by Roger Nellist

Tanzania in the wider African context
Recent Tanzanian mining developments were included at the Africa Mining Summit convened by the Commonwealth Business Council in London on 25-26 June 2013, although the country was not represented at Ministerial level. Ministers from other leading African mining countries – notably Cameroon, Ghana, Kenya, Rwanda, South Sudan and Zambia – shared their experiences and highlighted recent policy approaches to mineral development in their countries.

Recurring themes at the summit were (a) increased acceptance of greater transparency in mining sector operations, driven in part by the Extractives Industry Transparency Initiative (of which Tanzania is a member); and (b) the emergence across the continent of various forms of “resource nationalism” – of which the most common are the need to maximise national value-add from the minerals produced and also to ensure that local communities where the mining operations take place derive specific, identifiable benefits. These themes for mining also ring true for oil and gas operations (see TA 105 on Tanzania’s offshore gas developments).

In a presentation at the summit by IntierraRMG, Tanzania was bench-marked against other African mineral-producing countries, confirming that the country is a significant minerals player, especially in gold. In recent years Tanzania has ranked 3rd in the African annual gold production league, producing significantly less than South Africa and Ghana but a little more than Mali, Burkina Faso, Guinea, Zimbabwe and others. Tanzania also ranked 3rd in 2011 and 2012 in the number of new gold prospects drilled across the continent – which will help sustain the country’s gold production levels in future years. Tanzania’s Geita mine ranks 4th in the list of Africa’s top 10 gold mines.

Tanzania produces useful quantities of other minerals too; but in terms of the total value of all minerals produced, the country ranks only 11th out of the 28 African countries listed by IntierraRMG. South Africa dominates Africa’s minerals value list, with some US$60 billion of annual mineral production revenue, which dwarfs Tanzania’s US$2 billion, as well as Zambia’s US$7 billion (in second place in the African league table). Mozambique lies in third place (with about US$5.5 bil­lion) and Ghana is fourth with US$5 billion.

Gold (20%), coal (19%) and copper (9%) together accounted for almost half of total African mineral production revenue in 2012. Importantly, mineral prospecting and appraisal work last year enabled Tanzania to identify additional resources of each of these three key minerals, as well as other major metal and mineral resources, ensuring that the mineral sector has good potential to continue to contribute to the Tanzanian economy in the years ahead. (www.intierrarmg.com)

The Africa Mining Summit also demonstrated that the contribution of mining to economic and social development in Sub-Saharan Africa is under increased scrutiny and criticism. Minerals and petroleum are non-renewable resources, and unless the production gains are effi­ciently captured and invested by governments, the host countries could experience a net reduction in their national wealth.

Mineral taxation
In April 2013 the International Centre for Tax and Development (ICTD) published a paper entitled Low Government Revenue from the Mining Sector in Zambia and Tanzania: Fiscal Design, Technical Capacity or Political Will? Written by Olav Lundstøl, Gaël Raballand and Fuvya Nyirongo, it examines the impact of Tanzania’s mineral taxation regime on govern­ment (GOT) revenues over the last decade. This suggests that the GOT could have earned substantially more had it levied on an internationally competitive set of fiscal terms.

The authors illustrate the big turn-around in Tanzanian mining over the last 15 years, citing export statistics for gold, the country’s domi­nant mineral. The annual value of Tanzanian gold exports increased from just US$ 22 million in 1998 to US$ 2,200 million in 2011, reflecting a tenfold increase in the quantity produced and the large global price hike. However, government revenues from the mining sector have not risen correspondingly. The country’s mining tax regime during this period was basically an outcome of efforts to make the sector more attractive in the late 1990s, following decades of public ownership and stagnating levels of investment. In an attempt to address the perceived revenue imbalance, mining terms were tightened in 2004 and again in 2010 – though efforts to enhance revenue flows from existing mining operations were reportedly frustrated by fiscal stabilisation terms previ­ously agreed with the mining companies.

