Tanzania to hire consultants for liquified natural gas project

After facing an extended spell of deadlocks and regulatory obstacles, the Tanzanian government is looking outwards for support with negotiations for its proposed liquefied natural gas plant. The government has invited tenders from the consulting industry for a project involving the development of a strategic plan for negotiation with a host of oil firms.

Plans to construct a liquefied natural gas (LNG) plant in Tanzania have been in the pipeline for more than 8 years now. The plant was first conceptualised following the discovery of natural gas off the coast of the country. Overall, the country sits on recoverable natural gas reserves of 57 trillion cubic feet.

The project consists of constructing an onshore LNG export terminal worth $30 billion on a 2000+ hectare plot of land near the large town of Mtwara. Stakeholders in the project include a number of major global oil firms, namely BG Group, Royal Dutch Shell, Statoil, Exxon Mobil, and Ophir Energy, working in collaboration with the Tanzania Petroleum Development Corporation (TPDC); a public sector oil management entity.

Despite the extensive planning and strong intent, the government has been unable to push the project through so far, due primarily to delays in establishing the regulatory framework. Following his appointment in 2015, President John Magufuli declared his intent to fast-track the project, which injected fresh energy into the negotiation process.

The biggest obstacle to the completion of negotiations so far has proven to be the arrival at a Host Government Agreement (HGA), which is crucial to the commencement of the project. In simple legal terms, an HGA is a consensus between the foreign investors and the host government (Tanzania), detailing the rights and obligations that all parties have with respect to a project.

Negotiations to arrive at an HGA began in 2016, and were due for completion later this year, but the progress has been exceptionally slow. Specifically, the project has been held up by the sluggish legal land acquisition process, as well as the gradual development of Tanzania’s regulatory framework for its hydrocarbon sector.

The good news is that the TPDC has now taken an active step towards breaking the deadlock, calling for external expertise form the consulting industry. The consulting assignment involves the development of a commercial, legal, and technical framework for the project.

As stated in the TPDC’s tender announcement, “The objective of the assignment includes... to build capacity and facilitate the government negotiation team (GNT) team and to devise the best approach to undertake negotiations of the host government agreement.”

The bad news is that the road ahead remains extremely long. As per the TPDC, the development of this framework itself is expected to take two years, following which the investors expect another two years, at the very least, to elapse in negotiations of the terms, after which construction of the project will take another five years.

Nevertheless, enthusiasm for the project has not waned, particularly in light of the projection made by Tanzania’s central bank that the simple act of commencing the project will add 2% to the country’s existing annual economic growth rate of 7%.

Government demand for consulting services, particularly for the energy sector, has been on the rise across Africa, as the commodity-dependent continental economy looks to grapple with the diversified contemporary economic scenario.