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Great expectationsSospeter MUHONGOMinister of Energy and Minerals

A new eraMichael MWANDAChairman of the Board of DirectorsTANZANIA PETROLEUM DEVELOPMENT CORPORATION

Game changerFelchesmi MRAMBAManaging DirectorTANZANIA ELECTRIC SUPPLY COMPANY

ARTICLES | INTERVIEWS | VIEWPOINTS | MARKET ANALYSIS | RESOURCES | PROJECTS | MAPS | INVESTOR SPOTLIGHTS

THE OIL & GAS YEAR The Who’s Who of the Global Energy Industry

6 THE YEAR IN REVIEW

7 INTERVIEW: Sospeter Muhongo, Minister of Energy and Minerals

8 INTERVIEW: Yona Killagane, Tanzania Petroleum Development Corporation

9 THE YEAR’S AWARDS10 TANZANIA AT A GLANCE11 THE INVESTORS INDEX12 THE YEAR IN ENERGY

14 DIPLOMACY & POLITICS

15 ARTICLE: A state to negotiate. With increased exploration on the horizon, navigating difficult issues of wealth distribution and national identity is gaining in importance

15 IN CORRUPTION: Ranking of Tanzania and itsneighbours on the Corruption Perceptions Index

16 IN DEVELOPMENT: Ranking of Tanzania and its neighbours on the Human Development Index

17 INTERVIEW: Mlingi Mkucha, National Development Corporation

18 INTERVIEW: Alexander Rannikh, Russian Ambassadorto Tanzania

19 INTERVIEW: Lu Youqing, Chinese Ambassador to Tanzania

20 EXPLORATION & PRODUCTION

21 ARTICLE: Tanzania looks to enter the major leagues. Important gas discoveries have put the country’s hydrocarbons potential in the spotlight even as access to ultra-deep reservoirs is years away

21 IN RESERVES: Gas initially in place as of September 2014

22 IN PRODUCTION: Tanzania’s gas production, 2008-2016

23 INTERVIEW: Michael Mwanda, Tanzania Petroleum Development Corporation

24 IN CONTRACTS: 2013-2014 Fourth Offshore Licensing Round PSA terms

25 MAP: Gas discoveries offshore Tanzania25 RESOURCE: Offshore exploratory wells drilled26 INTERVIEW: Adam Prince, Oil and Gas Association of

Tanzania27 INTERVIEW: Axel Knospe, Shell28 PROJECT HIGHLIGHT: Lake Tanganyika South block29 INTERVIEW: Adam Prince, BG Tanzania30 PULLOUT MAP: Tanzania’s hydrocarbons licences 201431 GEOLOGY REPORT: Great potential in the Great Rift

Valley. Looking for oil in the country’s vast territory32 ARTICLE: Investors wary of new reforms. The new

model for production-sharing agreements has resulted in a lacklustre response to the 2013-2014 Fourth Offshore Licensing Round

33 MAP: 2013-2014 Fourth Offshore Licensing Round34 INTERVIEW: Oystein Michelsen, Statoil35 RESOURCE: Licensing round history36 RESOURCE: Fourth Licensing Round – other bidders

38 BANKING & LEGAL

39 ARTICLE: National interest. The rules and practicesof the domestic industry are in transition owing to Tanzania’s major natural gas discoveries

40 IN TRADE: Tanzania’s top 10 import origins and export destinations, 2012

41 INTERVIEW: Russell Maynard, EY42 VIEWPOINT: Regulatory reform. Fayaz Bhojani,

FB Attorneys43 INTERVIEW: Adam Lovett, Norton Rose Fulbright44 MARKET ANALYSIS: The emergence of Dar es

Salaam. Michael Strain, Clyde & Co45 INTERVIEW: Charles Rwechungura, CRB Africa Legal46 ARTICLE: Swala takes flight. Investor excitement

over Tanzania’s hydrocarbons potential is reflected in the performance of the Dar es Salaam Stock Exchange

47 VIEWPOINT: Legislative transformation. Salim Bashir,KPMG

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14Diplomacy & PoliticsWith gas reserves of 1.43 tcm (50.5 tcf ) as ofAugust 2014, Tanzania is blessed with abun-dant natural resources. However, the countrynow faces the daunting task of exploitingthese resources in the absence of the properinfrastructure and in a manner that benefitsboth investors and the average national cit-izen. China in particular has lent a hand inhelping Tanzania to jumpstart its economy.

20Exploration & ProductionMajor natural gas discoveries in rapid succes-sion, such as a find estimated at 29.2 bcm (1.03tcf ) in the Kamba and Fulusi prospects in Oc-tober 2014, have placed Tanzania’s hydrocar-bons potential firmly in the spotlight of inter-national investors. The country’s ability toherald a natural gas future will hinge on its ca-pacity to develop the necessary infrastructure.However, Tanzania might still find itself at themercy of unpredictable global LNG markets.

