sharing in governance of extractive industries
The call of Tanzania Private Sector Foundation and other Tanzanian stakeholders for special arrangement to be put in place to enable Tanzanian individuals and groups to overcome the great challenges arising from huge capital and costly risks oil and natural gas exploration is associated with is timely and very practical.
To overcome challenges, foreign explorers and/or investors simultaneously operate with a package of exploration blocks which are well scattered over prospective grounds throughout countries or the world over.
Increasing the portfolio of exploration blocks is good as it decreases risk to maximize the probability of exploration success. Maximization of the probability of exploration success enables justification of exploration investment and mobilization of the huge seed capital involved.
Increasing the portfolio of exploration blocks is also bad as it escalates the seed capital required and challenges involved in its mobilization.
To overcome the challenges arising from the huge seed capital associated with increased portfolio of exploration blocks, foreign explorers tend to promote collaboration among themselves and participation of other groups and individuals in the mobilization of the huge seed capital involved.
It means to enable Tanzanian individuals and groups to participate in the foreign involved oil and natural gas exploration in the country, the arrangements enabling them to mitigate the huge seed capital and costly risks involved could and should be established and put in place.
Enabling Tanzanian individuals and groups to collaborate in the mobilization of a collective seed capital for investing in all Tanzanian oil and natural gas exploration blocks on offer is enabling them to overcome the great challenges arising from the huge seed capital and costly risks involved.
To realize such enabling, the Tanzanian national company responsible for the generation, appraisal, development, exploitation of oil and natural gas prospects on behalf of all in Tanzanian generations should be the holder of all oil and natural gas exploration licences in the country .
The Tanzanian national company shall retain the free carried sovereign shares Tanzanian generations deserve in all Tanzanian oil and natural gas blocks on offer.
To maximize Tanzanian benefit, the Tanzanian company shall promote establishment of a Tanzanian collective fund into which interested Tanzanian individuals and groups could deposit their contributions of exploration seed capital for shares in all Tanzanian oil and natural gas blocks on offer.
The Tanzanian national company shall also assign to the participating Tanzanian individuals and groups shares in all oil and natural gas exploration blocks on offer proportionate to individual contributions, from which the total Tanzanian share shall obtain as the sum of all Tanzanian free carried sovereign shares and all shares Tanzanian individuals and groups paid for in all oil and natural gas blocks on offer.
With the established total Tanzanian share, the Tanzanian national company could then invite in foreign explorers and/or investors to invest in for the share obtaining as the total Tanzanian share less the total Tanzanian share obtaining from all Tanzanian oil and natural gas blocks on offer.
Such approach enables majority Tanzanian individuals and groups from all categories of economic prosperity rather than just a minority from the richest category to participate in all Tanzanian oil and natural gas blocks on offer and mitigate costly risks.
Again, such approach complements rather than taking over the responsibility of the Tanzanian national company as care taker of the sovereign interests of all in Tanzanian generations in the Tanzanian oil and natural gas blocks on offer because its effect is to increase local benefit from the Tanzanian free carried sovereign share to the same plus the share paid for by Tanzanian individuals and groups in all Tanzanian oil and natural gas blocks on offer.
And it is not all; the choice of Tanzanian government (through TPDC) to go for production profits sharing (after all costs recovery) rather for a Tanzanian free carried sovereign share in any of the Tanzanian oil and natural gas blocks on offer is extremely counterproductive and suicidal to the nation.
Main of the natural capital extractable from oil and natural gas prospects are the appraisal profits shareholder could realize from total or partial sale of appraised reserves for partial or total investing in the appraisal of oil and natural gas prospects, or in other high value-quick return investment opportunities elsewhere, from which new discoveries and profits many times the market value of the appraised reserves sold and still in ground yet to be developed and exploited could be realized.
The production profits sharing model Tanzanian government has chosen denies her the opportunity to fully exploit her deserved share of the main natural capital extractable from Tanzanian oil and natural gas prospects in the form of appraisal profits realized from partial or total sale of appraised reserves for investing in other high-quick return oil and natural gas appraising and/or investment opportunities elsewhere.
The model chosen also denies Tanzanian government the opportunity to fully exploit her deserved share of the second most important natural capital extractable in the form of profits from services and supplies provision to the development and exploitation of Tanzanian oil and natural gas prospects by selling shares in appraised reserves to invest in their development and exploitation.
The 65 % to 70 % share of profits production sharing model provides the government is negligible compared to the total profits shares of appraised reserves and provision of services and supplies to their development and exploitation would provided her.
This 65% to 70% is similar to the meager foreign whole owned gold mining in the country (which has already created several foreign millionaires) earns the government in the form of royalties plus share of production profits after all costs recovery!.
