What next after government entities agree on LNG project

Dar es Salaam. Tanzanians could have up to three years before they start benefiting from the actual construction of a Liquefied Natural Gas (LNG) processing plant, thanks to the completion of the Host Government Agreement (HGA) talks.

On Friday last week, Equinor and Shell Tanzania agreed to a deal with the government of Tanzania for the development of the LNG plant after President Samia Suluhu Hassan’s administration decided to expedite the HGA talks that had stalled for years in the past administration.

Last week’s deal includes the key elements of the HGA and Production Sharing Agreement (PSA) and is subject to legal reviews and quality assurance before an expected signing in the coming weeks.

President Hassan decided to expedite the talks between the Government Negotiation Team (GNT) and the multinational companies in October 2021, culminating in the signing of an initial HGA in December last year.

With last week’s completion of the talks, the Managing Director of the Petroleum Upstream Regulatory Authority (Pura), Mr Charles Sangweni, said the government would now be waiting for further decisions from boards of directors for companies involved in the deal.

“Now the work is finished. The review steps will continue as the companies have gone to sit with their boards, and we are now awaiting the next steps. The government expects that actual construction will start in June, 2025,” he told The Citizen in an interview.

And according to the Energy minister, Mr January Makamba, in line with the Petroleum Act, 2015, the agreements will also have to be endorsed by the cabinet and by June, actual signing will be done.

“The government has entered into five agreements that will have to be endorsed at cabinet level... We have also prepared a bill specifically on the project, which will have to be approved by Parliament,” Mr Makamba told The Citizen.

In line with the agreement, said Mr Makamba, after the signing in June, it will take six months for the multinational companies to start conducting preliminary-front-end engineering design (pre-FEED) activities at the project site.

“We will also establish a special office that will specifically deal with the LNG project. The cabinet has already approved the formation of such an office,” he said.

At least 1,763 Tanzanian firms have registered to seize business opportunities for the provision of services and products during the project construction phase.

An analysis of the “Tanzania LNG Micro-economic Report of the Stanbic Bank, which was conducted in October, last year, shows that local companies will reap an average of $7 billion out of the $42 billion that is expected to be injected into the project through the construction phase within five years.

And, Mr Makamba told The Citizen yesterday that apart from TPDC being a shareholder for the project, Tanzanians will also benefit in a number of ways, including getting the technical know-how for such projects as well as through jobs and foreign exchange earnings, among others.

“The project is expected to employ about 8,000 people... Providers of such services as finance, accommodation, energy [like Tanesco], and many other aspects will also benefit from the project,” he said.

The LNG project alone, which is expected to have a lifespan of 40 years upon completion of its construction, will require up to 840 megawatts of electricity, boosting Tanesco’s revenues.

The director of control, monitoring, and evaluation at the National Council for Technical and Vocational Education and Training (NACTVET), Dr Jofrey Oleke, said they have already signed a Memorandum of Understanding (MoU) with the East African Crude Oil Pipeline Project (EACOP) to produce 10,000 experts in different skills.

“We are about to end our discussions. Training will start this year at the Bandari College in Dar es Salaam, where we will produce the various technicians, including welders, mechanical technicians, and machine operators, among others,” said Dr Oleke.

According to a consortium of 22 insurance companies in Tanzania has also been formed to work on significant oil and gas projects, including the LNG project and the $3.5 billion East African Crude Oil Pipeline (Eacop).

The head of local content and stakeholders’ engagement at Pura, Mr Charles Nyangi, said two years before the start of the project’s construction, they had already signed a MoU with the Dar es Salaam Maritime Institute (DMI) to produce rescue and security experts.

“Those skills are the number one requirement for the project. We have already submitted our proposals to the relevant ministry. However, the capital muscles are a challenge for many Tanzanians, so we are imparting capacity building to them so that they can identify the criteria for obtaining capital by connecting them with stakeholders,” said Mr Nyangi.

The estimates have increased from an average of $1.4 billion recorded in the initial investment of $17 billion for the project under the report of the World Bank (WB) in collaboration with the National Economic Empowerment Council (NEEC), while Tanzanians are required to be more competitive.

Along with HGA, there are also several other agreements, including the rights to use port services between the companies and the Tanzania Port Authority (TPA).

There is also an initial agreement whereby the security of the project is to be guaranteed by the Tanzania People’s Defence Forces (TPDF) and that of land use between the companies and the TPDC.

Apart from improving the PSAs, there will also be more than 70 other agreements that will be signed between the companies and the TPDC during the various stages of the project’s implementation.

Another area in the HGA includes giving priority to local companies in the provision of services and sales of all products that will be needed during the construction, except that foreign companies will be allowed if there is no company capable of providing the required service.

Yesterday on his Twitter page, the vice president of Shell Tanzania, Mr Jared Kuehl, was quoted as saying: “The International Energy Companies (IECs) involved in the opportunity of the project are happy that the important negotiations with the Government of Tanzania have been completed.

“The certainty of that success will be confirmed in the next few weeks. We expect to sign the HGA covering the aspects of the project as well as the PSA agreements governing its aspects. This is an important step in the long journey to implement that project,” he wrote.