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Negotiating Tanzania’s Gas Future: What Matters for Investment and Government Revenues?

11 September 2017
Author
Thomas ScurfieldDavid Manley
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Negotiating Tanzania’s Gas Future: What Matters for Investment and Government Revenues? (PDF 1.74 MB)
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Commodity pricesContract transparency and monitoringLegislation and regulationLicensing and negotiationMeasurement of environmental and social impactsState-owned enterprisesTax policy and revenue collection
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Tanzania
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This brief is one of a series analyzing the Tanzanian government’s approach to managing the country’s offshore natural gas sector. Other briefs in the series include “Localizing Tanzania’s Gas Sector” and “Uncertain Potential: Managing Tanzania’s Gas Revenues.”

The Tanzanian government and a consortium of companies are negotiating a host government agreement that will govern a game-changing liquefied natural gas (LNG) plant and be a significant part of the regulatory framework governing the entire offshore gas sector.

In this brief, we take a closer look at some of the key decisions in this process and use a financial model to examine their potential impact on whether the LNG project proceeds and the government revenues that the project could generate.

Based on specific assumptions, we estimate that a long-term LNG price of USD 14 per mmBtu would be required over the life of the project for investors to earn a return comparable to that seen in other LNG projects—significantly higher than forecasts of long-term prices in east Asia of $8 and the average real price over the past 15 years of approximately $11.

Companies and investors will have their own views of long-term prices and other market variables, and economic conditions may also change prior to the investment decision. It is still possible that investment will go ahead. Nevertheless, it would be advisable for the government to start considering ways to increase its chances of securing this investment while ensuring that the country still fully benefits from the project if it does proceed.

As we discuss in the brief, the government will need to make difficult decisions that involve economic trade-offs. However, it can also increase investment prospects without making a trade-off. Improvements in the business climate—including establishing a regulatory framework that is stable and predictable—would be beneficial. Another part of the solution is to be more transparent, which would help to manage the public’s expectations and therefore make acceptance of the final terms more likely.

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  • Topics
    Beneficial ownership
    Civic space
    Commodity prices
    Contract transparency and monitoring
    Coronavirus
    Corruption
    Economic diversification
    Energy transition
    Gender
    Global initiatives
    Legislation and regulation
    Licensing and negotiation
    Mandatory payment disclosure
    Measurement of environmental and social impacts
    Measurement of governance
    Open data
    Revenue management
    Revenue sharing
    Sovereign wealth funds
    State-owned enterprises
    Subnational governance
    Tax policy and revenue collection
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