The Who’s Who of the Global Energy Industry

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48 THE YEAR’S FOCUS: Tanesco

49 ARTICLE: Cater for the masses. Leveraging Tanzania’s natural gas potential to expand power generation capacity and reduce the dependency on heavy-fuel power generation

49 IN POWER: Electricity transmission and distribution losses

50 RESOURCE: Tanzania’s gas-based power generation plan

51 INTERVIEW: Felchesmi Mramba, Tanzania Electric Supply Company

52 IN CAPACITY: Electricity supply growth53 INTERVIEW: David Roberts, PanAfrican Energy

Tanzania55 PROJECT HIGHLIGHT: Mnazi Bay fields56 ARTICLE: The Mtwara to Dar es Salaam pipeline. The

gas conduit that will connect Mtwara to Dar es Salaam is set to become one of the most important infrastructural developments in the country

57 PROJECT HIGHLIGHT: Kinyerezi 1 power plant58 MAP: Power generation infrastructure in Tanzania59 INTERVIEW: Gary Tong, Clarke Energy60 RESOURCE: Gas-based power generation: Existing and

projected61 PROJECT HIGHLIGHT: Kinyerezi 3 power plant

62 OILFIELD SERVICES & SUPPLIES

63 ARTICLE: Prepped and ready? Domestic impediments such as a workforce skills gap, red tape and corruption hold back the growth of the local oil and gas industry

65 INTERVIEW: Graham Hibbin, Baker Hughes Tanzania66 PROJECT HIGHLIGHT: Seismic at Pagani and Kilosa

Kilombero licences67 RESOURCE: The Discoverer Americas drillship68 RESOURCE: Onshore exploratory wells drilled69 COMPANY PROFILE: Odfjell Drilling69 IN WELLS: Wells drilled in Tanzania, 2008-201470 RESOURCE: The Deepsea Metro 1 drillship71 COMPANY PROFILE: Asco World

72 INTERVIEW: Eric Mwenda, WiA73 MARKET ANALYSIS: Contact to contract. Juerg

Fluehmann, Plasco74 INVESTOR SPOTLIGHTS: Security Group Africa, Small

Business Solutions, KK Security75 MARKET ANALYSIS: Thermal predictions. Moses

Nkanda, Mnazi Bay Consulting76 COMPANY PROFILE: Salama Fikira77 INTERVIEW: Hilliard Potua, Intertek78 COMPANY PROFILE: Everett Aviation79 INTERVIEW: S. F. Van Heerden, G4S Tanzania79 IN LOSSES: Portion of global sales losses due to

theft, robbery, vandalism and arson80 INTERVIEW: Daniel Warungu, TOL Gases81 COMMENT: The lone driller. The discoveries made by

Caroil’s land rig Caroil 6

82 ENGINEERING & CONSTRUCTION

83 ARTICLE: Pipeline dreams. Engineering and construction companies are looking to benefit fromnatural gas discoveries, with the construction of a gas pipeline along the coast serving as a springboard

83 IN DISCOVERY: Discovery wells per year, 2008-201485 INTERVIEW: Ashutosh Mukund Jog, Advent

Construction86 INTERVIEW: Thomas Sørensen, Jesper Jonsson Cowi

Tanzania87 COMPANY PROFILE: DB Shapriya88 ARTICLE: A theme of thievery. Tackling the fuel theft

epidemic in Tanzania, which resulted in billions of dollars in losses between 2004 and 2014, is of great importance for the cash-strapped country

89 INTERVIEW: John-Bosco Tindyebwa, MTL Consulting89 IN COMPARISON: GDP growth projections, 2012-201690 PROJECT HIGHLIGHT: New connection pipeline for

Dar es Salaam91 ARTICLE: The Tazama pipeline. The durability and

importance of the transnational pipeline stretching from Dar es Salaam to the Indeni Refinery in Zambia

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48The Year’s Focus: TanescoTanzania’s natural gas potential could pro-vide the solution to easing the country offits dependency on heavy fuel and hy-dropower for power generation. Addressingthe electricity supply problems could alsoremove an important obstacle to economicgrowth. Utilising natural gas for power gen-eration depends on the successful imple-mentation of gas production programmes.

62Oilfield Services & SuppliesWhile some of the world’s oilfield services ma-jors have already established offices in Tanzaniain anticipation of exploration activity pickingup through 2015 and beyond, local companiesin the sector are few and far between. They arefaced with a lack of skilled local labour and theabsence of a government accreditation scheme.Tackling these issues, in addition to dealingwith corruption, red tape and bureaucracy, willbe key in allowing the services sector to thrive.

38Banking & LegalTanzania’s string of major natural gas discover-ies since 2011 has necessitated an overhaul ofthe legislation governing the country’s oil andgas industry. In the midst of updating the reg-ulatory framework, the government is strivingto clarify fiscal terms and ensure that Tanzania’shydrocarbons resources are exploited for thebenefit of all. Accordingly, a new production-sharing agreement was established. On top ofthat, rules for local content are to be drafted.

