by Roger Nellist

Tanzanian mining – some progress
2017 was a particularly dramatic year for Tanzania’s mining sector. The mineral sands export scandal resulted in the sackings of senior government personnel and far-reaching changes in the governing legislation and administrative machinery for management of the country’s mineral resources. In our feature article, TA118 presented the background to the saga and highlighted the radical responses initiated personally by President Magufuli.

Whilst things now seem to be settling down on the gold mining front, in recent months the President’s crusade against proven and presumed malpractise in the mining sector has turned to the country’s tanzanite and diamond operations.

Important agreement reached with Barrick Gold (Acacia)
On 19 October at a ceremony presided over by President Magufulu in State House, and after three months of intensive high-level negotiations between the government and Barrick Gold Corporation, the two parties signed a framework agreement which in the words of Barrick’s chairman (John Thornton) signals “… a modern, 21st century partnership that should ensure Acacia’s operations generate sustainable benefits and mutual prosperity for the people of Tanzania, as well as for the owners of Barrick and Acacia”. (Barrick – a Canadian multinational based in Toronto – is the world’s largest gold producer and is the parent company of Acacia Mining plc whose Tanzanian gold mining operations triggered the crisis last year. Tanzania is the African continent’s fourth-largest gold producer and Acacia is its largest miner).

Although there are still important details to be negotiated between the two sides, it is expected that the agreement will put an end to the acrimonious state of affairs that has existed between Tanzania and Acacia over the last year. It is understood that the main principles agreed are: (a) the net profits (‘economic benefits’) generated by Acacia’s operations will be shared with Tanzania on a 50/50 basis from now on; (b) additionally, the government will take a 16% stake in the venture (with a new company being established in Mwanza to reflect the new shareholding arrangement, under which Tanzanians will also be appointed to the Board); (c) all income of the company will be banked in Tanzania, no longer abroad, and any disputes will be settled in Tanzania, not internationally; and (d) significantly it has also been agreed that a smelting plant will be built in Tanzania so that the gold, copper and silver produced by Acacia can be processed in the country, obviating the need to export the raw materials. These terms are a big departure for Tanzania and are expected to create more jobs and revenues and generally boost the domestic value-addition from the country’s substantial gold mining operations.

Two other important matters have also been agreed in principle, with the details yet to be worked out. First, arrangements will be established to ensure that the local communities surrounding the gold mines benefit more from the mining operations, and that the mine workers will be much better treated (in terms of contracts, housing, health and social services and the like). Second, Acacia will make a “good faith” payment of US$300 million to the government whilst experts from the two sides continue to haggle over the enormous amount (US$190 billion) that Tanzania has demanded by way of unpaid taxes, fines and interest.

This deal (which was to be approved by the Acacia Board and shareholders) has been acclaimed as especially good news for Tanzania. At the televised signing event the Minister for Constitutional and Legal Affairs, Professor Palamagamba Kabudi (who led the government negotiating team with Barrick), clarified that – with the 50/50 profit split, 16% government shareholding and the other payments to be made by the company – Tanzania’s overall share should amount to about 70%. President Magufuli said “Now that we are all shareholders, we can sit down over a cup of coffee and amicably resolve any outstanding issues”. The deal means that, as a shareholder, the Tanzanian government will be involved in key decisions governing the gold operations (such as investment, employment and training of Tanzanians, procurement of goods and services, and marketing). There appeared to be investor relief too, as Acacia’s London-listed share values rose 16 percent on news of the agreement.

Nevertheless, there continues to be fall-out from the 2017 saga. In the autumn, because of the original ban imposed on the export of gold and copper concentrates, Acacia scaled back production at one of its three gold mines (Bulyanhulu) and retrenched about 2,000 workers. This led to fears of serious impacts on their families and the local economy and worries from banks that many of the mineworkers would default on the personal loans that had been extended to them.

Then, a day after signature of the framework agreement, a senior representative of Acacia said his company did not have $300 million with which to pay the upfront “good faith” sum. That prompted Barrick to announce that it would meet part of the bill. Finally, in the first week of November Acacia’s top two executives – Chief Executive Officer (Brad Gordon) and Chief Finance Officer (Andrew Wray) – resigned and the Board announced their replacements. It was unclear whether their departures were directly related to the October framework agreement with government, but commentators hinted that the two had been excluded from the negotiations that Barrick had conducted effectively on Acacia’s behalf.

More widely, a few experts were predicting in September that no Tanzanian mining venture would be economic after the recent changes in the mining tax laws, and in early October, two weeks before the Barrick agreement, a government spokesman denied that Tanzania was moving to nationalise mining operations. He said: “The laws are not intended to lay the ground for nationalisation but seek to ensure sovereign ownership of natural resources … in conformity with international principles. … The government will continue attracting and protecting investors in the mining and other sectors so long as they adhere to the law and regulations”.

Diamonds and Tanzanite
In July 2017 the Bunge Speaker appointed two parliamentary teams to probe alleged malpractice in Tanzania’s diamond and tanzanite mining operations. Reporting to the Prime Minister and President in early September both teams were very critical of the country’s mineral sector regulatory bodies (especially the Ministry of Energy & Minerals, where the last three Ministers were singled out for having supervised the gemstone industry poorly); they pointed to the likelihood of substantial tax losses whilst also questioning missing revenues in that Ministry’s accounts.

The diamond probe identified huge differences in diamond production statistics kept by different organs of government and, startlingly, asserted that “…. one high-level government leader was given a gift of diamonds with a current value of $200 million”. Amid public and parliamentary controversy, that leader was not named.

