UNITED REPUBLIC OF TANZANIA

MINISTRY OF ENERGY AND MINERALS

(DRAFT - 1)

THE NATURAL GAS POLICY OF TANZANIA

Dar es Salaam October, 2012

TABLE OF CONTENTS
TABLE OF CONTENTS.........................................................................................................................................I ABBREVIATIONS .............................................................................................................................................III PUBLIC PRIVATE PARTNERSHIP ..................................................................................................................................III DEFINITIONS OF TERMS ................................................................................................................................. IV DEFINITIONS OF TERMS ................................................................................................................................. IV MEASUREMENTS AND CONVERSION FACTORS .............................................................................................. VI FOREWORD .................................................................................................................................................. VII 1.0 1.1 1.2 2.0 2.1 2.2 2.3 3.0 CHAPTER ONE ........................................................................................................................................ 1 INTRODUCTION ................................................................................................................................. 1 STATUS OF THE NATURAL GAS INDUSTRY IN TANZANIA.................................................................... 1 CHAPTER TWO ....................................................................................................................................... 3 JUSTIFICATION FOR NATURAL GAS POLICY ........................................................................................ 3 VISION AND MISSION ........................................................................................................................ 3 OBJECTIVES OF THE NATURAL GAS POLICY ....................................................................................... 3 CHAPTER THREE..................................................................................................................................... 5 POLICY ISSUES AND STATEMENTS ..................................................................................................... 5 UPSTREAM ACTIVITIES ............................................................................................................................ 5 MIDSTREAM AND DOWNSTREAM ACTIVITIES ............................................................................................... 6 Natural Gas Infrastructure ............................................................................................................... 6 Natural Gas for Domestic Market ................................................................................................... 8 Liquefied Natural Gas (LNG) Business ......................................................................................... 8 MANAGEMENT OF NATURAL GAS REVENUE ................................................................................................ 9 NATURAL GAS PRICING ......................................................................................................................... 10 SECURITY OF NATURAL GAS SUPPLY......................................................................................................... 11 LINKAGES WITH OTHER STRATEGIC SECTORS.............................................................................................. 11 LOCAL CONTENT AND CAPACITY BUILDING ................................................................................................ 12 CORPORATE SOCIAL RESPONSIBILITY ........................................................................................................ 13 CROSS CUTTING ISSUES POLICY ISSUES AND STATEMENTS .......................................................... 14 EFFICIENCY AND CONSERVATION ............................................................................................................. 14 TRANSPARENCY AND ACCOUNTABILITY ..................................................................................................... 15 MANAGEMENT OF THE ENVIRONMENT, HEALTH AND SAFETY ....................................................................... 16 REGIONAL AND INTERNATIONAL COOPERATION .......................................................................................... 16 GENDER MAINSTREAMING AND HIV AND AIDS ......................................................................................... 17 PUBLIC PRIVATE PARTNERSHIP - PPP ....................................................................................................... 18 PUBLIC AWARENESS AND MANAGING EXPECTATIONS IN THE NATURAL GAS INDUSTRY ...................................... 19

3.1 3.1.1 3.1.2 A. B. C. 3.1.3 3.1.4 3.1.5 3.1.6 3.1.7 3.1.8 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 4.0 4.1 4.2 5.0

CHAPTER FOUR .................................................................................................................................... 20 EXISTING LEGAL AND REGULATORY FRAMEWORK ....................................................................................... 20 LEGAL AND REGULATORY FRAMEWORK FOR MIDSTREAM AND DOWNSTREAM ................................................. 20 CHAPTER FIVE ...................................................................................................................................... 21 INSTITUTIONAL FRAMEWORK .................................................................................................................. 21 THE ROLE OF THE GOVERNMENT ............................................................................................................. 21 NATIONAL OIL AND GAS COMPANY ......................................................................................................... 21 REGULATORY AUTHORITY ...................................................................................................................... 22 PRIVATE SECTOR .................................................................................................................................. 23

5.1 5.1.1 5.1.2 5.1.3 5.1.4

5.1.5 5.1.6 5.1.7 5.2 6.0

ACADEMIC AND RESEARCH INSTITUTIONS.................................................................................................. 23 NGOS AND CIVIL SOCIETIES ................................................................................................................... 23 MEDIA ............................................................................................................................................... 23 MONITORING AND EVALUATION FRAMEWORK.............................................................................. 24

CONCLUSION ....................................................................................................................................... 25

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ABBREVIATIONS 2D Seismic Data 3D Seismic Data AIDS APRM BCF BoE CBOs CNG CSOs CSR DPs EAC EITI EWURA FDI GASCO HIV LGAs LNG LPG MDAs MEM MW NGL NGOs PMO-RALG PO-PC PPP SADC TCF TPDC UN

