29th Compiled Annual Report Tpdc

8/17/2019 29th Compiled Annual Report Tpdc

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29th

ANNUAL REPORT

USE FUEL EFFICIENTLY

TO CONSERVETHE ENVIRONMENT

TANZANIA PETROLEUM DEVELOPMENT CORPORATION

2004 2005

ADDRESS BANKERS AUDITORS

P.O. Box 2774 CRDB Bank Limited SBC CONSULTANCY SERVICESDARES SALAAM Lumumba Street Branch (Certified Public Accountants)

P .O. Box 268 PPF HOUSE 4TH FLOORDAR ES SALAAM Morogoro Rd/Samora Avenue

P.O Box 72712DAR ES SALAAM

TELEPHONE

2126452,2118535/6

FAX2129663DAR ES SALAAM ADVOCATES

G.M.KILINDU & CO ADVOCATES

NEDCO BUILDING

A, H. Mwinyi RoadDAR ES SALAAM

REGISTERED OFFICE

Plot No. 37/38,Ali Hassan Mwinyi Road, UPANGA DAR ES SALAAM

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CORPORATE PROFILE

Tanzania Petroleum Development Corporation is a fully Government– owned Parastatalorganization under the Ministry of Energy and Minerals. It was established under the

Public Corporations Act No. 17 of 1969 of the laws of Tanzania (repealed and replaced by the Public Corporations Act (CAP 257 R.E 2002) of the Laws of Tanzania); throughGovernment notice No. 140 of 30th May, 1969. The Corporation commenced operationsin 1973.

The functions of the Corporation as laid down in the Government Notice include:

(a)

to promote the development of the petroleum industry and the production of petroleum;

(b) to carry on the businesses of prospectors, producers, refiners, storers, suppliersand distributors of petroleum;

(c) to conduct or engage in petroleum prospecting operations includingexploration, drilling, testing, appraisal, extraction, producing, treatment,storing, transportation and such other activities relating thereto as the Boardmay from time to time decide;

(d) to acquire by agreement and hold interests in any undertaking, enterprise or project associated with the exploration and prospecting for, or the productionof petroleum and for such purposes to obtain, exercise, carry out and use anymining lease, licence, concession, franchise, authority, power, right or privilege which any government, corporation, public body or other authoritymay be empowered to grant;

(e) to manage the affairs of any corporation, company, firm or other body theinterests of which are transferred to or acquired by the Corporation under the provisions of the Act or this Order;

(f) to carry on its business, operations and activities either within the UnitedRepublic or elsewhere, whether as principal, agent, contractor or otherwise,and either alone or in conjunction with any other persons, firms or bodiescorporate;

(g)

to do all such acts and things as may be necessary to uphold and support thecredit of the Corporation and to obtain and justify public confidence, and toavert or minimize any loss to the Corporation;

(h) to do any thing or enter into any transaction which, in the opinion of the Boardis calculated to facilitate the proper and efficient carrying on of its activitiesand the proper performance of its function as specified in this paragraph.

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(i) The Corporation is under the said Notice authorized to perform its functionseither itself or through any contractor or contractors employed by it on suchterms and conditions as the Board may approve.

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BOARD OF DIRECTORS

Gen. R. Mboma (Rt)

Mr. J. Msindai Mr. Abdulaziz Mrs. Kate Kamba(MP)

Dr. Mbaga Mrs. Bukuku Mr. OleNaiko

Mr. P. VictusMrs. Mr. Dacosta Sophia Simba(MP)

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MANAGEMENT

Mr. Y.S.M. KillaganeManaging Director

Mr. S. Mlawi Mr. L. MawallaCorporation Director of Finance &Secretary Administration

Mr. H.R. Halfani Mr. D. FukoDirector of Exploration Director of MarketingProduction & Technical & InvestmentsServices

Alhaj Jaafar Misonge Mr. P. KisimboChief Accountant Chief Internal

Auditor

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LETTER OF TRANSMITAL

To: Hon. Pius Msekwa

The Speaker of The National AssemblyUnited Republic of TanzaniaParliament HouseDODOMA

In accordance with the Public Corporations Act (CAP 257 R.E. 2002 of the Laws ofTanzania) I have the honour of submitting the 29

th Annual Report and Audited Accounts

of Tanzania Petroleum Development Corporation for the year ended 30th

June 2005.

………………………………

Dr. Ibrahim Msabaha (MP)Minister of Energy & Minerals

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NOTABLE MILESTONES IN THE HISTORY OF

THE SONGO SONGO GAS DEVELOPMENT

1974 Natural Gas was first discovered in Tanzania by AGIP Spaduring the drilling of the well SS # 1. By then the Gas depositswere found to be uneconomical and M/S AGIP SpA laterrelinguished the block.

1975 - 1979 TPDC took over the field and with the assistance of the Oil and Natural Gas Commission (ONGC) of India drilled onshore wellsSS # 2, 3 and 4.

The wells confirmed the presence of a largereservoir of gas. SS # 2 blew out after encountering shallow gas at850 meters depth.

1978/79 M/S Fertilizer (Planning & Development) India Ltd (FPDIL)were commissioned by the Government of United Republic ofTanzania to carry out a study on the best economic use of naturalgas. The FPDIL study recommended the production of fertilizersas the best use of natural gas and recommended a small plant forthe production of ammonia and urea.

1980 M/S Agrico Chemical Company of USA proposed to theGovernment of the United Republic of Tanzania and TPDC for theconstruction of a World scale ammonia/urea plant to be operated by a joint-venture company (Kilwa Ammonia Company Ltd orKILAMCO). The proposal was accepted and the project companyformed. The planned plant capacity was 1560MT per day ofAmmonia and 1725 MT per day of urea.

1980s The KILAMCO project stalled and was later shelved becauseof high capital costs, failure by the Government of Tanzania toraise the required equity and worldwide slump in the price offertilizers in the mid 1980s to early 1990s.

1981 – 1983 With World Bank funds SS # 5, 6, 7, 8, & 9 were drilled andcompleted as appraisal wells. Out of these, wells SS # 5, 7, & 9confirmed the presence of gas and were completed as gas producers.

1990 TPDC commissioned M/S Hardy BBT to undertake two

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studies for the use of Songo Songo natural gas namely,manufacture of fertilizer on the one hand and conversion intoliquid fuels and use in power generation on the other. The studyconcluded that it would be feasible to use the gas to generateelectricity for the national grid and that the most viable option

would be to pipe the gas to Dar es Salaam, generate power in Dares Salaam and supply some gas forindustries in Dar es Salaam, and later extend the pipeline northward to supply gas to Tanga and Mombasa.The outcome of the two studies was the basis of the interestexpressed by M/S Ocelot International of Canada in thedevelopment of the Songo Songo gas field.

