Tuesday, September 25, 2012

Tanzania's Natural Gas Discoveries; Analysis

Tanzania Gas, Exploration, Investment East Africa
Tanzania drew international attention this year by almost trebling its appraisal of its natural gas reserves. Now confirmed at 43 Trillion Cubic feet (TCF), they are valued around $430 billion.

The discovery mirrors a larger energy boom currently taking place in East Africa. According to the U.S. Geological Survey, East Africa's coastal waters are expected to hold up to 441 trillion cubic feet of natural gas. This is almost double the estimate given a few months ago in May 2012, and numbers are likely to grow with further exploration deals in the ‘pipeline’.

The Economist has hailed the emergence of an "Eastern Eldorado", predicting the region to rival West African resource giants such as Nigeria and Ghana. British Gas have announced plans to invest about $15 billion in Tanzania within the coming decade. This figure alone is more than half the country’s current annual GDP.

The expected revenue gains and investments could mean a decisive shift towards industrialisation for Tanzania’s donor-dependent agro-economy. President Kikwete has announced his hope that Tanzania will soon become one of the leading global gas suppliers.

However, this economic enthusiasm should be tempered by a healthy dose of scepticism - especially with regard to the Tanzanian state’s ability to handle the opportunity of new capital inflow. In a press statement, the state-run Tanzanian Petroleum Development Corporation confirmed that it had postponed last week’s offshore exploration licensing round, due to take place in Houston, Texas. The round will be delayed until the government reviews a new draft gas bill. The announcement forms part of a larger debate about benefits and potential detriments of the suspected boom of the resource extraction industries.

Potential for Conflict
Local politicians' scramble for profit from natural resources has the potential to destabilise the relatively peaceful relations between East African nations.

The heated debate between Tanzania and Malawi surrounding oil-drilling activities in Lake Nyasa is alarming. Oil finds in Lake Tanganyika have sparked border disputes between the Democratic Republic of the Congo and Tanzania - according to watchdogs such as the International Crisis Group.

However, there is not only potential for disputes with Malawi, Uganda and the DRC - offshore oil discoveries could also precipitate the formation of further separatist movements on the semi-autonomous island of Zanzibar. The potential for oil discovery is at the centre of a political debate between Zanzibar and the mainland because it is still unclear if the capture of oil and gas should be the responsibility of the union or whether Zanzibar should form its own petroleum company.

Exceptionally, corporate interests might be a positive influence in finding a solution to this problem. A spokesperson of Shell told Reuters that they are trying to broker a compromise between the concerned parties, with Shell directly suffering from the political gridlock – unable to make use of the exploration rights granted to them ten years ago.

Scepticism in Tanzania
Although the potential for international skirmishes should not be neglected, the negative consequences of the gas discoveries are more widely felt among ordinary Tanzanians. Extractive wealth has generally been unevenly distributed amongst populations. Despite being the fourth largest gold producer in Africa, Tanzania and its people receive very little benefits from the mining sector, which generated some $2.3 billion during the year ending February 2012.

The political opposition in Tanzania has warned the government not to repeat past mistakes and to safeguard Tanzania’s energy resources for the future. In a recent declaration, Shadow Finance Minister Kabwe Zuberi Zitto urged the government to think its long-term strategy: “We may not be here tomorrow, but Tanzania will be”. The lack of coherent policy guidelines, strong supporting institutions, and local expertise were decried as he called for a ten-year moratorium on all explorations to achieve structural adjustments and pass necessary legislation on future resource explorations.

The potential impact of exploration activities on other sectors such as agriculture and tourism is also worrying. A Dar es Salaam-based lawyer conveyed these sentiments in a conversation with Think Africa Press:
“I don’t believe the country is ready to implement the existing systems and laws that will effectively protect the coastal environment. Tanzania stands already vulnerable and ready to lose its once glorious and bountiful coastline which is a major tourist attraction both above and under water.”

Use your blessings wisely
Prominent Tanzanians are calling for a change in the attitudes amongst political leaders, the civil service, and public to prevent Tanzania from suffering the famed “resource curse” of other African countries.
To prevent this, Tanzania needs to first create a culture of transparency. Negotiations between companies and the government usually take place behind closed doors and contracts remain a secret. This encourages corruption in a country which has a historical prevalence for rent-seeking behaviour and short-term gains by politicians and other public officials. The drilling and exploration of oil and gas could exacerbate these problems. And without effective monitoring and open debate in the public sphere, there is little hope for improving the current situation.

Resource findings, especially in border areas, need not be a potential source of regional conflict if politicians direct them towards further economic integration of the East African region. On a national level the equal distribution of benefits is paramount. The incoming revenues can stimulate local economies and help Tanzania create a sustainable economic upturn.

Structural constraints, such as a lack of expertise or promising high quality labour, should not prevent the majority of Tanzanians from deriving the benefits of capital inflows into their economy. Socio-economic baseline studies to assess negative impacts should be carried out in all affected communities, and risk mitigation measures should combat the potential negative effects. The government can use the revenue and capital inflows to make strategic investments in infrastructure, health and education. This will help ordinary 

Tanzanians reap their fair share of the benefits that comes along with the natural resource blessing. It is critical for politicians to live up to their duty of care and act in the broader interests of the population - only this realisation will help Tanzania move forward in its development process.

Article by:Katharina Neureiter who holds an MSc in History of International Relations from the London School of Economics specialising in African colonial history and war cultures. She is currently working as a consultant in East Africa and blogs at Hear About

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