Two dimension Seismic Data Three dimension Seismic Data Acquired Immune Deficiency Syndrome Africa Peer Review Mechanism Billion Cubic Feet Barrel of Oil Equivalent Community Based Organizations Compressed Natural Gas Civil Society Organizations Corporate Social Responsibility Development Partners East African Community Extractive Industries Transparency Initiative Energy and Water Utilities Regulatory Authority Foreign Direct Investment Gas Supply Company Limited Human Immunodeficiency Virus Local Government Authorities Liquefied Natural Gas Liquefied Petroleum Gas Ministries, Departments and Independent Agencies Ministry of Energy and Minerals Mega Watt Natural Gas Liquids Non Governmental Organizations Prime Ministers Office Regional Administration and Local Government Presidents Office-Planning Commission Public Private Partnership Southern African Development Community Trillion Cubic Feet Tanzania Petroleum Development Corporation United Nations

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DEFINITIONS OF TERMS Aggregator A fully owned State enterprise (a subsidiary of TPDC), which will have exclusive rights to purchase, collect, sell and transport natural gas produced in the country onshore, shallow-shore and offshore. Is a form of natural gas, which is commonly found associated with deposits of petroleum. Also called Associated Petroleum Gas (APG) or flare gas Also known as is a fossil fuel substitute for gasoline (petrol), diesel, or propane/LPG and is made by compressing natural gas which is mainly composed of methane [CH4]), to less than 1% of the volume it occupies at standard atmospheric pressure. It is stored and distributed in hard containers at a pressure of 200248 bar (29003600 psi), usually in cylindrical or spherical shapes. Refer to the marketing and distribution of natural gas and products derived from natural gas. Such products include LPG, diesel, plastics, fertilizers, pesticides and pharmaceuticals. Is the process of refrigerating gas to a temperature below its critical temperature so that liquid can be formed at some suitable pressure, also below the critical pressure. Is an alternative method to transport natural gas from the producer to the consumer. Natural gas is cooled to 161.5 C (260 F), converting its gaseous phase into an easily transportable liquid whose volume is approximately 600 times less than the original volume of natural gas. Is a flammable mixture of hydrocarbon gases used as a fuel in heating appliances and vehicles. LPG is primarily a mixture of propane (C3H8) and butane (C4H10). Also called liquid petroleum gas or simply propane. Means the added value brought to the United Republic of Tanzania through the participation and development of nation labour, technology, goods, services, capital and research capabilities in the petroleum resources.

Associated gas

Compressed Natural Gas (CNG)

Downstream Activities

Liquefaction

Liquefied Natural Gas

Liquefied Petroleum Gas (LPG)

Local content

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Midstream Activities

Refers to the gathering, compression and processing functions required between the wellhead and the transmission system. Midstream facilities and activities are found at any location where natural gas is produced, transported, or sold. Facilities used for processing, liquefaction, regasification, transportation, storage and distribution of natural gas. Components of natural gas that are liquid at surface in field facilities or in gas-processing plants including propane, butane, pentane (C5H12) and hexane (C6H14). Means adding value to the gas by converting it into other products which are relatively of higher value than raw gas is the natural gas which is in reservoirs that does not contain significant quantities of crude oil, where the volume of oil is small/absent and where production of such gas does not significantly affect recovery of the crude oil. It consists of gaseous hydrocarbons. An area away from the shore located in water depth equal to or greater than 200 meters. Located on land is the process by which LNG is heated and converted to a gaseous state. An area along the shore with water depth up to 200 meters. Refer to searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface. Is the component at the surface of an oil or gas well that provides the structural and pressurecontaining interface for the drilling and production equipment.

Natural gas infrastructure

Natural Gas Liquids (NGL)

Natural gas value addition Non associated gas

Offshore Onshore Regasification Shallow shore Upstream Activities

Wellhead

MEASUREMENTS AND CONVERSION FACTORS Symbol Bbl BTU Unit Barrel British Thermal Unit Conversion = 0.15899 cubic metres = 1.06 kJ 1kJ = 0.948 BTU = 0.02832 cubic metres = 1,000 Watt hours = 6.289 barrels = 293 kWh

CF kWh M3

Cubic feet kilowatt hour Cubic metre

mmBTU Million British Thermal Unit

mmscfd

Million standard cubic feet per day

= 28,316.85 cubic metres per day

TOE/toe Tonnes of oil equivalent Tonne Metric tonne

= 39.68 million BTU = 10 million kilocalories = 1,000 kilogram (kg) = 2,204.6 Pounds (lb)

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FOREWORD

Natural gas resource belongs to the people of Tanzania, and must be managed in a way that benefits the entire Tanzanian society. Tanzania has been exploring for oil and gas for more than half a century, where the first natural gas discovery was made in Songo Songo Island in 1974 followed by another one in Mnazi Bay in 1982. In 2004 and 2006 commercial production of natural gas in both Songo Songo Island and Mnazi Bay commenced. Since commercialization of the natural gas, Tanzania has witnessed further exploration and discoveries of large quantities of natural gas both onshore and offshore. These developments have created more challenges to the Government to manage the fast growing natural gas industry. The challenges include policy, legal and institutional frameworks to manage the industry more effectively; human resources with the requisite skills and knowledge in the industry; natural gas infrastructure; development of domestic market and managing export market; revenue management; public expectations; and health, safety and environment protection. In pursuit of realizing significant developments and addressing the challenges in the natural gas industry, the Government has formulated natural gas policy to provide a comprehensive framework for guiding development of the industry to ensure optimal benefits to the nation and all Tanzanians at large. In order to maximize the benefits accrued from the natural gas resource, the implementation of this Policy will be aligned with the Tanzania Five Year Development Plan (2011/12-15/16), National Strategy for Growth and Reduction of Poverty 2010-15 and other sectoral and cross-sectoral policies. It is my expectation that the Natural Gas Policy will facilitate social and economic transformation of Tanzania to become a middle income country by 2025.