April 1993 TPDC and the Government of the United Republic of Tanzaniainvited proposals from different companies for the generation ofelectricity using Songo Songo gas. M/S Ocelot International won

the tender and invited M/S TransCanada Pipelines as co-investor inthe project. The project, initiated by Ocelot is now the currentmain project “The Songo Songo Gas to Electricity Project”. The project main objective was to generate electricity in accordancewith the Power Purchase Agreement, entered into between thegenerating company (SONGAS) and Tanesco; meet energyrequirements in the production of cement at the Wazo Hill CementPlant in accordance with the Tanzania Portland Cement FactoryWazo Hill Gas Sales Agreement and generate electricity forvillages along the pipeline right of way. All these are collectivelyreferred to as the Base Project. This portion of the Songo Songogas is referred to as “Protected Gas”. Natural Gas that is producedfrom the Songo Songo Gas Field that is in excess of Protected Gasis called “Additional Gas”.

1994 - 1997 Negotiations for the implementation and financing of the projectwere conducted and finally all contracts were initialed in 1997.

1999 M/S Transcanda Pipelines sold their share in Songas to M/SAES of USA.

11th October 2001 The financial closure of the Songo Songo Project was achieved.

March 2004 TPDC entered into an agreement for joint marketing of additionalgas with M/S Pan African Energy (Tanzania) Limited (PAET).This agreement outlines the joint responsibilities in marketing ofadditional gas and set terms for one of the partners to become LeadSeller without affecting the rights and obligations of the other partner in the PSA and Gas Agreements.

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May, 2004 M/S AES sold their shares in Songas to M/S CDC Globeleq

June 2004 Project construction activities were completed

21st July, 2004 Commercial operations date for the project commenced with

gas sales to Ubungo Power Plant and Wazo Hill Cement Plant.

Bulk of 2004 Phase-1 of Dar es Salaam Ringmain distribution pipelineconstruction activities completed.This enabled the taping of gas from the main supply pipeline into asystem for the supply of additional gas to interested customers inDar es Salaam.

September 2004 TPDC and PAE as partners in the Songo Songo ProductionSharing Agreement started to sell gas to Tanzania Breweries andKioo Limited on the basis of terms incorporated in their March

2004 Joint Marketing Agreement.

4th October, 2004 Official inauguration of the Songo Songo Gas to Electricity Project by His Excellency Benjamin William Mkapa, the President of theUnited Republic of Tanzania.

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THE CHAIRMAN’S STATEMENT

Honorable Minister for Energy and Minerals

It is my privilege to submit to you the Annual Report of Tanzania Petroleum

Development Corporation (TPDC) covering the year ended 31

st

June 2005 together withthe Report of the Auditors and Annual Accounts of the year under review. In mystatement only a summary of the activities of the Corporation is presented. Details of theactivities of the corporation are given in the Management Report and in the DirectorsReport.

Substantial progress was made in the field of hydrocarbon exploration in the country. Asin previous years, bearing in mind that this constitutes the lifeline of the Corporation,open-acreage promotional campaigns were carried out by TPDC through exhibitions, publications in international journals and presentation of papers in international meetingsand conferences. These campaigns elicited a very encouraging response from oil

companies indicating their interest in acquiring exploration licences on open acreages orto maintain already acquired licences. M/S Shell International, Antrim Resources Inc., Ndovu Resources (T) Limited, Petrobras, Maurel and Prom and Artumas Group Inc.concluded or already had Production Sharing Agreements with the Government of theUnited Republic of Tanzania and TPDC while M/S Dominion Oil and Gas applied for anexploration licence in Mandawa and Kisangire Blocks.

Honourable Minister, TPDC’s dream, indeed the whole nation’s dream since theinception of exploration for hydrocarbons in the country in the 1950’s finally became areality. Following the conclusion of negotiations for the Songo Songo Gas to ElectricityProject, implementation of the project commenced. The construction of a gas processing plant at Songo Songo Island, laying of a marine and land pipeline from Songo Songo toDar es Salaam and installation of turbines and other infrastructure were completed. Theaim of the parties was to have the project assume commercial operations by May 2004 but a few hitches dictated postponement to 20th July 2004. Gas finally flowed into Dar esSalaam, its first use being in the generation of electricity at Ubungo and firing of cementkilns at Wazo Hill. Gas was also put to use in other industries based in Dar es Salaamwhich include Tanzania Breweries Limited, Kioo Limited, NIDA Textiles, and KaribuTextiles, while studies for the utilization of the gas in vehicles and domestically wereundertaken.

The project was officially inaugurated by His Excellency Benjamin Mkapa the Presidentof the United Republic of Tanzania on 4th October 2004.

At the same time having concluded a Production Sharing Agreement with theGovernment and TPDC m/s Artumas Group of Canada proceeded to re-enter the well atMnazi Bay for purposes of ascertaining the quantities of gas together with the integrity ofthe well and to acquire more seismic data in preparation for the drilling of additionalwells in its PSA area.

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The findings of the re-entry were quite encouraging having affirmed that the well hasgood integrity and that there are sufficient quantities of gas to meet the requirements ofthe envisaged project.

TPDC participated in the sixth East African Community Energy Consultative Meeting on

harmonization of policy, legal and fiscal regimes for the energy sectors of the EastAfrican Community partner states held in Arusha from the 18th to 20thAugust, 2004, andat the second conference on the Petroleum Potential and Investment Opportunities in EastAfrica scheduled to be hosted under EAC sponsorship in Entebbe, Uganda from the 2

nd to

4th March, 2005.

TPDC also participated in the Tanzania Drilling Project an undertaking which has beenongoing now for a period of seven years being a collective endeavor of a team ofresearchers from the U.K. U.S.A, Ireland and Tanzania and presented papers on the progress of the project at a meeting of the Tanzania Geological Society held in Mwanzafrom 1st to 3rd July 2004.

TPDC continued with its drive to transcribe its technical data using modern technology.The drive included making several applications for funding and initiating talks that wouldlead to the revival of electronic copying and reformatting of seismic data tapes at TPDC.

Internal working capabilities using computers were as in previous years under continuousreview and upgrading in terms of hardware and software with a view to staying abreast ofthe latest technological developments in our field of specialization.

Compilation, editing and proof reading of corporate records progressed well byrecording all the work done into a database. Users will be able to access them from theirrespective workstations.

The Corporation continued to motivate its employees with a view to enabling them toachieve self-realization as well as achieve corporate and national goals. Employeesthrough their TUICO TPDC Branch, the Worker’s Council and Staff Meetings wereactively involved in ensuring reciprocity of responsibility for both the employee and theemployer as a result of which a harmonious working relationship was maintainedthroughout the year.

The Board of Directors met regularly.

Honorable Minister, TPDC received invaluable support in recording most of its successesfrom various National and International Agencies and friendly Governments of which Imention only a few namely the,. the Ministry of Energy and Minerals, the Ministry ofFinance, the Office of the Attorney General, the World Bank, NORAD, PETRAD, Norwegian Petroleum Directorate (NPD), and all contractors who executed TPDC projects during the year under review.

