Tanzania: Construction of New LNG Plant At Negotiation Stage

Posted on :Wednesday , 28th December 2016

The process of constructing the envisaged liquefied natural gas (LNG) plant to sit on the land of Lindi Region has now entered the negotiation stage of the Host Government Agreement (HGA), it has been revealed.

The HGA is a legal agreement between a foreign investor and a host government governing the rights and obligations of the foreign investor and the host government concerning the development, construction and operation of a project by the foreign investor.

Last August, President John Magufuli directed the Ministry of Energy and Minerals to fast-track the construction of the LNG plant to cost 30 billion US dollars (65 trillion/-).

The president said he wanted the project to take off, noting that he was aware of the presence of unnecessary delays, thus directing the Ministry of Minerals and Energy to accomplish whatever was creating bureaucracy so that the investors could begin construction work immediately.

He was speaking at the State House in Dar es Salaam after being informed of the progress on the multi-trillion grand project. Energy and Minerals Permanent Secretary (PS), Professor Justin Ntalikwa, told the 'Daily News' yesterday that a team of government experts is currently negotiating with the five companies to set up the LNG plant.

The plant will be constructed by international oil and gas companies Statoil, BG Group, ExxonMobil and Ophir Energy in partnership with the Tanzania Petroleum Development Corporation (TPDC).

Prof Ntalikwa elaborated that under the HGA, the two parties would be crafting the 'fiscal regime', which would determine the price of gas to be extracted, issues of land and others. The issues on the table so far in the ongoing negotiation, the companies have asked for the law that would be specific for this grand project and the HGA should be part of this law.

"So in the negotiations, we will come up with a decision whether to introduce the new law or use the existing country's laws governing oil and gas industry, considering that coming with new Act can take even one year," he said.

He added: "As you can see, the negotiation is something that can take long time and to come up with the agreement document could be within three years starting this year." Thereafter, according to him, the companies will embark on forming the Front End Engineering Design (FEED).

The FEED is basic engineering, which comes after the conceptual design or feasibility study and FEED design focuses the technical requirements as well as rough investment cost for the project before coming up with the 'Financial Investment Decision (FID).'

The FID is a final decision of the Capital Investment Decision (CID) as part of the long term corporate finance decisions based on key criteria to manage company's assets and capital structure.

Prof Ntalikwa said by the year 2020, the project will have reached a stage of architectural drawings, noting that the operations of the project can be in full swing by 2029.

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