92 MARINE & LOGISTICS

93 ARTICLE: A clear route to development. The under-development of portside and transport networks must be tackled for the hydrocarbons industry to thrive

93 IN IMPORTS: Tanzania’s gross imported products by type, 2012

94 IN EXPORTS: Tanzania’s gross exported products by type, 2012

95 INTERVIEW: Adelhem Meru, Export Processing Zones Authority

96 INTERVIEW: James Redfern, Freight Forwarders98 COMPANY PROFILE: Supply Base Solutions100 INTERVIEW: Aly Dewji, Simba Logistics101 INVESTOR SPOTLIGHTS: Superdoll, DHL Express,

Regent Tanzania102 INTERVIEW: Alistair James, Alistair Group

104 DOWNSTREAM & RETAIL

105 ARTICLE: A long way to go. Tanzania is organising its downstream sector in order to overcome long standing issues with fuel import procedures and fuel distribution

105 IN USE: Fuel consumption, 2009-2013106 IN POWER: Electricity generation sources and capacity

107 INTERVIEW: Salum Bisarara, Tanzania Association of Oil Marketing Companies

109 VIEWPOINT: Future player. Stephane Gay, Total110 COMPANY PROFILE: Tanzania International

Petroleum Reserves111 INVESTOR SPOTLIGHTS: General Petroleum, Hass

Petroleum Group, Puma Energy International112 INTERVIEW: Asmahan Adan, Hashi EnergyFOLDOUT MAP: Mnazi Bay infrastructural development113 MARKET ANALYSIS: Equal prices, tough competition.

Idrisa Mtamike, Maestro Oil and Gas Solutions114 INTERVIEW: Orlando D’Costa, Augusta Energy115 INTERVIEW: Collins Chemngorem, United Petroleum116 COMPANY PROFILE: Engen117 INTERVIEW: Genatio Sombe, Panone and Company118 COMPANY PROFILE: Fuchs Petrolube119 VIEWPOINT: Sector potholes. Hekima Bidyanguze,

World Oil

120 EXECUTIVE GUIDE

121 ACCOMMODATION124 EVENTS126 ACKNOWLEDGMENTS | ADVERTISERS INDEX128 IN BRIEF

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Exploring knowledgeExtracting intelligenceRefining communicationINTERNATIONAL

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THE OIL & GAS YEAR

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82Engineering & ConstructionDeveloping the infrastructure needed to ex-tract and monetise Tanzania’s vast natural gasreserves bodes well for the engineering andconstruction sector. International participa-tion will be required, which has attracted theattention of various foreign entities. The cen-trepiece of the country’s engineering sectoris a 532-kilometre pipeline along the coast,running from Mnazi Bay to Dar es Salaam.

104Downstream & RetailFuel distribution is a profitable yet dangerousbusiness in Tanzania. Poor roads and badlymaintained tanker trucks result in frequentaccidents. Fierce competition and rampantfuel theft further plague the downstreamand retail sector in the country. The Bulk Pro-curement System has provided some solaceto the domestic market, but more effort mustbe exerted to help the sector move forwards.

92Marine & LogisticsTanzania is reliant upon imports. The trans-portation sector offers business opportunitiesas a result, especially for those companies ca-pable of offering services on par with interna-tional standards. New Customs proceduresshould allow international logistics entities tooffer hydrocarbons transport services as ex-ploration activity picks up. A single-pointmooring system in Dar es Salaam port has al-ready resulted in a reduced demurrage period.

7 Great expectationsSospeter MUHONGOMinister of Energy and Minerals

8 Progressive agendaYona KILLAGANEFormer Managing DirectorTANZANIA PETROLEUM DEVELOPMENT CORPORATION

9 The Year’s Awards

THE YEAR IN REVIEWph

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How much natural gas should Tanzania earmarkfor use in domestic projects?Tanzania’s economy cannot absorb all of thegas we have discovered. Many Tanzanians con-cerned about building local capacity believe weshould not entertain gas exports. With that said,we are planning to use some of the gas to ac-celerate industrial growth by creating a fertiliserplant and supporting power generation facilities.

We have conducted successful tests, whichcould lead to some applications for compressednatural gas. We would also like to utilise gas fordomestic heating and want to intensify the use

of the resource for this purpose so that we cangradually get rid of heavy fuels. Several petro-chemicals companies and projects will utilisenatural gas. Most importantly, both of Tanzania’stwo cement factories, one in Dar es Salaam andthe other in the south, will do the same.