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May I also take this opportunity to thank the TPDC Board of Directors, Management andall employees for their contribution and commitment to the efficient administration of thesearch and ultimately the production of this very scarce and expensive national resource.

…………………………General (Rtd) R.P. MBOMAAg. CHAIRMANOCTOBER 2005

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EXPLORATION, PRODUCTION AND TECHNICAL SERVICES

EXPLORATION PROMOTION

Promotional Meetings in Tanzania

In-house technical presentations were made to oil company representatives whovisited TPDC. A major presentation was made in Mwanza, Tanzania at theTanzania Geological Society (TGS) conference in July 2004, where a number oftechnical papers were presented by TPDC geoscientists. This meeting wasattended by 77 participants from different organizations that included miningcompanies, government departments and universities from within and outside thecountry.

Promotional Meetings abroad

TPDC attended the meetings of the Petroleum Exploration Society of GreatBritain (PETEX) in London in September, and in November 2004. During the November meeting TPDC announced its intention to launch the 3rd Deep SeaLicensing Round an announcement followed by the actual launching on 26th November 2004. The launching was attended by 72 delegates, with participantsfrom major oil companies.

Three further promotional presentations were made at the Africa Upstreammeeting in South Africa, the Association of Afro-Asian Petroleum Geochemists(AAAPG) conference in China and at the Society of Geophysicists (SEG) inDenver, Colorado, USA. TPDC also participated at the Tanzania Business

Opportunities and Investment Conference in Johannesburg and Investors Forumin Dubai.

LICENCE OPERATIONS

Nyuni (East Songo Songo) Licence

M/S Ndovu Resources, drilled an exploration well-named Nyuni-1, which wasspudded on 26th September 2003.

The well developed technical problems and deviated severely, which necessitatedits being side tracked and drilled ahead to a revised total depth of 3900metres below mean sea level. The well encountered oil and gas shows and after it waslogged several zones were selected for testing. The well was tested but no oil orgas flowed. It was suspended awaiting results of data evaluation.

As a consequence, M/S Ndovu Resources submitted Nyuni-1 well completionreport to TPDC. A 50% relinquishment programme and Exploration Programme

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for the First Extension Period was also presented for which the First Extension period of the Licence was granted on 7th February, 2005.

Exploration Licence within the Songo Songo Gas DevelopmentArea

M/S Pan African Energy (PAE) submitted an exploration program for the year2005. The program involved the acquisition of 550 kilometers of seismic datawithin the discovery block as well as in the adjoining blocks.

Deep Sea Block-5

M/S Petrobras Tanzania’s Deep Sea Block-5 PSA holder presented their modelCharts of Accounts, 2004 Work Programme and Budget for TPDC’s reviewwhich was followed by the first Advisory Committee Meeting which was held in

Dar es Salaam.The second Advisory Committee Meeting was held in Dar es Salaam on the 20 th September, 2004. The main agenda involved year 2004 Budget review andapproval of the proposed 2005 Work Program and Budget.

New PSA Applications

In February 2005, the Ministry of Energy and Minerals, TPDC and DOMINIONOil and Gas Ltd of the UK signed a Memorandum of Understanding overMandawa and Kisangire Blocks. DOMINION Oil and Gas later on in May 2005

submitted PSA proposals for exploration in Mandawa and Kisangire Blocks.

Completed Production Sharing Agreement (PSA) Negotiations on Deep SeaBlocks 9,10, 11 & 12

Negotiations with M/S SHELL International of Holland over Blocks 9, 10, 11and 12 in the Deep Sea were concluded and initialed and continue to awaitGovernment approval.

Bigwa – Rufiji and Mafia Licence Area

An Advisory Committee Meeting was held in Dar es Salaam between TPDC andthe contractor, M /s Maurel & Prom towards the end of year 2004 with the aim ofapproving the Work Program and Budget for year 2005. Maurel & Prom havefirmed up drilling of their commitment well at Mkuranga prospect before the endof year 2005.

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SONGO SONGO GAS DEVELOPMENT AND POWER GENERATIONPROJECT

Construction of Infrastructure for Gas Production, Processing and

Transportation.

All construction work for the gas processing plant and pipeline to Ubungo PowerStation and Wazo Hill Cement Plant were completed by the end of June.

Commercial Operations Date (COD)

Trial runs of firing turbines with natural gas to produce electricity at Ubungo andfiring cement kilns with natural gas at Wazo Hill started on the 14th July, 2004.Both trials were successful, and as a consequence the Commercial OperationsDate (COD) stipulated in the Songo songo Project Implementation Agreement

became a reality on the 20th July, 2004.

The Songo Songo Gas Development and Power Generation Project was officiallyinaugurated by the President of the United Republic of Tanzania, His ExcellenceMr. Benjamin W. Mkapa on 4th October 2004.

Construction of the Dar es salaam gas Ringmain pipeline to selected industries inDar es Salaam continued in the course of which M/S Kioo Limited and TanzaniaBreweries Limited (TBL) started using natural gas in September, 2004 and M/SAluminium Africa were connected to the Ringmain later during the year.

Gas Production

Gas production from the Songo Songo field went on smoothly. Production was fromSS-3 and SS-7 while wells SS-4 and SS-5 were on standby ready for production whenrequired. Gas production was as summarized in the Table below.

Period GasProduced(MMscf)

Gasused asFuel(MMscf

)

GasFlared(MMscf)

Gas toPipeline(MMscf )

Gas Sold(MMscf)

GasStock inPipeline(MMscf

)

CondensateProduced(Litres)

July-04to Dec-04

4,374.85 54.17 243.36 4,180.76 4,293.21 356,160

Jan-05to Apr-05

3,649.77 31.11 41.19 3,577.17 3,531.89 392,160

Total 8,024.62 85.28 284.55 7,757.93 7,825.10 - 67.17 748,320

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Table : Natural gas and condensate production at Songo Songo

MNAZI BAY GAS TO ELECTRICITY DEVELOPMENT PROJECT

The permit allowing Artumas Group to commence operations in Msimbati wasgranted by marine parks authorities on the 2nd August, 2004 following acquisitionof this permit, during the last quarter of 2004 M/S Artumas continued with preparations for re-entry at Mnazi Bay 1 well.

During the last quarter of year 2004, Artumas also embarked on an acceleratedseismic data acquisition campaign with the objective of identifying further drillinglocations in the area. Well re-entry and completion operations commenced on the19

th February, 2005 followed by logging which showed that the Well had good

integrity. Well Completion commenced on the 15 th April, 2005 after which post-completion flow tests were performed. These were completed on the 14 th May,2005. Initial indications pointed to the existence of adequate quantities of gas to

meet the requirements of the envisaged project.A total of 142.400 line kilometers out of the total 222.600 kilometers of theseismic acquisition program were recorded by year end.

