The first draft of Tanzania's Natural Gas Policy ("Policy") was released to the general public on 2 November 2012, following the start of a 21 day consultation period during which opinions are invited on the 25 page document.
In this briefing, we break the Policy down, summarise its implications and clarify next steps in the development of the regulations.
The Policy has been prepared in accordance with guidelines for the preparation of Cabinet papers and is broken down into six chapters.
1. Status of natural gas Development
The opening chapter makes reference to Tanzania's natural gas discoveries of about 33tcf from both onshore and offshore basins as at June 2012 and sets out the main challenges facing the industry as follows:
- Institutional and legal frameworks to administer the industry effectively
- Human resources with the requisite skills and knowledge in the natural gas industry
- Natural gas infrastructure
- Development of domestic market for natural gas
- Natural gas revenue management
- Health, safety and environment
- Management of expectations
2. Justification for natural gas Policy
The Policy aims to provide a comprehensive framework for guiding the development of the natural gas industry to ensure "optimal benefits to the national economy in the short, medium and long term".
The formulation of the Policy was aligned with the Tanzania Development Vision 2025, the National Energy Policy (2003), other sectoral and cross-sectoral policies; the Tanzania Five Year Development Plan (running from 2011/12) and the National Strategy for Growth and Reduction of Poverty (2010-15).
10 specific objectives are listed of which the most interesting for investors relate to ensuring sustainable utilisation of natural gas for the domestic market; ensuring that the Government and Tanzanians participate strategically in the natural gas value chain and ensuring that prices of natural gas and related services are economically efficient and promote natural gas industry growth.
3. Key issues and policy Statements
Specific issues and objectives are identified across the full range of up, mid and downstream activity. Detailed policy issues on natural gas upstream activities will purportedly be addressed under a separate "Petroleum Policy" but basic statements already contained in this Policy include promoting the Government's strategic participation in upstream activities.
In respect of midstream and downstream activities; natural gas infrastructure; supply to the domestic market; the LNG business; revenue management; pricing; security of supply; linkages with other sectors; local content and capacity building and corporate social responsibility are all considered.
The Policy contemplates Government ownership of natural gas infrastructure in the early stages of development of the industry with non-discriminatory access to common facilities and services requiring operators of facilities to provide services to all customers in a transparent manner.
Additional provisions include strategic Government participation, unbundling of value chain activities and a specific licensing regime for gas suppliers, distributors and marketers who will obtain supplies from the natural gas aggregator (the Tanzania Petroleum Development Corporation ("TPDC") or one of its subsidiaries).
In respect of the all-important issue of domestic market supply, one statement sure to attract attention is that the Government will "Ensure domestic market is given first priority over the export market".
Other headline statements relate to the establishment of a Natural Gas Revenue Fund; a review of the mandates of TPDC to ensure effective management of the natural gas industry; the promotion of Public Private Partnerships (PPPs) to facilitate investments in the natural gas industry and the establishment of a contractual obligation to undertake community development programmes.
On issues of transparency and accountability, reference is made to the Government having joined the Extractive Industries Transparency Initiative (EITI) though it should be noted that Tanzania is currently only a candidate country meaning that it is yet to fulfil all of the requirements.
4. Legal and regulatory Framework
The Policy acknowledges the need for specific legislation to address governance of the natural gas industry.
The Government will establish an appropriate legal and regulatory framework which will include an appropriate regulatory authority for the natural gas industry.
5. Institutional framework
This chapter covers the relationships between the key institutional stakeholders in the industry including the Government, TPDC and the regulator.
Of particular interest is the expressed need for TPDC to take on new roles and responsibilities for TPDC's existing roles, functions and structure to be reviewed.
Going forward, TPDC's role will continue to involve participating in projects on behalf of the Government but it is likely that the regulation of upstream activities will be carried out by a separate regulator.
The Policy concludes with the target of harnessing the natural gas industry to facilitate the social and economic transformation of Tanzania to become a middle income country by 2025, an aim which would require aggressive and sustained economic growth over the next 13 years.
The Ministry of Energy and Minerals ("MEM") has shown a willingness to receive the opinions of a variety of stakeholders during the consultation period before revising and finalising the Policy.
A select group including the embassies of nations with oil and gas companies operating in Tanzania together with multilateral institutions including the African Development Bank, the World Bank and IMF were the first to be consulted.
Further meetings are planned with constituents in areas directly affected by the gas industry and specific stakeholder meetings with academic, industry and civil society groups. Opinions from the various stakeholders will be taken into account with a view to finalising and publishing the Policy by the end of December 2012.
As a statement of policy, the document sets out guidelines but has no formal legal effect. Political pressure will require the statements set out in the Policy to be adhered to but only later when more specific provisions are enshrined into law via the Natural Gas Act will there be formal legal provisions binding on the Government and other stakeholders.
While providing an indication of the Government of Tanzania's thinking on the key aspects of the management of its natural gas resource, the Policy is lacking in the detail which stakeholders will need to make informed investment decisions. Such detail can be expected to follow in the subsequent Gas Utilisation Master Plan and Natural Gas Act.
As a reminder, the following regulations are currently in development:
- Gas Utilisation Master Plan (which will build on the framework established in the Policy)
- Natural Gas Act (updated from the 2009 Gas Supply Bill and conformed with the Policy)
- Upstream Act
- Petroleum Policy
MEM has expressed its intention for the Policy (which will not require formal Parliamentary approval) to be published before the end of 2012.
The Policy will be closely followed by the Utilisation Master Plan and then the Natural Gas Act will be submitted to Parliament during its next sitting in February 2013.
The upstream focused Upstream Act and Petroleum Policy will follow but are less of a priority than the Natural Gas Act, Utilisation Master Plan and Policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.