Decrying the secrecy surrounding tanzanite mining, the other probe team suggested that only 20% of Tanzania’s tanzanite production passes through official channels (the remainder disappears through smuggling) and that government gets only about 5% from the likely global sales and other disposals of that gemstone, which is uniquely produced in Tanzania.

As with gold earlier, government responded robustly. In early September London-listed Petra Diamonds (which owns 75% of Williamson Diamond Ltd) temporarily suspended diamond mining at its Shinyanga Williamson mine after a parcel of diamonds destined for export to Antwerp had been seized by government on 31 August at Dar’s international airport and some of the company’s key staff had been detained for questioning by the authorities. It was alleged that the diamonds had been deliberately under-valued by half (with a declared preliminary value of some $15 million instead of nearly $30 million established through a government re-valuation of the stones) as a result of possible collusion between mine workers and dishonest officials. Petra’s share price fell by 28% on news of the seizure but the company maintained that it had sought and been granted all relevant export documentation, and even published copies of the government’s certificates on its web-site.

On tanzanite, in mid-September whilst on a visit to the north, President Magufuli ordered the military to build a wall around the tanzanite mining areas at Mirerani (close to Mt Kilimanjaro), allowing only one way in and out of the mine, and to install enhanced electronic security equipment, so that smuggling of the precious stones can be stopped and the government can secure its proper share of their worth. Mirerani is the only known tanzanite mine in the world. Magufuli also instructed the Bank of Tanzania to start buying stocks of tanzanite to boost its reserves.

It is understood that following the conclusion of the gold framework agreement with Barrick, the President ordered government officials to commence talks with diamond and tanzanite miners with a view to reaching similar agreements.

by Roger Nellist

Controversial Presidential actions on mining
In the last few months President Magufuli has issued decrees on a range of mineral matters, which are unsettling some mining investors and causing a big local stir.

Last year he ordered the revocation of a large-scale mining licence in Shinyanga in favour of the award of mineral rights to small-scale miners. In January this year, Magufuli directed the Minister of Energy and Minerals, Professor Sospeter Muhongo, to cancel a nickel mining licence at Dutwa in Simiyu region in favour of a water supply project in the area. The company that holds the Dutwa nickel mining rights (in which the World Bank through its International Finance Corporation is a 10% shareholder) has been prospecting in the area for almost a decade and is at the point of establishing a large open pit nickel mining operation. Referring to water problems in the area, the President said: “There is no way over one million people should be suffering just because one investor is extracting minerals – that does not make sense”. However, the President’s action has been strongly criticised by opposition MP Zitto Kabwe, who highlighted the considerable economic potential of the mine and said “the government is sending all negative messages to investors. These statements will cost the nation dearly in future”. The Tanzanian Chamber of Minerals and Energy called the Presidential decrees “alarming”; another body has called them an extension of violation of the law.

In a separate move, and as had been foreshadowed by President Magufuli in 2016, the Ministry of Energy and Minerals announced on 3 March an immediate ban on the export of mineral concentrates and ores for metallic minerals such as gold, copper, nickel and silver. The ban is intended to ensure that mineral value-addition activities (i.e. the processing, smelting or refining of the mineral ores/concentrates) are carried out in Tanzania, as specified in the 2009 Mineral Policy and the 2010 Mining Act. Local mineral beneficiation activities are expected to create extra jobs, generate additional revenues and transfer technology and skills to Tanzania.

However, the immediate imposition of the export ban has been criticised by several stakeholders (including small-scale miners fearing bankruptcy), who argue that existing producers have been given no time to build the necessary beneficiation facilities and that arbitrary administrative measures create an unpredictable policy environment that will deter new investors. Senior representatives of some foreign mining companies operating in Tanzania have commented that “any government making unilateral decisions is worrying and of concern” and “if the Tanzanians wish to encourage foreign investment, they’re not helping by making these sorts of announcements”. The Australian government said it was “closely monitoring” the new business policies and regulations in Tanzania for any impact those changes may have on Australian investment interests in the country.

Reports indicate that Acacia Mining Plc is the first big mining company to be affected. Although the gold bars it refines can be exported, the company has had to suspend the export of mineral sands and copper concentrate recovered during its gold mining operations. Acacia let it be known that it was losing more than $1 million each day in revenue from two of its three Tanzanian gold mines (Bulyanhulu and Buzwagi) because of the export ban. It said the ban has put unsustainable pressure on its cash flow and required it to implement stringent spending cuts and to freeze new employment.

On 23 March, President Magufuli unexpectedly visited Dar es Salaam port and inspected a number of mineral sand containers that had already been cleared for export. He ordered the stock of almost 300 containers at the port to be impounded until analysis of their contents had been completed. “Based on the information that I have, if I say what is really inside these containers, it could make any patriotic Tanzanian cry…. From now onwards, no mineralised sand will be exported from Tanzania… There is no country being robbed of its mineral wealth like Tanzania”. According to the Tanzanian Ports Authority, more than 50,000 containers holding mineral sands are being exported out of the country every year.

A few days after the President’s visit, the Speaker of the National Assembly and a number of other MPs also went to the Port to inspect the seized containers. The Speaker announced he was establishing a Parliamentary committee to investigate all aspects of the mineral sands exports saga.
The Permanent Secretary of the Ministry of Energy and Minerals, Professor Justin Ntalikwa, had joined the Speaker’s visit to the port. But within hours of their visit, in an abrupt move signalling the growing sensitivity of the mineral sands export ban, President Magufuli sacked Prof Ntalikwa. No reasons were given but speculation in the press attributed Ntalikwa’s removal to his remarks about the high cost and time needed to establish local beneficiation facilities.