GEOSTUDIES

Geophysical & Geological Fieldwork

A field trip was conducted to study and understand fault trends and sedimentation processes in the eastern arm of the East African Rift System. The area coveredincluded Olduvai-Gorge, Ngorongoro Crater and Lake Natron. This field trip was

undertaken as part of the preparations for the forthcoming EAPC 2005.

Geophysics

Interpretation of key Mandawa seismic lines was reviewed to recommendstructures which could be the most likely leads towards the location of structureswhich are embedded with a reservoir. This was looked into to develop anexploration strategy for the future.

Geochemistry

Results of various geochemical analyses were presented at a number ofconferences during this period. Relevant Papers and venues included,Hydrocarbon Occurrences and its Source in Tanzania submitted at The TanzaniaGeological Society Conference in Mwanza 1-2nd , July 2004;The GeochemicalAnalysis for Apparent Bitumen Samples Obtained in Tanzania Drilling Project(TDP) Wells, in Kilwa Area. Submitted at TDP Presentation, Ngorongoro, inJuly, 2004; Hydrocarbon Occurrences in East African Basins and TheirSignificance to Petroleum Discovery, submitted at the Afro-Asian Association of

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Petroleum Geochemist Conference (AAAPG) Beijing China, in October2004;The Source of Hydrocarbons Discovered in Tanzania Based onGeochemical Correlation of Source Rocks, Oil, Bitumen / Oil Seeps and NaturalGas, submitted at the 2nd Conference on the Petroleum Potential and InvestmentOpportunities in East Africa, Entebbe, Uganda 2-4 March, 2005; and, The Origin

of Petroleum and its Occurrence in Tanzania submitted during a seminarconducted in Kilwa Masoko for Government Officials in Lindi Region, March,2005.

A tar sands deposit was located in Msimbati Peninsula by TPDC geoscientistduring a Mtwara-Lindi palynological field trip, while shale outcrop sampleswere collected from a Tendaguru excursion.

Biostratigraphy

Type Specimen Reference Collection

In-house duration of key species of foraminifera needed for stratigraphy inTanzania continued with the addition of well preserved specimens from the EarlyOligocene to Late Eocene from outcrop and cored samples from Pande. Someexcellent specimens from the Mastrichtian to Miocene planktonic foraminifera ofthe newly drilled Nyuni-1 were scanned using Scanning Electron Microscope atthe University of Cardiff.

Core Storage

The TPDC Core storage facility was maintained.

Tanzania Drilling Project (TDP)

Over the past seven years Biostratigraphy personnel together with a team ofInternational researchers from the U.K., U.S.A., and Ireland (collectively knownas the 'Tanzania Drilling Project', or 'TDP') has produced a new high resolutionintegrated bio- and litho-stratigraphy of the onshore mid Cretaceous to Recentsediments of southern coastal Tanzania. Continuous coring of shallow boreholes between Kilwa and Lindi, allied with new detailed field mapping has shown thatthe sedimentary package is dominated by clays and claystones. Within thisinterval there are now several recorded occurrences of oil as traces in Eocenecores, residual spots in Cretaceous outcrop or as oil seeps at the surface. Theseresults have added significantly to the world’s knowledge of coastal Tanzaniasediments and will contribute significantly to the cause of hydrocarbonexploration.

As a result of these projects, preparation of new geological maps for Kilwa andLindi areas based on outcrop sampling began.

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Geoscientists presented papers on the Progress of the Tanzania Drilling Project atthe 2nd East African Petroleum Conference held in Entebbe, Uganda from the 2nd -4th March, 2005.

Scientific Publications

Palaeogene and Cretaceous sediment cores from the Kilwa and Lindi areas ofcoastal Tanzania: Tanzania Drilling Project Site 1-5, was published in the Journalof African Earth Sciences in the year 2004. Another manuscript (publishingfindings of TDP boreholes 6-10) was in preparation for publication in the Journalof African Earth Sciences.

PETROLEUM ENGINEERING

TPDC Petroleum Engineers were involved in activities related to the SongoSongo Gas Development and Power Generation Project, and monitoring of theMnazi Bay-1 Well re-entry and Completion Programme

TECHNICAL COOPERATION

East African Community Energy Consultative Meeting

TPDC participated at the 6th

East African Community Energy ConsultativeMeeting which took place in Arusha from the 18th to 20th August, 2004. Theseconsultative meetings are held quarterly and they draw delegates from Ministriesresponsible for Energy, Electricity Utility Companies and National OilCompanies who meet to report on progress made towards harmonization of policy, legal and fiscal regimes for the energy sectors of the East AfricanCommunity partner states.

DATA BANK MANAGEMENT

TPDC authorized National Petroleum Directorate (NPD) of Norway, to copy anddeliver 87MW & 88MW-serie Mandawa field seismic data to BRUMBY OILTANZANIA LIMITED, a company currently engaged in mining activities inTanzania, for reprocessing. TPDC also delivered to BRUMBY OIL 99MW-serieMandawa field seismic data together with 97KIS & 98KIS-serie Kisangireseismic data including Surveyor’s Notes and Observer’s Logs for reprocessing. Inreturn, TPDC received copies of the same data on modern DVD tape media inSEG-D format. It is TPDC’S intention to follow up on, and, ensure receipt of allreprocessed tapes (migrated tapes in SEG-Y format) for all the lines in digitalformat to be loaded onto the workstation.

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Seismic field tapes for lines 9484-87, 9486-87, 9488-87 and 9488A-87 which wererecorded earlier in the Pemba Channel on old half-inch 9-track tapes wereforwarded to JEBCO SEISMIC of the United Kingdom for transcription ontomodern IBM-3590 tape media and reprocessing. TPDC received copies of thesame data on modern tape media.

TPDC received all the equipment (software & hardware) required to update theseismic tape-copying system on 16

th May 2005.

ARCHIVES & DRAFTING

All TPDC documents continued to be registered, recorded verified andcomputerized for easy access. Photocopying and drafting of various reports, mapsand seismic sections continued to be provided to investors and TPDCgeoscientists as requests were received.

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MARKETING AND INVESTMENTS.

GAS DISTRIBUTION NETWORK IN DAR ES SALAAM.

Gas Marketing:

Protected Gas:

Table 1 below shows sales of protected gas from July 2004 to April 2005.

PROTECTED GAS

Month Gas Volume Revenue RevenueSold (scf) US$ TSh.

