By Alfred Zacharia
Dar es Salaam — Concluding a host government agreement (HGA) for oil and gas projects requires extensive, detailed discussions.
This is basically because of the nature of the sector – being too risky as it is for prospective investors and the host government, the energy minister, Dr Medard Kalemani, has explained.
An HGA is a legal agreement between a prospective foreign investor and the host government which is intended to reduce any and all financial and political risks that mat be posed to investors – including unforeseen changes in local regulatory frameworks.
Addressing the Oil and Gas Congress-2018 that met in Tanzania in September, the minister urged investors-in-waiting to be patient as the government seeks to ensure whether or not the projects are viable – and are of the mutual benefits to both sides.
“As you all understand, the oil and gas sector is new in Tanzania, and we are still going through legal changes. We cannot rush to sign agreements because if we break any agreement by interrupting or modifying a project in the future, we would have to pay a penalty,” he said.
As things stand, Dr Kalemani stated, oil and gas projects are overly risky as they are capital-intensive, and they take a long time to start making profit.
According to him, any blame on delays should not be directed solely at the government. This is because the nature of the oil and gas business also requires potential investors to do researches of their own before signing HGAs. They need to assure themselves that returns on their investments are somehow guaranteed.
“Investors are conducting researches, and making their own calculations before signing the HGA. Let the government also do the same for the benefit of the nation and its people,” he noted.
Some two years have elapsed without any agreement being reached between the Tanzania government and some international oil majors looking to build a US$30 billion liquefied natural gas (LNG) export project, an Economist from Shell Exploration and Production Tanzania Ltd, Mr Beatus Rwechungura, moaned.
The international conglomerates involved in the processes to build an onshore LNG export terminal in Lindi Region are the BG Group (which was acquired by Royal Dutch Shell in 2016), Statoil, Exxon Mobil and Ophir Energy.
According to him, talks on the host government agreement began in September 2016, when the negotiations were expected to last a year-and-a-half at most. Today, two long years down the road, no decision is yet in sight.
“The final investment decision on the project has been delayed by the government as it is ironing out the issues regarding the legal frameworks before signing the requisite host government agreement which is considered necessary to determine the terms on which the project partners would build and operate the LNG plant,” he noted – adding that the FID depends on the outcome of the discussions.
So far, Shell has invested about $2 billion (equivalent to Sh4.56 trillion) in the initial stages towards implementing the project.
“We are just waiting for the government to sign the HGA and a Commercial Framework Agreement (CFA): an accord between one or more businesses or organizations for the purpose of establishing terms to govern the contract to be awarded in a given period,” he explained.
According to him, if the agreements are accordingly signed now, Tanzania may start exporting natural gas in the form of liquefied natural gas in the coming five-to-eight years.