The profit share ranging from 65 % to 70 % would satisfied all in Tanzanian generations if besides the production profits which would realize after all costs recovery, it also covered all other profits players would realize from the sales of rights and/or shares which could happen from time to time and the provision of services and supplies to the activities of prospects appraisal, development and exploitation which could sum up to more than 98 % of the total profit extractable from the appraisal, development and exploitation of given oil and/or natural gas prospect, from which the production profit after all costs recovery could be less than 2 % (negligible).
And again, the resolve of Tanzanian government to establish the State controlled Tanzania Petroleum Development Corporation (TPDC) as the national company responsible for the appraisal, development and exploitation of Tanzanian oil and natural gas prospects on its own like Statoil, Petrobras and Petronas firms in Norway, Brazil and Malaysia, respectively, is a choice of the past and a misfit in the present times of globalization in which it is the powerful multinational joint ventures and mergers composed of shareholders from multinational states and private sectors dominate in the continuing stiff competitions for oil and natural gas prospects going on the world-over.
Emerging oil and natural gas rich developing countries like Tanzania ought to consider the best approach their present times of globalization has on offer rather than that past times offered countries like Norway, Brazil, Malaysia and Algeria.
For countries like Norway, Brazil, Malaysia and Algeria, choice for their times was to establish own state controlled companies responsible for the exploitation of their oil and natural gas potentials because their private sectors were not ready to take charge, national activities in the exploitation of oil and natural gas were yet to go global, sources of market financing were not yet easily available and/or accessible, and the world was still not over-equipped with oil and natural gas players.
As times passed by, the number of private and state owned companies competing for opportunities within nations the world over also increased, initiating their going global and merging to create the powerful multinational companies capable to survive in the stiffening competitions for diminishing global oil and natural gas potentials and hardening conditions of their appraisal, development and exploitation.
In our times, going global and merging are essential for the national (private and state) companies focused on sustainability in their exploitation of oil and natural gas potentials which are too limited within national boundaries to justify such focus and individual going hardly going to enable mobilization of the huge capital and the costly R&D’s involved in the enabling of players competitiveness for access to diminishing opportunities.
It would therefore be incorrect for the emerging oil and natural gas rich developing countries like Tanzania to emulate countries like Norway, Brazil, Malaysia and Algeria by establishing state controlled companies responsible for the appraisal, development and exploitation of their newfound oil and natural gas potentials because such choice of the past is no longer the choice of our times dominated by globalization and merging of existing companies to create the powerful multinationals focused on driving off the weak to dominate worldwide and sustainably.
In our times, globalization and merging to transform into powerful multinationals composed of shareholders from multinational state and private sectors is also what countries like Norway, Brazil, Malaysia and Algeria are focused on in their struggle to maintain global presence and growth in their oil and natural gas endeavors.
In the present conditions of stiffening competitions for diminishing oil and natural gas opportunities worldwide, it is the ones most dominated with private sectors and their superior directors and/or entrepreneurs on board access more investment opportunities and attract investors in the struggle to sustain global presence and growth.
It means, for the emerging oil and natural gas rich developing countries like Tanzania, choice is to farm in the foreign companies involved in the appraisal, development and exploitation of their oil and natural gas potentials by investing the same in the foreign companies for shares of them rather than for production shares after cost recovery.
Such investing in the foreign companies for shares of them enables the emerging oil and natural gas rich countries like Tanzania to become shareholders of the powerful multinational oil and natural gas companies and grow in them wherever they are and go worldwide. It is enabling the emerging oil and natural gas rich countries to remain on board in the global oil and natural gas industry after the exhaustion of their local reserves.
Limited oil and natural gas potentials within the emerging countries won’t justify establishment of national oil companies responsible for the exploitation of their oil and natural gas potentials with focus on sustainability because for developing countries which are unable to mobilize the huge capital and carry out the R&D’s required to enable global competitiveness of their national companies, such focus is only achievable by going global and merging with the powerful foreign players to acquire a fraction of them and their shares of the properties they are on and would be on worldwide by investing the local potentials in them.
It could be concluded that, for Tanzania and all other newly emerging oil and natural gas rich developing countries, optimization of local benefit in the appraisal, development and exploitation of local oil and natural gas prospects is achievable from the choice of joint ventures, in which local and foreign, state and private sectors hold shares in the appraisal, development and exploitation of oil and natural gas prospects worldwide proportionate to the individual contributions of oil and/or natural gas opportunities, and/or seed capital.
In our times of globalization, the talk of state controlled national companies promotion in the exploitation of economic opportunities in developing countries is an outdated talk of the past, long replaced by modern day talk of multinational companies which are controlled by multinational joint ventures composed of state and private sectors.
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