ENERGY & MINERALS

by Roger Nellist

A resolution at last – Barrick acquires Acacia Mining
The long drawn out saga of Acacia Mining in Tanzania is at last drawing to a satisfactory close. Acacia was listed in the UK but 64% of its shares were owned by the Canadian mining giant Barrick Gold Corporation. Acacia operated three gold mines in Tanzania – at Bulhanyulu, North Mara and Buzwagi – but under the government of President Magufuli the firm was accused of wide-ranging irregularities, as we reported in earlier editions of Tanzanian Affairs. Last year Acacia was told in no uncertain terms to pack its bags and leave the country.

After high-level negotiations during 2018 and 2019 between the government and Barrick (in which Acacia was excluded) a Framework Agreement was concluded to resolve the politically and commercially explosive impasse. Under the terms of that agreement Barrick would acquire all of Acacia Mining and its assets and then establish a new joint-venture company in Tanzania to run those three gold mines in which government would assume a free 16% shareholding interest and play a direct role in running the operations. Among the other key terms, the economic benefits from the venture would be shared 50/50 between Tanzania and Barrick.

Barrick then sought to buy out Acacia’s minority (36%) shareholders and so become the 100% owner and controller of the former Acacia. Those negotiations took some months but on 17 September 2019, after certain legal processes were completed in Tanzania and in the UK, Barrick officially acquired the remaining Acacia shares in a deal that reportedly valued Acacia at $1.1 billion or more (a substantial improvement on Barrick’s initial offer of $787 million). Acacia Mining shares were immediately delisted and ceased to be tradeable on the London Stock Exchange and trading of them was suspended on the secondary Dar Stock Exchange too.

Tanzania and Barrick then moved quickly to establish their new joint-venture company. It is named Twiga Minerals Corporation (TMC) and was registered in Tanzania by mid-October. Its headquarters will be in Mwanza.

Apparently, though, there might have been some last-minute hiccups since by the end of the year no other details had been made public. Declining to explain why, the Ministry of Minerals did say that the ban on the export of mineral condensates still stood but confirmed that discussions were still ongoing. Commentators have speculated that two of the important matters yet to be fully resolved and holding up the overall new arrangement are the government’s insistence that gold smelting facilities should be established in Tanzania (so that the country can derive greater value-add from TMC’s gold mining operations) as well as the treatment of the former Acacia executives who were jailed last year for alleged money laundering, tax evasion and other crimes (see TA122 and TA124).

Temporary delay in LNG Project
In November 2019 the Tanzania Petroleum Development Corporation (TPDC) announced that the government’s negotiation of a Host Government Agreement (HGA) with the foreign oil companies that will develop the large Liquefied Natural Gas (LNG) project in Lindi had been temporarily suspended. The delay was to allow government to complete its ongoing review of existing Production Sharing Agreements (PSA), which was found to be necessary because some PSA issues apparently contradict or overlap with other contracts. It was not known when the review would be completed and the HGA negotiations could resume but the review was said to be at an advanced stage. However, official sources confirmed that the Ministry of Finance and Planning had already approved TSh 5.07 billion for compensating nearly 700 people who will have to move from the 2,077 hectares in Lindi Region where the LNG complex will be constructed. One of the partners in the project, Shell Tanzania, which also operates two of the offshore licences where large gas reserves have been discovered, said: “The HGA negotiations commenced in April [2019] and are currently on pause…. We are continuing to engage with the government and are supportive of the HGA process as it is an important step in agreeing the key commercial, technical and legal principles for the next phase of this important project”. It is reported that the other project partners, Equinor and Exxon-Mobil, have already invested in excess of US$2 billion in the other gas discovery licence. Equinor Tanzania recently clarified that the LNG project will take up to five years to construct once the HGA negotiations are concluded and should operate for at least 30 years.

