Salim Bashir – Partner, KPMG Tanzania
KPMG Tanzania’s Salim Bashir discusses Tanzania’s country competitiveness, the importance of infrastructure growth, and the country’s enormous potential as an oil and gas producer.
Could you begin by explaining the work of KPMG in Tanzania, who your main clients are, and what services you provide to companies working in the oil and gas sector?
KPMG has established itself as one of the leading providers of audit, tax and advisory services in Tanzania. We work together with some of the major exploration and production firms in the country including Statoil Tanzania, PanAfrican Energy Tanzania Ltd (Part of Orca Exploration Inc.), Beach Petroleum, Ndovu Resources (Part of Aminex Plc), Wentworth Resources Ltd and several oilfield services companies including Halliburton and Weatherford.
Tanzania is seen as being relatively stable in the region and the new regime has thus far shown good progress in addressing the issue of accountability and fighting against corruption
In your time at KPMG Tanzania, how have you seen the oil and gas landscape change? How has the constellation of actors in Tanzanian oil and gas changed over time?
Starting with the first gas discovery of about one trillion cubic feet (‘tcf’) at Songo Songo Island back in the 1970s which was earmarked for a gas-to-electricity project, followed by the Mnazi Bay onshore gas discovery in the 1980s and the recent offshore gas finds giving which have given rise to a current total proven gas reserve of circa 45tcf (recent estimates point towards 55tcf) with a number of International Oil Companies (IOCs) actively involved; the country’s journey in the sector has been sensational.
Despite being in its infancy, the sector has witnessed a number of key developments, for example, the introduction of new oil and gas legislation which has essentially carved out the regulatory role of the National Oil Company, the TPDC, and a new Petroleum Upstream Regulatory Authority (PURA); development of gas infrastructure including the newly built 542 kilometre gas pipeline, the upcoming LNG project in the south, a wave of new gas-fired power generation projects at Kinyerezi in Dar es Salaam; and at large the growing awareness of the public about this resource and what it can do for betterment of the economy and their day-to-day lives.
This triggers a number of questions around local content policy and its implementation strategy for the country. The big one is how the local business community is empowered to take an active role in the upcoming gas economy and turn the gas fortunes to the benefit of the wider public while still making the sector an attractive business proposition for investors.
Tanzania retains a high capital threshold of USD 300 million and investors have to employ a minimum of 1,500 Tanzanians in their projects. On top of this, the 2015 Petroleum Act has increased fuel prices and production costs. With this in mind, why is Tanzania still an attractive investment destination?
Well, country competitiveness remains a key factor in an endeavour to attract FDI. Because of significant levels of investment in oil and gas there is no question that appropriate strategies to create and sustain competitive edge are required to keep a steady flow of FDI, bearing in mind recent pressure as a result of the global oil price downturn and discoveries elsewhere. Tanzania needs FDI to continue to explore the larger part of the country which remains unexplored and monetize existing gas finds.
The fact that there are available proven resources in the country and East Africa at large means that the region is in the investment spotlight. Major IOCs are already in the country which tells you that there are good prospects; Tanzania is also seen as being relatively stable in the region and the new regime has thus far shown good progress in addressing the issue of accountability and fighting against corruption. It has also aimed to champion a move to industrialize the economy which would require a balancing act between incentivizing investors and keeping steady revenue flows for the government.
Investors are expected to remain sensitive, however, in selecting their preferred investment destination with matters like implementation of the new O&G legislation, counter incentives available to investors compared to regional competitors like Mozambique and Egypt, stability of the tax regime, local content requirements, availability of skilled resources and the ability to hire foreign expertise, domestic gas sale commitment versus export, and the global trend in oil prices being critical in reaching their decision.
What do you see as the areas of growth with most potential in Tanzanian oil and gas?
In the long-run, infrastructure growth will be key for the sector especially upstream E&P infrastructure (LNG plants, pipelines, ports etc), downstream distribution networks, and energy projects. Industries in the gas value system will also come in which in my view are crucial in driving the country’s local content agenda. Oilfield service firms also have a good opportunity.
The country needs to develop capacity for the sector in terms of both skills and capital resources. This creates opportunities for specialized O&G consultancies and venture capital.
The upside of a well-managed O&G sector directly results in overall prosperity arising from increased funding available for education and health, net forex inflows, increased agricultural output and business multiplier effect.
What is Tanzania’s potential as an oil and gas producer, especially in light of the election of President Magufuli? To what extent has the new administration changed the rules of the game?
With the right structures in place, Tanzania has enormous potential as a gas producer. Improving the country’s attractiveness is critical and should continue to maintain political stability. As mentioned before, the new administration has shown good progress in addressing the issue of accountability. Sustainable efforts to bring openness, fairness and accountability are critical for the sector to flourish. Dialogue will be key to winning over hearts and minds.
How does Tanzanian oil and gas fare in terms of “country risk” compared to its regional neighbours?
Tanzania is a second biggest economy in the East African community and has shown good GDP growth rates in recent years (7% in 2014/2015 according to the Tanzania National Bureau of Statistics) and relatively low inflation (CPI of 5.1% in April, 2016 according to the Tanzania National Bureau of Statistics), despite its debt levels, other economic fundamentals have remained fairly even over the past couple of years. Politically the country has remained reasonably stable in the region.
Other countries in the region have varying propositions in offer, which could impact on FDI attractiveness dynamics.
How does the offering of KPMG in Tanzania differ to those of the rest of the “Big Four?”
KPMG in Tanzania is part of the truly integrated East Africa practice which has built a reputation for highest quality of our work. We seek to understand our clients’ needs and offer pragmatic local solutions based on global best practice.