Then at the end of March, in an attempt to allay investors’ fears over the export ban, Prime Minister Kassim Majaliwa made a surprise visit to the Buzwagi Gold Mine in Shinyanga and spoke to workers there who were concerned about potential job losses resulting from the export ban. “I want to assure Tanzanians questioning this exercise that we are not doing this to scare away investors,” he said. “We want to satisfy ourselves on what is going on with our mines.” He added that the government had to clear doubts that the country was not being short-changed with regard to the export of copper concentrates. The PM’s team also took samples of mineral sands from sealed containers destined for export from the mine, in order to have them analysed independently for the amounts of copper concentrates.

The ongoing controversy has now led to official calls for some of the mining agreements to be renegotiated. Just before Easter the Controller & Auditor General sent a report to President Magufuli saying that the government must review mining contracts and rethink its tax code (to remove unreasonable provisions including generous tax exemptions and other contractual loopholes) if Tanzania is to benefit from the extractives industry.

Five-year delay for the LNG plant
At the end of 2016, Statoil’s Tanzania country manager, Oystein Michelsen, warned that a final investment decision on the $30 billion onshore liquefied natural gas export terminal will not be made for at least five years, and that it would take another five years after that to actually build the plant. The commercial partners in this mega project (which the Bank of Tanzania estimates would add 2 percentage points to annual economic growth) are Royal Dutch Shell, Statoil, Exxon Mobil, Ophir Energy and the Tanzania Petroleum Development Corporation. The big hurdles facing the project include the paramount need for a stable contractual framework with the Government, resolution of land issues, identification of funding and clarity over local ownership requirements in some contracts. President Magufuli has ordered officials to accelerate the resolution of these issues so that the project can start.

Tanesco – Power price hikes cancelled
At the end of December 2016, the Energy and Water Utilities Regulatory Authority announced an increase in electricity tariffs of 8.5%, to the consternation of many including the Energy and Minerals Minister Sospeter Muhongo, who immediately revoked the order. The increase had been sought by the state utility, Tanesco, which had actually wanted an even bigger hike. After Minister Muhongo also disclosed that Tanesco managers had been paying themselves large bonuses despite the utility’s dire financial position, President Magufuli intervened and on 1 January sacked Tanesco’s Managing Director, Felchesmi Mramba. University of Dar es Salaam senior lecturer Dr Tito Mwinuka was appointed as Mramba’s successor in an acting capacity. Mwinuka said his priorities would be to expand the country’s power production capacity, to pursue those owing the utility money, and to improve the utility’s efficiency by changing its ‘business as usual’ culture and reducing the substantial wastage of both electricity and finances within the company. He would also pursue those who make illegal electrical connections.

by Roger Nellist

Tanzania’s Gas Master Plan – and the big challenges for LNG
The Ministry of Energy and Minerals unveiled in December 2016 the Government’s Natural Gas Utilisation Master Plan (2016-2045). With about 55 trillion cubic feet (tcf) of gas so far discovered in the southern coastal and offshore areas of Tanzania, this is the strategic plan intended to transform Tanzania into a major global gas producer and exporter, which in turn will boost economic and social development in the country.

TA115 summarised recent efforts to establish a large liquefied natural gas (LNG) project at Lindi. Now, the Master Plan identifies Japan, China, South Korea and India as the major potential export markets for Tanzanian LNG. These are the countries where most of the growth in demand for gas is expected over coming decades. Yet, the plan acknowledges a real danger: “Despite expected growth in demand, it is likely that there will be market volatility for LNG worldwide due to current developments in the US, Australia and Mozambique. Hence, the market may be very challenging for new upcoming projects like Tanzania”.

Mozambique, for example, has discovered reserves of gas three times larger than Tanzania’s and also is considered to be more advanced with its gas utilisation plans. Moreover, international energy experts forecast that the global LNG market will remain over-supplied and plagued by low gas prices at least until the start of the next decade.

The Tanzanian LNG project faces other challenges too. The Minister of Energy and Minerals, Professor Sospeter Muhongo, recently indicated that the Government would invest some US$30 billion in the project, including for the construction of up to 200 kms of gas pipelines from the offshore discoveries to the LNG plant. He cautioned though that funding such a huge investment would not be easy (commentators point to Tanzania’s deteriorating external debt position and narrow domestic tax base as particular sources of concern) and that the project could take many years to materialise. Moreover, the commercial partners in the project have yet to make a final investment decision.

Accordingly, Tanzania’s Natural Gas Utilisation Master Plan acknowledges that piping some of the gas to neighbouring countries may be a more realistic way of commercialising the country’s natural gas reserves, as well as ensuring that the domestic Tanzanian market is well served. Even these options will not be easy. The Plan states: “Considering that the market for natural gas is scattered throughout the country and beyond, investments into local and regional transmission pipelines are proposed arbitrarily to be done in phases of five year periods”. Depending on their economic viability, pipelines would be built initially from Dar to Mwanza, Dar to Arusha and Mtwara to Njombe. This could be followed in a second phase by a pipeline from Morogoro to Mbeya and, eventually in a third phase, Sumbawanga, Tabora, Kigoma, Kagera and Mara would be supplied.

The Master Plan estimates that Tanzania’s domestic demand for gas over the next 30 years will amount to 32.5 tcf, with 8.8 tcf being used to generate electricity. It signals that over the same three decades 3.1 tcf or even more could be exported by pipeline to neighbouring countries.

Tanzanian stake in Ugandan oil refinery
Arrangements are being finalised for the construction of the pipeline to carry Ugandan crude oil through northern Tanzania to the Indian Ocean export terminal that will be built at Tanga. Construction work is expected to commence in mid-2017 and be completed in 2020.

