TANZANIA GAS SECTOR UPDATE

1. TANZANIA GAS SECTOR UPDATE Development Partners meeting, April 9, 2013 Natalia Kulichenko-Lotz World Bank

3. NG resource development update • March 2013: BG/Ophir finished appraisal program on Jodarifield (Block-1): flow rate of 70mcf with better than expected reservoir properties • Potential in Block 1 (BG-Ophir) and Block 2 (Statoil) fields sufficient to underpin LNG development • March 2013: Statoil and BG Group assess plans to build a US$10-14 billion East African LNG terminal for exports to Asia • Investment decisions are at least three years away (Statoil), not before early 2016 • The LNG plant would have at least two trains to process gas from Statoil’s Block 2 and BG’s Block 1

4. Infrastructure Update -power • GoT plans to develop four new gas-to-power plants with total capacity of 1,300 MW by 2015 • Current non payments (∽US$50 million) by TANESCO to Songas –operator and owner of 180 MW plant (22.5% of the total generation), and the pipeline from Songo-Songo Island. Songas also delivers gas to another 225MW plant. Songas threatens to stop gas deliveries • Estimated arrears from TANESCO to IPPs are US$ 300 million (December 2012)

5. Infrastructure Update - gas • A NG pipeline (542 km) and processing plant are under construction from Mtwara to Dar es Salaam. EPC contractor is a consortium of China Petroleum Pipeline Bureau (CPP) and China Petroleum Technology & Development Corporation (CPTDC) • Financed by China ExIm Bank – US$1.2 billion, 33 year loan, 2% interest rate. Completion is expected in early 2015 • Gas sales contracts are yet to be negotiated and signed between NG producers and TPDC as 'aggregator' (shipper) • Gas transport agreements are yet to be concluded and signed

6. High Level Scoping Mission • At the request of GoT a high-level scoping missions visited TZ on October 15-19 and December 10-13, 2012. • Participants: AfDB, PRC, UK DFID, EU, Germany, IMF and WB • Mission discussed: • A set of 5 suggestions for urgent action on issues that have immediate effect; • A set of 5 suggestions that require action now but whose potentially beneficial impact comes only in the future

7. Five urgent actions with immediate impact • Develop a communications strategy for the gas sector and define clear responsibilities for communications • Insure inter-agency cooperation: a strong champion with the authority to act to ensure policy coherence for gas development • Strengthen negotiation, legislative, contract management and monitoring capacity • Create a fiscal regime to ensure efficient development and to maximize retention of revenue in Tanzania • Unbundle short from medium to long term gas issues to prevent diverting attention from immediate opportunities to increase domestic gas use in the power sector

8. Currently proposed gas-to-power generation expansion plan

9. Actions to start now with long term benefits to the country • Steering clear of “Dutch Disease” -diversification to offset the worst effects of Dutch Disease; • “Investing in investing” – building capacity to invest efficiently and profitably through public financial management, public investment management, and a demand-driven human capital accumulation. • Investing efficiently and effectively in strategic infrastructure and growth poles - attracting private investment and catalyzing economic diversification • Updating institutional and governance frameworks - establishment of a coordination mechanism to drive “whole of government” work on gas development • Managing environmental downside risks – setting up effective environmental management systems throughout the development and production chain

10. 2012 Natural Gas Policy Highlights • Competitive Licensing • Preference for Domestic Use over Exports • Revenue management - a Natural Gas Revenue Fund responsible for “collection, allocation and management of the natural gas revenue” • Economic linkages and local content: encourages gas industry be linked with other sectors of the economy • Regional co-ordination: development of cross-boarder projects

11. 2012 Natural Gas Policy Highlights (continued) • Transparency and accountability:TZ joined Extractive Industries Transparency Initiative (EITI), but is yet to fulfill the requirements ( candidate status) • Public Private Partnership: to share risk and benefit investors • Legal and regulatory framework:to develop legal and regulatory framework • TPCD: recognition for the need to separate commercial and regulatory functions

12. WB Development Policy Operation • Approved by the WB Board of Directors on March 26, 2013; US$100 million • Objectives: • (i) Strengthen the country’s ability to bridge the financial gap in its power sector; • (ii) Reduce the cost of power supply and promote private sector participation in the power sector; • (iii) Strengthen the policy and institutional framework for the management of the country’s natural gas resources.

13. WB Energy Sector Capacity Building TA Project • Approved by the WB Board of Directors on March 26, 2013: IDA US$21.46 million and US$13.54 million co-financing from the Canadian International Development Agency • Objective: to strengthen the capacity of the GoTfor development its natural gas sector and PPP for the power generation sector • Includes four components: • (i) Development of gas sector strategies and policies and support for preparation of bankable investment opportunities; • (ii) Further development of legal, regulatory, fiscal and institutional framework for the gas sector; • (iii) Enhancement of institutional capacity - education and technical skills development; • (iv) Capacity building for GoT

14. Thank you nkulichenko@worldbank.org