ENERGY & MINERALS

by Roger Nellist

Tanzania’s gold earnings surge
According to the Bank of Tanzania the country earned US$2.72 billion from gold exports during the twelve months ending on 31 July 2020. It was an increase of almost $1 billion over the previous year. The 52% increase meant that gold exports overtook tourism receipts as Tanzania’s number one foreign exchange earner. The principal reason for the surge in gold earnings was the higher price of gold on world commodity markets, as investors switched to gold to counter economic uncertainty arising from the Covid pandemic. In July 2020, the average price of a troy ounce of gold reached $1,846, compared with $1,732 in June and $1,531 in May. The July 2020 gold price was the highest since September 2011.

Other recent gold news
In October 2020, the recently formed Twiga Minerals Corporation declared its first dividend, of $250 million. In accordance with the respective shareholdings, $40 million of it (about TSh 100 billion) was received by Tanzania, reflecting the government’s 16% free stake. Twiga is the joint venture gold mining company established between Barrick Gold and the Tanzanian government in January 2020, following the government’s protracted dispute with Barrick’s subsidiary, Acacia Mining. It operates the three gold mines at Bulyanhulu, North Mara and Buzwagi.

In December 2020, five people in Mbeya region were suspended and arrested for allegedly smuggling 15.4 kilogrammes of gold worth TSh1.8 million. Three of the five were working at the Chunya Mineral Centre and were suspended by the Minerals Minister, Dotto Biteko. The other two were Police officers. The Director of Public Prosecutions announced that his office had acquired enough evidence to prosecute the five on six counts. Three of the five appeared in Court but the other two went missing.

LNG negotiations to resume
Just before Christmas the Tanzania Petroleum Development Corporation (TPDC) announced that it was hopeful that negotiations between Tanzania and foreign oil companies would resume in January 2021 for the Host Government Agreement (HGA) that will govern the establishment of the much-delayed Liquefied Natural Gas (LNG) project at Lindi. The HGA is a crucial project agreement and the negotiation of it has been proceeding on and off for several years. Originally, it was expected to be concluded by September 2019. However, negotiations stalled when the many companies involved – Shell, Ophir, Pavilion, Equinor and ExxonMobil – supposedly could not agree amongst themselves on important aspects of the project. Then Tanzania decided to review and renegotiate some of the terms of the Production Sharing Agreements under which those companies hold exploration and development rights in the country. In December 2020 TPDC confirmed that it was still finalising the amounts of compensation to be paid to landholders in the Lindi region where the LNG plant will be sited. Once the HGA is concluded the investors will then be able to make a Final Investment Decision. The complex LNG project is likely to cost about US$30 billion.

The use and benefits of domestic gas
TPDC also announced that between July 2004 (when Songo Songo gas was first piped to Ubungo in Dar es Salaam) and the end of 2020, the use of domestic gas had saved the country $15.6 billion (TSh 36 trillion) – by displacing expensive imported fuels. $13.2 billion of the savings was attributable to the generation of electricity for the national grid and the remaining $2.4 billion was saved by industries that elected to use domestic gas directly rather than imported fuels. TPDC explained that 48 factories are fully using gas in their operations, as well as four institutions. Moreover, about 1,000 households in Dar and Mtwara are also now powered by gas. Additionally, a modest number of vehicles (about 400) are currently powered by Compressed Natural Gas (CNG), the number being constrained by the costs of converting vehicles from petrol/diesel to CNG and by the lack of CNG refuelling stations. At the present time there is only one CNG station operating in Dar (at Ubungo). However, TPDC clarified in December that it is planning to build five more CNG stations – at Ubungo, Kibaha, the ferry/fish market, Muhimbili hospital and at the University.

In November 2020, TPDC’s Managing Director, James Matarajio, told a conference that TPDC plans to extend the use of gas by households in up-country areas like Morogoro, Dodoma, Mwanza and Tanga. He pointed to both environmental benefits and significant household energy cost savings arising from the use of domestic gas. Matarajio added that Tanzania has discovered sufficient gas resources to be able to export some to neighbouring countries after satisfying Tanzania’s domestic needs, including those of the LNG and perhaps other export-oriented projects too.