Professor Sospeter M. Muhongo (MP.) MINISTER FOR ENERGY AND MINERALS

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1.0 1.1

CHAPTER ONE INTRODUCTION

Tanzania has been exploring for oil and gas for the past 60 years from 1952. The first natural gas discovery was made in 1974 at Songo Songo Island (Lindi Region) followed by a second discovery at Mnazi Bay (Mtwara Region) in 1982. The Songo Songo natural gas was commercialized in 2004 and that of Mnazi Bay in 2006. The commercialization of the two discoveries propelled further exploration and discoveries both onshore and offshore. For the first time, in 2005 petroleum exploration commenced in the deep sea. In 2010, these exploration endevours culminated in large quantities of natural gas discoveries. These advents have continued and more gas discoveries are anticipated. Over all these years, petroleum exploration and production has been guided by the Petroleum (Exploration and Production) Act of 1980 without any specific policy in place. This policy therefore, has been formulated to provide guidance to the increasing activities in the natural gas industry. 1.2 STATUS OF THE NATURAL GAS INDUSTRY IN TANZANIA

Status of Exploration Activities are currently taking place onshore and shallow waters, deep offshore and inland rift basins. Up to June 2012, there were 26 Production Sharing Agreements signed with 18 oil exploration companies. Over 100,000 km of 2D seismic data has been acquired onshore, shelf, offshore as well as inland rift basins. Recently, over 17,000 square kilometres of 3D seismic data have been acquired in the deep sea. A total of 62 wells for both exploration and development have been drilled between l952 and 2012, of which 53 wells are in onshore basins and 9 in offshore basins.

Natural Gas Discoveries Natural gas discoveries of about 8 trillion cubic feet (TCF) have been made from the onshore gas fields at Songo Songo, Mnazi Bay, Mkuranga, Kiliwani North and Ntorya. As of June, 2012 natural gas discoveries of about 33 TCF (6 billion barrel of oil equivalent BoE) have been made from both onshore and offshore basins. The deep sea discoveries have indicated a new era in the exploration for petroleum in Tanzania and the region at large. Tanzania looks at these developments as an important platform towards future exploration successes. Inspite of the developments registered, the industry is facing a number of challenges including:

(i) (ii) (iii) (iv) (v) (vi) (vii)

Policy, institutional and legal frameworks to administer the industry effectively; Human resources with the requisite skills and knowledge in the natural gas industry; Natural gas infrastructure; Development of domestic market for natural gas; Natural gas revenue management; Health, safety and environment; and Management of expectations.

2.0 2.1

CHAPTER TWO JUSTIFICATION FOR NATURAL GAS POLICY

The Natural Gas Policy provides a comprehensive framework for guiding the development of the natural gas industry to ensure optimal benefits to the national economy in the short, medium and long term. Maximization of the benefits will be attained through the optimization of the value chain which consists of upstream, midstream and downstream activities. The formulation of this Policy was aligned with the Tanzania Development Vision 2025, the National Energy Policy of 2003, other sectoral and cross-sectoral policies the Tanzania Five Year Development Plan (2011/12-15/16) and the National Strategy for Growth and Reduction of Poverty 2010-15. 2.2 Vision A vibrant natural gas industry contributing significantly to socio-economic transformation of Tanzania. Mission To create enabling conditions for the supply of natural gas to all market segments in a reliable, cost-effective, safe and environmentally friendly manner. 2.3 OBJECTIVES OF THE NATURAL GAS POLICY VISION AND MISSION

This policy document recognizes that natural gas resource belongs to the people of Tanzania, and must be managed in a way that benefits the entire Tanzanian society. Main Objective The main objective of the policy is to provide guidance for the development of the natural gas resource to ensure that its benefits are maximized and contribute to the transformation of the Tanzanian economy. The natural gas resources should also contribute to improving the quality of life in Tanzania in the years to come. This demands striking a balance between domestic and export oriented natural gas industry; between foreign and domestic investment, between foreign contribution of capital and technology on the one hand, and national and local participation on the other hand; and between direct fiscal benefits and broader long-term development linkages.

Specific Objectives a) To ensure sustainable exploration, production, processing, liquefaction, transportation, storage, distribution facilities and utilization of natural gas for domestic market and value addition for export; b) To ensure that the Government and Tanzanians participate strategically in the natural gas value chain; c) To strengthen human capacity development as well as institutional, legal and regulatory framework for natural gas industry development; d) To ensure effective management of natural gas revenue national development goals; to achieve the

e) To strengthen Corporate Social Responsibility mechanism in the natural gas activities and projects areas, in order to maximize benefits to the local communities; f) To ensure that prices of natural gas and related services are economically efficient and promote natural gas industry growth; g) To promote linkages between the natural gas industry with other strategic sectors of the economy to accelerate socio-economic transformation; h) To ensure transparent and accountable system in the management of the natural gas industry; i) To benefit from regional and international community in the development of natural gas industry; and j) To ensure that all activities in the natural gas value chain are undertaken in a manner that protects peoples health, safety and environment.

