November 19, 2013 / 5:26 PM / 7 years ago

Tanzania's cabinet approves final natural gas policy

* Confirms condition for onshore LNG plants

* Domestic market to be given priority over exports

* To establish a fund to manage gas revenues

By Fumbuka Ng’wanakilala

DAR ES SALAAM, Nov 19 (Reuters) - Tanzania’s cabinet has approved a long-delayed natural gas policy part of new rules for the country’s fast-growing gas industry that will impose tough conditions on foreign companies and ensure the domestic market gets priority over exports.

East Africa has become one of the world’s most sought-after oil and gas provinces after a string of vast discoveries attracted foreign companies seeking new gas sources to supply energy-hungry Asian markets.

Tanzania estimates it has 42.7 trillion cubic feet of gas following big finds off its southern coast.

“The final natural gas policy was approved by cabinet ... and we are now in the final stages of drafting a new law to regulate the industry,” Eliachim Maswi, the energy ministry’s permanent secretary, told Reuters on Tuesday.

Maswi said the policy was approved on October 10. The Tanzanian government rarely announces decisions made during cabinet meetings.

“The government’s goal is to have the natural gas legislation in place next year,” he said.

Similar to other east African countries, a debate in Tanzania has focused on how much of the nation’s hydrocarbon reserves should be used locally and how much can be exported.

The regulations are in line with tough conditions outlined in the model production sharing agreement of 2013 document, published by the government on Nov. 4.

Tanzania has signed 26 production sharing agreements with several majors such as BG Group, Ophir Energy, Exxon Mobil and Statoil.

The “Natural Gas Policy of Tanzania 2013” document seen by Reuters regulates mid and downstream activities of the industry, which include gas processing, liquefaction, transportation, storage and distribution.

The policy document states the government would “ensure that the domestic market is given first priority over the export market in gas supply.”

The government said a separate policy would be drafted to guide upstream activities such as exploration, development and production stages of oil and gas operations.

Tom Savory, analyst at consultancy Africa Practice, said the document was an important step for the Tanzanian gas industry and would be welcomed by investors who are likely to see it as a sign of political progress on a tricky issue.

“In the long run, however, the devil is in the detail and there are still many unknowns.”

The policy also said the government would ensure natural gas processing takes places on shore, contrary to calls by the international oil and gas firms who would prefer to build off-shore plants.

Government officials said they want oil companies to build joint liquefied natural gas (LNG) terminals to speed up the recovery of their investments so they can start paying taxes as soon as possible.

The policy also calls for the establishment of a natural gas revenue fund to ensure transparency and accountability over collection, allocation, expenditure and management of all natural gas revenues.

Editing by Drazen Jorgic. Editing by Jane Merriman

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