In a complementary move, Minister Muhongu announced recently that Tanzania will invest in the new oil refinery that is to be built at Hoima in Uganda. Tanzania will take an 8% equity stake, which will cost it about US$150 million. The refinery is to be built in two stages and will reach a processing capacity of 60,000 barrels of crude oil per day. The Ugandan Government invited all EAC member States to participate in the venture, up to 8% each, and Muhongu said that Tanzania is determined to take its full share. Tanzania’s own refinery – the Italian joint venture TIPER, at Kigamboni – closed down in the early 1990s when, in the absence of any Tanzanian crude oil production, it became more economic to import directly the petroleum products needed by the country.

Government acts on two mineral issues
Last Autumn, during a visit to mines in Kahama, President Magufuli announced a ban on the export of mineral sands from gold mining operations. Mining companies have been sending the sands abroad for smelting, in order to recover quantities of silver, copper and tin contained in the sands. As a result, Tanzania loses revenue. The President said that gold miners must now establish suitable smelter plants in Tanzania so that the economy will benefit more.

Tanzania has huge reserves of coal (estimated at 10 billion tonnes) and abundant supplies of gypsum (estimated at 300,000 tonnes). These are two of the commodities used in the manufacture of cement. Yet, some Tanzanian cement factories have reportedly been importing coal and gypsum to service their plants, citing local supply problems, prices and quality as reasons. As a result, in August the Ministry of Energy and Minerals banned the import of coal and gypsum, in a move designed to foster greater local investment to boost production of Tanzania’s own coal and gypsum reserves. (See also the Economics and Business section in this issue.)

by Roger Nellist

Tanzania’s unexpected helium discovery
In June scientists from the UK (Oxford and Durham Universities) and Norway announced the discovery of a large reserve of helium gas in the geo-thermally active Tanzanian Rift Valley. Their study estimates a probable helium reserve of 54 billion cubic feet in just one part of the Rift Valley, enough to satisfy global consumption of the gas for nearly 7 years. This is an exciting find – described as a “game-changer” – since global helium supplies are running out and the price of helium has risen by 500% over the last 15 years. Helium is the second most abundant element in the universe but is exceedingly rare on earth. It is used in specialist applications like hospital MRI scanners, super magnets, particle accelerators, military equipment and spacecraft. The scientists believe there is enough helium in this one Rift Valley location to fill at least 1.2 million MRI scanners. The find is bound to intensify exploration efforts in the Rift Valley.

LNG plant discussions
Tanzania believes that the prolonged fall in oil and gas prices represents an opportunity (for gas-driven development), rather than a threat, and in June convened a meeting between the country’s gas discoverers – Statoil, Exxon Mobil, Ophir Energy, Shell and TPDC – to start framing possible commercial and technical terms to govern the planned onshore liquefied natural gas (LNG) export terminal at Lindi. The parties have yet to take a decision on the huge investment and those terms – to be defined in a Hosting Government Agreement (HGA) – will be a vital consideration influencing it. Government has allocated 19,000 hectares of land in Lindi for the LNG export terminal and its associated industrial infrastructure.

CGT due on Shell’s acquisition of BG Group
In February 2016 Shell acquired the BG Group (with assets valued at $55 billion) in the world’s biggest energy deal in a decade. Importantly, the deal gives Shell a majority stake in BG’s gas discovery blocks in southern Tanzania and hence a substantial interest in the planned LNG project. For Tanzania the deal offers access to Shell’s worldwide experience, technology, networks and markets for the country’s gas. However, the government and Shell are apparently now in dispute over the amount of capital gains tax (CGT) that should be paid on the sale of the BG Group’s Tanzanian assets. It is reported that the Tanzanian Revenue Authority (TRA) is seeking US$520 million in CGT, an amount that Shell rejects and it has appealed to the tax tribunal. Sensitive discussions are still ongoing but there is concern that a lengthy dispute could delay the LNG plant.

Uganda – Tanga oil pipeline
TPDC has announced that the company to be formed to raise funding, procure goods and services and then to operate the oil export pipe­line between Kabale in Uganda and Tanga Port will be known as the Pipeline Company (PIPECO). The stakeholders in the pipeline are the governments of Tanzania and Uganda and the three companies that have made the oil discoveries in Uganda: Total (of France), Tullow Oil (of UK) and the China National Offshore Oil Corporation. Details of the likely pipeline costs, timing and throughput were given in TA114. Information subsequently released includes the pipe’s routing in Tanzania (it will pass through Kagera, Geita, Shinyanga, Tabora and Singida to Tanga), the expected funding arrangements (the stakeholders will provide 40% of the funding and PIPECO will raise 60% in loans) and that Uganda will be charged a transit fee of just over $12 for each barrel of crude transported. Contract negotiations are ongoing. A final investment decision is expected by mid-2017. Meanwhile, the Tanga Regional Commissioner has urged farmers to start planning the expan­sion of their fruit, vegetable and poultry production in anticipation of the increased demand that the pipeline construction and operation will generate.

KILAMCO fertiliser project resurrected
TPDC also announced a new joint venture between itself (holding a 20% stake) and three companies from Germany, Denmark and Pakistan to establish a gas-powered fertiliser manufacturing facility at Kilwa Masoko in Lindi Region. The plant will produce 3,850 tonnes daily for Tanzanian farmers and also for export. It will also create jobs in the region. TPDC has begun the process for compensating the small num­ber of residents who have encroached on the 820-acre site that it has owned since 1989 – when plans for a similar KILAMCO project were first developed as the primary use for Songo Songo gas. (That project was shelved because of TPDC’s inability to raise enough equity finance and also because of concerns about the project’s long-term viability given the world surplus of fertiliser).

