By January Makamba, Guest Columnist
Dar es Salaam. Deep sea exploration in Tanzania provides very good prospects for more discoveries of commercial reserves of natural gas. Tanzania is, therefore, at the cusp of major transformation into a gas-driven economy. But we have to take some specific actions for that to happen.

The amount of gas is not small. The amount of investment in gas exploration and infrastructure will run into billions of dollars. Global oil and gas majors  such as Petrobras, BG/Ophir, Statoil, Shell and others are busy exploring both on-shore and off-shore and putting money into Tanzania.

As of today, there are three rigs in the country – some exploring, some doing development wells. Petrobas and BG/Ophir alone are spending close to $2 million per day in Tanzania. Quite clearly, East Africa’s coast is a new frontier of oil and gas. While proven reserves are more than ten times less than those of Nigeria alone, still there is excitement and there is commitment from major players.

But the question to ask is; Are we ready as a country in terms of law and regulatory infrastructure, to benefit from these new opportunities?
 
How should we prepare?
A legal and regulation regime and institutional set-up that we need ought to make it possible and easy to explore oil and gas as well as extract it. The regime must make it possible and easy to plan for, finance and build gas infrastructure such as pipelines and plants.

Investors must be helped to sell gas wherever they get good prices.
A good regulatory regime must make it possible and easy for government and people to benefit from gas in a demonstrable way.

Obviously, there are many ways to get these ideals. Different countries have tried out different models.
So far, there are three choices regulation by contract, regulation by legislation, and regulation by an independent authority. 

Under regulation by contract model, each Production Sharing Agreement is negotiated on its own merits, whereas specific terms may differ from one gasfield to another. Under regulation by legislation all general terms are stipulated therein, otherwise commercial terms are preserved in commercial contracts.

Under independent regulatory model, authorities rely on published regulations and rules.  

In Uganda, for instance, the government regulates the industry through a government department. And the drawback here is that the government finds itself in business and its integrity is at stake.In Tanzania, just like in Angola, Kenya, and Mozambique, regulation is undertaken by a national oil company (TPDC) which amounts to a licensee regulating the contractors. The drawback here is that you have conflict of interest issues. TPDC is part of business but also issues licences.
 
Legal Framework to facilitate investments in the gas industry
Clearly, there is work to be done to create a robust facilitative legislation, model PSA, model licences (for exploration and development) and model contracts so as to attain the ideals I mentioned at the beginning.

Gas exploration is governed by the Petroleum (Exploration and Production) Act 1980. I personally think this law needs to be updated. In fact, it doesn’t even mention gas – it talks generally about “hydrocarbons” but the substance of the law dwells on oil.  As a result, gas sector in Tanzania is regulated by individual contracts – something that is not ideal.

It is therefore important the Gas Bill is enacted as soon as possible. The draft bill was completed since 2009, but it is yet to be taken to Parliament.

The new gas legislation should stabilise fiscal issues, which contracts alone cannot; capture the challenges of deep-sea exploration, which were not imagined during in the Petroleum Act 1980; and provide definitive provisions on natural gas discoveries.

 With regard to institutional set-up, we have three entities that deal with industry issues on day to day basis, the Tanzania Petroleum Development Corporation (TPDC); the Energy Department of the ministry of Energy and Minerals; the Energy and Water Utilities Regulatory Authority (Ewura).

 My view is that we should form a specific upstream regulatory body given the increased and complexity of upstream activities, particularly in deep-sea.

 We need a Gas Master Plan to go along with the current Power System Master Plan.

The current Tanzania’s Power System Master Plan was developed in 2008, updated in 2009, and there is yet another update going on at the moment.

The Gas Master Plan is being developed. This is a very important step.
The only problem is that these two processes are not linked. There are two teams working on these interlinked and interdependent documents, but these teams are not working together.

At the end, you will have two important plans that are not talking to each other. If gas is going to be key to power issues, it is critical that gas planners have an idea about what power planners are thinking.

And it is also critical for power planners to know what kind of gas infrastructure are envisioned and what timeframes we are talking about so that power plants and substations and transmission lines can be properly timed and situated.
The best regulation and laws will not work without a stable polity and respect for the rule of law. The maturity of politics in our country is eventually the most important aspect of a successful sector.
 
The danger of political risk, particularly piracy needs to be curbed.  There have been a couple of incidents where pirates attempted to take over the oil/gas rigs in our waters.
 
The new wave of resource nationalism, our oil, our gas, our minerals, also need to be checked as we politicians tends to ride on the wave of popular sentiments. We saw how the issue of oil and gas has resulted into sharp rhetoric about the Tanzanian Union.
 
Also the building of LNG liquefaction facilities in Tanzania is necessary.
 
We already drill and use gas from Mnazi Bay and Songosongo. Gas in these fields is now used for power generation. But it is not used to its full potential. Why? Because there hasn’t been proper infrastructure planning. Currently the existing gas infrastructure has a capacity of 105 MMscfd after rerating the gas processing plant from the nameplate capacity of 70 MMscfd.

Songas wants to use $120 million to expand it to reach 140 MMscfd, an addition of 35 MMscfd – which will give an additional 150MW of gas powered generation. This is not enough at all. We need generate more power natural gas. And therefore we need new pipeline and processing plants at both fields.

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