3.0 3.1

CHAPTER THREE POLICY ISSUES AND STATEMENTS 3.1.1 Upstream Activities

Upstream activities include exploration, appraisal, development and production stages of oil and gas operations. In order to achieve sustainable natural gas supply, upstream activities need to be aligned with mid and downstream activities. Detailed policy issues on natural gas upstream activities will be addressed under Petroleum Policy. Exploration and Production Issue: Optimize exploration and production activities in a socially, economically and environmentally responsible manner. Effective strategy is required to enhance exploration and production of natural gas. Exploration and production activities generate both fiscal and non-fiscal benefits. For Tanzania to maximize such benefits, these activities must be undertaken in the most efficient and effective manner in line with national development plans, strategies, priorities and sectoral linkages. It is through competition among licensees, operators and suppliers, that cost effective choices can be achieved. Competition enables selection of the most capable operators, the most efficient, the best quality, and the most reliable suppliers thereby ensuring high levels of productivity. This fundamental consideration justifies the principle of open bidding and enables the country to maximize its returns to society both for the current and the future generations. It is essential that a framework be established that supports fair competition with a view of improving efficiency and productivity in natural gas operations and maximizing the countrys benefits from its natural gas resources.

Objective: To ensure sustainable exploration and production of natural gas resource.

Policy Statements: The Government shall: (i) Participate strategically in upstream activities through its National company responsible for development of petroleum or its subsidiaries; Ensure promotion of investment in exploration and production of natural gas resources; Ensure adoption of modern technologies for exploration and production of natural gas; Ensure competitiveness in the grant of petroleum licenses to promote productivity and maximize the countrys benefits from its natural gas resources unless under exceptional cases for national interest; Ensure natural gas is produced efficiently and effectively with minimal flaring activities where necessary; and Ensure adoption of optimized production profile to ensure high recovery of natural gas.

(ii)

(iii)

(iv)

(v)

(vi)

3.1.2

Midstream and Downstream Activities

The mid-stream and downstream segment of the natural gas industry involves gas processing, liquefaction, transportation, storage, regasification, distribution and other ancillary services. These activities are inherently natural monopolies and therefore subjected to regulations. Specific regulations will be needed for the midstream and downstream natural gas industry. A. Natural Gas Infrastructure Issue: Optimizing investment for natural gas infrastructure to serve the domestic and regional markets. Natural gas infrastructure covers processing, liquefaction, transportation, storage and distribution facilities, which form the natural gas supply chain. The Government considers such facilities to be of strategic significance to the industry and national economy. During the infancy stage, the main natural gas infrastructure will be owned

by the Government through its National company responsible for development of petroleum or its subsidiaries. The provision of service by a monopoly service provider raises the issue of access to common facilities and services by third parties. Ensuring non-discriminatory access is a critical issue which requires owners and operators of facilities such as processing plants, offloading platforms and pipelines to provide services to all customers in a transparent manner. Objective: To promote development of facilities for natural gas processing, liquefaction, transportation, storage and distribution to ensure reliability of supply.

Policy Statements: The Government shall: (i) Participate strategically through its National company responsible for development of petroleum or its subsidiaries to develop and operate major infrastructure for natural gas; Ensure that all natural gas processing activities are undertaken in common facilities onshore in the most cost effective manner; Ensure separation (unbundling of operations) of value chain activities in order to promote efficiency; Facilitate establishment of storage facilities and associated regasification terminals; Establish a licensing regime for gas suppliers, distributors and marketers who will obtain their gas supplies from the natural gas aggregator who will be national company responsible for development of petroleum or its subsidiaries; and Ensure transparent and non-discriminatory terms and conditions are developed and enforced to promote access to service by third parties.

(ii)

(iii)

(iv)

(v)

(vi)

B. Natural Gas for Domestic Market Issue: Supply and utilization of natural gas for local consumption. Natural gas is one of our abundant natural resources which could be utilized in a number of applications including, thermal applications in industries/ institutions and electric power generation, as well as transport and households for cooking. In this regard the Government considers facilitating wide utilization of this indigenous resource domestically to minimize the use of foreign currency for importing petroleum products. Objective: To develop and serve the domestic market for natural gas to minimize dependency from imported petroleum products. Policy Statements: The Government shall: (i) Facilitate reliability in production, efficient utilization and value addition of the countrys natural gas resource; Promote production of natural gas based Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGL) for domestic market; and Promote establishment of industrial parks for natural gas industries.

(ii)

(iii)

C. Liquefied Natural Gas (LNG) Business Issue: Maximizing gains from LNG Regasification and Storage). value chain (Liquefaction, Shipping,

The market for natural gas is more mature and strong in developed economies. Generally, the main incentives for international oil and gas companies to invest in deep sea exploration in developing countries is usually to get an export oriented market in the absence of the well developed local market. Tanzania intends to participate in LNG trading globally. Although large volumes of natural gas are required to justify LNG investment, with the latest discoveries in Tanzania, world market prices and demand for LNG justifies such investments.

