitigate the negative perceptions and maximize the positive effects. Currently, activities under Corporate Social Responsibility are not addressing the pressing needs of local communities due to lack of guidelines and little participation of local communities.
The Government will emphasize implementation of Corporate Social Responsibility through proper communication and supporting priority development projects and activities of the local communities to ensure timely achievements in the investments of the companies. The local communities will also participate effectively in protection of the natural gas infrastructure.
Objective: To strengthen Corporate Social Responsibility mechanism in the natural gas activities and projects areas, in order to maximize benefits to the local communities.
Policy Statements:
The Government shall:
(i) Ensure that there is a contractual obligation to all contractors in the natural gas activities to undertake community developmental programmes;
(ii) Ensure companies in the natural gas industry to submit credible Corporate Social Responsibility action plans to the national company responsible for development of petroleum; and
(iii) Ensure companies in the natural gas industry and local government authorities enter into agreement to implement projects as per agreed action plans.
3.2 CROSS CUTTING ISSUES POLICY ISSUES AND STATEMENTS
3.2.1 Efficiency and Conservation
Issue: Sustaining present and future demand for natural gas.
Natural gas is a finite resource and therefore it is non renewable. Although its availability is in significant amounts there is a need to ensure sustainability in supply and demand sides. The demand side covers end use systems, which include electricity generation and thermal applications in households, transport, manufacturing industries and commerce.
Presently significant amount of natural gas is used to generate electricity due to unreliability of hydro power systems as well as inadequate utilization of other sources of energy including coal. In order to ensure sustainable supply of natural gas and its future availability there is a need to utilize it efficiently as well as using other alternatives particularly in generating power.
Policy Objective: To ensure rational use of natural gas in all sectors of the economy.
Policy Statements:
The Government shall:
(i) Ensure prioritization of natural gas utilization based on the Gas Utilization Master Plan; and
(ii) Ensure monitoring of the natural gas supply from reservoirs to the end-use systems.
3.2.2 Transparency and Accountability
Issue: Transparency and accountability to the public on natural gas activities.
Access to information is a fundamental right in activities that may positively benefit or negatively impact individuals, communities and society as a whole. Dissemination of information makes the public aware of the developments in the industry. Therefore, the Government and stakeholders have important roles to play in order to achieve transparency and accountability as well as eliminating possible elements of
corruption in the natural gas industry. In addition, the Government has joined the Extractive Industry Transparency Initiative (EITI) to improve transparency and accountability as well as accessing information in relation to revenue accrued from extractive industries.
Objective: To ensure transparent and accountable system in the management of the natural gas industry.
Policy statements:
The Government shall:
(i) Promote transparency and accountability in the natural gas industry; and
(ii) Facilitate collection and dissemination of information related to natural gas industry to stakeholders.
3.2.3 Management of the Environment, Health and Safety
Issue: Sound practices in environmental, health and safety management.
Natural gas operations may have adverse effects on the environment, health and safety of people. Adherence to good industry standards and practices will contribute significantly to preventing or mitigating such effects. It is important to plan for remedial measures prior to any natural gas operation. The regulation of these operations is necessary to ensure that natural gas activities are conducted taking environment, health and safety issues into consideration.
Objective: To ensure that all activities in the natural gas value chain are undertaken in a manner that protects peoples health, safety and environment.
Policy Statements:
The Government shall:
(i) Ensure that health, safety and environmental issues are mainstreamed into all operations in the industry; and
(ii) Ensure compliance to environmental protection and best practice in the industry.
3.2.4 Regional and International Cooperation
Issue: Compliance with regional and international community trade policies.
Cooperation with regional and international community is important for development of the natural gas industry. Tanzania can realize benefits of being a member of regional blocks such as EAC and SADC. There is need to strengthen cooperation with international bodies to take advantage of facilities, resources and information provided by those blocks.
Objective: To benefit from regional and international community in the development of natural gas industry.
Policy Statements:
The Government shall:
(i) Promote cross border projects and investment to maximize benefits accruing from natural gas exploitation;
(ii) Consider regional markets in the development of natural gas infrastructure in Tanzania; and
(iii) Endeavour to share best practices and experiences in the management of natural gas industry with the international community.
3.2.5 Gender Mainstreaming and HIV and AIDS
Issue: Gender based opportunities and addressing HIV and AIDS issues in the natural gas industry
The Government provides equal opportunity to all citizens of Tanzania, the active participation of women in the natural gas industry is encouraged. Natural gas industry development is likely to have different impact on women, men and vulnerable groups. The use of natural gas for cooking in households relieves women from wasting time looking for woodfuel and indirectly improves health due to better kitchen environment that is free from smoke and soot.
HIV and AIDS is associated with other infectious diseases which have greatly affected socio-economic development and livelihoods. Like many other large scale projects, natural gas projects will attract the concentration of people looking for employment and other related activities. In the process, this may escalate the HIV and AIDS infections. Awareness and education on HIV and AIDS to all stakeholders
is important to reduce its impacts in such projects.
Objective: To promote and support women to participate actively in natural gas activities and addressing HIV and AIDS issues.
Policy statements:
The Government shall:
(i) Create conducive environment and promote women participation in natural gas industry;
(ii) Ensure that programmes related to natural gas industry are based on gender equality and equity; and
(iii) In collaboration with partners/players will provide education on HIV and AIDS to stakeholders in the natural gas industry.
3.2.6 Public Private Partnership - PPP
Issue: Private sector participation synergy.
The Government recognizes the role of private sector in bringing about socio-economic development through capital investment, managerial skills and technology as stipulated in the PPP Policy of 2009. Like other sectors of the economy, projects under PPP arrangements have been implemented in the petroleum and natural gas-sub sector. However, the Government has experienced challenges in such projects including risks sharing mechanisms and insignificant benefits. In order to address these challenges, proper mechanism for risks sharing in natural gas PPPs investments needs to be put in place, to ensure mutual benefits for both parties involved.
Objective: To ensure minimal risks allocation for PPPs projects to maximize Government benefits from the natural gas industry.
Policy statements:
The Government shall:
(i) Provide conducive environment for PPPs arrangements to facilitate investments in the natural gas industry; and
(ii) Promote development of natural gas infrastructure, petrochemical industries and energy intensive industries utilizing natural gas (Industrial Parks) under PPP arrangements.
3.2.7 Public Awareness and Managing Expectations in the Natural Gas Industry
Issue: Improving public awareness on matters pertaining to the natural gas industry
Public awareness is important for supporting implementation of projects and activities in the natural gas industry. Following recent discoveries of natural gas in the country, public expectations have increased based on the perception that discoveries are likely to yield immediate benefits. These expectations have to be managed since such benefits take time to be realized.
This situation calls for the need to increase awareness on natural gas operations to the public and stakeholders, particularly local communities where natural gas projects and activities are being implemented.
Objective: To manage public expectations on benefits from natural gas activities.
Policy statements:
The Government shall:
(i) Provide accurate and timely information on activities implemented throughout the natural gas value chain to the public, especially the local authorities and communities; and
(ii) Improve communication mechanism and flow of information on natural gas industry to the public.