BP: To call Deloitte an accounting firm is to grossly oversimplify what we do. In East and Southern Africa Deloitte offers its full range of tax advisory and auditing services, but also, amongst other things: accounting outsourcing, a very strong consulting arm and a large financial advisory practice, providing corporate finance valuations, assistance with financing and forensics and internal control advice. In East Africa we have a very strong focus on the upstream oil and gas industry. Unless you have worked on relevant projects before, it is really difficult to get to grips with this sector, and I believe that Deloitte has significantly more expertise than the rest of the Big Four in the region. Our client list shows this: we are working with most of the large investors across the East Africa.
You are a tax expert. Are the Tanzanian and Mozambican regimes sophisticated enough to take on large oil and gas investments?
BP: How ready Tanzania and Mozambique’s tax regimes are to deal with large oil and gas investments is the $64 billion question. Both countries have a mining industry, and they don’t have extensive experience of upstream oil and gas not only in relation to tax, but also in general. The most mature project in Tanzania has only been producing since 2004, and is many times smaller than the current offshore discoveries. Mozambique has had nothing producing at present except the onshore Sasol project in the south. The governments are doing the right things, and have people who understand the industry, but to manage projects of this size you need much larger teams with greater expertise than are currently available. They are sending people abroad for training, and asking for help from oil and gas companies, but the available pool remains very small, which makes it hard for the industry to engage on all the necessary issues, such as where to put LNG plants, how to secure permitting for them and how to arrange off-take agreements. There are clearly going to be blockages in the process, because the government will have too much work to do, and some issues may become very political.
How can these countries create a tax system that strikes a balance between attracting inward investment and improving their citizens’ welfare?
BP: The basic building blocks are already there. Each country has implemented a form of production sharing, where the state takes the majority of the hydrocarbons from the fields and effectively pays the contractor for its work with a share of the hydrocarbons. Because they are confidential, there is much debate about whether the terms of agreements are fair and it is very easy for people to fear the worst. From what I have seen, they seem pretty fair. But a key question is how the state will actually use the resources: it might be tempting to invest the money on showcase projects of little practical use.
Is there a road map that these countries can use, or is each unique?
BP: A bit of both. The road map is there, and there are plenty of people offering advice on how things should be done. The Norwegians have invested quite a lot of time and money, because they allocate a percentage of income from their state oil fund to help emerging energy producing countries. Their model, which is being applied in the region, features a ministry controlling policy, a state company handling commercial interests, a regulator like INP, the tax authority looking after revenues and probably also a state oil and gas fund allocating revenues from the projects towards current and future needs. The countries are also focused on implementing the Extractive Industries Transparency Initiative, although a further issue might be transparency over how revenues are actually spent – Uganda’s government has already received criticism over its spending.
What are the biggest challenges facing the Rovuma Basin’s development, and Deloitte Tanzania?
BP: Without a doubt, human capital is the biggest challenge facing not only the Rovuma Basin but the whole East African oil and gas industry. It is very important to have enough nationals with sufficient training and industry understanding to manage projects, not only in government but also the oil and gas companies. There is going to be tremendous competition for the few people who are available, which will make investing in their development highly risky for firms. Unless the training of petroleum economists, engineers, accountants, electricians, pipe fitters and welders, , etc begins now, it will be a huge obstacle for development.
There are no financial incentives in place to directly encourage companies to train employees, but the production sharing agreements do include requirements for them to invest a certain amount in this. There are also requirements for local content and preference towards local supply. A far more important driver, however, should be the economic self-interest of companies: it is cheaper to employ nationals than bring people in from Aberdeen, Houston or Stavanger. Furthermore, companies need a social license to operate, especially for onshore projects. Look at what happens in the Niger Delta, where local populations resent the presence of oil companies, for whatever reason: people get kidnapped and the oil is stolen from pipelines. All the companies that I work with recognize how hazardous it becomes when local people feel they are not directly benefiting from projects through jobs and other opportunities.
Human capital is also the biggest challenge facing Deloitte here. It is not a problem for me to find work, but can I get the right people to deliver it with the quality our name represents? Recruiting and training is one of my principal preoccupations.
Where will the Rovuma Basin, and Deloitte Tanzania, be in 10 years’ time?
BP: In 10 years’ time, much of the investment will hopefully already have happened, and we will be exporting millions of tonnes of LNG. There could already be five or six LNG trains operating in Mozambique and Tanzania, with a similar number in the planning stage. There is likely also to be significant amounts of gas supplied for local industrial development and power generation. I would like to see Deloitte leading the market, as we are already strongly placed to do. I think we will have Tanzanians leading our practice in Tanzania, Mozambicans in Mozambique, and expatriates like me will have gone home.
Do you have a final message?
BP: This is the opportunity of a lifetime, particularly for the citizens of these countries. It is the biggest thing that has happened in East Africa since decolonization, and it will not come again. It has the potential to create the middle-income countries that they aspire to be, and lift entire populations out of poverty.