Performance Audit on the Management of Natural Gas in Tanzania

=Introduction= The audit covered four fiscal years from 2010/11 to 2013/14. It focused on the last two licensing rounds, the 3rd round (May 2004 to May 2005) and the 4th round (2013), for comparison purpose. The 2nd and the 1st rounds were also considered when necessary.

=Methodology= Audit data was collected through interviews and documentary reviews mainly from the Ministry of Energy and Minerals (MEM) and Tanzania Petroleum Development Corporation (TPDC). These institutions are responsible for procuring, contracting and awarding exploration and development licenses. This is because the Ministry of Energy and Minerals (MEM) is the overseer of the process and TPDC the procuring entity under the Ministry.

=Major Findings= Through documentary reviews, interviews and focus group discussions, the audit established the following:

1.	Inefficient Management of the contracting and licensing process.

2.	Needs analysis were not conducted properly. This was noted due to absence of criteria for conducting such analyses to meet social requirements such as environmental, health and safety requirements and needs of communities. The audit notes that despite of TPDC and MEM saying that they conduct needs analysis before licensing round, there were no reports showing such criteria was considered in the preparation of such needs. The audit also notes that although the Technical Assessment of the Petroleum Potential of the Blocks was reviewed, and the exercise considered as needs analysis, it only summarised “an insight of the technical assessment of hydrocarbon potential of the deep offshore basins prior to licensing of the bid blocks; leaving out other key aspects such as environmental needs, community requirements etc”.

3.	Absence of procurement strategy: The report notes that both TPDC and MEM do not have a procurement strategy apart from the annual plans, and that the procuring process is not properly organized to take into account the complexity of the procurement. It was established that the Procurement Management Unit at TPDC is not multi-disciplinary contrary to Section 37 (2) of the PPA 2011 which requires the Procurement Management Unit to be inclusive of procurement and other technical specialists together with the necessary supporting staff.

The audit also found out that there were no adequate controls in place to ensure that procurement complied with the relevant legislations, and that there were inadequate controls in place to ensure that awarding process complied with the relevant legislations. Generally, the audit established that there was no Legal, Regulatory Institution Framework to manage procurement in the extractive industry.

During the audit it was observed that both TPDC and MEM do not have a developed procurement strategy for procuring IOCs or even managing the whole contracting and licensing process for exploration and development of natural gas in the country. The officials from TPDC and MEM indicated that they only have general strategic plans for the whole organization whereby to a small extent issues regarding management of contracting and licensing have been covered.

The audit report established three main causes for lack of procurement strategy in the area of contracting and awarding licenses to IOC:


 * Legal framework: the available legislations on different procurements in the country do not compel the procuring entity to develop a procurement strategy


 * Importance and skills to develop strategy: the officials do not know the importance of the Procurement Strategy and how to develop such a document


 * The idea and importance of having the procurement strategy is not well emphasized. The procurement procedures of the IOCs and allocation of exploration blocks is still confusing and not well covered by the Procurement Laws.

The absence of a Procurement Strategy to guide contracting and licensing processes for exploration and development of natural gas might lead into: >


 * First, failure to make proper allocation of available resources


 * Second, failure to make efficient measurement of the performance and implementation of the procurement activities


 * Third, failure to make proper and timely decisions in the procurement activities


 * Fourth, failure to achieve the organization’s objectives timely

4.	There was no formal risk management to provide reasonable assurance regarding the organization’s awarding objectives. TPDC could not produce any risk assessment report or any kind of document with risks developed and analyzed.

5.	The goal of awarding was not met accordingly. The TPDCs’ goal of procuring, contracting and awarding licenses was not successfully met due to lack of proper time frame, absence of proper policies, strategies and guidelines.

6.	Inadequate ex-post assessment of the contracting and licensing process. There were no reviews and evaluation of the process quarterly or annually conducted by either MEM or TPDC.

=Audit Recommendations=

Ministry of Energy and Minerals
The CAG recommends the following to the Ministry of Energy and Minerals:

1. “Conduct and document the needs analysis in a proper manner before announcement of a licensing round to facilitate the achievement of objectives;

2. Evaluate the TPDC’s objectives as far as licensing process is concerned together with organization strategy to ensure attainment of the intended objectives;

3. Establish proper timeframe in the activities within the process for issuance of licenses and contracts;

4. Establish clear and more defined control mechanisms on how corruption, fraud and generally malpractices are to be controlled especially to the major players within the process, covering the whole process of awarding contracts and licenses and strengthen follow-up to ensure its implementation. The Ministry should involve TPDC in such plans (Anti-corruption) for the effective results;

5. Periodically monitor and evaluate corruption prone areas in order to report on the overall performance for the benefit of people of Tanzania; and

6. Establish policy which indicates the regular assessment/evaluation of TPDC’s operations and ex-post assessment of licensing process. Regular review of the performance of the procurement entity (TPDC) is an important area.”

TPDC
The Tanzania Petroleum Development Corporation should:

1.	“Establish the controls relating to needs analysis and timeframe for issuance of licenses and contracts;

2.	Conduct and document the needs analysis in a proper manner before announcement of the licensing round to facilitate the achievement of objectives;

3.	Make fully implementation and utilization of the Risk Management Framework;

4.	Ensure that PMU is composed with multidisciplinary professionals who can guarantee availability of required technical skills during the processes for awarding contracts and licenses;

5.	Prepare and maintain procurement strategy/policy to ensure proper allocation of the resources; and

6.	Make ex-post assessment/evaluation of the process to identify areas for further improvement.”

=References=