The ICTD paper compared mineral revenue-sharing between invest­ing companies and host governments in seven major mining countries worldwide, including Tanzania and Zambia, and then estimated the amount of mining revenue forgone by the government during the period 1998 – 2011 due to ‘ineffective mining revenue-sharing terms’. Noting that effective sharing of mineral benefits between companies and governments has been notoriously difficult to achieve, especially in Sub-Saharan Africa and certainly when compared with petroleum operations, the authors found that if Tanzania had performed as well as the best mining countries in the comparative benchmarking sample, the government might have collected an extra US$ 1 billion of tax rev­enue from large mining operations over the period 1998 – 2011. Total revenues might then have been US$ 1,831 million instead of the US$ 776 million it is understood the GOT earned. This would have been an increase of 136%, or very roughly US$ 75 million extra per year. (Zambia performed much worse, with a discrepancy of almost 300%).

The ICTD paper also examined the composition of the GOT’s mining revenues. Company data from the most recent Tanzanian Extractive Industries Transparency Initiative (TEITI) reports for 2008/9 and 2009/10 showed that six mines dominated the large-scale mining sector, all pre­dominantly in gold. These accounted for 85-90% of the audited export of gold from Tanzania as well as the majority of the direct investment, pro­curement and employment in the large-scale mining sector . However, ICTD’s analysis of these TEITI reports found that profit-based corporate tax made a very modest contribution to mining revenue, despite 5-10 years of operations under the current mine owners and a global mineral super cycle since 2005/6. Gross value-based corporate taxes, together with employee-based taxes, dominate the tax revenue collected from the mining sector. As is common in other mineral producing countries, certain fiscal exemptions are part of the mining regime, though the government is now trying to minimise their use. (For full text, see http:// www.ictd.ac/sites/default/files/ICTD%20WP9.pdf)

Electricity: The US “Power Africa” Initiative
On 2 July 2013, in the presence of President Kikwete, President Obama delivered a speech at the Ubungo Symbion Power Plant in Dar es Salaam. Drawing attention to the fact that nearly 70% of Africans lack access to electricity, a major obstacle to economic and social develop­ment, Obama profiled a major new initiative – “Power Africa” – that he had announced in Cape Town a few days earlier. Power Africa prom­ises to double access to electricity in Africa, as a first step bringing elec­tricity to 20 million homes and businesses. It will do this by matching public and private resources with projects led by six African countries that are committed to energy reforms, including Tanzania. The US is committing $7 billion in support of this new initiative and private sector companies have already committed more than $9 billion.

Obama cited the Ubungo plant as a model for replication across the continent: ”This facility was idle. But the Tanzanian government, under President Kikwete’s leadership, committed to making reforms in the energy sector. With support from the Millennium Challenge grant, General Electric, and Symbion, they got it up and running again. More Tanzanians got electricity”.

Obama appealed for a sense of urgency in African energy reform effort. One of the things he had learned from the business roundtable during his visit was that “if we are going to electrify Africa, we’ve got to do it with more speed…. It’s hard to attract private-sector business if they feel as if their money is going to be tied up forever in uncertainty. So we want to focus on speed, but we also want to do it right. And the United States intends to be a strong partner in this process”.

Roger Nellist, the latest volunteer to join our panel of contributors reports as follows on an announcement by Statoil of their third big gas discovery offshore Tanzania:

On 18 March 2013 Statoil and its co-venturer ExxonMobil gave details of their third high-impact gas discovery in licence Block 2 in a year. The new discovery (known as Tangawizi-1) is located 10 kilometres from their first two discoveries (Lavani and Zafarani) made in 2012, and is located in water depth of 2,300 metres. The consortium will drill further wells later this year.

The Tangawizi-1 discovery brings the estimated total volume of natural gas in-place in Block 2 to between 15 and 17 trillion cubic feet (Tcf). Depending on reservoir characteristics and field development plans, this could result in recoverable gas volumes in the range of 10-13 Tcf from just this one Block. These are large reserves by international stand­ards. By comparison, Tanzania’s first gas field at Songo Songo island has volumes of about 1 Tcf.

Statoil has been in Tanzania since 2007 and has an office in Dar es Salaam. It operates the licence on Block 2 on behalf of the Tanzania Petroleum Development Corporation (TPDC) and has a 65% working interest, with ExxonMobil Exploration and Production Tanzania Limited holding the remaining 35%. It is understood that under the Production Sharing Agreement that governs the operations, TPDC has the right to a 10% working participation interest in case of a development phase.

