AS Tanzania intensifies its oil and gas exploration, the energy and water utilities regulatory authority—Ewura is urging local firms to take part in providing services to benefit from mega investments in the lucrative oil and gas industry.
The Minister of Energy Dr Medard Kalemani announced in Parliament last week that his ministry had allocated 102bn/- to facilitate the Tanzania Petroleum Development Corporation (TPDC) drill two exploration wells at the Mnazi Bay north-fields.
The field is part of the four-areas the state announced last year had the potential of generating at least 5.2 trillion cubic feet (5.2tcf) of natural gas after exploration and drilling activities. Other areas include the Ntoria, Western Songosongo and Ruvu.
The government through TPDC and Stamico experts completed drilling of two shallow exploration wells at Igunga and Nyaranja- Meatu on the Eyasi—Wembere fields during the ending financial year.
Dr Kalemani says the ministry was further committing, 500m/- extra to drill another shallow exploration well in Luono in Singida region this incoming fiscal year to help conduct a 3D airborne gravity gradiometry—AGG as well as an environmental impact assessment survey.
But EWURA, the government’s autonomous firm charged with regulating the mid and downstream petroleum sub-sector in Mainland Tanzania says the local content participation is still low. EWURA’S Manager for Natural Gas Distribution, Tobias Rwelamila, says that since 2018, only 428 companies had been registered while the expectations were to register more than 1,000 firms by December 2019.
The number has slightly increased to 457 firms as of March 2020, according to figures released by Dr Kalemani. Tanzania has so far confirmed natural gas discoveries of 57.5tcf in which the completion of Ruvu (2tcf), Ntoria (1.6tcf), Western Songosongo (1.3tcf) and Mnazi Bay north fields o.3tcf will make the country’s total natural gas reserves to 62.7tcf.
The government says that only one per cent of this natural gas reserves have been consumed in the past 15 years. Nonetheless, the government announced the construction of a major crude oil pipeline from Hoima in Uganda to Tanga in Tanzania will begin in April next year writing a new chapter and a ‘milestone’ for the two east African countries in the oil industry.
According to the Minister, Tanzania has allocated 1bn/- for compensation to people and institutions affected with the implementation of a 3.5billion US dollar worth 1,445km-long underground pipeline.
According to EWURA’s natural gas distribution manager there more opportunities in both the mid and downstream of the petroleum industry sub-sector where local Tanzanian companies can invest.
Besides, the country hopes a consortium of international oil companies would start building a long-delayed 30 billion US dollars’ worth liquefied natural gas (LNG) in 2022.
“EWURA has imposed no deadline restrictions for local companies interested to register as service providers. There no capital analysis demands, quality of service specifications or the lifespan of the company,” Eng Rwelamila says.
The logic behind is to ensure more locals participate in the oil and gas business. Tanzania petroleum local content regulations require licensees, contractors and subcontractors working in the oil and gas industry to give preference to goods and services that are manufactured or locally available in Tanzania.
An analysis by Breakthrough Attorneys on the country’s local content says where goods, works and services required are not available in Tanzania, “such goods and services shall be provided by a non-local company which has entered into a joint venture agreement with a local company (one registered in Tanzania and with a Tanzanian holding between 15 to 100 per cent of shares).”
Under section 15 (3) of the regulation, the local company must own at least 25 per cent of the Joint Venture stake. EWURA says it has been registering companies including those dealing with food services, water, electrical devices, information and communication technology, construction as well as oil marketing companies.
The firms submit a full detailed local content service provider—LSSP form online. It is a crime for an individual to provide any service in the oil and gas projects without being registered by EWURA. “An increase in local content service providers reduces production costs and subsequently add government revenues and employment creations,” Eng Rwelamila admitted.
A petroleum geoscience specialist, Hussein Boffu, highlights that local investors can take part in both upstream and downstream oil and gas activities. He named some areas with opportunities as oil and gas training, recruiting agency, oil and gas security, sell of equipment and buying oil and gas company stock.
He explained that while some Tanzanians can participate in the development of software and applications, others can invest in consultancy services.
“There opportunities in the supportive services, transport, shipping, logistics, accommodation, cleaning and food services... most exploration activities need these services and you can make huge cash when cleaning and providing food service to oil companies,” he says.
Apparently the downstream activities have huge investment opportunities ranging from starting a petrol station to petroleum product transportation and or fuel importation. The only problem here is that for a petrol station, you need a start-up investment capital ranging from 450 to 500m/-.
“The profit margin for this business is mouth-watering. A profit is not less than 210/- per litre. This means if you sell 5,000 litres you can make a profit of 1.05m/- and this is the lowest after all expenses,” he says. The specialist says Tanzania’s oil and gas industry is growing at an alarming rate.
“Energy demand is increasing. But we just sit on the backbench and watch a few people playing the game.” Observers are, however, urging that evolution of the service sector of the industrial is currently demanding integration of services in which only fewer local firms are able to offer more services across the value chain.
They say integration is crucial for oil and marketing companies to reduce costs through economies of scale but alternatively industry observers say locals can easily by-pass this barrier by mergers and acquiring more shares within local firms.
In its recent report EWURA says service delivery of petroleum products in remote areas, for instance, remains to be a challenge since there no reliable petrol stations. “The authority is in the process of introducing mobile petrol stations that will cater for the rural population,” read part of the report released last March.
It went on to note that third party damage and encroachment to the natural gas infrastructure on the shared and common right-of-way are among the serious problems that are happening in Dar es Salaam despite the limited length of connected pipeline network currently in place.
“With the government currently advocating industrialization campaign, the demand for natural gas infrastructure expected to increase and hence more risks if third party activities are not well addressed,” it reads. EWURA believes there is low utilization of natural gas infrastructure yet the demand for industries, households, commercial and transport is extremely high.
This means new service providers can look into investing in converting an urban fleet to run dual-fuel systems. “We urge for the investment of infrastructure, awareness to the society, capacity building for technical expertise, institutional framework development, and incentivized schemes to maximize utilization of natural gas."
Ewura’s Board Deputy Chairman, Ahmad Kilima, said he was optimistic that despite challenges, EWURA would be able to successfully improve availability of regulated services in the realization of a dream to ensure that every Tanzanian will have access to the services at affordable rates.