Views, ideas, inspiration, vision and practical tips for a better more prosperous Malawi

Why China should help Mozambique and Tanzania develop their Natural Gas production Capacities

I refer to the section 3.1 titled ‘Addressing General weakness of the economy’  and section 6.1  titled ‘Unchecked Greed and Resource Conflict’ of the above document, which has the following interesting paragraphs:

Given the prospects of high revenue earnings from economic rents of oil and natural gas, unchecked greed of business, political or other social leaders can foment and precipitate “resource conflicts”, which manifest as civil wars, regional conflicts involving neighbouring countries which share common borders, as well as in-country social divisions which weaken national solidarity. In the extreme they become a prelude to secessionist tendencies, with intent to draw new territorial boundaries curving out the regions with rich resource endowment and to declare them as independent sovereignty. That is the “resource curse” per excellence! Resource conflicts destabilize nations hosting unchecked greedy “resource seeking investments” and increase the risk to human safety, natural resource extraction infrastructures, as well as raise the overall cost of doing business.
… The discovery of huge natural gas resources has engendered heightened expectations for Tanzania with respect to revenue receipts and the likely spending power of the government. People think Tanzania can immediately get out of the poverty trap and move into the middle to high income bracket. Such popular view does not appreciate the level of investments required, the engineering challenges to be overcome and the time required to move through all the process steps before commercial gas production commences. The timeline is
between 5 to 8 years activities.

While there may be few dream images of the erstwhile Middle East and Persian Gulf countries as models for sharing national prosperity of the new gas economy, there are also nightmare images of the bad experiences of the Niger delta being repeated in the Ruvuma delta. It is common knowledge that oil production in the Niger delta has resulted in environment degradation on a massive scale, which has totally damaged the traditional local economy and livelihood which was based on fishing and agriculture. In that regard, the local communities feel “left out” of the growth and economic benefits, which have accrued to Nigeria as an outcome of exploitation of the petroleum resources. Then local communities have come to be viewed as a security threat because they have engaged in hostile activities against both the Government and the Oil industry. …

But first, lets deal with China. I’m not completely sold about them. I like their organisation and unity, and how they can achieve seemingly heavy tasks, in very short periods of time, and at a fraction of the cost west companies would undertake such tasks. But there can be a price. On quality in particular. Further, I don’t like the controversies that they tend to leave behind, or rather the alleged conduct of some Chinese companies, neatly dissected here, regarding their practices in Africa, and the implications of such practices. I also wish Chinese politicians and officials could at least raise human rights issues when dealing with countries such as Uganda, Sudan (where they’ve sent 700 troops), DRC, Zimbabwe and Ethiopia.

But that’s besides the point. Some readers of this blog will know  that there have been large Natural Gas finds off the coasts of Tanzania and Mozambique. The estimates of the finds range from  46 trillion cubic feet(tcf) to 55 tcf. for the deposits in Tanzania, and 50 tcf. to 70 tcf. for the deposits in Mozambique. In plain English it’s a fortune!

According to Standard Bank, Liquefied Natural Gas (LNG) will add $39 billion to the Mozambican economy over the next 20 years, boosting GDP per capita from approximately $650 in 2013, to $4500 by 2035.

The trouble is, it is being claimed that billions upon billions will be required to put in place the technology, infrastructure, structures and logistical capacities to realise the benefits of these reserves.

And I simply don’t believe it will cost that much.

Now, I may be an engineer – one who knows how to build certain things cost-effectively, but I’m not a geological engineer. I’m not a surveyor, or an industry professional within the natural gas or petroleum industry, and my contention is based purely on rebuttals such as these – in this case of the corrupt practices in the construction sector in Malawi. But having said that I can find some credible industry professionals who can provide an honest unbiased opinion of the costs involved.

In other words, the $10 billion that is claimed in the above paper as the cost of building capacity, how exactly did they arrive at such a costing? I’m not disputing it outright, I’m just curious to know how they computed the figures…. since as I stated earlier, contractors and other infrastructure developers have a bad habit of quoting say £10,000 for a job that in real terms will cost £1000 to build (that is in real money the cost of raw materials, labour, logistics). The extra £9000 goes to profits for the company …and it is this that I have a probelm with because in my view it is hugely inflated.

So if someone says some project will cost $10 billion, alarm bells automatically start ringing in my head. I begin asking, is that $10 billion the real cost of raw materials and labour, or are we factoring in wastage in terms of corruption, the profits you want your company to make – off the coffers of the undiscerning African government, and off the backs of the helpless African people??

In the long term this translates to tax payers who must be taxed heavily to pay off the debt that will be taken by the government to finance such a project. Pensions that will remain meagre, because the African government is still paying that $10 billion loan they took…school children who will continue to have poor facilities, because…well, there’s no money to invest in modern educational facilities…salaries that will remain low…lapses in security, because, well, there’s simply not enough money about to improve security or pay decent salaries… I could go on.

My point is if the Mozambican and Tanzanian governments asked the Chinese for greater degree of help, in establishing the industry, employing professionals, while maintaining ownership of the whole project and resource (or atleast a large % of it) – as opposed to letting any foreign corporation have the lions share – the governments would most probably be able to build everything cost-effectively, probably for less than £2 billion, and Tanzania and Mozambique would come out stronger than any arrangement that gives ownership (or  the lions share) of the finds to a foreign private company.

About Sang N.

Writer, Entrepreneur & Activist. Interests: History, Entrepreneurship, Business, Motors, Architecture, Aviation, Travel, Food and Art.

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This entry was posted on August 22, 2015 by in Opinion, Thoughts and tagged , , , , , , , , , .
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