Is Tanzania prepared for the changes to societythat come with becoming a gas producer?One of my responsibilities is to come up with astrategy to manage the high expectations thatcome with new wealth. We are firstly containingthem by involving Tanzania’s communities fromthe outset. We have intensified corporate socialresponsibility initiatives of the companies involvedin gas extraction and production and we haveurged them to work more closely with commu-nities through projects regarding education,health and clean water. This approach bringsthe industry closer to the people of Tanzania.

We have also conducted detailed studies ofthe experiences of countries that have launched

their hydrocarbons industries in a way that wasbeneficial for their development – Qatar, theUAE, Norway – and those that have performedpoorly, such as Nigeria and Angola.

In addition, we must contain expectationsby managing financial resources effectively. Weare planning to set up a fund that will ensuregas revenues are used to develop other sectorsof the economy. For example, we are aiming tocapitalise on our substantial offshore natural gasdiscoveries by building a fertiliser plant.

We do not entertain corruption either inthe ministry or the government. We are amongsta few developing countries that have made apartnership with G8 member states as part ofthe G8 Initiative for Trade, Tax and Transparency.We have even established a local secretariat forthe Extractive Industries Transparency Initiative,a global association designed to improve ac-countability for natural resources.

Will LNG demand be sustained in the longterm in the face of major international com-petition from emerging gas exporters?Tanzania is accustomed to competition. Webelieve there is enough gas and sufficient marketsto satisfy and sustain worldwide demand. Anumber of economies in Asia and Eastern Europehave a great need for gas. The country’s LNGbusiness looks promising up to 2050.

How close is Tanzania to its first oil discovery?Blocks in the deeper parts of the ocean arebeing explored and so far the operators havecontinued to find natural gas. Our first gas dis-covery was in 1974. Since then we have beenexcited about oil. Onshore developments in theRift Valley region are of particular interest.

How will the government ensure the devel-opment of concrete local content policies?This will be a central part of the policies drawnup for the entire hydrocarbons supply chain.The provision of local content in explorationand development ventures will be mandatedby the Tanzania Petroleum Development Cor-poration, which will work to share the prosperityof the emerging gas industry. The first draft ofthe policy was put through for the industry toreview and we are working on its final form.

One of myresponsibilities is tocome up with a strategyto manage the highexpectations that comewith new wealth.

IN FIGURESTanzania’s gas reserves

1.43 tcmTanzania expects to become an LNG exporter by

2020

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As of August 2014, Tanzania boasts proven natural gas reserves of 1.43 tcm (50.5tcf ), having made a raft of world-class offshore discoveries since 2011. Thecountry looks towards becoming a significant LNG exporter by 2020. In October2013, the Ministry of Energy and Minerals held Tanzania’s 2013-2014 FourthOffshore Licensing Round, inviting companies to bid on eight blocks.

Great expectations

Sospeter MUHONGOMinister of Energy and Minerals

What is TPDC’s development strategy for theTanzanian energy supply chain beyond 2014?Following the considerable gas discoveriesmade in recent years, TPDC is moving towardstaking a more active and direct role in explorationand production. The goal is to encourage ex-ploration to continue and also to look intohow TPDC can monetise this gas as quickly aspossible, so that benefits can accrue for theeconomic development of the country.

TPDC is looking at all options of how tomonetise Tanzania’s gas. LNG is certainly oneof these, especially for deepwater gas. The com-pany will need projects that make gas exploita-tion in Tanzania’s deep sea viable. The companymust ensure that the first priority is gas for do-mestic usage, but also recognise that it will notbe able to make the supply of domestic gas vi-able unless it is linked with the developmentof LNG. The investment is simply too large.

There is a need to fast track that investment,which is coming mostly from international oilcompanies active in the area, so a concretegas producing industry can be developed.

Onshore, TPDC is already making movestowards promoting a gas-based power gener-ation industry supplied by production comingfrom Songo Songo and Mnazi Bay. There areeven plans for a petrochemicals plant for fertiliserproduction based on gas from Mnazi Bay. Theplant will be in the country’s southern regionand was tendered in 2013.

What was the rationale behind awardingblocks 4-1A and 4-1B to TPDC?These blocks were given to TPDC by the gov-ernment. They are part of a structural changein the overall scheme of the company. Historically,TPDC had been promoting acreage develop-ment with international oil companies thatwere exploring through production-sharingagreements. TPDC is now building the opera-tional capacity to engage in actual exploration.

In those two blocks, TPDC will conduct ex-ploration right from the outset, up to the drillingstage. That is the first step towards operatorship.So far the initial works, including the acquisitionand interpretation of 2D-seismic surveys, havebeen completed. TPDC understands the geo-logical structures well. It started with a very

close 2D-seismic grid and will now move on toconducting 3D seismic. The time frames arestill under definition. All of this will be done byTPDC with foreign contracted vessels. It willhire a vessel that has been operating in theComoro Islands in 2014. Due to the proximityto the border, we will be developing the physicalacquisition stage of this survey in partnershipwith our Mozambique counterparts.

