East African Business Week

DAR ES SALAAM, TANZANIA - The hopes and great expectations of Tanzania producing cheap electricity from locally available natural gas have been dashed after Orca Exploration Group announced a 34 per cent increase from July 1, 2012.
Orca, the sole supplier of natural gas in Tanzania, has said under the new long term Portfolio Gas Sales Agreement (PGSA) with TANESCO the basic wellhead gas price of US$2.02 (Tshs 3,232) a thousand cubic feet (Mcf) is due to increase to about $2.70 (Tshs 4,320) from the proposed date.
The price hike goes contrary to Government and public expectations that have long assumed that since the natural gas, pumped from southern Tanzania, then the cost of the fuel would cheap. All of the natural gas currently being pumped into Dar es Salaam is used by power generation companies and a few industries.   
The Orca Chairman and Chief Executive Officer Mr W. David Lyons said under the PGSA, the firm is obligated, subject to infrastructure capacity, to sell a maximum of 37 million cubic feet (MMcfd) for use in any of the power plants except those operated by Songas at Ubungo.
 "The agreement is expected to remain in force for the period until the Songas Expansion Project is operational," the Mr Lyons said in a financial statement of first six months of this year.
 The PGSA is expected to last till June 2023.  Under the PGSA terms, Orca Exploration Group will effectively pay an additional tariff of $0.30/mcf for sales between 70 MMcfd and 90/MMcfd and $0.40/mcf for volumes above 90 MMcfd in addition to the tariff of $0.59 US dollar (944)/mcf payable to Songas as set by the energy regulator, EWURA.
"With sales volumes expected to increase as a consequence of the re-rating, cash flows should strengthen for the remainder of 2011," the CEO said.
The base power price is also due to increase by circa $0.68 (Tshs 1,088/-)/mcf which will have a beneficial impact on revenues, the company report said. The firm is planning to drill a new onshore deviated well (SS-A) and an upgrade of SS-10 to increase deliverability to approximately 150 - 160 MMcfd by the end of this year.
 The planned development is expected to cost an estimated capital of between $40 million and $48 million compared with a current cash balance of $49.0 million.
 "Whilst there is expected to be sufficient funds to undertake the 2011 work programme taking into account self generated cash flows for the balance of the year, the company will look to secure a financing facility and/or raise new equity to cover planned 2012 capital expenditure," Mr Lyons said in statement made available to East African Business Week.
 The company has also indicated to the Government that it is looking at ways of increasing Songo Songo production to 200 MMcfd from the existing field for a short period until other gas discoveries in Tanzania come on stream.   To address the hydro-generation shortfall of 550MW, TANESCO - the major power generation and distribution public firm, recently re-commissioned a 112 MW gas fired power plant in Dar es Salaam, owned and operated by Symbion Power.
TANESCO has also recently contracted Jacobsen Elektro company to install a new 105 MW plant in Dar es Salaam forecast to come only by first quarter of next year.