Jul-04 271,770,659.90 279,851.99 295,212,908.00Aug-

04 591,895,499.37 300,502.78 318,097,217.77Sep-04 590,699,419.91 299,341.27 316,197,176.91Oct-04 907,899,420.57 462,139.50 489,322,545.39 Nov-

04 921,172,240.54 467,118.34 494,454,105.26Dec-

04 889,187,259.57 450,468.67 479,280,646.13Jan-05 596,139,002.46 302,244.05 320,378,693.00Feb-05 608,149,479.60 309,414.44 327,979,306.40

Mar-05 1,191,644,702.33 605,618.74 641,955,864.40

Apr-05 1,008,373,738.93 511,035.30 541,697,418.00

7,576,931,423.16 3,987,735.08 4,224,575,881.26

Table 1: Protected Gas Sales volume and revenue for the period July 2004 toApril 2005

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Additional Gas:

Table 2 below gives a summary of the Additional gas sales volume and revenues forthe period under review:

ADDITIONAL GAS

Month GasVolume

Gross Songas GasRevenue TPDCshare of TPDC shareof Assumed Net TPDC

Sold(MMs

cf)

Revenue Pipelinetariff

Net ofSongas

Profitgas

Profit gas Royalty Add gas rev

US$ US$ costs(US$)

US $ TSh. Sh. TSh.

Jul-04 0 0 0Aug-

040 0 0

Sep-04 13.52 73,087.29 10,969.30

62,117.99 11,402.14

12,351,137.60

5,150,091.13

7,201,046.

Oct-04 41.62 216,934.55

32,476.68

184,457.86

34,587.73

36,678,559.00

15,851,402.94

20,827,1560

Nov-04

37.66 207,139.20

31,284.96

175,854.24

32,972.67

34,968,175.30

14,342,017.46

20,626,1578

Dec-04

27.79 141,340.54

21,071.61

120,268.93

22,788.13

24,167,264.40

10,582,263.65

13,585,0007

Jan-05 30.06 144,799.60

21,377.09

123,422.51

23,141.74

24,135,914.20

11,448,540.00

12,687,3742

Feb-05 31.54 176,466.0

7

26,724.4

3

149,741.6

4

28,076.5

6

29,761,150.

56

12,009,84

6.73

17,751,303

8Mar-05

32.91 174,105.62

26,130.70

147,974.92

27,745.30

33,840,940.03

12,531,737.47

21,309,2025

Apr-05

33.07 174,972.11

26,260.73

148,711.38

27,883.38

35,547,969.09

12,594,159.47

22,953,8096

248.17 1,308,844.98

196,295.50

1,112,549.48

208,597.65

231,451,110.18

94,510,058.85

136,941,05.3

Table 2: Additional gas sales volume and revenue from September 2004 to April2005

During the period under review, gas sale and purchase agreements weresigned with six industries which were ready to convert to gas namelyMessrs Kioo Limited, Aluminium Africa, Karibu Textiles, BoraIndustries, Friendship Textiles, Murzah Oil , Lakhani Textiles, NIDATextiles, and TANESCO for UGT6

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Industrial Gas Market Research

During the period under review TPDC and Pan African Energy continuedidentifying industries which could be connected to the gas ring-main and follow-up on those industries which earlier showed interest to use gas.

CNG for Vehicles

During the period under review PAET and TPDC jointly carried out

prequalification exercise on companies interested to participate in a bid for

implementing a CNG project in Dar es Salaam. The deadline for submitting

prequalification documents was 30th

March 2005. The bids were opened

on 1st April 2005. Six companies submitted bids. After evaluation,

four companies were pre-qualified.

Dar es Salaam North Gas Project Study

The planned study to assess the viability of supplying gas to Dar es

Salaam North areas to meet household, institutional and industrial

requirements for cooking and heating respectively, started in May 2005

Taxation

During the year under review, the Government waved excise duty on natural gas.

The only tax that was to be paid on gas was VAT. The Government has not yetgazetted the royalty (tax) rate. TPDC uses an assumed rate of 12.5% of the well-head price on additional gas.

Sale of Condensate

During the year under review 748,320 litres of condensate was produced

from the processing of natural gas at Songo Songo 500,160 of which had

already been lifted at year end by a buyer obtained

through a tender process..

Gas Seminars

During the period under review, TPDC organized two seminars, one on gasutilization, and another one on natural gas pricing.

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DAR-MWANZA PIPELINE PROJECT

On 30th

June 2004, the Ministry of Energy and Minerals signed a Memorandumof Understanding with M/s Richmond Development Company of USA giving thelatter 18-month exclusivity over the Dar es Salaam-Mwanza oil pipeline project.The MOU expires in December 2005.

MANAGEMENT OF COPEC/TPDC ASSETS

Petrol Stations:

Petrol stations dealers operating TPDC- owned petrol stations were for sometime supplied by M/S NATOIL under an arrangement organized by TPDCwhereby TPDC used to get a percentage of M/S NATOIL’S proceeds from salesas consideration for letting them supply TPDC clients. NATOIL withdrew fromthis arrangement necessitating TPDC to resort to charging rental fees.

MARKETING ISSUES

STUDIES ON THE PETROLEUM DOWNSTREAM SUBSECTOR ANDREGULATION

The Government assigned TPDC to carry out a study to see if petroleum productsinto the country can be imported through a single point. The study was carried outand in principle recommended that at present, all petroleum products canadequately be imported through Dar es Salaam port, via flow meters. However, asa long term plan, multiple entry points can be allowed to include Tanga andMwanza, when flow meters are installed.

The Corporation participated in the Task Force which was formed by the Ministerfor Energy and Minerals to address challenges in the liberalized petroleumdownstream sub-sector in Tanzania. The report was concluded and submitted tothe Government.

The Corporation was appointed to the to the Regulatory Technical Team (RTT)which is finalizing required steps for operationalization of the Energy and WaterRegulatory Agency (EWURA), Fair Competition Commission (FCC) and the Fair

Competition Tribunal (FCT). During the period under review, it participated inseveral retreats on the same. .

MOVEMENT OF PETROLEUM PRODUCTS PRICES IN THE WORLDMARKET

During the period under review, petroleum products and crude oil prices in theworld market have been on a continuous rise. The period experienced the highest

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prices in the market in more than 20 years. At times, refined products prices wereclose to $600/MT in the Mediterranean market. The major reason attributed to theabnormal rise is increased demand because of the increased consumption by theFar East countries, especially China, whereas, OPEC production is limited.

The following Graph and Table illustrates actual prices on monthly averages forthe past one year.