The processing of data will be done sepa-rately and we are still uncertain about whichcompany will be chosen to do this. The maintarget is to create the internal capability tooversee the development of the works.

What programme of development has beendecided upon for these blocks in the future?A more detailed 2D-seismic acquisition willtake place before the end of 2014. It will last forabout four months and interpretation will taketwo months. Then 3D-seismic data will be ac-quired, before confirming and reducing riskson the potential reservoirs. TPDC expects todrill the first well in the first half of 2015.

The two blocks are geologically similar tosome of the most considerable and recent dis-coveries in Mozambique’s Rovuma Basin. Still,there is a particular difference in the geographicalstructure of the two regions.

On the Tanzanian side we are dealing withslopes, which drop progressively and offer aneasier platform for development. On the Mozam-bique side, rifts and sudden depth drops aremore recurrent, which poses difficulties.

While we are talking about very considerabledepths, ranging between 3,000 and 5,000 metresof water, the surrounding discoveries make thearea very promising. Most likely, the oil and gassystems will extend between the two countries.If so, we will have to evaluate the assets anddevelop a unitisation document across borders.If the oil systems cross territorial waters, asharing agreement will have to be drafted, butthat is a debate to be held at a later stage.

We work with the National HydrocarbonsCompany of Mozambique on these mattersand signed a co-operation agreement in July2014. Development will demand further partners.At $100 million dollars a well, we need an ex-perienced partner to share costs and gains.

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IN FIGURESBeginning of seismic acquisitionon blocks 4-1A and 4-1B

August 2013Water depths in the acreage

3,000-5,000metresFirst well to be drilled

First half of 2015

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INTERVIEW

Following the closure of the 2013-2014 Fourth Offshore Licensing Round in May2014, the Tanzania Petroleum Development Corporation (TPDC) looks to move intoexploration and production in two newly awarded blocks in the Rovuma Basin. YonaKillagane, former managing director of TDPC, talks to TOGY about this move, as wellas the development of cross-border co-operation with Mozambique.

Progressive agenda

Yona KILLAGANEFormer Managing DirectorTPDC

In terms of how to monetiseTanzania’s gas, weare looking at alloptions. LNG is one of these.

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THE YEAR’S AWARDS – TANZANIA 2014

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Retail fuel remains a necessity for domestic industrial development in Tanzania. The countryrepresents the port of entry for diesel and petrol for most of its land-locked neighbours. Hence, localstorage facilities have become of paramount importance in recent years, amid growing demand.The Tanzania International Petroleum Reserves is the largest of these nationally, with 150,000cubic metres of capacity. In 2014, it is being upgraded to accommodate another 73,000 cubicmetres of storage, in line with a government-led initiative for the creation of strategic fuel reserves.

PERSON OF THE YEAR

Felchesmi MRAMBA

Tanzania is going through a profound transformation, and at its core ispower. In a country where less than 20 percent of the population hasaccess to electricity, industrial development has been stranded due to alack of access to reliable power and weather-dependent sources have attimes left the country hindered black outs, times are changing. FelchesmiMramba, managing director of the national electricity companyTanzania Electric Supply Company, is in charge of putting in place a$6-billion programme, that will see the country triple its power outputand move from a dependency on heavy fuel to a reliance on hydropower,coal-fired thermal power and, most prominently, gas-based electricity.

Responsible for some of the biggest natural gas discoveries in the world since 2011 in theirTanzanian offshore licences, which now hold over 1.2 tcm (42.5 tcf) of the resource, multinationalsBG Group and Statoil have been at the forefront of the country’s oil and gas developments. Withongoing negotiations for the construction of one of the world’s biggest LNG plants in southernTanzania, the country has become a strategic landmark for the companies, representing Statoil’sbiggest investment destination after Norway and some of BG’s largest reserves of natural gas.

OFFSHORE DEVELOPERS OF THE YEAR

With a new industry emerging in the country, a regulatory restructuring to address the needs ofhydrocarbons activities has become crucial. The government, through the Ministry of Energyand Minerals, has taken action to address those regulatory limitations and boost the industry’sdevelopment. A new natural gas policy, a new production-sharing agreement structure and adraft local content policy put through by the national oil company represent only a handful of thedevelopments that have made the industry clearer and swifter for investors and players alike.

REGULATORY DEVELOPMENT OF THE YEAR

The national oil company is moving up in its responsibilities. Historically the regulator of anascent market, during the country’s 2013-2014 Fourth Offshore Licensing Round the TanzaniaPetroleum Development Corporation was awarded two deepwater offshore blocks for its owndevelopment. The move towards an active upstream role is a landmark moment for the company.Partnerships, seismic campaigns and drilling programmes are under study in what may be thegovernment’s first step towards an active role in the extraction of its hydrocarbons resources.

