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Tanzania energy prospective, tough ground to break for local content

The wheels of economy would have it that, where there is oil/gas exploration, the multiplier effect is that businesses blossom within and all along the value chain.

From accommodation, that is hotels and guest houses, to catering services ranging from high-end restaurants for expatriates to Mama Ntilie for the wage-workers and everything in between.

That is the smaller picture, the micro-economics of things, however there are sectors like construction, transportation, electricity and water supply, health and financial services. The list goes on and on, both for small, and medium-sized companies, the opportunities available at and around an exploration site are enormous.

So what aisle local content in Tanzania’s energy sector? In this case let’s focus on the oil and gas sectors and more so the oil sector which is still at the exploration stage. It seems that the only local content is for the actual exploration itself, companies attempting to get into the oil drilling business.

Oil exploration is a daunting and dirty business, literally speaking. Setting up a rig several kilometers offshore and sending down a drill bit to bore the bottom of the ocean is like I said, daunting and dirty. The financial muscle needed is immense, and the lobbying business is, lets just say, not so clean.

I am not suggesting that Tanzanian businesses steer clear of actual exploration works, by all means, where the capacity is sufficient (this is a topic for another day; access to funding for financial intensive investments in Tanzania), it should be utilized.

Whether its frontline exploration or joining somewhere in the middle of the value chain, access to financial capital is pivotal to all investment. With the government having issued an enormous stimulus package to allow banks to lend more, there has not been a better time to venture into the oil exploration value chain.

Also read: The role of local content in building Africa’s energy mix

It will be noted that for the first time in the course of the last two years, the Bank of Tanzania (BoT) has now lowered its discount rate down to 5.0 percent. “A strategic monetary control measure that will see commercial banks access more funding and that way have the liquidity to lend more and lower rates.”

This means banks in Tanzania can now afford to issue out more loans and that should in effect solve the financial gap and empower local content. To top it off, the Central Bank has gone ahead to lower its minimum reserve requirement from 7.0 percent to 6.0 percent giving banks even more financial muscle to lend.

Further still, as part of the governments’ policy responses to Covid-19, Tanzania has issued a whopping US$376M in the span just two months.

In effect we should see businesses leaping to borrow and for the sake of this article, we should see businesses running to scope investment deals in the exploration of natural gas. Only recently Tanzania has embarked in the drilling of two prospective wells led by the Tanzania Petroleum Development Corporation (TPDC) at its Mnazi Bay North fields.

Local media reports that “…the field is part of four-areas the state announced last year have the potential of generating at least 5.2 trillion cubic feet of natural gas…” and that’s not it, when it comes to opportunities in the natural gas sector, there are also prospective in Ntoria, Western Songosongo and also in Ruvu.

As it is, the government (with some participation of the private sector) is also aiming to drill another shallow well in Singida Region. However, what is a miss here is local content, why is the government releasing so much funds to commercial banks yet it seems that the private sector is not gaining because it is not borrowing.

What is the riddle here? Banks have huge liquidity, in layman’s terms, banks have so much money to lend that the lending rates have been lowered to entice the private sector to borrow. The cash-hungry private sector is not borrowing and if it is, it is not investing in the energy sector, why?

Lack of awareness: The paradigm of comfort zones

It’s time for yet another old African saying, actually in this case we have two African proverbs that suite the riddle of Tanzania’s private sector’s indifference for the lucrative energy industry. First, water follows its old course. So rather than venture into ‘the unknown’ territory of offshore prospecting, Tanzanian businesses would rather stick to traditional ‘goods of commerce’ trading.

The second is, ‘better a demon you know than an angel you don’t know.’ Am not very fond of this saying, I find it a contradiction in of itself, by definition, a demon should be bad and an angel good, so whether you know it or not, an angel is always good and a demon bad, but i digress, or maybe not.

It is this simple logic that escapes Tanzania’s private sector such that even with so much liquidity been offered at extremely low rates, businesses still to stick to the humble investment ventures that they are used to rather than venture to more promising and more rewarding investments, like the energy sector.

We all tend to stick to our comfort zones, a behavior that is in direct contrast with the rules of investment that demand prospecting, looking ahead and taking risk.

Businesses in Tanzania are reluctant to explore outside their comfort zones and this can be ruled down to an immense lack of awareness. As risky as any business can be, there are nets and cushions that provide security for the daring entrepreneur.

Joint ventures provide platforms for safe risk-taking and especially when there are government entities involved like the Tanzania Petroleum Development Corporation (TPDC) and EWURA that is charged with regulating the petroleum sector.

In this regard, EWURA’S Manager for Natural Gas Distribution, Mr. Tobias Rwelamila is quoted decrying the minimal private sector participation in the energy industry. According to him, while the authority was hoping to register more than 1,000 firms by the end of 2019, only a mere 457 companies have thus far been registered.

Tanzania is reported to have natural gas reserves in excess of 62.7tcf discovered so far, and explorations are on going. Of this enormous amount, only one percent of has been consumed in the span of the last 15 years.

Mr. Rwelamila insists, “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,” as quoted by local media recently.

Source: The Exchange

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