Objective: To ensure the effective participation of Government and Tanzanians in the LNG business. Policy Statements: The Government shall: (i) Through its entities, strategically invest in the LNG value chain to optimize benefits from natural gas; Ensure that all LNG facilities are located onshore wherever possible through common facilities; Ensure domestic market is given first priority over the export market; Ensure efficient technologies in LNG production; and Ensure appropriate LNG trading for regional and international market.

(ii)

(iii) (iv) (v)

3.1.3

Management of Natural Gas Revenue

Issue: Managing revenue arising from natural gas with a view to benefit the present and future generations of Tanzanians. Natural gas resource is a potential source of revenue to the Government. However, if not properly managed such resource is likely to be a curse instead of a blessing. Since natural gas is a finite resource, it is crucial that the revenue is managed in a manner that will bring about lasting benefits and welfare to the Tanzanian society. Revenues from natural gas resource can be aligned with the national development vision by directing them into strategic investments such as infrastructure. Successful management of this resource will require putting in place mechanisms of governance to mitigate spending pressure and preclude rent seeking opportunities; fiscal management to mitigate effects of revenue volatility due to changes in production levels or fluctuation of global oil and gas prices; and economic diversification and linkages with other sectors. Natural Gas Revenue Fund will be established to ensure transparency and accountability over collection, allocation and management of the natural gas revenue. The fund will be structured to provide for stabilization of revenue transfer to the Government for public expenditure in strategic areas and for domestic savings

for future investment. In addition, sound fiscal management of the natural gas revenue spending shall be in accordance with national development plans and strategies. Objective: To ensure effective management of natural gas revenue to achieve the national development goals. Policy Statements: The Government shall: (i) Establish Natural Gas Revenue Fund for development of natural gas industry and national strategic projects; Ensure fiscal regime in the natural gas industry supports development of the industry; and Ensure the local communities benefit from revenue emanating from the natural gas activities in their localities. 3.1.4 Natural Gas Pricing

(ii)

(iii)

Issue: Appropriate pricing structure to sustain supply and demand sides. Pricing of natural gas is a critical element for sustainable natural gas industry. The Government envisages to establish an appropriate pricing mechanism to be based on a set of key principles, including cost reflectivity, prudently incurred costs, reliability and quality of service; fair return on invested capital, and capacity allocation to the most valued use. Objective: To ensure that prices of natural gas and related services are economically efficient and promote natural gas industry growth. Policy Statements: The Government shall: (i) Ensure an appropriate pricing structure is in place which encourages economic use of the system capacities in the natural gas value chain; Ensure the pricing structure provides incentives for promoting investments

(ii)

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while sustaining supply and demand for natural gas; and (iii) Ensure that natural gas prices to strategic industries and households are affordable and predictable. 3.1.5 Security of Natural Gas Supply

Issue: Security of natural gas supply in the domestic market. Natural gas is an important source of energy for power generation, manufacturing industries, transportation, commercial and households for thermal applications. With the increasing dependence on natural gas supply, it is critical to ensure reliability of supply is maintained. To achieve this necessary measures must be taken including natural gas infrastructure development, defining terms of infrastructure access, managing contractual commitments, prioritizing allocation of natural gas in the event of insufficiency as well as monitoring of production and storage facilities. These measures require the establishment of framework for security of supply including protocols for natural gas allocation that are transparent, non-discriminatory and consistent with the requirements of developing domestic natural gas markets. Objective: To align natural gas supply and demand to ensure reliability. Policy Statements: The Government shall: (i) Ensure sufficient production and rational utilization of natural gas to sustain supply to the domestic market; and Ensure optimal investment for the national natural gas infrastructure to ensure reliability of energy supply to the country.

(ii)

3.1.6

Linkages with Other Strategic Sectors

Issue: Mainstreaming natural gas resource utilization in other strategic sectors. Natural gas can be used to stimulate development in other sectors of the economy such as agriculture, transport, mineral, commercial and industrial and contribute to the socio-economic benefits. In addition, activities in the natural gas industry, such as exploration, construction and system operations which further create demand for labour, goods and services. The use of natural gas as an alternative to woodfuel

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reduces pressure on forests, which cause rains and hence supporting agricultural activities, power generation and other sectors. Objective: To promote linkages between the natural gas industry with other strategic sectors of the economy to accelerate socio-economic transformation. Policy Statements: The Government shall: (i) Ensure growth of the natural gas industry supports strategic investments in other sectors of the economy; and Promote private sector participation for rapid development of strategic industries such as petrochemicals, steel and other energy intensive industries.

