Dar es Salaam. As Tanzanians continue to feel the pinch of high fuel prices and the staggering import bill of the commodity, some economists have advised the government to buy oil wells in oil producing countries.
The proposal, they argue, could be a long-term solution to fluctuations in global oil prices, which some countries have started to adopt.
The arrangement would also have a positive impact on almost every aspect of life in the country, notably helping to deal with the high cost of living. The realised savings would enable the authorities to improve provision of social services in key areas like health and education.
“Tanzania should be innovative enough by buying oil wells in source countries rather than buying oil itself,” Dr Honest Ngowi of Mzumbe University told The Citizen on Sunday.
This was cheaper than importing oil, which eats up a large chunk of the country’s foreign exchange, he said, adding that huge oil import bills put pressure on the local currency.
“The idea is if a country buys oil wells, they become its properties. It only has to manage operation, in terms of pumping out the oil and transporting it,” Dr Ngowi said.
US-based economist Richard Mshomba concurred with Dr Ngowi. He said the energy import bill was a huge burden on the economy.
“Oil imports increase our current deficit, leading to reduction in foreign reserves and increased external borrowing and begging,” he said.
He added: “Foreign exchange spent on oil imports could be spent on other necessities such as medicine and medical equipment; inadequate supply of energy leads to increased production costs and reduced investments.”
Mr Mshomba said recent oil and natural gas discoveries in the country could help in reducing the monopoly of the Tanzania Electric Supply Company (Tanesco) in the long run.
According to the World Economic Forum (WEF), Tanzania’s energy import bill is close to 10 per cent of the Gross Domestic Product (GDP).
A senior official with the organisation, Mr Espen Mehlum, said via email that the rate represents a significant cost to the economy.
“The energy intensity of the economy– the GDP created per unit of energy use – is fairly modest for Tanzania in comparison to many other countries. Improving on this dimension could help reduce the overall energy costs as Tanzania’s economy grows,” he said.
However, Mr Jan Rielaender, an economist with the Organisation for Economic Cooperation and Development (OECD), dismissed the idea of the government buying oil wells in oil producing countries.
“Whether Tanzania should buy oil wells abroad to secure its oil needs, I would give that a clear no,” said Mr Reilander in an email response.
He argued: “An oil well is, but half the story. You also need refining capacity to turn crude oil into gasoline.
“Margins for refining are low and the capital requirements are enormous. Tanzania would likely not be able to stem the investment.”
Mr Rainlander explained that oil prices were linked to the world market, adding that owning oil wells abroad with the intention of bringing the production home for domestic consumption cheaply would lead to losing the difference between the price at the domestic oil price and that of the world market, had it been exported.
He also questioned the operation of the oil wells abroad, saying a local oil firm would not stand the competition and that the government would lose money if it invested, as experience showed that state-owned investments had proven inefficient.
Mr Rainlander pointed to the discovered gas saying, “Tanzania’s attention should rather be on getting the gas deals right and ensuring that the country gets a fair share of this wealth. If so, there will be enough money around to buy oil.”
Explaining the government’s position, the minister for Energy and Minerals, Prof Sospeter Muhongo, said the idea of owning its oil wells in oil endowed countries would be executed if well researched and backed by facts.
“It is upon the people who come up with the proposal to clearly state their proposition which will help give a clear picture of the idea,” said Prof Muhongo.
“Tanzania needs innovative ideas, which are well researched so that they can be used in finding solutions to the country’s problems.”
The minister noted issues that have to be considered before such decisions are taken include the country’s tax regime, laws and regulations and how incentives are treated.
Prof Muhongo said his ministry would not work on hearsay.
source the Citizen
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