Levels of activity in the exploration sector bode well for the future of Tanzania’s gas sector and therefore the country’s economy.
The Tanzanian Government has a critical role to play and must develop and successfully implement a meaningful and practical gas development plan to ensure that the sector developments can keep pace with the potential demand and available supply. The publication in November 2013 of Tanzania’s first Natural Gas Policy is a significant milestone in the exploitation of its reserves but many areas still remain unclear. It is essential that the Government focuses on attracting good quality partners and looks to build an enabling environment with appropriate policies and a legal and regulatory framework that promotes the role of local and international private participants.
We see two distinct sides to the sector, firstly domestic gas initially supplied from onshore gas reserves. This market has grown over the last 10 years and local demand for natural gas continues to grow. Secondly, we see the large export market that is focused on LNG- this is focused on gas from recent offshore gas finds. These may eventually supply some gas to the domestic market but are unlikely to be monetized without a large export component.
We think it is important to remember that these two markets have different characteristics and have different types of participants. In the shorter term we believe it is important that the domestic market continues to be focused on and that the developments of gas reserves to supply this market are prioritized.
The recent economic growth rates in Africa are unsustainable without significant energy investments. What are the main obstacles which Tanzania must overcome in order to meet the demand for stable and reliable power supply for its citizens?
• Financial sustainability of the Tanzanian electricity sector and an inability to secure continued investment in existing and new infrastructure as a result of this.
• A continued focus on developing government owned projects rather than prioritizing private sector led projects - it is essential for the Government to promote and grow the role of the private sector in both gas and power if sufficient capital is to be mobilized to meet Tanzania’s needs.
• The need for the Government to improve the way in which it engages and negotiates with the private sector on large infrastructure projects.
• Poor public perception of international investors and their role in Tanzania.
What needs to happen in Tanzania to make PPP possible?
• Mobilize private capital effectively and target Government’s investments to those projects that the private sector are not best placed to implement. For example, TANESCO and Government have indicated they are not equipped to undertake/finance of all the future investments required to grow the electricity sector. It is therefore essential that private funds be mobilized where possible as Donor institutions will not provide sufficient funds for the needed projects. Government funds should therefore be directed to projects that the private sector are least likely to successfully develop such as transmission and distribution, allowing private capital to focus on power generation.
• Ensure that TANESCO becomes a credit worthy and financially sustainable off-taker to IPP projects. Provide PPP projects with realistic credit support mechanisms – Government guarantees etc.
• Ensure there is a clear and transparent contracting process for new PPP projects based around a credible sector development plan.
• Ensure there is a clear and stable regulatory and legislative background. Tanzania’s legislative regime is relatively well-structured though with multiple entities (Ministry of Energy, the Regulator etc) it is important that their roles are clearly defined and understood by new market participants.
What advice would you give to prospective investors for them to keep front of mind when entering Tanzania for the first time?
• Songas has proved that long term investments into Tanzania can be successful. However it is important to build relationships with the Government and its Parastatal entities. These have a large role in Tanzania and it is therefore important that this multitude of relationships can be managed transparently and fairly.
• To do this we believe that it is important to build a strong local team. Songas has built an excellent Tanzanian team over the last ten years and this is the reason behind its success.
Why was Powering Africa: Tanzania an important event for Songas to attend?
Globeleq’s Songas project was the country’s first natural gas to power project and was supported by the Tanzanian Government, sector participants, legislation, a newly appointed regulator and the World Bank. The integrated gas to power facility finally commenced operations in 2004 and was expanded by 50% a year later; Songas has saved Tanzania billions of dollars in avoided cost of imported fuel oil and has also facilitated the construction of further new gas-fired generation facilities.
It is an integral part of Tanzania’s power sector and important bedrock for future developments. We believe that Songas’ project is a real success for Tanzania and has many lessons to share in order to help the sector grow in the future. With the right decisions by Government, Tanzania’s energy sector has a positive future. We wish to be part of this and want to grow our business as the sector grows.