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    TARRIFF

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    10 views25 pages

    TARIFF Application-Processing & Transportation-September 201

    Uploaded by

    Mbarouk Shaame Mbarouk
    TARRIFF

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 25
    Natural Gas Processing and Transportation 1. TOP SHEET Legal names ‘Tariff Application ‘Tanzania Petroleum Development Corporation (*TPDC”) Full contact addresses Tower A, Benjamin W. Mkapa Pension Contact Details Licence Details Towers Plot 51/52 Azikiwe/Jamburi Street PO Box 2774 Dar es Salaam ‘Telephone: +225 2200103/4 Fax: +225 2200113 Dar es Salaam Email: tpdemd@tpde-tz.com Website: http://www.tpde-tz.com James Andilile Mwainyekule Managing Director ‘Telephone: +225 2200103/4 Fax: +225 2200113 Dar es Salaam Email: tpdemd@tpde-tz.com Website: http://www.tpde-tz.com Tanzania Petroleum Development Corporation (Establishment) Order (GN 140), 1969. On the strength of this order, license will be applied from the Ministry of Energy and Minerals (MEM), Regulatory Action Requested TPDC requests that EWURA: * Approves the formula and methodology for the natural gas Processing and Transportation tarifis until 2034, to be reviewed after every three years, * Approves the Processing and Transportation tariff level for the period of three years from 1*t January, 2015 as shown in Table 1 in section 2. © Agrees that the Transportation and Processing tariff level for the Regulatory Year commencing 1 January, 2015 will be set using data provided by TPDC by 30% September, 2014 and that the tariff levels for cach subsequent review period will be set according to the same timetable + Approves a project return of 18% and a debt equity ratio of 50:50. Signature Eng. Joyce Elias Kisamo For: Managing Director 2. SUMMARY Overview a) Ownership structure and entiti ownership interests in which TPDC has TPDC is a public corporation established under the Public Corporations Act, CAP 257, R.E. 2002 and enabled by the TPDC (Establishment) Order (GN 140) of 1969. TPDC is fully owned by the Government. ‘TPDC is mandated among other things: (to explore, develop and produce petroleum in the United Republic of Tanzania, (i) to develop an adequate industrial base for ar oil industry in the country, (iil) to hold exploration and production rights and (iv) to contract, hold equity or participate in oil concessions, franchises and licenses, ‘TPDC fully owns two subsidiary companies namely: ‘© Petroleum Tanzania Company Limited (PETROTAN) and * Gas Supply Company (GASCO). However both PETROTAN and GASCO are not yet operational. ‘TPDC also holds rights in 24 Production Sharing Agreements (PSAs) all with participating interest options. Figure 1: TPDC Ownership Structure ‘TREASURY REGISTRAR. MEM (Sectoral 100% Poliey Overseer) TPDC SONGAS 29%) PETROTAN GASCO (100%) (100%) PSAs b) Regulatory Action and Rationale Commercialization of the Songo Songo gas which was ¢iscovered in 1974, was effected in July 2004. This was the result of an international tender initiated by the government through TPDC. The primary drive was electricity generation. The initial scope was 141 MW. However inclusion of industrial customers, like Wazo Hill Cement factory, was necessary to support the financial viability of the project. The World Bank and European Investment Bank (EIB) were major sponsors through loans, while a consortium of private sector investors comprising of Pan African Energy Ltd (formally ‘Ocelot International) and TransCanada Pipelines International (now Songas) injected equity capital. ‘The unpredictability of the hydro-electricity generation and the increasing cost of the petroleum fuels has made natural gas the most reliable source of electricity generation for the national grid. ‘The Songas natural gas infrastructure system (comprising of a 140 million standard cubic feet of gas per day (mmscfd) natural gas processing plant at Songo Songo and a 12 inch pipeline to Dar es Salaam) was stretched to its full capacity as early as 2007/08. Songas failed to align its investment priorities to the needs of ‘TANESCO’s increasing demand for natural gas. Interactions between Songas, EWURA and the Government could not produce any tangible results. The Government had to take an investment decision to rescue the economy. In 2012 the Government secured a loan from the Goverament of the Peoples Republic of China to be executed through the Exim Bank of China, The loan is for the construction of two processing plants; one at Songo Songo island in Lindi region, and the other at 5 Madimba village in Mtwara region and a Natural Gas ‘Transportation Pipeline from Mtwara and Songo Songo via Somanga Fungu to Dar es Salaam city (hereinafter referred to as “The Pipeline Project’). The level of the loan amount was set to be 95% of the Engineering, Procurement and Construction (EPC) cost. The government through TPDC has contributed 5% of the EPC costs as well as other additional costs. The Pipeline Project is owned by TPDC on behalf of the Government. The Madimba processing plant has three trains each with 70 mmscfal capacity and Songo Songo Gas processing Plant has two trains each with a similar capacity of 70 mmscfi. The Natural Gas pipeline from Mtwara to Dar es Salaam via Somanga Fungu has a diameter of 36 inches and the pipeline from Songo songo to Somanga Fungu is 24 inches. The total distance covered by the entire pipeline is 517 kilometres and the maximum capacity of the pipeline is 784 mmscfd. With compression the pipeline capacity can be increased to 1002 mmscfi. In order to be able to repay the loan