Petroleum Products Prices in the World Market(Platts quotations - MedBasis)

MSP JET/IK GO FO($/MT) ($/MT) ($/MT) ($/MT)

Apr-04 383.84 333.19 290.32 161.01

May-04 449.33 369.93 328.78 183.16

Jun-04 385.46 344.48 317.69 175.94

Jul-04 425.07 455.08 348.09 175.25Aug-

04 401.35 404.69 357.36 160.98

Sep-04 429.65 445.86 402.57 169.89

Oct-04 471.90 499.50 461.24 189.97 Nov-

04 419.93 452.97 427.89 176.91Dec-

04 344.28 400.79 382.40 170.37

Jan-05 392.57 416.24 384.92 188.93

Feb-05 416.40 440.85 406.46 195.94Mar-

05 460.98 528.04 482.31 233.81

Apr-05 505.87 553.98 474.54 253.66

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Petroleum Products Prices in the World Market

-

100

200

300

400

500

600

A p r - 0 4

M a y - 0 4

J u n - 0 4

J u l - 0 4

A u g - 0 4

S e p - 0 4

O c t - 0 4

N o v - 0 4

D e c - 0 4

J a n - 0 5

F e b - 0 5

M a r - 0 5

A p r - 0 5

Month

P r i c e ( $ / M T

)

MSP ($/MT) JET/IK ($/MT)GO ($/MT) FO ($/MT)

PETROLEUM PRODUCTS PRICES IN THE LOCAL MARKET

During the period under review, petroleum products prices in the local marketcontinued to rise. To a greater extent, this rise was influenced by high prices inthe World Market.

Average prices (Dar es Salaam) for the years 2002-2004 and part 2005 areincluded in the table below.

Product Average Price Average Price Average PriceAverage Price 2002 2003

2004 -May 2005

(Shs./Lt.) (Shs./Lt) (Shs./Lt) (Shs/Lt)

Super 570.00 634.00 881.00 982.00

Diesel 520.00 593.00 803.00 945.00

Kerosene 420.00 480.00 660.00 797.00

REPORT OF THE DIRECTORS FOR THE YEAR ENDED 30TH JUNE, 2005

1.0 In compliance with the Public Corporations Act 1992 and the Tanzania FinancialAccounting Standard No. 12 on Directors’ Report, the Directors submit their reportand the audited financial statements of the Corporation, Tanzania PetroleumDevelopment Corporation, for the year ended 30th June, 2005.

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2.0 DIRECTORS

The Directors of the Corporation (all of whom are Tanzanians), who have servedduring the year are:-

A.

The following Directors of the Corporation served during the year up to 29

th

November, 2004.

NAME STATUS

General Robert P. Mboma (Rtd) Deputy/Acting ChairmanMr. Deusdedit Mtambalike DirectorMr. Mike Urio DirectorMr. Rashid H. Haji DirectorHon. Kate Kamba (MP-E.A.) DirectorMr. Frederick Werema Director

Hon. Mohamed Abdulaziz (MP) DirectorMr. Prosper Victus DirectorMr. Yona S. M. Killagane (Managing Director) Secretary

B. The following served as Directors of the Corporation during the year beginning30

th November, 2004 following the reconstitution of the Board:

NAME STATUS

General Robert P. Mboma (Rtd) ChairmanMs. Agnes Bukuku DirectorMr. Yasser de Costa DirectorAmbassador Fadhil D. Mbaga DirectorHon. Kate Kamba (MP-E.A.) DirectorDr. John P. Msindai DirectorHon. Mohamed Abdulaziz (MP) DirectorMr. Emmanuel Ole Naiko DirectorHon. Sophia Simba (MP) DirectorMr. Prosper Victus DirectorMr. Yona S. M. Killagane (Managing Director) Secretary

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3.0 DIRECTORS’ REMUNERATION

The Directors’ remuneration for services rendered as directors of the Corporationfor the year was T. Shs. 300,000 paid as sitting allowance to each Director. In

addition, each Director was paid T. Shs. 1,500,000 as Directors’ fees for the year2004/2005.

4.0 DIRECTORS’ RESONSIBILITY FOR FINANCIAL REPORTING

The Directors are required, under the Public Corporations Act, to prepare annualfinancial statements which consist of a balance sheet, profit and loss account andcash flow statement together with accompanying note. The statements prepared areto give a true and fair view of the state of the affairs of the Corporation at the end ofthe financial year and of the surplus/deficit of the Corporation for that year. TheCorporation’s accounts during the year have been prepared in conformity with

International Financial Reporting Standards issued by International AccountingStandards Board.

In order to meet the requirements of the International Financial Reporting Standards(IFRS), the Directors confirm that in preparing these financial statements, suitableaccounting policies have been selected and then applied consistently and that prudent judgements and estimates have been made. The Directors further confirmthat applicable accounting standards have been followed and that the financialstatements have been prepared on going concern basis.

The Directors recognize their responsibility for keeping proper accounting records,

which disclose with reasonable accuracy at any time the financial position of theCorporation. The Corporation has internal control systems, which providereasonable assurance that assets are safeguarded and fraud and other irregularitiesare prevented or detected in time.

5.0 PRINCIPAL ACTIVITIES

The Corporation is charged with the functions of:

• developing an adequate industrial base for the oil industry

• exploring and producing oil

• acquiring interests in projects or enterprises associated with exploration and

production of petroleum• holding exploration and production rights

• contracting, holding equity or participating in oil concessions, franchisesand licences

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6.0 REVIEW OF BUSINESS

SOLVENCY EVALUATION

The Directors have reviewed the current financial position of the Corporation and

the existing long and short term borrowings. On the basis of this review, theDirectors are of the opinion that the Government decision to acquire the Tanzanianand Italian Petroleum Refining Company Limited (TIPER) outstanding liability hadgreatly improved the financial standing of the Corporation. The Directors believethat for the Corporation to perform effectively and efficiently need additionalexternal source of financing. The commencement of commercial exploitation ofSongo Songo natural gas is a reliable source of financing and the decision by theGovernment to direct the Corporation to remit this revenue to the Government beginning financial year 2005/2006 has to be reconsidered. In order to enable theCorporation to carry out its operations effectively, the Directors highly recommendthe retention of the gas sales within the Corporation so as to provide a reliable

source of financing instead of relying on funding from Government throughGovernment budgetary allocations. The annual operating results are as shown in thefinancial statements set out on pages 7 to 20.

7.0 PROSPECTS

The Songo Songo Gas to Electricity project commenced operations during theyear under review. The project entailed transporting gas through a 25km 12-inch pipeline from Songo Songo to Somanga Funga, and from Somanga Funga througha 207km 16-inch pipeline to Ubungo Dar es Salaam where natural gas hadreplaced liquid fuel as feedstock in the generation of electricity for the nationalgrid. As at 30th June, 2005 the total generation was 191MW. A 16km 8-in pipeline has been extended northwards to provide natural gas to the Wazo Hillcement plant where it replaced fuel oil as feedstock in the manufacture of cement.The gas is also used in other industries to replace liquid hydrocarbon.

Project investors are CDC Globeleq, Pan African Energy, Tanzania ElectricSupply Company Limited (TANESCO), Tanzania Petroleum DevelopmentCorporation (TPDC), Tanzania Development Finance Company Limited (TDFL),European Investment Bank (EIB) and World Bank, the later two through theGovernment of Tanzania. The project is being implemented by SONGASLimited, a local joint venture company formed by CDC Globeleq, TANESCO,TPDC and TDFL. PanAfrican Energy Tanzania Limited is operating the gasfield.