TRANSITION OF THE YEAR

Amid colossal offshore gas discoveries, Tanzania’s onshore arena presents a further domestic energyopportunity through the development of the Rift Valley region. In May 2013, Canada’s Polarissigned on to drive a campaign at the Pangani and Kilosa-Kilombero licences, operated by Swala Oil& Gas, mandating 500 kilometres of 2D-seismic survey. The target was surpassed despite logisticalchallenges posed by wide spread sedimentary basins requiring constant camp and equipmentrelocation in dense forest area. In July 2014, Polaris began work on an extension of the contract.

SEISMIC CAMPAIGN OF THE YEAR

DOWNSTREAM DEVELOPMENT OF THE YEAR

THE YEAR IN

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The Who’s Who of the Global Energy IndustryTHE OIL & GAS YEAR | TANZANIA 2014

DODOMA

Arusha

Mbeya

Singida

Dar es Salaam

MtwaraLindi

Zanzibar

Mwanza

LakeVictoria

LakeEdward

LakeKivu

PembaIsland

MafiaIsland

ZanzibarIsland

LakeTanganyika

LakeMalawi

INDIANOCEAN

KENYAKENYA

UGANDAUGANDA

RWANDARWANDA

BURUNDIBURUNDI

TANZANIATANZANIA

ZAMBIAZAMBIA

MALAWIMALAWI

MOZAMBIQUEMOZAMBIQUE

DEMOCRATICREPUBLIC OFTHE CONGO

DEMOCRATICREPUBLIC OFTHE CONGO

Kilometres

0 15075 300

National boundary

National capital City

Maritime boundary

POLITICS

Official name: United Republic of Tanzania

Political system: Presidential constitutional republic

President: Jakaya Kikwete

Official languages: Swahili, English

Population: 49.3 million (2013)

Average life expectancy: 61.2 years

Legal system: English common law; judicial review limited to matter of interpretation

GEOGRAPHY

Area: 947,300 square kilometres

Capital: Dodoma

Largest city: Dar es Salaam

Terrain: coastal plains northern and southern highlands

Climate: tropical and temperate, from coast to highlands respectively

Neighbouring countries: Burundi, Democratic Republic of Congo, Kenya, Malawi, Mozambique, Rwanda, Uganda, Zambia

ECONOMY

Currency: Tanzanian shilling, TZS ($1:TZS1,602.39)

GDP: $31.9 billion (2013)

Real GDP growth rate: 7 percent (2013)

Inflation rate: 7.8 percent (2013)

Budget deficit: 5.6 percent of GDP (2013)

Public debt: 42.7 percent of GDP (2013)

ENERGY

National oil company: Tanzania Petroleum Development Corporation

Fiscal regime: minimum state participation of 25 percent, additional profits tax and royalty payments

Proven crude oil reserves: 0 (2014), exploration underway

Proven natural gas reserves: 1.43 tcm (50.5 tcf) (August 2014)

Natural gas production: 3.17 mcm (112 mcf) per day (August 2014)

Access to electricity: less than 20 percent of population

Sources: World Bank, CIA World Factbook, EIA

© 2014 Wildcat International FZ-LLC, The Oil & Gas Year Tanzania 2014. All rights reserved.

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THE INVESTORS INDEX

The Tanzania 2014 Investors Index

Source: The survey was conducted by The Oil & Gas Year in Tanzania between June 2014 and September 2014

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How would you rate the ease ofdoing business in Tanzania?

Very easy 0 %Easy 40 %Difficult 60 %Extremely difficult 0 %

How would you rate the level oftransparency in the Tanzanian oiland gas market?

Very transparent 10 %Transparent 40 %Not transparent 35 %Corrupt 15 %

How would you describe thepolicies of Tanzania'sgovernment vis-à-vis the oil andgas industry?

Pro-business 5 %Pro-business, but restrictive 70 %Anti-business, but accommodating 20 %Anti-business 5 %

How would you rate the ease ofstarting an oil and gas businessin the Tanzanian market?

Very easy 5 %Easy 30 %Difficult 60 %Extremely difficult 5 %

How would you rate the level ofpolitical and economic stabilityin the Tanzanian oil and gasmarket?Highly stable 20 %Stable 70 %Unstable 10 %Highly unstable 0 %

RESPONSEIN

While Tanzania is internationally heraldedas a country on track to become one of Africa’smost significant LNG exporters, global per-ception is not necessarily matched by theviewpoints of those in the domestic industry.

Barriers to entry are perceived as significantbut not impeditive, which likely accounts forthe fact that 40 percent of respondents to theTanzania 2014 Investors Index have classifiedthe ease of doing business in the country aseasy, while 60 percent believed it difficult.

MIXED RESPONSE: A similar response wasgiven regarding the ease of starting a businessin Tanzania, with 60 percent of intervieweesindicating that it was difficult, while 30percent believe it to be easy. The remaining

10 percent were equally split, stating that itis either very easy or very difficult. Regulatoryconcerns are still prominent, with 70 percentof respondents describing the policies of thegovernment as pro-business but restrictive.A share of 20 percent classified the state asanti-business but accommodating.

