January Makamba, Tanzania’s deputy minister for communications, science and technology, tells Interfax how the country will prepare for the influx of wealth into its oil and gas sector.
Interfax: How well-prepared is Tanzania for the influx of gas investment that will come from the development of the gas reserves?
January Makamba: I don’t think we are as prepared as we should be, but I also think there is a bit of urgency and awareness of what we need to do. There are issues with the institutional setup – whether it is the revenue authority, the business registration approvals, ports, all the institutions in the public sector – everything involved in dealing with the influx of money.
You also have human resource preparedness. There are always complaints that these companies create a lot of high-paying jobs, which are taken by people from outside the country, so we don’t benefit as much as we should. But we ought to prepare Tanzanians with the skills needed in these industries. Efforts are being made to get as many young people as possible to go out and study petroleum sector skills.
There is a legal and regulatory preparedness as well. The laws, policies and regulatory setup has to facilitate the establishment of businesses here and also be for the benefit of the country as a whole. The local private sector should also be ready to engage, particularly in the service industries such as insurance, industry or transport. We must move beyond shopkeepers and traders to become real players. So in some aspects we are OK, in others we are not.
Interfax: What steps is the government taking to get those aspects you mentioned moving forward?
JM: There is a new draft gas policy that is under consideration. This should be out in the next month or so. There is a gas bill, also. As you know, the fourth licensing round has been suspended to allow these new policies to come into effect. That speaks about the desire for us to have a legal regime, a regulatory regime that serves the interests of the country. It also recognises that Tanzania is no long a frontier, risky country in terms of exploration. The current regime was set up when nobody wanted to come here. We have to create a regime that reflects the developments that have taken place.
The government is trying to get as many people as possible learning petroleum-related skills. Also, the companies are doing a good job in training people up. I also heard that there is a local content policy that is being developed, so I hope that helps local entrepreneurs getting involved. I think a lot of people have learned from the mining sector. The [mining] sector exists in isolation from other facets of industry and I think we should not make this mistake in oil and gas.
Interfax: Local content is a big issue, can you given any more details about what the requirements might be?
JM: I don’t know what the current thinking is but, if you ask me, it should be clear to the oil companies that you can score companies using a local content criteria. For instance, if BG Group, Royal Dutch Shell, Petrobras or Statoil want to hire an insurance company, they should procure competitively but the companies with a local content – such as a local presence, ownership, bank account, employees – will be favoured. Likewise with security and catering – if you want to get caterers for a rig, the company that will likely win the tender is the one with most food sourced locally. If you do that you will most likely achieve the local content requirements. That’s just a thought, there are many ideas.
Interfax: Are there any countries Tanzania is using as a template?
JM: We are talking to a lot of different regions, but it seems to me that Norway will be the model. There is a historical link. The Norwegians have been involved here in oil and gas for a long time. A lot of the guys in TPDC [Tanzania Petroleum Development Corp.] have been trained in Norway. Norway is a country that has done well in terms of not only an institutional and regulatory framework, but also in management of resources.
Interfax: You mentioned a gas policy document and a gas bill, are they different things? Will the policy document lead to a gas bill?
JM: The policy document comes first and leads to a gas bill because the law derives from these big policy aspirations. For full benefit, you need to have a package of policies and laws looked at. You cannot just look at gas and oil in isolation. For instance, it would be preferable for the gas to lead to industrialisation and, therefore, you have to link gas policy with industrial policy. You would want to generate more reliable and cheaper electricity, and therefore you must look at the power system master plan together with the gas policy and gas law. You would also want to create a condition for infrastructure investment for the downstream. So you have to have a gas utilisation master plan that also talks about infrastructure investment incentives in the downstream. You do not just want to have LNG plants to ship out the gas and be happy with the revenue. You would also want the local economy to be stimulated by the gas finds. So you have to be very deliberate in terms of these things so the power system master plan, gas utilisation, industrial policy and all these things talk to each other
Interfax: When is the gas bill likely to come out?
JM: I hope before the end of this year. But what I would wish is for wider consultation on the gas bill so that we do not create a law that is inimical to the development of the sector. You have to look at the interests of everybody. We should create a law that is smooth, in terms of implementation, in terms of enforcement, but also a law that will be facilitative, instead of just creating blockades and problems in the industry.
Interfax: What are the main points of debate within the government about the gas policy master plan?
JM: For us politicians, the main issue is who benefits. People are saying: We have to make sure we use the revenue wisely; we have to make sure we have better contracts; we have to make sure they are not stealing from us. Although there are also some serious technical issues that we ought to be talking about, in the parliament there is a general aspiration that the country must benefit from these resources.
Interfax: People often talk about the resource curse. Do you think the gas will be a blessing or a curse for Tanzania?
JM: If we do all the things that we say we are going to do, I think eventually this will be a blessing. I’m not worried, as there is a lot of awareness and a lot of conscious effort going into not making mistakes. Eventually it will come through good.
Lessons are already being learned from other countries. Sometimes, when we speak about a curse, it is not that people are intentionally stealing or benefiting, it is just the way you set yourself up – particularly in public infrastructure investment. If you are excited about all this revenue and put it in your budget so that you can spend more on public services or public investments, but without care of the macroeconomic effects, it will not work. So it requires a bit of patience; you may have all this money, but you have to be careful about how it enters the economy, it has to enter at a pace that is appropriate in terms of absorption into the general economy.
If you go and check out the IMF website there is something called the public investment management index, which tracks how governments invest public finances. We are not doing so well [in this index] in terms of value for money, in terms of procedure, in terms of choices. You can look at education for instance.
We are putting a lot of money [into education] every year, but the learning outcome has been constantly low. So you could say that we’ve got all this money, let’s spend more on education, but we have to fix the things that make our current investment not work so well. The most important thing is that we will spend the money for the public good.
Interfax: One big threat is corruption, we’ve seen it in other countries and, earlier this year, there were allegations in Tanzania. What steps are being taken to prevent that sort of behaviour in government?
JM: It is still a problem in public service, but we are strengthenng the institutions. Transparency is critical for oil and gas. We are trying to create the highest level of transparency in revenue receipts, expenditure decisions, contracts and costs incurred by companies. Then people will be confident that nobody is really taking anything. We have joined EITI [Extractive Industries Transparency Initiative], which is helping to ensure that there is no corruption in this area.
The office of comptroller and government general is being strengthened and more money is being spent building capacity. Their reports are a major source of debate about public finances, which is a good thing. Institutional credibility is very important. There also ought to be cultural accountability, ethics have to remain an important issue in society. On the one hand, you have these structural issues, on the other you have the soft ethical issues of what society values. Does it value honesty? Does it value truth? It is a big debate.