On 2 November 2012, Tanzania's Ministry of Energy and Minerals (MEM) released the first draft of the country's Natural Gas Policy (Policy) to the general public and announced the start of a 21 day consultation period on the document. MEM invited comments on the draft from all stakeholders and also pledged to conduct a physical consultation in selected regions with a view to finalising the Policy before the end of 2012.

At the time of writing, there has been no formal announcement drawing the consultation to a close and uncertainty remains around the status of the process. In this briefing, we provide a summary of reaction from affected parties and consider other major issues that have affected Tanzania's energy sector in the last month.

Policy

Reaction

(a) IOCs

Most International Oil Company (IOC) attention has focused on the proposed role of state-owned Tanzania Petroleum Development Corporation (TPDC) as a natural gas aggregator and the reference to priority being given to domestic market supply under the Policy.

The aggregator provision is broad enough to allow significant scope for TPDC to control supply of Tanzania's natural gas which would be a negative for IOCs with investment decisions to make who will favor limited Government control over the gas supply process.

The Policy separates midstream and downstream activities into â€ÜNatural Gas for the Domestic Market' and â€ÜLiquefied Natural Gas (LNG) Business'. The statement regarding prioritising the domestic market falls within the LNG section which suggests that Government has in mind reserving part of any future LNG supplies for domestic usage. IOCs will push for limited interference in the distribution and marketing of LNG and a separation of the treatment of natural gas for the local market and LNG for export.

In terms of the consultation process itself, IOCs had expected some degree of formal consultation though this is yet to occur. IOCs are making their own written submissions to MEM and taking any other opportunities that arise to meet with officials and make their feelings known. In general, there is a sense of frustration amongst IOCs that communications have not been clearer at an important time in the development of Tanzania's regulatory framework.

While it is clear that the Government does not want to be seen to be prioritising the views of IOCs over local stakeholders (indeed, the policy was introduced with the statement that "Natural gas resource belongs to the people of Tanzania, and must be managed in a way that benefits the entire Tanzanian society"), IOCs would have welcomed more open dialogue at this time together more formal and structured opportunities to present their thoughts on the Policy.

The views of most IOCs appear aligned and their key comments on the document are likely to be consistent. The Oil and Gas Association of Tanzania has met and prepared comments for submission to MEM while the Embassies of those countries with IOCs operating in Tanzania have also helped to coordinate and present responses from the various companies.

(b) Local Stakeholders

When the Policy was first announced, specific stakeholder meetings with academic, industry and civil society groups were proposed together with a regional tour of the Policy to canvass views from the public in Mtwara, Tanga, Dodoma, Mbeya, Lindi, Arusha, Morogoro, Mwanza, Coast Region, Dar es Salaam, and Kigoma.

In terms of public reaction to the Policy, a number of groups have called for a longer sensitisation process to enable the public to comment meaningfully on the document. The public hearing in Lindi was reportedly boycotted as residents expressed fears that gas would bring no long term benefit to their community while the planned hearings in Mwanza and Kigoma were also cancelled with no clear explanation provided.

Next steps The absence of any formal communication from MEM on the status of the consultation means it is unclear to what extent opinions on the Policy are still being considered.

International investors will hope that a modified draft of the Policy will be aired for comment before it is finally published but as previously outlined; the Policy does not require Parliamentary approval and could be published by MEM at short notice.

As the end of the year approaches it appears likely that the Policy will remain in development in the early part of 2013 and this will inevitably push back implementation of the Natural Gas Utilisation Master Plan and Natural Gas Act which will follow the Policy and provide much of the crucial detail required by the new framework.

Other news

EITI Compliance On 12 December 2012, the Extractive Industries Transparency Initiative Board declared Tanzania (together with Iraq) â€ÜCompliant' with the EITI Standard meaning that the country is deemed to have an effective process for annual disclosure and reconciliation of all revenues from its extractive sector allowing citizens to see how much their country receives from oil, gas and mining companies. Tanzania's status is set to be revalidated within five years but this news will provide encouragement to investors looking to see that Tanzania is capable of achieving international standards.

TANESCO Tariff Those following the development of Tanzania's gas regulations will also be keeping a close eye on the precarious domestic power market. The state-owned Tanzania Electric Supply Company (TANESCO) has reportedly appealed for an 81.27% increase in its tariff to avoid the threat of bankruptcy. The tariff was increased by 40.29% at the start of 2012 and this further proposed increase met with critical public reaction. Though the rising cost of power can be attributed to many factors (including TANESCO's current reliance on expensive liquid fuel), this backdrop increases political pressure on Government to be seen to be addressing local power supply issues and reserving new sources of energy for the domestic market.

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