TANZANIA GAS SECTOR UPDATE

Development Partners meeting,April 9, 2013

Natalia Kulichenko-LotzWorld Bank

March 2013: BG/Ophir finished appraisal program on Jodari field (Block-1): flow rate of 70mcf with better than expected reservoir properties

Potential in Block 1 (BG-Ophir) and Block 2 (Statoil) fields sufficient to underpin LNG development

March 2013: Statoil and BG Group assess plans to build a US$10-14 billion East African LNG terminal for exports to Asia

Investment decisions are at least three years away (Statoil), not before early 2016

The LNG plant would have at least two trains to process gas from Statoil’s Block 2 and BG’s Block 1

NG resource development update

GoT plans to develop four new gas-to-power plants with total capacity of 1,300 MW by 2015

Current non payments (∽US$50 million) by TANESCO to Songas –operator and owner of 180 MW plant (22.5% of the total generation), and the pipeline from Songo-Songo Island. Songas also delivers gas to another 225MW plant. Songas threatens to stop gas deliveries

Estimated arrears from TANESCO to IPPs are US$ 300 million (December 2012)

Infrastructure Update -power

A NG pipeline (542 km) and processing plant are under construction from Mtwara to Dar es Salaam. EPC contractor is a consortium of China Petroleum Pipeline Bureau (CPP) and China Petroleum Technology & Development Corporation (CPTDC)

Financed by China ExIm Bank – US$1.2 billion, 33 year loan, 2% interest rate. Completion is expected in early 2015

Gas sales contracts are yet to be negotiated and signed between NG producers and TPDC as 'aggregator' (shipper)

Gas transport agreements are yet to be concluded and signed

Infrastructure Update - gas

At the request of GoT a high-level scoping missions visited TZ on October 15-19 and December 10-13, 2012.

Participants: AfDB, PRC, UK DFID, EU, Germany, IMF and WB

Mission discussed:

◦ A set of 5 suggestions for urgent action on issues that have immediate effect;

◦ A set of 5 suggestions that require action now but whose potentially beneficial impact comes only in the future

High Level Scoping Mission

I. Develop a communications strategy for the gas sector and define clear responsibilities for communications

II. Insure inter-agency cooperation: a strong champion with the authority to act to ensure policy coherence for gas development

III. Strengthen negotiation, legislative, contract management and monitoring capacity

IV. Create a fiscal regime to ensure efficient development and to maximize retention of revenue in Tanzania

V. Unbundle short from medium to long term gas issues to prevent diverting attention from immediate opportunities to increase domestic gas use in the power sector

Five urgent actions with immediate impact

Currently proposed gas-to-power generation expansion plan

I. Steering clear of “Dutch Disease” -diversification to offset the worst effects of Dutch Disease;

II. “Investing in investing” – building capacity to invest efficiently and profitably through public financial management, public investment management, and a demand-driven human capital accumulation.

III. Investing efficiently and effectively in strategic infrastructure and growth poles - attracting private investment and catalyzing economic diversification

IV. Updating institutional and governance frameworks - establishment of a coordination mechanism to drive “whole of government” work on gas development

V. Managing environmental downside risks – setting up effective environmental management systems throughout the development and production chain

Actions to start now with long term benefits to the country

Competitive Licensing Preference for Domestic Use over Exports Revenue management - a Natural Gas Revenue

Fund responsible for “collection, allocation and management of the natural gas revenue”

Economic linkages and local content: encourages gas industry be linked with other sectors of the economy

Regional co-ordination: development of cross-boarder projects

2012 Natural Gas Policy Highlights

Transparency and accountability: TZ joined Extractive Industries Transparency Initiative (EITI), but is yet to fulfill the requirements ( candidate status)

Public Private Partnership: to share risk and benefit investors

Legal and regulatory framework: to develop legal and regulatory framework

TPCD: recognition for the need to separate commercial and regulatory functions

2012 Natural Gas Policy Highlights (continued)

Approved by the WB Board of Directors on March 26, 2013; US$100 million

Objectives:

◦ (i) Strengthen the country’s ability to bridge the financial gap in its power sector;

◦ (ii) Reduce the cost of power supply and promote private sector participation in the power sector;

◦ (iii) Strengthen the policy and institutional framework for the management of the country’s natural gas resources.

WB Development Policy Operation

Approved by the WB Board of Directors on March 26, 2013: IDA US$21.46 million and US$13.54 million co-financing from the Canadian International Development Agency

Objective: to strengthen the capacity of the GoT for development its natural gas sector and PPP for the power generation sector

Includes four components:

◦ (i) Development of gas sector strategies and policies and support for preparation of bankable investment opportunities;

◦ (ii) Further development of legal, regulatory, fiscal and institutional framework for the gas sector;

◦ (iii) Enhancement of institutional capacity - education and technical skills development;

◦ (iv) Capacity building for GoT

WB Energy Sector Capacity Building TA Project

Thank younkulichenko@worldbank.org