with interest to the Exim Bank, recover other capital and operational costs, and get a reasonable return, TPDC has to charge users of the processing plants and the transportation pipeline an appropriate tariff. Based on the aforesaid, TPDC requests that EWURA approves a tariff that will be used by TPDC to charge customers for the use of the natural gas processing plants and the transportation pipeline as proposed in table one (1) below: Table 1: Applied Tariffs Tariff Level Period Processing | $4.178/MMBTU and | ‘Transportation tariff 1 January, 2015 - 31" December, 2017 ¢) Summary of current and proposed average customer bills Natural gas customers fall under the following categories: (i) Power generation, (i) Industries, (iii) Vehicles, (iv) Households, and (v)_ Institutions. Table 2: Average customers bills S/N|CUSTOMER BY] CURRENT CLASS AVERAGE BILLS PROFOSED AVERAGE BILLS (8 years in Mil USD) 1. | Power generation | N/A* e _ 545.65 2. Industries as |N7A® eneray 115.5, 3. Households and |N/A* ] Institutions 13.64 4, [CNG Vehicles N/A - 6.82 * No current average bills because it is a first application (new project). 4) Existing Annual and Projected Revenues The Pipeline project is expected to be commissioned in the first quarter of 2015. Projected Revenues for the first three years are summarised in Table 3 below: ‘Table 3: Projected Annual Revenues ‘Years 2014 [2015 [2016 2017 Revenues | (milusp) _|wyar [643 676 | * No current annual revenues because it is a first application (new Project). ) Options other than tariff This is a new project whose funding is on the basis of “project financing’. There is no other option for servicing loans, recovering capital costs with returns and operational costs, other than through an appropriate tariff. {) Implementation status of key performance indicators: ‘This being a new project, TPDC has formulated the following Key Performance Indicators (KPIs) to be applied in the course of operating the Pipeline Project. * Technical KPIs © Maintain system integrity: it involves synchronization of gas demand and gas production. TPDC will ensure that all the time there will be no system failure dae to non synchronization of demand and production. This is a 0% tolerance KPI © Accident free period: in a 365 days/year, TPDC will ensure that operations will be safely undertaken with en allowance of 0% deviation. + Operational © Minimum downtime (shut down) should be less than 10%. This involves compliance with maintenance schedules: a two week or 14 working days has been lanned for scheduled maintenance. A 10% deviation is the maximum allowable variation. © To meet take or pay contractual obligations: normally there is a penalty where buyer fails to take the agreed minimum gas volume. TPDC will ensure that it will synchronise orders from customers with production by various gas producers. ‘A maximum of 10% deviation has been set. © Avoid shortfall gas: shortfall gas arises where a seller fails to supply the agreed minimum gas volume to buyers. TPDC has ensured that there is a back to back contractual arrangement between purchase contracts and sales contracts, A maximum of 10% deviation has been set. + Financial © Payment on due dates: a deviation of maximum 15 working days has been set from the due date. © Collection on due dates: a deviation of maximum 15 working days has been set from the due date. © Repayment of loan instalments: A 0% tolerance has been set. © Payment of interests on loans: A 0% tolerance has been set. © Control of operational expenses: TPDC has set a maximum, of 20% deviation from the approved budget. 8) Subsidy and Grants with the past three financial years Neither grants nor subsidies have been given for the Pipeline Project. TPDC has not included grants or subsidies during the proposed three year tariff period. 3. DOCUMENTS TO ACCOMPANY APPLICATIONS FOR TARIFFS (a)Conditions imposed on an applicant listed in a previous rT Order and the status of each condition contained therein. © Not Applicable as this is TPDC’s first tariff application (b)Proposed tariff for all customer classes and territories Processing and Transportation tariff will be applied uniformly to all classes of customers who would be sold gas processed at Songo Songo and/or Madimba and transported through the 24” and/or 36” pipelines irrespective of the distance. ‘The overall principle in calculating the tariff has been; first to determine the costs involved in the construction and operation of the facility with an appropriate return on equity, and secondly to determine the volume of gas demand (converted into energy-MMBTU) that the facilities would handle on annual basis during the project life. The costs referred to above have been used to derive revenue required to support the project for the first year. Projections for subsequent years have been made through the use of United States Consumer Price Index (USCPI) (2.5%) Details are as follows: 0 (i) Data for cost determination: Capital costs + EPC contract: Costs reflected in the EPC contract between TPDC and China Petroleum Technology Development Corporation (CPTDC) (Preferential loan Section 2.1 and Buyers Credit Ioan Section 4.1) have been used in the capital cost build up. Total EPC costs amounting to US$1,225.327 million are firmed up capital costs + Loan agreements © Preferential loan: * Commitment fees (section 2.2 ~ 0.5%) accrued during construction (2013 & 2014) amounting to US$ 3.642million have been capitalised. * Management fees (section 2.2 - 1.0%) accrued during construction (2013 & 2014) amounting to US$ 9.190 million have been capitalised. + Interest accrued (section 2.2 - 