A decision tool for senior executives and investors, Critical Resource’s LicenseSecure™ model assesses the likely level of political and stakeholder risk (or the health of the ‘socio-political license to operate’) for resource projects. This ratings update provides a rapid, overview of a new or updated asset in the LicenseSecure ratings database, with a focus on projects in the news.
Please note that the ratings below are provisional, based in part on open source analysis and are not from client projects. (Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.)
- Ahead of elections next month, a key Tanzanian opposition politician has said recently that he would review all signed oil, gas and mining contracts. Statoil’s project is at an early stage – a final investment decision is yet to be taken – but gas is already playing a key role in Tanzanian politics.
- The scale of recent gas finds in Tanzania is potentially transformative for the country. Discoveries to date put Tanzania’s reserves at approximately 55 tcf; Statoil has discovered approximately 22 tcf in Block 2 alone.
- Statoil has been in Tanzania since 2007, when it signed a production sharing agreement (PSA) with the Tanzania Petroleum Development Corporation (TPDC) for Block 2 offshore the Mtwara region. Statoil is operator and holds a 65% interest in the block, with the remaining 35% held by ExxonMobil.
- While analysts agree that the chances of an opposition victory in the polls next month are slim, the ruling CCM party is facing its strongest challenge yet, and debates around natural resources are taking centre-stage.
- The government is under pressure to show that it is getting the best possible deal for the country. Contract terms have been a favourite bugbear of the opposition, with a parliamentary committee headed by an opposition MP last year ordering the arrest of the Chairman and Director-General of the TPDC for refusing to release the details of PSAs.
- The historically unpopular mining industry also provides a background of negative perceptions around the extractive industry and international companies. In this context, there is strong pressure on politicians to deliver on citizens’ high expectations for gas development. For example, a recent survey suggested that almost 20% of Tanzanians think they will find employment in the gas sector.
- Meanwhile, market conditions are worsening. A growing global gas glut means competition in the sector is growing ever more intense, and low prices put further strain on project economics. At the same time, declining Chinese growth is likely to affect Tanzania’s economy in coming years. These international forces compound uncertainty around the project.
- Statoil is an experienced operator, and the issues it faces in Tanzania are similar to those faced in other large-scale extractive projects in developing countries. Nonetheless, building a robust license to operate in Block 2 will require strong and proactive management of the stakeholder issues over the coming period.