The Songo Songo Development Licence, granted in 2001 for 25 years, is set to expire on October 10, marking a significant milestone for the offshore gas field that has supplied Dar es Salaam's power plants and factories for over two decades. The licence expiry also marks the end of the gas supply contracts attached to it. Orca Energy, the current operator, has agreed to sell its Tanzanian business to Taifa Gas Tanzania and Amber Energy Investment, a UAE-registered company, for $10.
The sale, approved by Orca's shareholders in June, is still subject to competition clearance, ministerial approval, stock exchange acceptance, and the release of IFC guarantees. If the deal does not close in time, Orca has warned that operations will cease, and the transition will be managed with the Tanzania Petroleum Development Corporation (TPDC) and regulators. The Songo Songo field delivered an average of 72 million cubic feet of gas per day last year, with over 70% going to power generation through a 207-kilometer onshore pipeline to Dar es Salaam.
Orca's subsidiaries have filed three arbitrations at ICSID against the government and TPDC, alleging failures in the licence extension process. The company values the project at approximately $1.2 billion, although damages have yet to be quantified. The expiry of the concession and the ongoing arbitration have raised questions about the future of the gas field and the transition process.
The Songo Songo gas field has been a significant contributor to Tanzania's energy sector, and its transition has implications for the country's power generation and industrial sector. The new consortium, led by Taifa Gas Tanzania and Amber Energy Investment, will need to navigate the complexities of the licence extension process and the ongoing arbitration.
Industry experts note that the transition process highlights the importance of planning for the end of concessions. A careful investor will not conclude that Tanzania fails to honour its contracts, as the licence ran its full term. However, the negotiation for renewal tends to happen late, which is a known risk that can be priced and structured.
The Songo Songo experience has implications for other major energy projects in Tanzania, including the $42 billion LNG agreements currently being finalised and new mining licences for graphite and nickel. These projects will require careful planning for their eventual expiry and transition.
As the transition process unfolds, stakeholders will be watching closely to ensure continuity of gas supply and a smooth handover of operations. The new consortium will need to work closely with the government, TPDC, and regulators to ensure a seamless transition and to secure the long-term future of the Songo Songo gas field.
Key points
- The Songo Songo concession expiry marks a significant milestone for Tanzania's energy sector, with implications for power generation and industrial sector.
- The transition process highlights the importance of planning for the end of concessions and the need for a smooth handover of operations.
- The experience has implications for other major energy projects in Tanzania, including LNG agreements and mining licences.
