MPs have a point on expanding reserves with oil price decline

A parliamentary committee on energy was advising the government in the House on Friday that the government needs to take advantage of the relentless fall in oil prices on the world market to strategically boost the country’s own reserves. They said this could be done through the Tanzania Petroleum Development Corporation (TPDC).

The point they were making is that the downward trend of petrol caused by decreasing demand since the outbreak of Covid-19 should not be left to fizzle out without the country benefiting from the price boon. Once world economic activity restarts with gusto when the coronavirus threat is past us, oil prices will start climbing prices again, which means the time to tap up reserves is the current price doldrums.

Many of those who listened or followed up the presentation of views of the Energy and Minerals Committee chaired by Dunstan Kitandula (Mkinga, CCM) would have seen a lot of point in what the committee said. Not many people would dispute with the need for the country to take advantage of global oil price gaps to enhance reserves for the country’s economy in the coming months, depending on ability to put up such resources while the price decline lasts.

While the committee noted that MPs were impressed by the supply of fuel and efficient procurement through the Bulk Procurement System (BPS), it emphasized that there is room to do more. It appears that already steps were being taken to boost reserves, that between July 2019 and February 2020, the country had sufficient oil reserves for over 40 days of demand, whereas the usual required level is 15 days of demand. The question is whether there is an optimal level of back up for demand, and indeed how far there are extra resources to purchase more oil during the price doldrums. That is what MPs staunchly expect.

There is an expression that ‘every cloud has a silver lining,’ in which case the government could very well take up what MPs are suggesting if ‘other things remained equal.’ MPs are right that this time of low oil prices is appropriate to build reserves, but it is precisely due to the same Covid-19 pressures on the local and global economy that government revenue has fallen drastically in some areas, especially tourism. It is therefore evident that it isn’t from public revenues that a large stock of oil could be built, but perhaps if there were synergies with the private sector.

TPDC is likely to have a strategic relationship with oil prospecting firms on the Tanzanian coastline and also with its partners in the bulk procurement process to be able to think out his reserves can be built up. The problem is how the profit would be handled, as using up resources to purchase plenty of oil is like speculative activity, and the tendency is to sell at normal process at present and after the pandemic has elapsed. TPDC can thus extend some incentives to its partners in bulk procurement to be able to build significant reserves while low prices last. The United States, Russia and Saudi Arabia are patching up their differences to push up crude oil as the oil industry is under throes.