The call by the Tanzania Private Sector Foundation (TPSF) and other Tanzanian stakeholders that a special arrangement be put in place to enable Tanzanian individuals and groups to overcome the challenges arising from huge capital and costly risks experienced in the oil and natural gas exploration industry is timely.

To mitigate such challenges, foreign explorers and investors simultaneously operate with a package of exploration blocks which are well scattered over prospective grounds. Increasing the portfolio of exploration blocks decreases risk, maximizes the probability of exploration success and justifies exploration investment. Increasing this portfolio on the other hand escalates the seed capital required. Foreign explorers consequently collaborate among themselves and open up to other groups and individuals to help mobilize the huge seed capital involved.

Tanzanian individuals and groups ought to be empowered to participate in the oil and natural gas exploration in their country by enabling them to mitigate the industry’s huge seed capital and costly risks. The Tanzanian national company responsible for the generation, appraisal, development and exploitation of oil and natural gas prospects should hold all the oil and natural gas exploration licenses in the country; retain the free sovereign shares in all Tanzanian oil and natural gas blocks on offer; establish a collective fund into which interested Tanzanian individuals and groups can deposit their contributions and acquire shares in the oil and natural gas blocks on offer and assign Tanzanian individuals and groups shares in all oil and natural gas exploration blocks on offer. The company could then invite foreign explorers and investors to invest in the remaining shares. Such an approach can complement rather than take over the responsibility of the Tanzanian national company as care taker in the oil and natural gas industry.

The choice of the Tanzanian government (through TPDC) to go for production profits sharing (after all costs recovery) rather than for a Tanzanian free carried sovereign share in any of the Tanzanian oil and natural gas blocks on offer is counterproductive and suicidal to the nation. The production profits sharing model denies Tanzania the opportunity to fully exploit her deserved share of the main natural capital in form of appraisal profits realized from the partial or total sale of appraised reserves for investing in other high-quick return investment opportunities elsewhere. The model also denies the government the opportunity to fully exploit its deserved share of profits from service delivery. The 65 % to 70 % profit sharing model is negligible compared to the total profits shares of appraised reserves and provision of services and supplies.

The resolve of the Tanzanian government to establish the State controlled Tanzania Petroleum Development Corporation (TPDC) as the national company responsible for the appraisal, development and exploitation of Tanzanian oil and natural gas prospects on its own like Statoil, Petrobras and Petronas firms in Norway, Brazil and Malaysia, respectively, is a choice of the past and a misfit in the present times of globalization in which it is the powerful multinational joint ventures and mergers composed of shareholders from multinational states and private sectors that dominate the oil and natural gas prospects.

Countries like Norway, Brazil, Malaysia and Algeria established their own state controlled companies responsible for the exploitation of their oil and natural gas potentials because their private sectors were not ready to take charge, national activities in the exploitation of oil and natural gas were yet to go global, sources oil and natural gas players. The number of private and state owned companies competing for opportunities has increased, initiating their going global and merging to create the powerful multinational companies capable to survive the  competition for diminishing global oil and natural gas potentials.

Going global and merging are essential for the national (private and state) companies focused on sustainability in their exploitation of oil and natural gas potentials which are too limited within national boundaries to justify huge capital and the costly R&D’s involved. Globalization and merging to transform into powerful multinationals composed of shareholders from state and private sectors is what countries like Norway, Brazil, Malaysia and Algeria are focused on to maintain global presence and growth in their oil and natural gas endeavors.

For Tanzania and all other newly emerging oil and natural gas rich developing countries, optimization of local benefit in the appraisal, development and exploitation of local oil and natural gas prospects is achievable from the choice of joint ventures, in which local and foreign state and private sectors hold shares in the appraisal, development and exploitation of oil and natural gas prospects worldwide proportionate to the individual contributions of oil and/or natural gas opportunities, and/or seed capital.

The talk of state controlled national companies in the exploitation of economic opportunities in developing countries is outdated and replaced with companies which are controlled by multinational joint ventures composed of state and private sectors.

By Dr. Antipas Massawe
Consulting Mining Engineer, Dar es Salaam.