More optimistic news on gas
Several government Ministers and officials spoke at the Oil and Gas Congress 2019 that was convened in early October in Dar es Salaam. At it the Minister of Energy, Medard Kalemani, announced that four new licence areas with expected high gas potential were available to the industry for exploration and drilling work. Adjacent to already proven gas reserve areas, they include Ruvu, Western Songo Songo and North Mnazi Bay. According to the Minister they have a gas potential of more than 5 trillion cubic feet (tcf). If proven, the new discoveries would raise Tanzania’s total gas reserves to almost 63 tcf. At the same Congress the Minister of State in the Prime Minister’s Office, Angellah Kairuki, announced that she would shortly be tabling in Parliament a new Investment Bill that would help create a more conducive business environment. Investors should also benefit from the provisions of an Action Facilitation Bill that will create a single law unit across government to implement regulatory reforms (rather than the current Ministry by Ministry differential approach to such matters).

Delegates at the Congress also heard from Charles Sangweni, the acting Director General of Tanzania’s Petroleum Upstream Regulatory Authority (PURA). He explained that the ongoing review of the 11 existing PSAs was to bring them into line with the provisions of the two new major natural resource Acts enacted in 2017. He told the oil industry delegates to expect that government would announce a fifth competitive bidding round for petroleum licenses in about two years’ time when, hopefully, global oil and gas prices would be stronger than now. He envisaged that more than 20 offshore and onshore blocks would then be open to tender from the local and international petroleum industry. The last such bidding round was in 2013. Separately, Sangweni told reporters that Tanzania’s deep offshore areas have higher potential for gas discoveries than onshore ones but that there is a big disparity in the cost of drilling a single well; offshore in deep water a well may cost $100 million whereas an onshore well would typically cost about $30 million. (For comparison, in the early 1980s when various oil consortia were drilling wells onshore Tanzania and at Songo Songo Island a single well cost in the order of $10 million). According to PURA, a total of 96 wells have been drilled in the search for oil and gas in Tanzania to date and 44 of them have made gas discoveries. The vast majority of the other 52 wells, which were dry, were located onshore.

Songas – its plans and contribution
Songas is the Tanzanian company that generates electricity from gas, primarily sourced from the Songo Songo reserves. In round percentage terms it is owned 29% by TPDC, 10% by TANESCO, 7% by TDFL and 54% by UK-based Globeleq. Songas currently generates 180 Megawatts of electricity (which is roughly one fifth of the total power supplied to Tanzania’s National Grid) but in September 2019 announced its intention, subject to regulatory approval by TANESCO, to increase its generation to 250 MW in support of the government’s industrialisation programmes.

That same month Songas paid as dividends TSh 6.6 billion to TPDC and 2.2 billion to TANESCO. The company’s Managing Director, Nigel Whittaker, announced that since 2012 Songas has paid almost TSh 122 billion as dividends to the government and its agencies as well as 139 billion in corporate tax. He added that since the start of its operations in 2004 Songas has saved Tanzania about TSh 11 trillion in displaced fossil fuel imports that would otherwise have been necessary for power generation in the country.

Other extractives news in brief
Over the last two decades Geita Gold Mines (GGM) has been mining gold using open cast surface techniques. However, to improve production and profitability it now needs to switch to tunnelling and other underground mining methods for which its workforce of about 350 people are ill-equipped. Government is insisting that GGM explain what will happen to its current workers, notwithstanding the fact that the switch to underground mining at Geita is predicted to yield some $230 million a year. GGM executives have responded telling government that, although the majority of its workers are likely to be laid off, the company has begun training about 150 in underground mining techniques.

In 2019 the Zanzibar government signed a PSA with RAK Gas, a petroleum company based in the UAE. The agreement provides for oil and gas exploration work to be undertaken in the Zanzibar-Pemba block and aerial and other pre-drilling surveys have so far been conducted. In September the Zanzibar President, Ali Mohamed Shein, visited the UAE and met with the management of the RAK Gas company to be briefed on the initial survey work. On his return to Zanzibar he was at pains to stress that his government was fully committed to the project saying that, contrary to rumours, it does not flout the Constitution.

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