More CNG fuelling points in Dar
In a move to expand significantly the number of vehicles in Dar beyond the current 40 that are powered by compressed natural gas (CNG), TPDC will build five more CNG fuelling stations in the city. Presently there are only two CNG points, at Ubungo and at TPDC’s Mikocheni estate. CNG is much cheaper, cleaner and healthier than using petrol and diesel but the initial vehicle conversion cost is high.

Many more rural power connections
In June the World Bank approved a US$200 million soft loan to enable
2.5 million rural Tanzanian households to be connected to the national grid. The programme will also help increase the number of small renewable energy projects in rural areas, providing power to homes and businesses. In 2014 nationwide electricity connectivity was 36%. The government aims to increase this to 50% by 2025 and 75% by 2033.

Corporate tax payments by mining companies
A report by the Tanzania Extractive Industries Transparency Initiative covering 2013-2014 reveals that 13 big mining companies have not paid any corporate tax since they began mining operations in the country. The companies cite as reasons their accumulated losses resulting from high prior-year mining expenditures as well as tax holidays allowed under Mining Development Agreements. “No corporate tax has been paid because no corporate profits have been earned” said one company executive. They also say they have paid mining royalties and certain other mining taxes. However, President Magufuli has recently questioned why foreign mining companies who claim they have not made a profit for years are still hanging around an unprofitable mine. Perhaps things are changing, though. The Tanzania Mineral Audit Agency signals an improved scenario for 2015, with major mines having paid almost US$50 million in corporate tax. Under the Norwegian aid programme the government has benefited over the last three years from capacity-building support in the specialist areas of petroleum and mineral taxation. This has helped TRA reduce the declared losses of major mining companies.

Mixed news for small-scale miners
The Deputy Minister of Energy and Minerals, Medard Kalemani, told Parliament in Dodoma that his Ministry had opened offices in most regions of Tanzania so as to take its services closer to small-scale miners. He also said that such miners will benefit from TSh 6.8 billion in subsidies next financial year. Meanwhile, regional authorities in Geita have revoked 132 licenses of small-scale miners for failure to comply with mining laws (including non-payment of royalties) and have warned more may be revoked.

by Roger Nellist

Uganda-Tanzania oil pipeline agreed
Tanzanian President Magufuli and Ugandan President Museveni have agreed to build an oil pipeline between south western Uganda and Tanga port, allowing the oil discovered in Uganda in recent years to be commercialised and exported via the Indian Ocean. The deal was reached between the two leaders in March at the 17th Ordinary East African Community summit in Arusha. The pipeline will be up to 1,400 km in length and will take an estimated 3 years to build, employing some 15,000 Tanzanians and Ugandans in the construction work. Construction could commence as early as August this year. The total cost is put at US$ 4 billion.

In a separate statement, the Managing Director of the Tanzania Petroleum Development Corporation (TPDC), Dr James Mataragio, announced that the pipe will be 24 inches in diameter and will be able to transport 200,000 barrels of crude oil each day to the port at Tanga. The project will also stimulate the expansion of the port there. Other important details still under discussion include what revenues the Tanzanian Government will earn from the project.

The decision to build this Ugandan oil export pipeline through Tanzania – the so-called ‘southern route’ – hopefully ends a year of uncertainty and speculation. Last year the Ugandan Government initialled a Memorandum with the Kenyan Government, providing for the possibility of the pipeline following a ‘northern route’ through Kenya to Lamu. Mataragio said the southern route has now been chosen partly because of Tanzania’s proven experience of constructing and operating long-distance petroleum pipelines. Concerns over recent terrorist attacks in Kenya are also believed to have influenced the choice.

Unlike in Tanzania, oil discoveries have been made in both Uganda and Kenya over the last few years. In March, Tullow Oil announced it had made a new oil discovery in Kenya, potentially opening up a second oil basin in that country. However, the continuing low price of oil on world markets is inevitably slowing the pace of petroleum exploration around the globe by the international oil companies, which now have significantly reduced revenues from which to fund it.

New Songo Songo facility to process Kiliwani gas
Meanwhile, TPDC announced that the new Songo Songo Island Gas Processing Plant would be commissioned during April, only a couple of months behind the original schedule. Some of the first gas to be processed at the new plant will come from the Kiliwani North-1 (KN-1) production well, operated by Aminex plc and Solo Oil plc. The CEO of Aminex (an independent oil company that has held licences in Tanzania since 2002) announced that testing and other work necessary prior to production of gas from the well had been completed. In a statement, Aminex said: “All KN-1 gas will be sold to the TPDC at the wellhead for an agreed price of approximately US$3.07 per million standard cubic feet and will ultimately be transported by pipeline to Dar es Salaam, where it will be sold into the local Tanzanian market”.

More gas discovered onshore: Ruvu Basin
In March the Minister for Energy and Minerals, Professor Sospeter Muhongo, joined TPDC and representatives of the UAE-based company Dodsal Resources to confirm the discovery of natural gas reserves estimated at 2.17 trillion cubic feet (tcf) in a license block operated by Dodsal in the Ruvu Basin in Coast Region. Gas was encountered through the drilling of the Mambakofi-1 well there last year, since when tests and analysis have been undertaken which have upgraded significantly the initial estimates of gas in the field. The Minister explained that the announcement had been delayed in order to meet the new provisions of the Petroleum Act 2015.

