Weak Oversight Threatens Tanzania’s LNG Potential

The LNG project embodies a historic potential for catalyzing development in the country, but weak oversight might end up undercutting its promise.
Dastan Kweka29 June 20225 min

Ten years ago, when Tanzanians were celebrating the discovery of significant natural gas offshore, an NGO asked a crucial question: “Who will benefit from the gas economy, if it happens?” In those days, analysts pointed to a huge discovery in Mozambique, low Liquefied Natural Gas (LNG) prices in the global market, and concerns over climate change as parameters which could hinder the exploitation of the newly found resource.

While global factors contributed to the project delay, local dynamics – such as the 2013 protests in Mtwara, and the 2017 reform efforts – played a key role in upending the feasibility of the project. Ironically, just as instability in the Middle East in the early 2000s created incentives for corporations to search for new oil and gas frontiers, the ongoing war in Ukraine appears to have strengthened the viability of Tanzania’s LNG project.

The signing, in June, of a preliminary agreement which stipulates the rights and obligations of the parties involved in the potential investment appears to have been staged, to demonstrate progress on a project that had stalled for over seven years.

It is quite likely that there will be several such creative milestones along the way, given the project’s long gestation timeline (i.e. Final Investment Decision by 2025, and significant gas production in 2030), and due to politician’s desire to claim credit ahead of the elections in 2024, and 2025.

In her remarks at the signing ceremony, President Samia Suluhu Hassan emphasized the need to strengthen ‘regulatory and tax’ institutions, describing the role of the government as the ‘guardian’ of the project, not an ‘investor’.

This fundamental nugget comes across as perhaps a clear confirmation that the government has given up on its 16 per cent free carried interest, after pushback from the LNG consortium. Unfortunately, the preliminary agreement, just like many other natural resources contracts, remains a top-secret.

A recent performance audit report published in February by the Chief Auditor General (CAG) lends weight to the President’s comments about oversight capacity. Following a review (2020/2021) of the mechanisms for managing revenues in the mining sector, the CAG documented a serious shortage of technical and human resource capacity in cost auditing across the entire mineral value chain. Cost auditing is central to avoiding creative accounting, which is endemic in the extractives sector.

In making the case for a strong private sector role, President Samia made an observation that the government is not necessarily good at managing businesses. What she did not say is that the government is also not good at ‘self-policing’, hence the need for alternative and complementary (citizen-centred) mechanisms for exercising oversight.

Highs and lows

The history of reforms in the extractives sector has seen two high points over the last ten years: 2015 with the adoption of the Tanzania Extractive Industries Transparency Act (TEITA), and 2017, when efforts to renegotiate terms of concessions were initiated.

While TEITA sought to institutionalize the basic foundations of accountability (both from above and below), by introducing a multi-stakeholder oversight mechanism and promoting transparency, the 2017 reforms were largely top-down, and had the effect of displacing a loose coalition of progressive forces which had emerged between 2008 and 2012.

The turbulence caused by the 2017 reforms raised overall political and operational risks for investors, and for actors supporting accountability. As a consequence, even traditional donors in the mining and gas sub-sector either terminated their funding plans, or made no efforts to renew them.

This partly explains why the donor-dependent Tanzania Extractive Industries Transparency Initiative (TEITI) remains dogged by years of chronic underfunding. Other problems that face the initiative include poor integration due to half-hearted commitment from the government, and legitimacy deficit, thanks to feeble leadership.

Funding constraints have, over the last five years, fuelled the exodus from civil society of professionals with sector-specific expertise. Most CSOs working on extractives today have adopted a broad mandate as a survival strategy. While TEITI has been publishing reports, though rarely on time, the utility of its publications has been undermined by the inability of civil society to process and use the data.

Recently, the government sought to trim down the composition of  TEITI’s Multi-Stakeholder forum following the adoption of a regulation on capping the size of public agencies’ boards. This development raises a critical question as to whether the status of TEITI has evolved from a ‘project’ for enhancing transparency in government, to a public agency (as the emphasis on realigning the entity’s board implies).

It is ironic that the government has had the audacity of unilaterally restructuring a body that is designed to operate autonomously, without audible protests from those expected to guard the entity’s mandate.

A provision on parliamentary review of natural resource agreements, as introduced by two key legislations in 2017, would have led to a stronger parliamentary oversight, had it been fully implemented. However, parliament’s access to concessions, and extractive sector information in general, has remained where it was before the 2017 initiative. There is no doubt that recent reforms have failed to empower the parliament, and constrained the role of Civil Society.

Natural resources carry a significant potential for transforming the lives of Tanzanians. Unfortunately, three decades of mistakes and attempted reforms have not yet enabled the country to resolve the governance question that has haunted the extractives sector since the advent of industrial-scale exploitation.

Nevertheless, it will take almost a decade to develop the infrastructure needed to harness deep-sea natural gas. This period needs to be taken as a window of opportunity to strengthen sectoral oversight, lest we repeat past mistakes.

Dastan Kweka is a development professional, analyst and writer. He can be reached at kwekad@gmail.com or on Twitter at @KwekaKweka. These are the writer’s own opinions and do not necessarily reflect the viewpoints of The Chanzo Initiative. Would you like to publish in this space? Contact our editors at editor@thechanzo.com for further inquiries.

Dastan Kweka

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