SPECIAL REPORT : Repaying $1bn loan may be difficult, govt told

Dar es Salaam. Tanzania might fail to repay a $1.283 billion loan from Exim Bank of China for constructing the Mtwara-Dar es Salaam Natural Gas Pipeline (MDNGP) if the 2015/16 Controller and Auditor General’s report is anything to go by.

CAG Mussa Assad warns that the government might fail to repay the loan because the pipeline is massively underutilised.

Report the pipeline, which was constructed by China Petroleum and Technology Development Company (CPTDC) transports 46.61 mmscfd equivalent to 6 per cent of the total pipeline capacity amounted to 737.39 mmscfd.

The CAG report shows that the Tanzania Petroleum Development Corporation (TPDC) planned to supply natural gas at a minimum of 80 million metric standard cubic metres per day (mmscfd) and maximum of 138.8 mmscfd via the 533km pipeline to Kinyerezi I, Kinyerezi II, Ubungo I, Ubungo II, Tegeta and Symbion power generation stations in Dar es Salaam.

Apart from power generation, natural gas was expected to enhance industrial productivity, domestic appliances and propelling vehicles.

However, production is yet to commence in five power plants projected to consume 92.19 mmscfd equivalent to 66 per cent.

“To date only Kinyerezi I plant is operating, consuming 34 per cent of natural gas out of 138.8 mmscfd projected for the six plants,” reads the CAG report in part.

“However, Tanesco has to date remained sole natural gas consumer with a consumption average of 46.61 mmscfd instead of 80 mmscfd as per gas sale agreement (GSA) between TPDC and the Tanzania Electric Supply Company [Tanesco].”

Report shows that loan repayment was scheduled and expected to depend on GSA upon completion of the pipeline construction and after commercial operation date.

According to the report, GSA and pipeline construction contract revealed that the pipeline was constructed before pre-identification and pre-signing of GSA’s between TPDC and expected major gas customers, a normalcy that would negative impact loan repayment as actual sales of the natural resource was far below the initial projection of 138.8 mmscfd.

Prof Assad says still Tanesco has long-term contracts with two independent power producers — Independent Power Tanzania Limited (IPTL) and Songas running until 2022 and 2023 respectively, something complicated GSA fulfillment between TPDC and Tanesco.

He establishes that the pipeline commissioning was done at a below capacity average of 46.61 mmscfd of which TPDC would be responsible in case of abnormality accompanied with its operation to full capacity when demand increases as defect liability period has ended since August last year.

“I therefore recommend TPDC to consult Tanesco and the Ministry of Energy and Minerals [MEM] and discuss means of completing new Tanesco plants to ensure the pipeline operate at its reasonable capacity to enhance timely repayment of loans. Meanwhile efforts to engage other potential buyers should be considered to increase revenue and TPDC’s ability to meet its obligations which were falling due,” suggests Prof Assad.

Report emphasises that government’s efforts to obtain other customers to recoup the loan on time before it is restructured should be increased before loans become more expensive to the Government.

Reached for comments TPDC acting managing director, Mr Kapuulya Musomba said MDNGP strategic plan demanded that the peak of production and transportation be reached in 10 years with annual increase of 10 per cent.

“We have made huge progress two years after commissioning the pipeline. Hopefully, the CAG will be coming out with promising and interesting outcome every year,” he told The Citizen.

He said TPDC had started reviewing the 2012 feasibility study on natural gas business in which infrastructure for 15 gas-filling stations, two pipelines for connecting gas to 37,000 houses and 850 vehicles was proposed to be constructed in Dar es Salaam.

According to him, TPDC would close submission of quotations for firms wishing to review the document, the job which was expected to be concluded two months after its commencement in May this year.

The Sh327 billion project aimed at covering 65km of Dar es Salaam. The 2012 study identified locations where gas-filling stations would be constructed, but TPDC halted implementations over financial woes. Early this year, Mr Musomba told The Citizen that it was important to review project before its resumption and that TPDC many changes have been realized calling for the 2012 study review.

“Many people are willing to transform their oil-powered vehicles into gas-powered ones….with only one gas filling station at Ubungo, it is impossible for us to meet the increasing demand,” he said.

Mr Musomba said a pilot study to connect 70 Mikocheni households with natural gas infrastructure and transform 50 vehicles that used fuel to natural gas had given them a new experience. Also, it has been realised that life was cheaper when natural gas became people’s source of energy.

Speaking on efforts to connect production companies with natural gas infrastructures, Mr Musomba said TPDC had completed connecting Coast Region’s Goodwill Ceramic Tanzania and that the connection with Dangote Cement Company in Mtwara would be completed August this year.

“While connection with Coca-Cola is at tendering stage, we are negotiating with Bakhresa Fruit Processing Plant for the same purpose” he said.