Why investors hesitate to fully engage in CNG stations

DAR ES SALAAM: AS the rush for Compressed Natural Gas (CNG) among motorists waned, the Tanzania Petroleum Development Corporation (TPDC) has clarified concerns regarding the slow pace of investment in the sector.

From early Tuesday morning until Wednesday, long queues formed in Dar es Salaam as drivers and tricycles waited for hours to refill their tanks at filling stations.

This congestion was caused by a malfunction at a main station due to an electrical fault in the power
supply, leading to increase demand at the remaining two stations.

While the Tanzania Electrical Supply Company (TANESCO) worked to resolve the issue which lasted for more than 22 hours with the aim of restoring normal service, the incident highlighted ongoing challenges in the sector.

In an interview yesterday in Dar es Salaam, TPDC Acting Gas Business Manager Mr Emmanuel Gilbert clarified that approximately 40 companies have been issued licenses to invest in the sector. However, responses from these companies have been slow.

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“By the end of 2022, TPDC opened doors for private sector investment, recognising their efficiency. So far, we have approved around 40 companies, unfortunately, they have been low to implement the projects,” he said.

Currently, there are only three CNG filling stations, two of which are mother stations capable of compressing gas and refueling vehicles while supplying a sister station through pipelines.

Efforts are underway to install about 13 additional stations in the city by June next year. Mr Gilbert noted that there are approximately 4,800 vehicles using gas and the existing stations can refill between 1,200 and 1,500 vehicles per day.

Despite this capacity, demand remains high. In an interview with the ‘Daily News’, Secretary General of the Tanzania Petrol Stations Operators Association (TAPSOA), Augustino Mmasi said that investors are hesitant to fully engage in the gas sector due to the higher demand for petrol compared to gas.

While some fuel stations have started exploring gas options, the number of gas users still lags behind fuel users, leading investors to focus primarily on fuel.

Mr Mmasi emphasised that changing user preferences from oil to gas will take time, as many consumers still have reservations about using gas despite its cost effectiveness. He said that gas has the potential to replace petrol in the market, offering significant advantages once users recognise its benefits without harming their vehicles.

“The possibility exists for gas to replace petrol, especially as more people realise that gas can serve as a viable alternative without damaging their vehicles. Gas provides substantial cost benefits for both purchase and usage,” he said.

He further noted that the recent incident in Dar es Salaam, characterised by long queues at gas stations, indicates a latent demand that investors could capitalise on, potentially accelerating investments in the sector.

TPDC Managing Director Musa Makame acknowledged the growing demand for natural gas and investor interest but highlighted logistical challenges, including high equipment procurement costs and the transition from oil to gas infrastructure.

“For instance, the costs depend on the type of station the investor wants to establish. A large station, like a mother station for gas compression, incurs significantly higher costs, which can delay investment decisions,” he explained.

The Energy and Water Utility Regulatory Authority (EWURA) noted in the Natural Gas Sub-Sector Performance Report for the financial year 2022/23 that ten construction approvals were issued for natural gas infrastructure, a notable increase from the previous year.

These approvals included three for CNG filling stations in the Coast and Dar es Salaam regions, as well as seven for natural gas distribution pipelines in Lindi, Dar es Salaam and the Coast regions. During the same financial year, the frequency of CNG vehicle refueling surged to 178,773 in 2022/23 from 73,659 in 2021/2022 a significant 146 per cent increase.

This indicates a growing trend toward CNG vehicle conversions and awareness of the economic advantages of switching to natural gas. By June 2023, EWURA had registered eight CNG vehicle conversion workshops in the National Petroleum and Gas Information System (NPGIS), collectively converting around 3,100 vehicles to CNG.