Dodsal has been operating the Ruvu block under the terms of a Production Sharing Agreement signed with TPDC and the Government in 2007. The company now needs to prepare an appraisal and development programme for Government’s approval. Dodsal’s CEO said that “Exploration is still ongoing and we are optimistic of striking more natural gas reserves in the Ruvu Block”. The discovery is especially exciting because of its very close proximity to Dar es Salaam, which will provide a ready domestic market for the gas.

The Ruvu discovery brings Tanzania’s gas reserves offshore and onshore to 57 tcf. It is expected that the development of these very substantial gas reserves will help Tanzania to graduate to middle-income country status by 2025, as stipulated in the Tanzania Development Vision 2025. Minister Muhongo emphasised that “This will be possible when we have adequate and reliable electricity in the economy”.

TANESCO owes Songas
The Government has had to step in to hold discussions with Tanzania’s independent power producer, Songas, to try to prevent it from shutting down because of the large accumulated unpaid debt it is owed by the State electricity utility, TANESCO. The Managing Director of Songas announced that TANESCO owed his company about US$100 million in back payments. He said there is always a risk that Songas would have to close if those arears are not paid; Songas needs the monies to fund further investment in its power supply infrastructure.

TANESCO is the sole client of Songas, so the accumulating arears are a major issue for the firm. It is understood that Songas produces about 25% (180 megawatts) of the national grid’s electricity requirement from the Songo Songo gas field – so any disruption in Songas’ power supply would be serious for Tanzania too.

by Roger Nellist

LNG project land acquisition
The government has acted to address the two big hurdles delaying development of the liquefied natural gas (LNG) plant – namely, com­plex land acquisition procedures and the unclear legal framework (see TA 111).

On the first, government announced in May that it had set aside TSh 12 billion (about US$ 6 million) to buy land and compensate 450 people in Lindi where the LNG terminal is to be built. The plant, which will process the large volumes of gas discovered in recent years offshore southern Tanzania, may cost the developers US$ 30 billion and is unlikely to start operating until the early 2020s.

The development consortium comprises the licensees that discovered the gas (BG Group, Statoil, Exxon Mobil and Ophir Energy). Reuters reported the consortium will make a final investment decision next year.

So far, more than 53 trillion cubic feet of gas has been discovered and analysts believe that Tanzania (along with Mozambique) is now in a race with Russia, Australia, the USA and Canada to satisfy the gap in global gas supply expected by around 2020. Reuters also reported that Royal Dutch Shell agreed in April to buy the BG Group for US$ 70 bil­lion in the first large oil industry merger in more than a decade, thereby giving the Anglo-Dutch oil giant access to BG’s Tanzanian projects.

Petroleum Bills passed amid controversy
Amid much controversy the government has also addressed the second big hurdle, ensuring in early July in the last session of Parliament the passage of three petroleum sector Bills: Petroleum Act 2015, Oil and Gas Revenue Management Act 2015, and Tanzania Extractive Industries (Transparency and Accountability) Act 2015.

These Acts were tabled, debated and passed under fast-track process known as a certificate of urgency, and in the absence of most Opposition MPs who, along with a group of about 60 Civil Society Organisations, pointed to alleged weaknesses in their content and flaws in the Parliamentary process and called for the Bills to be shelved pending further stakeholder discussions.

According to The Citizen (6 July), there was continuous uproar in the National Assembly for three consecutive days as Opposition lawmak­ers repeatedly tried to block Energy and Minerals Minister George Simbachawene from tabling the Bills following the government’s insist­ence that MPs should debate them. The Speaker suspended the first session and then barred more than 40 Opposition MPs from attending – a ban the Opposition contended was a deliberate move to ensure the “controversial” Bills were passed without any meaningful debate.

Minister Simbachawene said the Bills were sent to the House under a certificate of urgency because of their importance to the nation. The new laws were needed so government could negotiate good exploration and gas development contracts with investors. “We want this Parliament to debate the laws because they have been trained well enough on oil and gas issues … we even took them for learning tours to various countries such as Norway, China and Trinidad and Tobago”. He said deferring the Bills to the November Parliament would cause further costly delays to Tanzania and fresh training would be required for the new legisla­tors; moreover, preparations for the three Bills had started in 2010 and stakeholders were involved and their views considered at several stages.

Among other things, the Petroleum Act 2015 establishes a Petroleum Upstream Regulatory Authority and an Oil and Gas Advisory Bureau (to advise the Cabinet on strategic matters). The Act also transforms the Tanzania Petroleum Development Corporation into the National Oil Company, with the mandate to manage the country’s commercial interest in petroleum operations as well as downstream natural gas activities.

It seeks to ensure that the gas industry benefits all Tanzanians includ­ing through the sourcing of Tanzanian goods and services, the training and employment of Tanzanians, and technology transfer. It repeals the previous petroleum laws, including the Petroleum (Exploration and Production) Act 1980 under which all exploration and development contracts and operations have been conducted for more than three dec­ades but which did not fully address gas issues.

Renewable Energy

Wind speed and energy data for Tanzania (ESMAP)

Tanzania’s plans for generating electricity from renewable energy resources should complement the country’s existing commercial energy supplies of hydropower and gas. In May, TANESCO announced pre­liminary results from the World Bank’s renewable energy resource mapping project, using global datasets and satellite analysis, indicating that Tanzania has immense solar and wind potential. The country’s resources suitable for solar power generation are considered to be equivalent to those of Spain whilst Tanzania’s potential for high wind power covers more than 10% of the country (an area the size of Malawi). One key finding is that certain areas of Tanzania with high solar irra­diation also have high wind speeds at night, raising the possibility of round-the-clock power generation.

These initial findings will be validated over the next two years by plac­ing 30 ground-based solar and wind measuring stations around the country, as part of a long-term partnership between the World Bank and TANESCO to modernize Tanzania’s power sector.