(ii)

3.1.7

Local Content and Capacity Building

Issue: Empowerment of Tanzanians to benefit from the natural gas industry. Local content in Tanzania context refers to added value brought to Tanzanians through activities of the natural gas industry. These may be measured and undertaken through employment and training of local workforce; investments in developing supplies and services locally; and procuring supplies of services locally. Currently, most goods and services are supplied by foreign companies due to inadequate capital and requisite skills to Tanzanians. Participation of Tanzanians in areas where natural gas activities are intensive is important for industry stability, integration into local economies and poverty reduction. Tanzania can maximize these benefits through strategic participation in the natural gas value chain. Successful maximization of local content benefits require implementation of proper policies, strategies, action plans, continuous consultation with key stakeholders and strengthening capacity of various institutions such as Local Government Authorities (LGAs) and Community Based Organizations (CBOs). Objective: To develop capabilities of Tanzanians to participate strategically in the natural gas value chain.

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Policy Statements: The Government shall: (i) Ensure that opportunities for supply of goods and services, employment and investments are made available to Tanzanians and local companies; Promote joint venture arrangements between Tanzanians and foreign companies in implementing projects in the natural gas industry; Ensure that capabilities of Tanzanians are developed in the natural gas value chain through skills development, transfer of technology and applied research; Strengthen capacity of national company responsible for development of petroleum to participate strategically in the natural gas industry; Establish oil and natural gas center of excellence and strengthen capabilities of the training institutions to impart requisite skills to Tanzanians; and Review mandates of Tanzania Petroleum Development Corporation (TPDC) to ensure effective management of the natural gas industry.

(ii)

(iii)

(iv)

(v)

(vi)

3.1.8

Corporate Social Responsibility

Issue: Addressing immediate needs of local communities Companies implementing projects and activities in the natural gas industry are required to contribute in the development process of the local communities through their Corporate Social Responsibility policies. It is in the interest of both parties to avoid or mitigate the negative perceptions and maximize the positive effects. Currently, activities under Corporate Social Responsibility are not addressing the pressing needs of local communities due to lack of guidelines and little participation of local communities. The Government will emphasize implementation of Corporate Social Responsibility through proper communication and supporting priority development projects and activities of the local communities to ensure timely achievements in the investments of the companies. The local communities will also participate effectively in protection of the natural gas infrastructure.

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Objective: To strengthen Corporate Social Responsibility mechanism in the natural gas activities and projects areas, in order to maximize benefits to the local communities. Policy Statements: The Government shall: (i) Ensure that there is a contractual obligation to all contractors in the natural gas activities to undertake community developmental programmes; Ensure companies in the natural gas industry to submit credible Corporate Social Responsibility action plans to the national company responsible for development of petroleum; and Ensure companies in the natural gas industry and local government authorities enter into agreement to implement projects as per agreed action plans.

(ii)

(iii)

3.2

CROSS CUTTING ISSUES POLICY ISSUES AND STATEMENTS 3.2.1 Efficiency and Conservation

Issue: Sustaining present and future demand for natural gas. Natural gas is a finite resource and therefore it is non renewable. Although its availability is in significant amounts there is a need to ensure sustainability in supply and demand sides. The demand side covers end use systems, which include electricity generation and thermal applications in households, transport, manufacturing industries and commerce. Presently significant amount of natural gas is used to generate electricity due to unreliability of hydro power systems as well as inadequate utilization of other sources of energy including coal. In order to ensure sustainable supply of natural gas and its future availability there is a need to utilize it efficiently as well as using other alternatives particularly in generating power. Policy Objective: To ensure rational use of natural gas in all sectors of the economy.

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Policy Statements:

The Government shall: (i) Ensure prioritization of natural gas utilization based on the Gas Utilization Master Plan; and Ensure monitoring of the natural gas supply from reservoirs to the end-use systems.

(ii)

3.2.2

Transparency and Accountability

Issue: Transparency and accountability to the public on natural gas activities. Access to information is a fundamental right in activities that may positively benefit or negatively impact individuals, communities and society as a whole. Dissemination of information makes the public aware of the developments in the industry. Therefore, the Government and stakeholders have important roles to play in order to achieve transparency and accountability as well as eliminating possible elements of corruption in the natural gas industry. In addition, the Government has joined the Extractive Industry Transparency Initiative (EITI) to improve transparency and accountability as well as accessing information in relation to revenue accrued from extractive industries. Objective: To ensure transparent and accountable system in the management of the natural gas industry. Policy statements: The Government shall: (i) (ii) Promote transparency and accountability in the natural gas industry; and Facilitate collection and dissemination of information related to natural gas industry to stakeholders.

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3.2.3

Management of the Environment, Health and Safety

Issue: Sound practices in environmental, health and safety management. Natural gas operations may have adverse effects on the environment, health and safety of people. Adherence to good industry standards and practices will contribute significantly to preventing or mitigating such effects. It is important to plan for remedial measures prior to any natural gas operation. The regulation of these operations is necessary to ensure that natural gas activities are conducted taking environment, health and safety issues into consideration. Objective: To ensure that all activities in the natural gas value chain are undertaken in a manner that protects peoples health, safety and environment. Policy Statements: The Government shall: (i) Ensure that health, safety and environmental issues are mainstreamed into all operations in the industry; and Ensure compliance to environmental protection and best practice in the industry.

(ii)

3.2.4

Regional and International Cooperation

Issue: Compliance with regional and international community trade policies. Cooperation with regional and international community is important for development of the natural gas industry. Tanzania can realize benefits of being a member of regional blocks such as EAC and SADC. There is need to strengthen cooperation with international bodies to take advantage of facilities, resources and information provided by those blocks. Objective: To benefit from regional and international community in the development of natural gas industry.