MARKET STABILITY: Corruption is common-place in sub-Saharan African countries andTanzania seems to be no exception, despitethe government’s apparent efforts to curbelicit business-making practices.

Industry leaders remain cautious. Whenasked to qualify the level of transparency inthe market, 15 percent identified it as corrupt.35 percent opted for the “not transparent”option, while 40 percent believe the marketto be transparent and only 10 percent con-sidered it to be very transparent.

In contrast, the overall dominance of theChama Cha Mapinduzi party contributes toa belief in political and economic stability. 70percent of respondents qualified the countryas politically and economically stable, while20 percent considered it very stable. The2015 elections, which will see a new presidentcome to power, may account for the 10 percentthat viewed the country as unstable in 2014..FUTURE OUTLOOK: Optimism in the marketis clearly visible. 95 percent of respondentsconsider business conditions in 2014 to bepositive and hold a similar outlook through

2015. A total of 75 percent consider 2014 tobe a good moment to invest in Tanzania.Those in the market are expectant, with 95percent decisive in claiming that their com-pany’s revenue will increase over 12 months.

ABOUT THE INDEX: The TOGY Investors Indexis a figure out of 100 (89 in the case of Tanzania)that embodies confidence among oil and gas in-vestors as expressed in their level of spending inany given market. The index is valued based onresponses to a survey conducted by TOGY. Areading above 50 percent on the index representsa positive perception among oil and gas investors,while a reading below 50 indicates a more pes-simistic outlook. The Tanzania 2014 Index isbased on the responses of 50 different investors.

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31 President JakayaKikwete states Tanzania’seconomy grew 7.1percent in 2013, due toperformances in thecommunications,financial services andmanufacturing sectors.

10 The Dar es SalaamStock Exchange urgesmunicipalities to issuebonds as the country’sbourse aims to attractlistings and enhancetrading volumes.

14 Ophir Energyannounces the sale of 20percent of its assets inblocks 1, 3 and 4 toPavilion Energy, in a dealworth $1.29 million. Theblocks are operated byBG Group.

4 Statoil and ExxonMobilannounce a flow rate of1.87 mcm (66 mcf) ofgas per day from initialdrilling in the Zafaranigas reservoir on block 2,offshore Tanzania.

12 The Tanzania ElectricSupply Company adoptsa higher power utility tariff, despitepublic criticism.

11 A UK oil and gasindustry delegationconducts a second day ofmeetings at theTanzanian Ministry ofEnergy and Minerals toexplore investmentopportunities.

27 London-headquartered Solo Oilannounces that aseismic survey to informthe selection of futuredrilling at the Ntoryaappraisal licence isunderway.

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20 Tanzania’s Ministry ofEnergy and Mineralsannounces that OphirEnergy’s $1.3-billionasset sale to Singapore'sTemasek Holdings willresult in capital gains taxreceipts of at least $258 million.

13 56 metres of net payare discovered at anappraisal well in theMzia discovery, in theoffshore block 1. Theasset is operated by BGGroup with partnerOphir Energy.

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4 Tanzania introducesnew, tougher fiscalterms for production-sharing agreements.

29 Swala Oil and Gasawards Polaris a 700-kilometre 2D-seismiccontract for its Panganiand Kilosa-Kilomberolicences. The contractwas awarded as an extension.

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2 Energy MinisterSospeter Muhongoannounces that a newregulatory framework isready and will bepresented forparliamentaryexamination inNovember 2014.

2 BG Group announcesthe Kamba-1 discoveryat block 4 offshoreTanzania in the Kambaand Fulusi prospects of29.2 bcm (1.03 tcf).

21 Tanzania receives fivebids for hydrocarbonsblocks. The governmenthad offered sevendeepwater offshoreblocks and one block inLake Tanganyika.

4 Aminex lifts itsestimates on natural gasreserves at the Ntoryadiscovery in its Ruvumalicence by 70 percent,setting the in-placevolumes at 53.8 bcm(1.9 tcf).

29 Controversy surroundsa leaked contract,showing ExxonMobil andStatoil are set to payTanzania no more than50 percent of profits fromgas production offshorein the Indian Ocean.

18 Statoil makes a high-impact natural gasdiscovery in the Piri-1well offshore Tanzania inblock 2, estimated at56.6 bcm-85 bcm (2 tcf-3 tcf).

15 France’s Maurel &Prom and its partnersreached an agreementwith the TanzaniaPetroleum DevelopmentCorporation for the saleof natural gas out of theMnazi Bay field.

27 Deputy Minister forEnergy and MineralsCharles Kitwanga,confirms that $50million in repair costswill be paid incompensation for apipeline leakage in theKilosa Municipal Council in 2011.

