Tapping local offshore gas a priority for Tanzania

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“Looking at the fundamentals, everything looks quite good, especially the gas story. That is the main driver going forward for growth,” Rand Merchant Bank sovereign risk analyst Brian Dlamini told CNBC Africa.

 “There are a couple of challenges. You’ve got power constraints, manufacturing can’t grow. Overall, things look quite good, a projected seven per cent GDP growth.”

Tanzania is expected to borrow as much as 700 million dollars in a Eurobond next year to finance infrastructure projects. The ability to harness its new gas discoveries are major priority related to the bond.

“There’s two parts to the gas story. There’s onshore gas: It’s a small field and gas is being pumped to generate power in Dar es Salaam. The need is there for government to expand that gas field to pump more gas and generate more power to alleviate power constraints,” Dlamini explained.

“On the other side you’ve got the offshore gas, that’s the one everyone is getting very excited about. It’s still in the early stages. 2021 is when the first gas [product] come out.”

Tanzania’s power sector has however been regarded as a crisis, and is severely choking business and investment opportunities.

“[The crisis] won’t get foreign direct investment out of Tanzania because you’ve got exploration going on with the offshore gas. For the next five years, there will be money going into that. As far as the onshore field, it is a bit of a crisis because it’s burning a hole in government’s pocket,” said Dlamini.

“Between 300 to 400 million dollars is what the state electricity company has to go and ask for from the country’s treasury. It’s a crisis when it comes to money, it’s not sustainable.”

Money will also be a large propriety to get the new gas pipeline up and running. The gas production is expected to make power generation significantly cheaper and more reliable because it’s a natural resource.

The country will however first have to get a suitable sovereign rating before its capital market can price the Eurobond.

“They need an indication from one of the ratings agencies to say this is where we say the country’s sovereign rating is and then we’ll move from there,” Dlamini explained.

“That process is well underway and we probably could see a rating early next year. From there we’ll get a very speedy process where they’ll go to the market as soon as that rating comes out.”