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Policy Statements:

The Government shall: (i) Promote cross border projects and investment to maximize benefits accruing from natural gas exploitation; Consider regional markets in the development of natural gas infrastructure in Tanzania; and Endeavour to share best practices and experiences in the management of natural gas industry with the international community. 3.2.5 Gender Mainstreaming and HIV and AIDS

(ii)

(iii)

Issue: Gender based opportunities and addressing HIV and AIDS issues in the natural gas industry The Government provides equal opportunity to all citizens of Tanzania, the active participation of women in the natural gas industry is encouraged. Natural gas industry development is likely to have different impact on women, men and vulnerable groups. The use of natural gas for cooking in households relieves women from wasting time looking for woodfuel and indirectly improves health due to better kitchen environment that is free from smoke and soot. HIV and AIDS is associated with other infectious diseases which have greatly affected socio-economic development and livelihoods. Like many other large scale projects, natural gas projects will attract the concentration of people looking for employment and other related activities. In the process, this may escalate the HIV and AIDS infections. Awareness and education on HIV and AIDS to all stakeholders is important to reduce its impacts in such projects. Objective: To promote and support women to participate actively in natural gas activities and addressing HIV and AIDS issues. Policy statements: The Government shall: (i) Create conducive environment and promote women participation in natural gas industry;

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(ii)

Ensure that programmes related to natural gas industry are based on gender equality and equity; and In collaboration with partners/players will provide education on HIV and AIDS to stakeholders in the natural gas industry.

(iii)

3.2.6

Public Private Partnership - PPP

Issue: Private sector participation synergy. The Government recognizes the role of private sector in bringing about socioeconomic development through capital investment, managerial skills and technology as stipulated in the PPP Policy of 2009. Like other sectors of the economy, projects under PPP arrangements have been implemented in the petroleum and natural gassub sector. However, the Government has experienced challenges in such projects including risks sharing mechanisms and insignificant benefits. In order to address these challenges, proper mechanism for risks sharing in natural gas PPPs investments needs to be put in place, to ensure mutual benefits for both parties involved. Objective: To ensure minimal risks allocation for PPPs projects to maximize Government benefits from the natural gas industry. Policy statements: The Government shall: (i) Provide conducive environment for PPPs arrangements to facilitate investments in the natural gas industry; and Promote development of natural gas infrastructure, petrochemical industries and energy intensive industries utilizing natural gas (Industrial Parks) under PPP arrangements.

(ii)

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3.2.7

Public Awareness and Managing Expectations in the Natural Gas Industry

Issue: Improving public awareness on matters pertaining to the natural gas industry Public awareness is important for supporting implementation of projects and activities in the natural gas industry. Following recent discoveries of natural gas in the country, public expectations have increased based on the perception that discoveries are likely to yield immediate benefits. These expectations have to be managed since such benefits take time to be realized. This situation calls for the need to increase awareness on natural gas operations to the public and stakeholders, particularly local communities where natural gas projects and activities are being implemented. Objective: To manage public expectations on benefits from natural gas activities.

Policy statements: The Government shall: (i) Provide accurate and timely information on activities implemented throughout the natural gas value chain to the public, especially the local authorities and communities; and Improve communication mechanism and flow of information on natural gas industry to the public.

(ii)

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CHAPTER FOUR 4.1 Existing Legal and Regulatory Framework

The existing Legal and Regulatory framework for energy sector does not address comprehensively the governance of the natural gas industry. As a result of significant discovery of natural gas deposits, there will be tremendous increase of upstream, midstream and downstream activities. These require enactment of specific legislation to address the situation. 4.2 Legal and Regulatory Framework for Midstream and Downstream

Legal and Regulatory Framework for midstream and downstream industry will, among others, comprise of licensing, tariff structure, rates and charges, quality and standards, healthy and safety issues, access to common infrastructure and services, revenue management and related aspects of natural gas industry administration and regulation. Therefore, the role of Government shall be to: (i) Establish legal and regulatory framework to govern the processing, transportation, liquefaction, distribution, supply and trading of natural gas to ensure efficient management, expedite development of midstream and downstream activities to maximize benefits accrued from natural gas resource; Establish proper mechanisms to provide for security of supply to domestic market; Ensure that an appropriate regulatory authority for natural gas industry is established; Develop appropriate standards for natural gas industry based on international generally accepted standards; and Ensure stable and predictable legal framework for natural gas industry.

(ii)

(iii)

(iv)

(v)

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CHAPTER FIVE 5.1 Institutional Framework

The successful implementation of Natural Gas Policy and other national development policies depends crucially on the institutional framework that is in place to develop tools for operationalizing, enforcing and monitoring to ensure desired outcomes. The proposed institutional framework articulates major roles of key institutions and direction towards a transformed economy and sustainable development. 5.1.1 The Role of the Government Rapid growth in the natural gas industry in Tanzania requires state involvement in directing resources and leading other players towards a desired development direction. Therefore, in addition to traditional roles of facilitation and regulation the Government will also participate in investment and ownership of strategic infrastructure. The role of the Government shall be to: (i) (ii) (iii) Administer and enforce the Natural Gas Act and Regulations; Promote investment and own strategic natural gas infrastructure; Attract and encourage foreign direct investment in capital intensive and technologically challenging natural gas projects; Support national enterprises and Tanzanians to participate actively in the natural gas; Strengthen capacity of Government institutions responsible for the natural gas development; and Set targets and monitor results.

