Purpose of the Policy

The aim of the Policy is to shape the long-term strategy for the development of Tanzania’s gas industry. The Policy seeks to provide a framework that allows the best use of its gas discoveries for the benefit of the country as a whole, whilst achieving transparency and accountability in the gas industry. It will not be legally binding.

The Policy sets out ten specific objectives, which include ensuring: (i) sustainable utilisation of natural gas for the domestic market; (ii) that the Government (with the interest of the Tanzanian public in mind) will participate strategically in the natural gas value chain; and (iii) that prices of natural gas and related services are economically efficient and promote natural gas industry growth. Highlights of the Policy are described in more detail below.

Status of the draft Policy

Tanzania’s Ministry of Energy and Minerals (MEM) published the first draft of the Policy on 2 November 2012. The release of the Policy was followed by a stakeholder consultation due to be completed in late November, with the final Policy being published at the end of 2012. Currently the process seems to be delayed and there has been no formal communication from MEM on the status of the Policy or the consultation.

Policy highlights

Domestic market

A fundamental theme running through the Policy is the intention to develop the internal gas market. The Policy states that priority will be given to the development of gas for the domestic market over the export market. In particular, production of liquefied petroleum gas, liquefied natural gas and natural gas liquids for domestic industrial use is to be promoted alongside the development of industrial parks. Nonetheless MEM also intends to partake significantly in the regional and international LNG markets.

Competitive process for licensing

A key component of the Policy is the express desire to increase competition amongst licensees, operators and suppliers involved at the upstream level. According to the Policy, this will be achieved through a system of open bidding, on the basis that "competition enables selection of the most capable operators". This policy decision marks a step change away from the current bidding process, where licences are awarded at the relevant minister’s discretion. It is not clear where and when such framework for licences and fair competition will be set out, and whether an open and competitive procedure will be in operation when the currently suspended licensing round in Tanzania is resumed.

Midstream and downstream activities

The Policy contemplates that the Government, through the governmental entity Tanzania Petroleum Development Corporation (TPDC), will own the natural gas infrastructure in the early stages of development. Processing activities will be undertaken in common facilities onshore Tanzania. In order to ensure non-discriminatory access to common facilities, procedures will be put in place requiring operators of such facilities to provide services to all industry participants in a transparent manner. The Policy also steers towards unbundling of activities within the full value chain. MEM will introduce legislation to achieve this. According to the Policy, MEM will also create a licensing regime for gas suppliers, distributors and marketers. These licensed entities will obtain their gas supplies from TPDC, which will act as the natural gas aggregator.

Management of revenues from natural gas

Another headline statement in the Policy is that programmes and procedures to manage revenue are to be implemented by the Government. The Policy proposes the establishment of a “Natural Gas Revenue Fund” to manage the flow of revenue for Government spending and to ensure savings for the future. The Government will also create a fiscal regime and a stable pricing agenda, to support the development of the natural gas industry and to ensure that prices within the domestic market are sustainable for markets and businesses respectively.

Local content and regional / international development

The Policy encourages the use of local content and training obligations. In developing the gas industry in Tanzania, goods and services where possible will be procured from Tanzanian businesses and knowledge transfer will be achieved through skills development, training and transfer of technology. According to the Policy, the existing corporate social responsibility mechanisms will be strengthened through new policies and legislation. International companies will be encouraged to implement projects via joint venture vehicles with Tanzanian entities. At a higher level, the Government will also promote cross-border projects and investment and consider regional markets in developing natural gas infrastructure.

Transparency and accountability

The Policy directs that relevant bodies should endeavour to make public all non-sensitive information on the natural gas industry in order to promote transparency and accountability. The Policy also recognises that Tanzania has joined the Extractive Industries Transparency Initiative (EITI), which is an initiative aimed to increase transparency over payments by companies from the oil and mining industries to governments and to government-linked entities. Tanzania fulfilled all the EITI standards to become a compliant country in December 2012.

Environmental concerns

The Policy states that the Government will ensure that all parts of the industry comply with environmental and health and safety best practice. Commentators also suggest that the Natural Gas Bill, which is due to be published shortly after the Policy, is likely to include provision for increased regulation for health and safety obligations to match international standards.

Public Private Partnerships (PPPs)

The Government is also looking at employing PPPs in the natural gas industry and the Policy advocates the need for a proper mechanism for risk sharing within such PPPs to ensure mutual benefits for all parties involved.

A new regulator

Currently TPDC carries out commercial and regulatory functions for Tanzania’s oil and gas industry. The Policy recognises the need for a separation of the commercial and regulatory functions within the oil and gas industry, referring to TPDC’s combined role as “not prudent, industry practice”. As TPDC will have a bigger role to play in commercial arrangements, the Government will create a new regulator for the midstream and downstream activities. The separation of commercial and regulatory functions within the midstream and downstream sectors will be a welcome change to the regulatory regime in Tanzania.

New Licensing Round Announced

TPDC have announced that the 4th Tanzania Deep Offshore and North Lake Tanganyika Licensing Round will be launched on 25 October 2013. This licensing round was originally scheduled for September 2012 but was delayed as a result of the Policy. It will include seven Deepsea Blocks (Blocks 4/2A, 4/3A, 4/3B, 4/4A, 4/4B, 4/5A and 4/5B) whilst two other Deepsea Blocks (Blocks 4/1B and 4/1C) have been reserved for the Government. TPDC will work with a strategic partner to be competitively sourced on these two Blocks.