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7 Algeria’s Sonatrach isreported to be inpartnership talks withthe Tanzania PetroleumDevelopmentCorporation for aknowledge-transferarrangement.

12 Swala Oil & Gasbecomes the first oil andgas company to gopublic in East Africa. TheTanzanian branch ofAustralian Swala Energyis listed in the EnterpriseGrowth Market in theDar es Salaam StockExchange.

25 Swala Oil & Gasannounces the start of a200-kilometre 2D-seismic acquisition in itsPangani licence. Thecompany will work withCanada’s Polaris in theMoshi Basin.

14 Statoil andExxonMobil make anatural gas discoverywith the Giligiliani-1exploration well, adding34 bcm (1.2 tcf) of gas in place to the existing offshore block 2 volumes.

15 A state to negotiate17 Infrastructural impact

Mlingi MKUCHAActing Managing DirectorNATIONAL DEVELOPMENT CORPORATION

19 Eastern participationLU YouqingChinese Ambassador to Tanzania

DIPLOMACY & POLITICS

Like many African countries, Tanzania faces thehurdle of developing its natural resources in asetting of poor infrastructure, low educational stan-dards and themes of inefficiency and corruption inits governance. The question of how to distributehydrocarbons profits – between investors and thestate, between the government and its citizens, andbetween the mainland and the islands of Zanzibar– is also highly relevant. It will be crucial to draftlegislation on investment and profit-sharing.

THE ZANZIBAR PROCESS: Tanzania has long beenfaced with the question of the autonomy of Zanzibar,an archipelago dominated by two large islands less

than 50 kilometres off the east coast of Africa.Zanzibar and the mainland, Tanganyika, merged in1964, with the islands retaining a semi-autonomousstatus. Discussions on Zanzibar’s exact degree ofindependence has been heavily influenced by dis-coveries of large offshore gasfields in recent years.

In 2002, Shell won a Tanzania Petroleum De-velopment Corporation tender for four offshoreblocks around Zanzibar island, but the archipelago’sgovernment responded by quickly blocking the deal.Since then, activity has been stopped in the hope ofsolving the legal issues surrounding the agreement.

In 2013, while waiting for the constitutional re-view that should see Zanzibar take over its hydro-carbons resources, Shell signed a memorandum ofunderstanding with the autonomous government,to help the regulatory body prepare itself for thecoming of this industry. The mainland has agreedthat Zanzibar has exploration rights in its territoryand it is now a legal technicality to change the lawin order to allow the works to resume.

To resolve the impasse, the two sides haveentered into talks on a new constitution that could

establish a federalised system. The negotiators’ firstdraft, issued on January 14, 2014, proposes recreatingTanganyika as a state government on par with Zanz-ibar, under a central government.

The constitutional review has been delayed bya boycott from opposition members, and analystsdoubt that anything will be accomplished beforethe next presidential elections in October 2015.Bureaucratic delays could affect the industry atlarge, including the Statoil- and BG Group-led LNGplant that should see the country become a majorLNG exporter, but not before 2020. Given thatneighbouring Mozambique expects to start exportingLNG by 2018, Tanzania’s bureaucratic squabbling

could cost it a first-mover advantage.

FOREIGN INVESTMENT: With a GDP per capitaof only $700, Tanzania lacks the economiccapacity to invest in its own infrastructure orfully exploit its natural resources. Like itsneighbours, it has been courted by China,which offers financing and cut-rate constructionwork in exchange for contracts for Chinesecompanies and access to hydrocarbons.

China increased its investment in Tanzaniafrom $700 million in 2011 to $2.1 billion in2013. In addition to being Tanzania’s largest

investor, China is also the country’s largest tradingpartner, with bilateral trade totalling $2.5 billion in2012, or 15 percent of the domestic total. The twocountries regularly sign bilateral trade agreements,which solidify co-operation on large deals andestablish commitments on smaller, goodwill projects.

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PRESIDENTIALELECTIONSWILL BE HELD INOctober2015

TANZANIANGDP PERCAPITA IS $700

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Tanzania is looking to jumpstart its economy through careful exploitation of natural resources.This will require navigating difficult issues, both of distribution and of national identity. Resolvingthe question of Zanzibar’s autonomy and ensuring that hydrocarbons benefit not only largedomestic and international companies, but also the average citizen, will be the challenge.

A state to negotiate

Delays in the constitutional reviewprocess could affect the industry atlarge, including the Statoil- and BG-led LNG plant that should see thecountry become a major LNG exporter.

Source: Transparency International

Tanzania Kenya Uganda Rwanda Burundi Zambia Mozam-bique

2009 126 146 130 89 168 99 130

2010 116 154 127 66 170 101 116

2011 100 154 143 49 172 91 120

2012 102 139 130 50 165 88 123

2013 111 136 140 49 157 83 119

Ranking of Tanzania and neighbouring countries onthe Corruption Perceptions Index, 2009-2013

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