2%) and paid during construction amounting to US$12.25 million has been capitalised. © Buyer's credit: * Commitment fees (section 6.8 — 0.5%) accrued during construction (2013 & 2014) amounting to US$ 1.087million have been capitalised. * Management fees (section 6.7 - 1.0%) accrued during construction (2013 & 2014) amounting to US$ 2.746 million have been capitalised. + Interest accrued (section 6.3 - 4.7%) and paid during construction amounting to USS 8.66 million has been capitalised. un * TPDC own capital contribution 5% of EPC: In accordance with the *Commercial Contract” between TPDC and CPTDC and Buyer’ Credit Loan Agreement article 3.1(9, TPDC had to contribute 5% of the EPC contract, equivalent to US$ 61.27 million. The amount has already been paid. 15% of loan insurance: In accordance with section 4.1 of the Buyer's Credit Loan Agreement, ‘TPDC has paid US$ 5.216 million Land and Way leave acquisition: TPDC has spent a total amount of TZS 30 billion, equivalent to US$ 16.667 million, This is based on compensation workings as dore by the consultant, ARDHI University. Compressor: After assessing the Songo Songo field, the EPC contractor has recommended inclusion of a compressor costing US$ 31.35, ‘TPDC has already paid for it. Project supervision: TPDC has incurred a total amount of US$ 11.33 million for project supervision, engineering, designing and quality control. This has been extracted from accounts. Project Management Consultant (PMC): TPDC procured an independent consultant for project management at the cost of US$ 28 million. Out of this amount, US$ 24 million has bea firmed and paid, while US$ 4 million is an estimate of reimbursable costs. Initial capital assets: TPDC will fund initial capital assets including security boats, vehicles, furniture and fittings and general office equipment. Other capitalized assets include water wells for valve stations, plants workshop n facilities and line pack gas. All these have been estimated at US$ 30.14 million. = Operational costs: © Salary and Remuneration: The salary and wages bill has been estimated on the basis of the following two major variables: + Number of technical employees and their skill levels has been based on standard operating procedures as issued by the EPC contractor, who has detailed skill levels as well as working shifts for operating the two processing plants and the pipeline. = Salary scales have been based on the labour market of the oil and gas industry. © Maintenance: Scheduled maintenance has been estimated on the basis of industry practice and operational manuals for natural gas pipeline and processing plants. © Insurance: Estimated insurance premium is based on the market rate, which is 5% of the value of capital investments. © Others: For other items such as water, electricity, rent, stationeries; estimates have been based on the current market rates. Based on figures for the first year of operation (2015), projections for future years have been obtained through the use of USCPI of 2.5%. (ii)Data for Natural Gas demand projections: = Customers’ demand 13 © Electricity generation; TPDC has so far signed two Gas Sales Agreements (GAs), one with TANESCO and the other with Kilwa Energy Tanzania Limited. Demand schedules of these GSAs have been the basis for determining gas consumption. Feasibility studies undertaken by RakGas (2009) and KIMPHIL (2012) also analysed gas requirements for power generation. © Industrial customers: Four feasibility studies have been undertaken; in 2007 (Ultimate Technology - a Chinese consultant), in 2009 (RakGas), in 2012 (KIMPHIL consultant) and the current one in 2014 (KIMPHIL consultant). Updated consumption figures from these reports have been the basis for projecting industrial demand. © Households/Institutions/Compressed Natural Gas Vehicles (CNGV]. Consumption figures analysed in reports of two feasibility studies (Ultimate ‘Technology - 2007 and KIMPHIL - 2014) have been the basis for projecting natural gas consumption for this group of customers. Based on the above, the proposed tariff for all classes of customers is as per Table 4 below; Ni ‘Table 4: A Schedule of Current and Proposed tariff ‘Current tariff i x ‘Transportation tariff (USD/mmBtu) 4.178 7 “ All customer classes will be charged a uniform tariff of 4.178 USD/mmBtu for using gas which has been processed and transported by the Pipeline Project. See financial model (Attachment on). (c)Schedule of current average bills, tariffs and other charges © Not Applicable {d)Date of proposed adjustment to take effect © Not Applicable {e)How the proposed adjustment of the current tariff will benefit the customers © Not Applicable (f Audited Financial Statement © Audited financial statements of TPDC for the past three years ending 30% June, for financial years 2010/11 — 2012/13, are attached. However, these audited financial statements do not contain regulated asset bases (Attachment 02) (g)Projected financial statements for the Pipeline Project Projected Income Statement, Balance Sheet and Cash Flow Statement for year 2015 which is a part of projected financial statements for the entire project life of 20 years is attached (See attachment 01). (h) Schedule of the Revenue Requirements projection for the next full financial year on the basis of the proposed tariff fi) A schedule that projects the Pipeline Project revenue requirement for the year 1 July, 2015 ~ 30% June, 2016 is attached (see attachment 01). This schedule also includes revenue requirement projections for the entire project life to 2034. It has been assumed that the requested

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