The Global Accountability Conference on Oil and Gas was held in Dar-es Salaam 11-12 April. The conference was arranged by the Wajibu Institute of Public Accountability, which was co-founded by former Tanzania Controller and Auditor General, and former AFROSAI-E Chair, Mr. Ludovick Utouh. Wajibu shall focus on accountability on a number of policy areas, and at the moment oil and gas is the emerging area in Tanzania.
Managing expectations was one of the important topics. Mr. Aidan Eyakuze from the respected NGO Twaweza said that the myth saying that Tanzania will swim in money because of the natural gas discovery is false. Tanzania’s gas reserve constitutes 0,83 % of the world’s gas reserves. The development of shale gas in e.g. USA makes Tanzania’s share increasingly irrelevant. The low gas price makes commercial investment decisions increasingly unlikely. Also, the result of the recent UN conference on climate change in Paris was to keep global warming below 2 degrees Celsius. This will draw attention to other sources of energy outside natural gas. Such forces may lead to expectations of the public in Tanzania not being met.
However, Mr. Thomas Baunsgaard from IMF wanted to balance the story from Mr. Eyakuze saying that natural gas is likely to give lasting benefit if managed correctly. Although the expected revenue may be modest, it will constitute an important supplement to the economy of Tanzania and also supply the domestic market will much sought after energy.
Twaweza later explained about its experience with working with ordinary citizens and their recommendations to how natural gas revenue should be used. The citizens had three recommendations:
- Oil and gas revenue should not be used on fuel subsidies. Fuel subsidies in countries such as Nigeria and Venezuela have crippled their economies. Also, such subsidies has a tendency to favor the rich which possess cars. Instead, the oil and gas revenue should go into the state budget to fund public service goods.
- Revenue should not be saved, but used to address immediate needs such as infrastructure, school and health needs.
- Revenue should not be used as guarantee for taking up significant foreign debt. This is a type of financial speculation that pose a significant risk to the economy.
Although, not all these bottom-up recommendations are based on oil and gas best practice, they may serve as input to policy decisions. They are also a reminder of that although some public expectations may be unrealistic; they also represent a share of wisdom which we can learn from.
The Readiness of Tanzania
Mr. Farouk al-Kasim shared many of his experiences as one of the key figures in developing sound and effective management of the oil and gas industry in Norway. For more information about the utterly fascinating story of Mr. al-Kasim, read his Financial Times Interview from 2009: http://www.ft.com/intl/cms/s/0/99680a04-92a0-11de-b63b-00144feabdc0.html
al-Kasim stressed the importance on developing the sector gradually. The legal framework should be developed in the following order: 1. Petroleum policy, 2. Petroleum Act, 3. Regulations, 4. Strategies and preparations for concession rounds, 5. Commercial contracts (Production sharing agreements and/or licenses). After developing the legal framework, competent government institutions must be established. Mr. Deo Kirama from National Audit Office Tanzania also stressed this point. Tanzanians must think less about the output of its natural gas reserves, and more on the input. What does Tanzania have to invest in competencies, education, local content, infrastructure etc. to make sure that it can turn the natural gas reserves into cash which will benefit the economic development of Tanzania?
Professor Patrick Lumumba said that Tanzanians are more prepared to spend the resource revenue than spending the effort needed to make sure that this revenue is generated. He iterated the need for African countries to have more control of the sector and made reference to Norway, Qatar and Botswana as countries which are in effective control of their sector. In Africa too much control is exercised by the foreign oil and gas companies. This is among others shown in the oil pipeline dispute between Kenya, Tanzania and Uganda. The French oil company Total, as a powerful industry player, is using its weight to favour one of the proposed alternatives. According to Lumumba there is little benefit of having beautiful policies and laws as long as implementation fails because of rent-seeking, low competence and resignation towards the big industry players.
The New Petroleum Laws
The conference ended with a revision of the newly enacted petroleum laws in Tanzania in July 2015. These are the Petroleum Act, The Petroleum Revenue Management Act and the Extractive Industries (Transparency and Accountability) Act. It was generally agreed that these new acts meet most of the internationally accepted best practice criteria. However, it was revealed that these acts were tabled in Parliament in express speed without any proper hearing rounds which included civil society, companies and also parliamentarians. The result is a number of discrepancies in the acts. There are examples of government entities being tasked to do the same task. Also, some legal requirements in the acts conflict with existing requirements in the already approved government policies.
It was generally felt that the process of enacting these laws was flawed and not to be emulated by others. In retrospect, many of the inconsistencies could have been rectified if a proper debate had been facilitated by the government.
The Oil and Gas conference in Dar-es Salaam was a good example of how to bring different stakeholders together to discuss an emerging issue, which oil and gas extraction in Tanzania represents. The role of the National Audit Office of Tanzania is also highly commendable. They were active participants and performed different roles with ease, such as chairing sessions, making though-provoking presentations, take part in panel debates and asking questions. SAIs should lead by example in stimulating public debate on emerging issues. Too often SAIs refrain from providing foresight, and only restrict themselves to oversight and ex ante controls. By contributing to the public debate SAIs can use its wisdom and knowledge to ensure that informed decisions are being made.
A similar case of a proactiveness was demonstrated by the Office of the Auditor General of Uganda in 2013 when they hosted a Petroleum conference, with participation of parliamentarians, companies, government institutions, development partners etc. The objective of the conference was to discuss how increased transparency and accountability in the emerging petroleum sector in Uganda could help foster effective and sustainable resource exploitation, and to demonstrate the role of the Office of the Auditor General in the emerging petroleum sector.
Let us hope there will be many more examples of these initiatives. Policy decisions on the extractive industries are too important to take place behind closed doors, but should instead undergo a rigorous public debate.
By Trygve Christiansen