8.0 DIRECTORS’ INTEREST

The Corporation is wholly owned by the Government. During the year nodirectors’ interest existed within the Corporation.

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9.0 RELATED PARTY TRANSACTIONS

There were no related party transactions during the year.

10.0 EMPLOYEES WELFARE

The Corporation has the following employees’ welfare arrangements:-

• Training

The Corporation offers sponsorship to its employees both in short and longterm courses within and outside the country on various disciplines.Promotional seminars and workshops are also undertaken in various parts ofthe world to market exploration data in order to attract investors in oil prospecting, exploration and production.

• Savings and Credit Co operative Society

The Corporation has a Savings and Credit Co-operative Society that provideloans, both short and long term loans to staff. This arrangement reducesgreatly the burden of issuing loans and advances to staff by the Corporation

• Medical Facilities

The Corporation meets fully the cost of medical consultation and treatmentfor all employees and their immediate family dependants.

• Financial Assistance

This is available to all employees depending on the merit of each case asassessed by management as well as liquidity position of the Corporation.

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• Retirement Benefits

The Corporation contributes statutory deductions towards employees’ pension scheme administered by the Parastatal Pensions Fund (PPF) on

behalf of all permanent employees.

• Relationship between Management and Employees

The Corporation has entered into an agreement with the workers’ tradeunion TUICO for the establishment of a Workers Council. The WorkersCouncil provides a link between management and employees.

• Disabled Persons

It is the Corporation’s policy to give equal opportunities to disabled persons

for vacancies they are able to fill.

11.0 AUDITORS

In accordance with section 30(1) of the Public Finance Act (No. 6) of 2001, theController and Auditor General is the statutory auditor of the Corporation.However, pursuant to section 32(1)(c) of the same Act, the Controller and AuditorGeneral appointed M/s SBC Consultancy Services, a firm registered with NBAA,to audit TPDC on his behalf for the year 2004/2005. The appointment was donethrough competitive tendering procedures whereby in accordance with the PublicProcurement Act, 2001 and Public Finance Act, 2001 section 46 (1) an open tender

was floated and amongst the auditing firms which tendered, a competitive selectionof auditors was made and SBC Consultancy Services won the tender.

12.0 BOARD MEETINGS

The Board of Directors held four Ordinary meetings during the year under review.

BY ORDER OF THE BOARD

--------------------------------- ------------------------------------CHAIRMAN DATE……………..2005 DIRECTOR

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INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS

We have audited the attached financial statements on page 7 to page 20 of Tanzania

Petroleum Development Corporation as at 30th June, 2005 and the related income statement,statement of changes in equity and the cash flow statement for the year ended on that date.The statements have been prepared under the historical cost convention and the accounting policies set out on pages 11 to 16.

Respective Responsibilities of the Members of the Board of Directors and the Auditors

The responsibility for the preparation and presentation of the financial statements rests withthe Directors of the Corporation as provided for under the provisions of the TanzaniaPetroleum Development Corporation (Establishment) Order, 1969. Our responsibility is toform and issue an independent opinion on these financial statements based on our audit.

Basis of Opinion

We conducted our audit in accordance with International Standards on Auditing. Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free from material misstatement. An audit includesexamination, on a test basis, evidence relevant to the amounts and disclosures in the financialstatements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation and overall presentation of the financial statements, andwhether the accounting policies are appropriate to the business circumstances, consistently

applied and adequately disclosed.

We planned and performed the audit so as to obtain all the information and explanationswhich we considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the financial statements are free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation of the information in the financialstatements. We have obtained all the information and explanations we consider necessary forthe purpose of our audit. We believe that our audit provides a reasonable basis for ouropinion.

Opinion

In our opinion, proper books of account have been kept and the financial statements are inagreement with the books of account as presented to us and that the financial statements present fairly, in all material respects, the financial position of the Tanzania PetroleumDevelopment Corporation as at 30th June, 2005 and its surplus, changes in equity and cashflows for the year then ended in accordance with International Financial Reporting Standards.

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...........................................................SBC CONSULTANCY SERVICESCERTIFIED PUBLIC ACCOUNTANTS

DAR ES SALAAM

DATE:……DECEMBER, 2005

BALANCE SHEET AS AT 30TH JUNE, 2005

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30.06.2005T. SHS.

30.06.2004T. SHS.

ASSETS NOTE

Non - Current AssetsProperty, Plant and Equipment 3 7,966,683,291 8,506,488,8Petroleum Station Outlets 709,438,641 709,438,6Shares in Oil Companies 4 3,292,241,036 370,436,7

11,968,362,968 9,586,364,2

Current Assets Inventories 8,800,640 8,405,3Trade and Other Receivables 5 1,545,275,541 330,385,6Cash and Cash Equivalents 599,984,017 236,059,6

2,154,060,198 574,850,5

TOTAL ASSETS 14,122,423,166 10,161,214,7 EQUITYCapital and Reserves attributable to theCorporation’s Equity holders

Share Capital 6 2,208,000,000 2,208,000,0Capital Grant 7 3,292,241,036 450,0Motor Vehicle Loan Revolving Fund 8 300,000,000Revaluation Reserve 9 5,606,582,969 5,614,535,9Retained Earnings 305,067,415 (4,911,432,9

Total Equity 11,711,891,420 2,911,553,0 LIABILITIESCurrent LiabilitiesTrade and Other Payables 10 2,410,531,746 7,249,661,7

Total Liabilities 2,410,531,746 7,249,661,7

Total Equity and Liabilities 14,122,423,166 10,161,214,7

NOTES 1 TO 15 FORM PART OF THESE ACCOUNTS

-------------------------- -----------------------CHAIRMAN ----------------- DIRECTOR

DATEINCOME STATEMENT FOR THE PERIOD ENDED 30TH JUNE, 2005

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2004/2005T. SHS.

2003/2004T. SHS.

NOTEREVENUE

11,764,100,901SUBSIDY INCOME 1,346,779,196

GAS REVENUE INCOME 5,792,636,763 0OTHER INCOME 11 1,435,291,403 2,794,968,659

18,992,029,067 4,141,747,855

12 3,697,798,677Administrative and EstablishmentExpenses 3,364,164,562Financial Costs 13 4,143,669,838 9,728,733Legal Charges 4,321,876,498 0Exchange Rate Loss 565,223,817 0General Expenses 376,973,145 763,640,411Impairment Loss 14 369,986,761 14,387,048,707

TOTAL EXPENSES 13,475,528,736 18,524,582,413SURPLUS/(DEFICIT) FOR THEPERIOD 5,516,500,331 (14,382,834,558)


.........................CHAIRMAN

......................DIRECTOR

DATE:................