Commenting on the Tangawizi-1 announcement, the Tanzanian Minister for Energy and Minerals, Hon. Professor Sospeter Muhongo, said “The Tanzania Government is pleased to learn about additional gas resources discovered in Block 2 and remains optimistic on future developments”.
The Block 2 discoveries complement other recent gas discoveries made by the BG Group. The investors and the Government have both domes­tic gas utilisation and large-scale exports in mind.

For more information see: http://www.statoil.com/en/NewsAndMedia/ News/2013/Pages/18Mar_Tanzania.aspx

Great expectations
In February Samuel Kamndaya, the Citizen’s Business Editor, published some very useful background. Extracts:

‘Come 2023, natural gas will contribute up to 35% of the total market value of officially recognised final goods and services produced in Tanzania, analysts say. But that will happen only after companies that are prospecting for natural gas in the deep sea south of Tanzania get enough finds to attract investors into developing a Liquefied Natural Gas (LNG) facility for dissolving the hydrocarbon product for an export market. Getting to that stage, analysts caution, requires a great deal of patience, commitment, predictability and information sharing among key stakeholders–including the government, investors and wananchi, considering the massive investment required to realise the dream.
“You need a great deal of time, expertise and investment before bring­ing such a project to fruition,” said the BG Tanzania head of policy and corporate affairs, Fred Kibodya. “Developing an LNG project requires a massive investment of not less than $15 billion in the region.” His Statoil Tanzania counterpart, Ms Genevieve Kasanga, puts the estimated investment in setting up an LPG project in the region of $20 billion.

Tanzania’s GDP now stands at $23 billion. A 35% contribution to GDP, at the current rates, translates into an input of $8.1 billion. This is close to Tanzania’s entire budget of TShs 15.1 trillion (about $9.5 billion) for the current financial year. Agriculture contributes about 24% to Tanzania’s GDP and tourism comes second with a contribution of about 17%. If the country’s current economic growth projection of 6.5% is sustained, and a clear linkage is built between natural gas and the manufacturing and agriculture sectors, Tanzania should graduate into a middle income country.

“The fact that natural gas may bring economic fortunes to Tanzania can in no way be underestimated,” says Prof Humphrey Moshi of the University of Dar es Salaam. “But we should not expect wonders if there is no linkage between the sector and other dynamic sectors such as industries and agriculture.”

But Mtwara is not happy
The prospect of sending the gas by pipeline to Dar es Salaam for use by new industries there has caused considerable upset in Mtwara. People there want new industrial plants to be built in Mtwara, where the gas will come ashore, rather than in Dar es Salaam. There have been violent demonstrations in Mtwara, reportedly supported by Mtwara Urban CCM MP Hasnain Murji.

In early February, the Citizen quoted Mr Murji, who has publicly differed with the position of his party on transporting gas to Dar es Salaam, as calling for a Select Committee to probe controversies sur­rounding the matter. He asked for the Speaker’s directive on why Parliament had failed to form a committee as had been agreed earlier. House chairperson, Mrs Jenister Muhagama, said nothing could be done because the Speaker, Ms Anne Makinda, had already ruled on the matter. Parliament eventually dropped the idea of forming a select-committee because it was satisfied with the Prime Minister’s handling of the matter.

Tanzania is in the midst of a vast programme of energy development aimed at putting an end to the country’s repeated cuts in supply of electricity (see TA 101). And in March 2012 there was some very good news for Tanzanians:

BG Group announced a significant gas discovery from its Jodari-1 exploration well in Block 1, located approximately 39 km offshore southern Tanzania and in a water depth of 1,150 m. Their evaluation suggested gas reserves in the range of 2.5 to 4.4 trillion cubic feet (tcf). When combined with their previous discoveries (Chaza-1 in Block 1, and the Chewa-1 and Pweza-1 discoveries in Block 4), total gas reserves are estimated at up to 7 tcf. The gas was found in rock formed during the Oligocene epoch between 23 million and 34 million years ago; the same age of rock in which huge gas reserves were discovered recently off Mozambique by an American investor.

The partnership between BG Group (60% and operator) and Ophir Energy (40%) has had exploration successes in all four wells drilled so far in Tanzania, and their next target for drilling is the Mzia-1 location, about 23 kilometres to the north of Jodari-1.