East Africa Crude Oil Pipeline (EACOP)
TPDC has confirmed that preparations are now well advanced for the construction of the Uganda–Tanzania East Africa Crude Oil Pipeline (EACOP), that will enable the oil discovered in Uganda in 2006 to be exported through Tanzania. The 898 miles long pipeline will link Uganda’s oil fields with an export terminal at the port of Tanga. About 80% of the pipeline will run through Tanzania. The project is expected to cost $3.5 billion and create more than 18,000 jobs for Tanzanians.
The two governments signed the overarching agreement for EACOP in September 2020, at a ceremony attended by Presidents Museveni and Magufuli. That was followed in October by signature of an agreement between the French oil giant, Total, and Tanzania. Total is the majority stakeholder in the Ugandan oil discoveries and is developing the pipeline project together with the China National Oil Company.

Map showing the proposed route of the East Africa Crude Oil Pipeline (EACOP) from Uganda to Tanga.

Possible fertiliser project
The Petroleum Upstream Regulatory Authority (PURA) which regulates the exploration, development and production of natural gas in Tanzania announced in mid-December 2020 that the planned $1.9 billion fertiliser project on the Mtwara coast is still on – but, significantly, the commercial terms have not yet been agreed with investors. According to PURA’s acting director general, Charles Sangweni, the main stumbling block is disagreement over the price that Tanzania’s natural gas will be sold to the fertiliser plant. Gas is the main raw material feedstock in the manufacture of fertiliser. Sangweni told the media at a workshop that the natural gas price should be at least $3 per MBTU but a German investor wants it reduced to $2.6, which would mean government having to subsidise the gas input. The plant is expected to export 70 percent of the fertiliser produced and the remaining 30 percent will be sold to Tanzanian farmers. It is unclear when the project will be realised. It had been expected to commence in 2016 through a joint venture between TPDC and foreign companies, but the partners were unable to agree on the commercial terms.

The project is reminiscent of the planned Kilwa Ammonia Company (KILAMCO) fertiliser project that this contributor advised on in the Tanzanian Ministry of Water, Energy and Minerals in the early 1980s. As a joint venture between TPDC (26%) and a large USA fertiliser company (74%), KILAMCO was to be a world-scale export-oriented project intended to earn the country much-needed foreign exchange at a time when the economy was in dire trouble. At $645 million (though subsequently downscaled to $425 million) it was to be the largest single investment ever in Tanzania. Intensive domestic and international efforts were made over several years to realise the project and by 1985 in-principle funding commitments were received from the World Bank Group, UK (CDC), Sweden, Italy, USA, Yugoslavia and China. However, by the late 1980s world fertiliser prices had softened considerably, undermining KILAMCO’s commercial viability. Moreover, TPDC was unable to raise the foreign exchange to support its equity stake and, given the magnitude of the sums involved, donors signalled that their financial support for the project would have to be fungible (reducing their commitments to other Tanzanian developmental projects). During the 1990s, the Songas gas-to-electricity project was developed as the preferred alternative use of Songo Songo gas, and began generating electricity at Ubungo in 2004.

Zanzibar’s hopes for oil and gas
Zanzibar President Ali Mohamed Shein told reporters in mid-October 2020 that the results of preliminary 2D seismic and other pre-drilling technical work undertaken to date point to the existence of geological structures with high oil and gas potential in five areas in the Pemba-Zanzibar block. The potential natural gas reserves there have been estimated at 3.8 trillion cubic feet. (For comparison, Tanzania has so far discovered coastal and offshore gas reserves of at least 57 tcf). He cautioned that it is early days yet and that more sophisticated 3D seismic needs to be acquired before any wells are drilled to confirm the possible reserves.

Editor’s Note: This is Roger’s final article as our regular contributor on Energy and Minerals, after eight years. I am confident that our readers would like to join me in thanking him for the brilliant way he has handled this important, sensitive and complex subject. Asante Roger, and best wishes for the future. Ben

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