(iv)

(v)

(vi)

5.1.2 National Oil and Gas Company The National Oil and Gas Company will have to take new roles and responsibilities in the light of natural gas discoveries. Currently, the oil and gas activities including commercial and regulatory roles are carried out by Tanzania Petroleum Development Cooperation (TPDC) on behalf of Government. This necessitates reviewing of TPDCs roles, functions and structure. The review will lead to

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appropriate organizational structures, incentive systems, financing mechanisms, reporting and control systems to ensure that the Corporation remains independent to protect its revenue base, and to ensure integrity of its management systems and operations. The role of TPDC in mid and downstream natural gas activities shall be to: (i) Advise the Government on policy issues regarding to mid and downstream natural gas activities; Participate and own natural gas strategic projects on behalf of the Government; Carry out specialized operations in the natural gas value chain through subsidiaries; and Aggregate and develop natural gas market.

(ii)

(iii)

(iv)

5.1.3 Regulatory Authority

The current regulatory authority has the mandate to regulate downstream activities, while the upstream activities are regulated by the Government through TPDC. Active participation of TPDC in commercial and regulation activities is not prudent industry practices. The potential size of the natural gas resources in the country and its expected multiple uses require the robust regulatory authority. The roles of regulator for natural gas shall be: (i) (ii) (iii) (iv) (v) Performing the functions conferred in accordance with the gas legislation; Granting, renewing, suspending and cancelling of licenses; Establishing standards for goods and services in the natural gas industry; Regulating rates and charges in the natural gas industry; Monitoring performance of natural gas activities including levels of investment, cost of services and availability of gas supply; and Facilitating the resolution of complaints and disputes.

(vi)

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5.1.4 Private Sector

Private sector players are important in providing substantial capital investment and technology needed for exploration and development of natural gas resources. The Government will continue to promote and facilitate private sector participation through PPP or other arrangement in natural gas value chain. They will also be expected to play key role in national development including capacity building in their respective value chain activities as part of their overall corporate social responsibilities.

5.1.5 Academic and Research Institutions

Academic and Research Institutions are important for development of natural gas industry at large. Development of natural gas sector has increased demand for skills currently not adequately supplied by the country education and training institutions. The Government has taken measures to introduce and expand training in relevant fields in the oil and gas industry. The Government will promote such institutions in development of human resources required in natural gas industry. It will also promote research activities in order to maximize benefit emanating from natural gas value chain.

5.1.6 NGOs and Civil Societies

This policy recognizes the role of NGOs and civil societies can play through advocacy, mobilization and dialogue with communities. These societies will contribute to holding the different players accountable with regard to gas activities and participate in getting the voice of the public into designing, monitoring and implementation of programme in the gas industry. Civil societies may also be contracted in the delivery of various services especially in the communities where gas activities are undertaken.

5.1.7 Media
The role of media in providing accurate and balanced information on natural gas issues to the public is highly emphasized in this policy. In this regards, the Government will strengthen collaboration with media to ensure that such information are delivered timely. This will enhance public awareness on matters pertaining to the natural gas industry.

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5.2

MONITORING AND EVALUATION FRAMEWORK

The multidimensional challenges and opportunities from the emerging natural gas industry require systematic monitoring and evaluation framework for policy implementation and performance assessment. Monitoring process will generate and supply data and information on the progress in the implementation while evaluation will determine the relevance, effectiveness, efficiency, sustainability and impact of the Policy. While the main responsibility of the Framework will be vested in MEM and TPDC, a coordination mechanism will be established to involve consultative process with the main stakeholders including MDAs, LGAs, Members of Parliament, private sector, NGOs, CSOs, CBOs, Media and DPs. The Framework will also provide an avenue for public awareness on development of the natural gas industry, progress, challenges, policy actions, achievements, prospects and expectations in the short, medium and long terms.

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CONCLUSION

Natural gas resource belongs to the people of Tanzania and therefore, must be managed in a manner that benefits the entire Tanzanian society.

This Policy provides guidance for ensuring that benefits from the natural gas value chain are maximized and contribute to the transformation of Tanzanian economy. It also forms a comprehensive framework for guiding development of the natural gas industry to ensure optimal benefits to the nation and all Tanzanians at large.

The Government is determined to build capacity for national company responsible for development of petroleum and to ensure Tanzanians participate strategically in the natural gas value chain. The ultimate goal is to contribute towards improving the quality of life of Tanzanians at present and in the years to come. This could be achieved through a mechanism which balances domestic and export markets and attracts foreign investment. A linkage of the natural gas industry with other sectors is considered to be of paramount important.

This policy document is supported by a Strategy to ensure effective implementation towards facilitating social and economic transformation of Tanzania to become a middle income country by 2025.

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