Africa Progress Panel report
A report (Seizing Africa’s Energy and Climate Opportunities 2015) by Kofi Annan’s Africa Progress Panel says 621 million people in Sub-Saharan Africa lack access to electricity. Energy bottlenecks and power shortages cost the region two to four per cent of GDP annually. Yet, driven by economic growth, demographic change and urbanisation, African energy demand is surging – widening further the energy gap between Africa and the rest of the world. Annan’s report says it would take the average Tanzanian eight years to use as much electricity as an average American consumes in a month!

Mining: Coal and Iron Ore
The Minister for Trade and Industry, Dr Kigoda, announced to Parliament in May the start of development of two related mega industrial-mineral projects – the Mchuchuma coal and Liganga iron ore projects in Iringa. They will establish an iron industry with an annual production capacity of one million tonnes (making Tanzania the third largest iron producer in Africa). Mchuchuma mine has more than 500 million tons of coal deposits, enough to produce 600 megawatts (MW) of electricity for more than a century. The coal-fired electricity plant will generate 250 MW for the iron industry and 350MW for the national grid.

Minister Kigoda said the two projects will create 32,000 jobs and gener­ate about Tshs 3.13 trillion (US$1.5 billion) annually. They will be the largest single industrial investment in Tanzania since Independence.

The projects are being implemented by Tanzania China International Mineral Resources Ltd, a joint venture between Tanzania’s NDC (20%) and a Chinese firm (80%). According to Press reports these mega pro­jects will cost up to US$3 billion to develop.

by Roger Nellist

Simbachawene replaces Muhongo as Minister
The Escrow account scandal finally claimed the head of Energy and Minerals Minister Sospeter Muhongo, who resigned on 24 January saying he was tired of the “false” allegations levelled against him. His Ministry’s Permanent Secretary, Eliakim Maswi, has been suspended since December 2014 pending investigations into his role in the matter.

Muhongo, who is a respected geologist, denies any wrong-doing but was blamed for failing to exercise due diligence in the saga. He had also upset the Public Accounts Committee, which had been calling for his removal over other issues (see TA110). Muhongo remains politically ambitious and his supporters maintain that he was not personally involved in the Escrow scandal, even though it happened on his watch.

President Kikwete named George Simbachawene as the new Minister of Energy and Minerals, and appointed Charles Mwijage as the new Deputy Minister. Simbachawene was formerly the Deputy Minister of Lands and Housing. After being sworn in at State House, he acknowledged the crucial role that energy plays in the country’s development and said that boosting rural electrification is among his top priorities. He added: “While I am aware that the Ministry faces many challenges, I personally feel that these can be overcome by effectively partnering with the private sector”.

Slow progress with LNG…
Concerns are being expressed that the government’s pre-occupation with the constitution and the 2015 elections is damaging the prospects for Tanzania’s long-term gas commercialisation. It is believed that some key gas legislation, that the companies need to give them regulatory certainty before committing billions of dollars of investment, will not be enacted by the current Parliament. Moreover, the escrow account scandal has now resulted in a change of leadership in the Energy Ministry and the government has not settled on a site for the LNG project – whether in Mtwara or in Lindi – despite the project partners submitting a location proposal a year ago. The Ministry says there are some land acquisition policy issues that need settling first. There are worries that these delays and uncertainties may unsettle the investors, especially at a time of low oil prices, and that the potential overseas markets for Tanzanian LNG may get filled by other big gas producers.

The current Mtwara versus Lindi rivalry for servicing the gas industry mirrors the decision that had to be made by the British Government in 1947 as to which town would be the port for the ill-fated groundnuts scheme. Mtwara was chosen and, over subsequent years, Lindi’s facilities gradually declined. The Citizen on 1 February 2015 gave a potted history, citing Kathleen Stahl’s ‘Sail in the Wilderness’ (published in 1961 with a foreword by Mwalimu Nyerere). The article begins: “Mtwara is booming and buzzing. It was not like this seven years ago… Even the richest person in Africa, hailing from an oil producing country, is also frequently visiting Mtwara. He is constructing a cement plant named after him – Dangote Industries (Tanzania) Limited. No wonder roads are being paved and hotels upgraded”.

Singida wind farm project
In March, it was announced that the government is in talks with the China’s Export-Import Bank (EximBank) for a low-interest $132 million loan to fund Tanzania’s first wind power project. The wind farm will be built in Singida and is expected to start next year with a capacity for generating 50 megawatts (MW) of electricity, with plans to raise that to 300 MW in future. The project is a joint venture between the National Development Corporation (NDC), TANESCO and a privately owned company, Power Pool East Africa Limited. The initial aim had been to commission the wind farm in 2013 but construction was delayed because EximBank raised its interest rate from 1% to 2% and accelerated the loan repayment period from 25 to 20 years.

Tanzania presently relies heavily on hydro-electric power, natural gas and fuel oil for electricity generation, and the government wants to add wind and geothermal power to its energy mix.

by Roger Nellist

Statoil’s seventh Tanzanian gas discovery
Statoil and its co-venturer Exxon Mobil have continued their extraor­dinary drilling success by making another – their seventh – natural gas discovery offshore Tanzania. In October, Statoil’s Senior Vice President for Western Hemisphere Exploration, Nick Maden, announced the discovery of an additional 1.2 trillion cubic feet (tcf) of natural gas in-place, through the drilling of their ‘Giligiliani-1’ well, and said that this discovery opens up additional prospects for the partners’ on-going multi-well drilling programme. The Giligiliani-1 discovery is located on the western side of Licence Block 2, which Statoil operates on behalf of Exxon Mobil and the Tanzania Petroleum Development Corporation (TPDC), and brings the total of gas volumes in-place to 21tcf in that Block. (For comparison: 1tcf = 180 million barrels of oil equivalent). Like the earlier wells, Giligiliani-1 lies in very deep water (in depths of about 2,500 metres), which will make the eventual commercialisation of these gas discoveries technically complex and hugely expensive. The consortium’s drilling rig “Discoverer Americas” has now moved to the central part of Block 2 to drill an eighth well on what is termed the ‘Kungamanga’ prospect.