BG Group is a world leader in natural gas, with a strategy focused on connecting competitively priced resources to specific, high-value markets. Active in more than 25 countries on five continents, BG Group claims that it combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves. The Group emphasises however that the figures above are all forward-looking estimates and, as such, they are only predictions. Actual results may differ materially.

Ophir Energy is a conglomerate in which Indian Steel magnate Lakshmi Metal holds 14% of the shares, the hedge fund Och-Ziff (10%), the Polish millionaire Jan Kulkzic (10.6%), plus Tokyo Sexwale, the South African tycoon who was jailed with Nelson Mandela on Robben Island. Ophir’s chief executive Nick Cooper commented that Jodari 1 is the biggest discovery in the company’s history. Reacting to this exciting news, Ophir’s stock market valuation rose substantially on the London Stock Exchange.

Biomass fuels
Biomass-based fuels, namely firewood, charcoal and bio-residues, still dominate the energy balance in Tanzania, accounting for about 90 percent of the primary energy supply. About 42 million cubic metres of wood were consumed in Tanzania in 1999, of which 26 million cubic metres were consumed in rural areas as firewood and 14 million cubic metres in the urban areas mainly as charcoal. The fuel is used predominantly for household cooking and heating.

It is estimated that around 40,000 bags of charcoal enter Dar es Salaam city daily and a comparable amount enters the other major Tanzanian towns, a combined total consumption of around 2,650 tonnes each day. Wood and charcoal are technically renewable fuels with near zero net carbon emissions, since the amount of carbon dioxide emitted when they are burnt is equivalent to the amount of carbon dioxide absorbed when they were growing. However, their uncontrolled use is leading to deforestation and accompanying environmental problems such as soil erosion, and also to urban air quality problems. A forestry expert with Tanzania’s Natural Resources and Tourism Ministry, Stephen Bandoma, said charcoal use could be reduced if there were alternative energy such as natural gas and solar power. However, he added, “Many ordinary people cannot afford alternative energy and instead end up using charcoal. Few people can afford to buy Liquefied Petroleum Gas (LPG) when the price of a cylinder has risen from TShs 20,000 two years ago to TShs 50,000.”

One way of improving the situation would be to make cooking stoves more efficient, and TaTEDO (Centre for Sustainable Modern Energy Expertise) among others have been promoting more energy efficient stoves for nearly two decades with modest success.

Alternative energy
Since 2006, the UN Environment Programme (UNEP) has worked hard to raise awareness of alternative sources of energy. Their programme refers to a range of technologies, including solar-powered fridges for storing vaccines, road surfacing material made out of molasses, ships powered by the sun and grease-consuming bacteria.

A recent World Bank credit of $22.88 million includes funds for a study on the implementation of small hydropower projects in rural areas and capital subsidies to bring down the cost of energy. Investment opportunities exist for developing hydropower dams, solar photovoltaic systems and biomass based electricity co-generation in sugar, wood, and tea factories to provide electricity.

The rural energy projects developed with the help of the Bank will ultimately be owned and implemented largely by the private sector, NGOs and conservation initiatives, largely independent of the national utility, Tanzania Electric Supply Company Ltd (Tanesco). Nationally, total installed generation capacity is 1,219 MW, of which hydropower comprises 561 MW (46%) (Kidatu, Kihansi, Mtera, Pangani, Hale, and Nyumba ya Mungu) and thermal (gas and diesel) 658 MW (54%).

Warning on biofuel production
East African Cooperation Minister Samuel Sitta has revealed that the government is in the process of formulating a new policy on bio-energy production. He warned against growing bio-fuel products on vast lands without adequate research, saying that bio-energy production competes with food production and they do not complement each other. Sitta also cautioned that if precautions were not taken, production of bio-energy would turn villagers into labourers. The idea that government should direct more efforts to the production of jatropha was still theoretical. Special emphasis must be given to food production.

Business as Usual
The international oil firm Puma Energy, who took over BP’s operations in Tanzania in 2010, is planning a new $11 million investment to ensure sufficient oil and petroleum supply for domestic and industrial use. Maregesi Manyama explained to TA that the investment would be for construction of additional fuel storage tanks, re-branding retail and commercial sites and improving automation loading facilities.

