Tuesday, May 15, 2018

Book Launch: Tanzania in the Age of Change...

Wednesday, May 2, 2018

Fraught with Land Acquisition Risks: LNG Project

Tanzania`s LNG Project Fraught with Land Acquisition Risks

There are indications that the government, and the Liquefied Natural Gas (LNG) project consortium, are determined to explore ways to take the (delayed) $30 billion project forward, after nearly four years of limited activity. The slowdown was due to multiple factors - global and national, such as contentious land acquisition process for the project, low oil price, leadership transition within the national oil company (TPDC), limited negotiation capacity, and the general election in 2015, and its aftermath, especially Acacia`s copper concentrate issue. 

Notably, what started as a row over concentrates in March 2017, evolved into a broad scrutiny of the mining sector, symbolized by multiple investigation committees, and culminated into significant policy changes in July, 2017.

Reportedly, the government has not yet reached a final agreement with Barrick – Acacia`s parent company, but this seems not to be a distraction anymore. At least not to the government, given its renewed interest in the LNG project, as signalled by the decision to “prioritize”it in the 2018/2019 budget. The (ultimate) objective is to improve energy supply, which is central to achieving the fifth phase regime`s central agenda – industrialization. 

Apart from industrialization, rural electrification is expanding demand for energy, and thus straining available capacity. Another notable action that points to government commitment is the decision to hire a consultant to support its Negotiation Team (GNT) as it seeks to work out a framework for the project. This is strategic and, if done well, will not only enhance government stake, but also shorten the turn-around time, which has been a challenge in the past.
Graph shows Percentage Distribution of Households Connected to Electricity.
Source: NBS, 2016 – Energy Access Situation Report.

Commitment signals, as highlighted above, will not be sufficient to reassure consortium partners, after a tumultuous period of reform. Oil and gas companies prefer “stability” (interpreted as maintenance of terms that protect and guarantee their interests) and concerns arising from last year`s legislative reforms will likely feature in the LNG negotiation. 

As such, companies will, undoubtedly, seek to obtain significant guarantees through the project agreement and may, in the process, deliberately depict the government as a sole player responsible for ensuring policy stability. Fortunately, experience from the row over concentrates has shown us that this strategy works, but only for a “short” while.

Government policy tends to depend on “public” opinion. Moreover, public opinion shapes and is shaped by national and sub-national political dynamics, i.e. the status of the ruling coalition, the influence of the (political) opposition, orientation of the masses (political culture) etc. This level of interdependence limits the ability of the government to guarantee policy stability. In other words, the government is not the sole guarantor of (policy) stability – there are other “environmental” factors, public demands included. 

As such, companies` ought not to rely, totally, on what the government offers to the public. They must strive to push the boundaries in ways that seek to improve the (overall) policy environment, because it is in their interest. An important question is, when to do so? While the Final Investment Decision (FID) has not yet been made, companies are certain about their interest in the LNG project. As such, they should pay attention to any potential risks, current or future, since, the project, if implemented, is likely to outlive several regimes.

So, what are the risks associated with the LNG?

One of the key areas of concern is land acquisition for the project. For instance, the national oil company (TPDC) announced acquisition of land for the LNG in late 2015 and noted, in early 2016, that it was undertaking a confirmatory exercise before paying compensation. Reportedly, valuation had been undertaken more than a year earlier by the Ministry of Land, Housing, and Human Settlement Development. 

This is to say, the Project-Affected People (PAP) have been waiting for compensation for more than four years now. Unfortunately, the uncertainty arising from the delayed acquisition means that these people are unable to think about long term development. They, instead, focus on surviving, and struggle to access credible information about when their plight will end.

Compensation standards is another important dimension of the land acquisition aspect. The national oil company (TPDC) stated in its 2016 press release (cited in the paragraph above) that compensation would be paid based on national laws. However, research has shown that such standards are not always applied consistently, they are inadequate ,and may lead to an outbreak of conflict. 

Moreover, the Minister for Constitution and Legal Affairs, Professor Palamagamba Kabudi, is on record telling the parliament how disastrous similar standards have been in the past. It is unclear if the LNG consortium has decided to accept these risks or ask for application of better standards.
Source: Must, E (2016) - `When and How Does Inequality Cause Conflict`? PhD thesis, LSE. 

Recent evidence suggests that concerns over “land grabbing”, especially “sale of land rights to foreign companies” played a key role in the outbreak of the 2013 riots in Mtwara (see graph above), and that the southern part of the country – Lindi and Mtwara – has strong sentiments related to land rights issues dating back to Ujamaa days in the 1970s. 

There is, obviously, a strong case for handling land acquisition for the LNG cautiously. This is an example of a key issue that companies can, and should influence. Another key issue is that of “host community’s” benefits, which has been described by Nape Nnauye (MP) as a “big bomb.” The time to act is now, before the tide of public opinion turns.

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