africa

Africa at a Fork in the Road: Taking Off or Disappointment Once Again?
The first is a conventional royalty on production, typically in the region of 5 percent
of production value. Once this has been taken, the operator recovers operating and
development costs, usually up to a contract ceiling, with un-recovered costs carried
forward. 12 The residual profit is then shared between the operator and government:
this constitutes the second element of revenue. Third, government taxes the profits
of the operator and levies withholding taxes on various contractor payments and
dividends.
The final element of income from the resource stems from dividends arising from
government equity participation in the project. There is a question of how government
acquires this equity. Fully paid up shares may be expensive to acquire—a 20
percent equity share may cost government US$4 billion to US$5 billion—so it is
more likely that government acquires a “carried interest equity stake” under which
the contractor finances the government share and recoups this loan (with interest)
from future revenue to government, necessarily reducing the rate at which rents
accrue to government.
24.3.4 The scale of the revenue: substantial but not transformative
Given that myriad uncertainties surround the gas market over the coming decade, the
capital and operating costs associated with extracting natural gas from the Tanzanian
fields and, indeed, the precise form of the gas contracts eventually negotiated, it is
extremely hard to estimate with any precision the expected scale of revenues likely
to accrue to government. The IMF (2014) has offered a tentative projection based
on a two-train production facility operating at the lower bound of current revenue
projections (Figure 24.3). This sees total revenues rising to around US$3 billion
per year around a decade from now and remaining at that level for approximately
15 years. The profile for a four-train production facility, which would be justified if
proven reserves come in towards the top end of current estimates, generates a
similarly shaped revenue profile that plateaus at around US$6 billion per year. The
up-front capital cost of the four-train facility is estimated at US$46 billion in current
prices, with attendant implications for the cost of government’s equity participation.
Revenues of this scale would be equivalent to several percentage points of Tanzania’s
(non-resource) GDP at the peak of production. They will not, on current projec-
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