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Songas frantic as $120m project permit stalls

Discussion in 'Jukwaa la Siasa' started by BAK, Dec 19, 2011.

  1. BAK

    BAK JF-Expert Member

    Dec 19, 2011
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    Songas frantic as $120m project permit stalls

    By Staff writer

    18th December 2011

    A fresh state of panic has emerged in the major gas to electricity firm, Songas as the government looks unwilling to approve a project for expansion of its gas processing plant at Songosongo Island.

    Songas is working hard to persuade the Ministry of Energy and Minerals in an attempt to shore up its expansion plans.
    Ministerial sources told The Guardian on Sunday in Dar es Salaam this week that the government was reluctant to give a final nod to the processing plant expansion project.

    The ministry is not convinced that the financial implications of the project to electricity tariffs will be positive, especially in view of proposed tariffs hikes by the Tanzania Electric Supply Company (TANESCO).

    With potentially negative eventual impact to end users of the power Songas produces by converting gas to electricity, the Government is also reported to be worried of dilution of its 38 percent shares at Songas.
    That will come about in view of investment of $120 million to be secured through a bank loan at an estimated 15 percent interest rate charge per annum.

    The major shareholder of Songas is Globeleq of Canada with 62 percent of shares, while the Tanzania Petroleum Development Corporation (TPDC) has 29 percent shares while TANESCO hold nine percent shares.

    In that respect, the government through the Ministry of Energy and Minerals wants all pertinent issues to be clearly addressed including co-existence of Songas and its gas infrastructure on one hand and the proposed gas pipeline from Mnazi Bay to Dar es Salaam via Somanga Fungu, funded by a loan from Exim Bank of China.

    But Songas seems uncomfortable by the delay on the part of the government and wonders why no final approval is given despite fulfilling the necessary conditions, including securing a tariff order from the Energy and Water Utilities Regulatory Authority (EWURA) since April 2011.

    The firm now wants a firm commitment from the ministry based on the presumption that the expansion project is supported by President Jakaya Kikwete, Prime Minister Mizengo Pinda and Minister William Ngeleja. The highly ranked leaders are quoted by Songas officials who consider the project as a complementary to the Chinese funded investment.

    A letter from Songas, dated November 28, 2011, addressed to the Permanent Secretary at the Ministry of Energy and Minerals and a copy availed to this paper states:

    "It is also necessary to consider the impact of any decision not to pursue the Expansion Project on the short term performance of the existing facilities. Songas is currently operating the processing facilities far in excess of its design capacity.

    This was taken on temporary basis to allow more gas sales for power generation use and it was anticipated that the Expansion Project would address any longer term concerns this might cause.

    This was the basis that Songas insurers approved operating at the high throughputs and whether this would continue needs careful consideration should the Expansion Project not proceed.

    The letter, signed by the Songas Managing Director and copied to the Managing Director of Tanzania Petroleum Development Corporation (TPDC) says, "It is also clear that the Expansion Project is now in the final stages of development. It has already obtained a tariff order from EWURA (Energy and Water Utilities Regulatory Authority), identified a preferred EPC contractor and has a credible financing plan in place.

    The eight-page letter cautions the Energy ministry that following a transparent and fully participatory process, the project had an established and finalised design and engineering basis as well as finalized and competitively determined tariff and thus any material change at a late stage either to the project design or to the tariff would cause many months of delay to the implementation of the project or derail it altogether.

    "Songas is poised to mobilise $120million of inward investment in the Tanzania economy. It is therefore now essential for stakeholders to urgently engage in the final stages of development.

    The final project agreements could be ready for signature this month and we would therefore request that in order to meet this timeline the Ministry of Energy and Minerals and TPDC along with other stakeholders engage as quickly as possible," the letter states further.

    The Guardian on Sunday has been reliably informed that apart from the worry about high prices of gas generated electricity due to expansion funding, the Energy Ministry, advised by TPDC, regards the project as unnecessary based on the fact that there is a bigger project of constructing a gas pipeline from Mnazi Bay in Mtwara to Dar es Salaam, funded by Exim Bank of China to the tune of $1.058bn. It is expected to be operational by the end of 2012.

    The project includes construction of gas processing plants at Mnazi Bay and at Songosongo, and the pipeline would be technically able to transport a maximum of 700 million standard cubic feet per day, which can generate up to 3500 megawatts of power.

    Acting Permanent Secretary at the Ministry of Energy and Minerals, Eliakim Maswi confirmed to this newspaper of receipt of the letter from Songas. He said that he had replied to it though he declined to disclose details on how he responded to matters raised by Songas.

    "Songas is our partner in running the gas business. We have shares in it and therefore we have to discuss everything on the expansion project so as to have a common understanding.
    I have had discussions with them (Songas) and in the next few days I will be meeting TPDC where we will go to details on all pending matters," said the PS.

    Maswi insisted: "The government's goal is to serve people by ensuring reliable power is in place to avoid critical power shortages that happened just a few months ago. So far Songas has done a good job but on this project all our concerns as shareholders must be heard and responded to satisfactorily to avoid any confusion which may arise in future," the top executive intoned.

    Songas existing gas pipeline has a capacity of transporting 105million cubic feet a day. It was originally designed to transport 70 million cubic feet back in 2004 but was technically modified to meet increased gas demand for power generation and industrial use.

    The planned expansion of the processing plant aims at increasing the processed gas a day to 140milion cubic feet, but since the pipeline capacity is as low as 105 million cubic feet, the project would involve installing a compression unit so as to reduce the gas volume ready for transportation to Dar es Salaam where it would be expanded to the original volume.

    Songas, which started its operations in the country towards the end of 2004, owns a gas processing plant and a pipeline from Songosongo to Dar es Salaam. It also owns a gas fired-power generating plant situated at Ubungo where most of the gas is used.

    The plant has a capacity to generate 83 Megawatts of power. A small amount of gas is used in industries and some public and private institutions as well as hotels and prisons.