Mnazi Bay gas sales agreement
In September the Tanzanian government signed an agreement with the licensees of the Mnazi Bay and Msimbati gas fields in southern Tanzania for the supply of gas through the long Chinese-built pipeline to Dar (see Tanzania & Extractives article earlier in this issue).

Petroleum contracts: TPDC officials arrested and released
The ongoing controversy over the undisclosed terms in 26 petroleum Production Sharing Agreements (PSAs) negotiated between the govern­ment, TPDC and foreign oil companies came to a dramatic head on 3 November when the chairman of the parliamentary Public Accounts Committee (PAC), Zitto Kabwe MP, had TPDC’s Board Chairman Michael Mwanda and its acting Director James Andilile arrested for failure to deliver to the PAC copies of the PSAs and certain other docu­ments. The two men were apparently arrested in a committee room in the Parliament building in Dar but, after questioning, were later released without charge. The police said legal clarification was needed from the Attorney General before any prosecution of the TPDC officials could proceed. The PAC believes that the PSAs should be scrutinised by Parliament in the interests of transparency and to ensure that the national interest is protected. Tensions arose earlier this year when the Gas Addendum to Statoil’s PSA was leaked publicly and the terms were then criticised (by Kabwe, among others) as being insufficiently favourable to Tanzania. However, like many other countries, the practice in Tanzania is not to disclose negotiated petroleum and mining agreements, which the par­ties agree to keep confidential for business reasons. It is understood that in Tanzania the terms of such agreements are usually negotiated by an inter-Ministerial GOT team and then approved by the Cabinet before signature. TPDC said it was bound by confidentiality provisions and could not hand over copies of the PSAs unless it got permission to do so from the oil companies concerned, and that it was awaiting guidance from the Attorney General and the Ministry of Energy and Minerals. Minister Sospeter Muhongo then confirmed that his Ministry would not submit the PSAs to the PAC, citing ‘technical reasons’. It is understood that the PAC then warned that it still intended to pursue the matter.

Tanzania to become a major rare-earths producer
Australian-listed Peak Resources Ltd is fast tracking the development of its 100%-owned ‘Ngualla’ rare earth metals (REMs) project in Chunya District, 150 kilometres from Mbeya. REMs are high-value raw materi­als used in the electronics industries and in other hi-tech applications. Discovered in 2010, ‘Ngualla’ is one of the largest and highest grade REMs deposits in the world. The company’s 2014 Prefeasibility Study indicates a maiden ore reserve in excess of 20 million tonnes, containing almost 1 million tonnes of rare earth oxides. The large, high grade and low radioactivity nature of the deposit, that can be mined through open pit operations and processed on site over a period of more than 50 years, should result in a low cost, low risk and highly profitable project. The company expects first production in 2017. (See www.peakresources.co.au for further details).

Tougher mining taxation terms agreed
It was reported in October that AngloGold Ashanti and Geita Gold Mine were the first companies to sign a new, tougher tax deal for mining companies – which for several years have been thought to be enjoying too generous a fiscal treatment. In 2008 President Kikwete ordered a review of mining company taxation and appointed a presidential committee to advise the government on necessary changes. The new deal reflects the committee’s recommendations and replaces the earlier Mining Development Agreement (MDA). The new terms are tougher for the companies in four respects. First, royalty will now be levied at the rate of 4% of the gross value of mineral production (instead of 3% of net profit), though the rate will be increased to 5% for gemstones. Second, the 15% VAT waiver has been scrapped. Third, the fee that mining companies pay for services they receive in the mining areas – the Service Levy – has been increased, from the previous flat rate of $200,000 to 0.3% of mine turnover. Fourth, the additional capital allowance of 15% that mining companies could claim in their tax computations under pre-2001 MDAs has also been abolished. When signing these new deals, Minister Muhongo said that Tanzanians were right to complain that the country was not profiting as much as it should from mining and that the situation had now changed. He estimated that Geita district in Mwanza region, for example, would now receive $1.8 million annually in Service Levy to fund development needs, up from $200,000 currently. It is understood that company executives expressed themselves “comfortable” with the changes.

Stamico to take over four mines
The Tanzanian government has decided to take over four mining operations which larger mining companies consider to be unprofitable. The mines will be run by the State Mining Company (Stamico) – a state-owned enterprise established in 1972 – through a newly established subsidiary. In an exclusive interview to The Citizen on 1 September, the Deputy Minister for Energy and Minerals, Stephen Masele, named the mines as: Biharamulo Gold mine (formerly owned by African Barrick Gold); Buckreef Gold Mine in Geita Region; Tanzanite One; and Kiwira coal. Masele said that these mines would be beneficial to Stamico and make significant contributions to state coffers. He cited the Biharamulo Gold Mine (formerly known as Tulawaka) – which has about 100,000 ounces of gold left to mine, on which Stamico can make a profit of TSh 7 billion during the next three years but for which a mining giant like ABG finds the operating costs unduly high. Buckreef is now processing an Environmental Impact Assessment and mining license, whilst Tanzanite One and Kiwira coal are both still operational (the latter with expansion plans).