Thanks to Judie and Thomas Mwarabu for sending a number of news items relating to energy from the Guardian. Other information from www.tatedo.org

The East African and other media outlets have been reporting on the ambitious new investment plans being drawn up which should fairly soon see a dramatic improvement in production of energy – and hopefully an end to the energy crisis.

In what African Report described as the largest ever single Chinese investment in Tanzania, an agreement worth $3 billion (about TShs 4.8 trillion) has been signed to develop the Mchuchuma coal and Liganga iron ore projects (The Citizen). The NDC will hold a 20% stake with the Chinese firm holding the remaining 80%. The projects will be implemented in two phases – the first phase will entail laying the groundwork at Mchuchuma and eventual mining of coal to be used in generating electricity, while the second phase will involve exploration and extraction of iron ore from Liganga.

Symbion is set to supply 205 MW to the national power grid in support of the government’s emergency power plan. Under the firm’s expansion plan, Symbion would import more than 205 MW of generating equipment, adding new power to the grid incrementally from October, and the full 205 MW capacity will be available to Tanesco by the end of the year (The Guardian).

The country has borrowed $63.4 million from the Export Import Bank of Korea which will help to build a power transmission line which will link future sources of electricity in the south of Tanzania with the north of the country.

Plans are being drawn up for a huge 2,100 MW new electricity plant at Stiegler’s Gorge in the Rufiji River Basin. It will be built using Brazilian technology and will be developed by Brazil’s Odebrecht company.

A Norwegian power engineering company has signed an agreement for a 100 MW turnkey project at Ubungu (using natural gas) in Dar and another at Nyakato near Mwanza (using heavy fuel oil). Finance totalling $530 million is coming from HSBC in Norway to support 15% from the government. Power is due to be switched on by June 2012.

Tanzania has also secured a $250 million dollar loan from a consortium of local and global financial institutions, including the Standard Bank of South Africa, to fund rural roads and production of electricity.

Finally, Tanzania has signed production sharing agreements ($75 million) with two oil companies to explore for oil and gas at Lake Rukwa and Nyuni East Songo Songo.

The blame
Rice farmers in the Ruaha River Basin have been blamed for the ongoing power crisis. The principal engineer at the Mtera Dam has claimed that uncontrolled rice farming is behind the decreased water flow into the dam.

Judie and Thomas Mwarabu have sent us the following weather warning published by the Tanzania Meteorological Agency (TMA) in Mwananchi in September which was partially vindicated by a week of early and heavy rain in mid-October:

TMA predicted that several areas of the country could face serious disasters such as floods, soil erosion and major damage to the infrastructure and environment during the short rains (vuli) between October and December. Other areas, which would not suffer from the effects of flooding, are expected to be faced with food shortages and perhaps famine due to insufficient rainfall. TMA has for the first time not only published this information in a highly professional way, but has also made clear which areas are threatened and gone on to make recommendations to deal with them. The government was advised to prepare itself thoroughly by designing strategies and creating new ways of protecting the economy of the country, by putting pressure on the Disasters Corps to ensure the preparation of sufficient and up-to-date supplies of all kinds, including air, road and waterborne transport, tents, blankets, medicines and rescue equipment.

People complain that Tanzania has repeatedly suffered from such disasters but they come again and again because the government has not learned from them.

The Tanesco monopoly on power production might be abolished, according to a report in Tanzania Daima. The government was said to have plans to amend current electricity laws to allow private companies to produce and supply. Minister of Finance Mustapha Mkulo said that “Currently we have power producers who remain with excess energy but they cannot sell it on to neighbouring communities. The new amendments will allow them mechanisms to sell it”.

The dependence of energy supplies on rainfall was demonstrated once again by the following report (slightly abridged) from The Guardian of 7th October before the very heavy rains mentioned above. By early October, hydropower generation at the major dams, Mtera and Kidatu, had been drastically reduced as water levels dwindled even further, President Kikwete admitted. This was after the President was informed that the Kidatu plant, with a capacity to generate 200 megawatts, was producing only 40 MW and the Mtera plant was generating only 30 MW while it has the capacity to produce 80 MW. The Kihansi plant was producing 90 MW against 180 MW, Nyumba ya Mungu 3.5 MW against 8 MW and New Pangani 20 MW against 68 MW. The country was relying on electricity from Songas – generating 182 MW, Ubungo 100 MW, Tegeta 45 MW and Symbion 70 MW.