By Kelly Gilblom and George Obulutsa
As giant oil and gas discoveries have some of the world’s biggest energy firms jostling for space in East Africa, the fate of one gas producer offers them a cautionary tale.
After investing $160 million in Tanzania, an offshoot of Canada’s Orca Exploration is close to paralysis because of unpaid bills and quarrels with authorities over terms.
Its story highlights some of the obstacles facing much bigger players as they negotiate with governments that are learning the game as they go along and are keen to both bring investment quickly and make sure they do not get cheated long term.
The speed with which East African countries adapt could determine whether their region lives up to its reputation as the latest great oil and gas frontier, with big implications for global energy flows as well as regional economies.
Oil imports
On the face of it, relations between Orca’s PanAfrican Tanzania and authorities in the East African country should work to everyone’s benefit.
Its gas generates half Tanzania’s electricity, saving it an estimated $1 billion a year on oil imports. When it started producing gas in 2004, it was hailed locally as just the sort of investment one of the world’s poorest countries needed.
But things started to unravel last year, when a government audit led a parliamentary committee to accuse PanAfrican of cheating it out of $20 million in revenues. Meanwhile, state power firm Tanesco, its biggest customer, stopped paying for gas. Threats that went as far as criminal charges were quietly dropped when it turned out the missing funds were due to an accounting error, but then a new discrepancy was announced.
Although the parliamentary committee behind the accusations was disbanded and itself accused of corruption, the government said it still wanted to negotiate with PanAfrican on how gas revenue was shared, among other things.
Last month, Orca told shareholders the company still hadn’t reached an agreement with the country’s Minister of Energy and Mines and that it might need extra funding as things drag on. One of the government negotiators, Gabriel Bujulu, principal petroleum engineer at the Tanzania Petroleum Development Corporation said simply: “It is premature to expect that a solution will not be attained.” Both Orca and PanAfrican declined further comment.
Changes to terms by governments seeking more money are nothing new for resource companies, but no matter how well-intentioned, they scare executives and investors.
“As discoveries are made and it becomes clear the size of the prize you can start to see political pressures to change the terms after the fact,” said GH Securities analyst John Malone, who studies East Africa’s energy sector.