STATEMENT OF CHANGES IN EQUITY

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Attributable to Equity Holders of the Corporation

ShareCapital

CapitalGrant

MotorVehicleLoans

RevolvingFund

Revaluation

Reserves

RetainedEarnings

Total E

T. SHS. T. SHS. T. SHS. T. SHS. T. SHS. T. SH

Balance at 1st July2003

2,208,000,000

3,236,431,297

9,471,401,642 14,915,8

Deficit for the Year (14,382,834,558)

(14,382

Addition during the Year 450,000 450Change in RevaluationReserve ,378,104,648 2,378,104

Balance at 30th June2004

2,208,000,000

450,000 5,614,535,945

(4,911,432,916)

2,911,55

Balance at 1st July2004

2,208,000,000

450,000 5,614,535,945

(4,911,432,916)

2,911,55

Motor Vehicle LoansRevolving Fund 300,000,00

0

300,000

Change in RetainedEarnings

(300,000,000) (300,00

Change in Revaluation

Reserve (7,952,976)

(7,952Profit for the Period 5,516,500,331 5,516,50

Addition During theYear

3,291,791,036

3,291,79

Balance at 30th June2005

2,208,000,000

3,292,241,036

300,000,000

5,606,582,969

305,067,415 11,711,8


........................CHAIRMAN

.......................DIRECTOR

DATE:................CASH FLOW STATEMENT FOR THE PERIOD ENDED 30TH JUNE, 2005

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30.06.2005

T. SHS.30.06.2004

T. SHS.CASH FLOWS FROM OPERATING ACTIVITIESSurplus/(Deficit) for the Period 5,516,500,331 (14,382,834

Adjustments: 378,585,301Depreciation 429,337Write off of Property, Plant and Equipment 0 14,138,032Transfer of Investment in Oil Companies to theTreasury Registrar 369,986,761 145,814(Gain)/Loss on Sale of Fixed Assets (58,498,655)Dividends from Associate Companies (792,664,455)

CASH FLOWS BEFORE CHANGES INWORKING CAPITAL ITEMS 5,413,909,283 330,349(Increase)/Decrease in Stocks (395,340) (2,222(Increase)/Decrease in Trade and Other Receivables (1,214,889,884) (79,349

Increase/(Decrease) in Trade and Other Payables (4,839,129,988) (864,444Net Cash Flows From/(Used in) Operations (A) (640,505,929) (615,666

CASH FLOWS FROM/(USED IN) INVESTINGACTIVITIES

(77,386,612)Purchases of Fixed Assets (36,801Proceeds from Sale of Fixed Assets 289,152,500Dividend Received from Associate Companies 792,664,455Acquisition of Shares in Songas Limited (3,291,791,036) (450,0

Net Cash Flows From/(Used) inInvesting Activities (B) (2,287,360,693) (37,251,6

CASH FLOWS FROM/(USED IN) FINANCINGACTIVITIESCapital Grant Received from Government foracquisition of shares in Songas Limited 3,291,791,036 450

Net Cash Flows From/(Used inFinancing Activities (C) 3,291,791,036 450

NET INCREASE/(DECREASE) IN CASHAND CASH EQUIVALENTS (A +B + C)

363,924,414 (652,467

Cash and Cash Equivalent at the Beginning of the Period 236,059,603 888,527

CASH AND CASH EQUIVALENT AT THE ENDOFTHE PERIOD

599,984,017 236,059

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........................... ........................CHAIRMAN ..................... DIRECTOR

DATE

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NOTES TO THE FINANCIAL STATEMENTS

NOTE 1.0 GENERAL INFORMATION

(a)

Tanzania Petroleum Development Corporation is wholly owned by theGovernment. The Corporation was established by the TanzaniaPetroleum Development Corporation (Establishment) Order No. 140 of1969 made under the Public Corporations Act No. 2 of 1992. TheCorporation is domiciled in Dar es Salaam, Tanzania. The address ofthe registered office is 37/38 Ali Hassan Mwinyi Road, Upanga, Dar esSalaam, Tanzania.

The Corporation is charged with the following functions of:

Developing an adequate industrial base for the oil industry

Exploring and producing oil Acquiring interests in projects or enterprises associated with

exploration and production of petroleum Holding exploration and production rights

Contracting, holding equity or participating in oilconcessions, franchises and licences.

(b) The overall management of TPDC is vested in the Board of Directors asthe Governing body under the supervision of the Minister for Energyand Minerals. The Managing Director carries out the day to dayoperations of the Corporation.

NOTE 2.0 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of thesefinancial statements are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation

The financial statements of Tanzania Petroleum Development

Corporation have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by therevaluation of land and buildings, plant and equipments and motorvehicles at fair value through profit or loss.

The preparation of financial statements in conformity with IFRSrequires the use of certain critical accounting estimates. It also

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requires management to exercise its judgement in the process ofapplying the Corporation’s accounting policies. The areas involving ahigher degree of judgement or complexity, or areas where assumptionsand estimates are significant to the financial statements are separatelydisclosed in a note.

2.2 Property, Plant and Equipment

Valuation

Land and buildings comprise mainly of residential houses locatedin Dar es Salaam, and plots over a five acres area acquired by theCorporation at Mbezi Juu- Dar es Salaam. Land and buildings areshown at fair value based on valuations carried out in June 2004 byexternal independent valuers, M/s UCLAS of Dar es Salaam lesssubsequent depreciation for buildings. Plant and equipment is alsostated at fair value based on the same revaluation. Any

accumulated depreciation at the date of the revaluation waseliminated against the gross carrying amount of the asset and thenet amount was restated to the revalued amount of the asset.Historical cost includes expenditure that is directly attributable tothe acquisition of the items and depreciation charge is applied asappropriate.

Subsequent costs are included in the asset’s carrying amount orrecognized as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the itemwill flow to the Corporation and the cost of the item can be

measured reliably. All other repairs and maintenance are chargedto the income statement during the financial period in which theyare incurred.

Increases in the carrying amount arising on revaluation of property, plant and equipment are credited to other reserves inshareholders’ equity. Decreases that offset previous increases ofthe same asset are charged against fair value reserves directly inequity, all other decreases are charged to the income statement.The net increase in value as a result of the valuation has been reflected in the revaluation reserve which is reflected at

T. Shs 5,606,582,969 as at 30th

June, 2005.

Depreciation

Land is not depreciated. Depreciation on other assets is calculatedusing the straight line method to allocate their cost or revaluedamounts to their residual values over their estimated useful lives,as follows:

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Asset Description Rate per AnnumBuildings: 4%Furniture and Equipment 10%Computer/Servers 25%

Motor Vehicles, Cycles and Bicycles 25%Tanker Lorries – Tanker Fleet 25%

Assets that have an indefinite useful life are not subject toamortisation and are tested annually for impairment. Assets thatare subject to amortisation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carryingamount may not be recoverable.

2.3 Intangible Assets

Costs that are directly associated with identifiable and uniquesoftware products, that the Corporation controls are recognized asintangible assets. Expenditure that enhances or extends the performance of computer software programmes beyond theiroriginal specifications is capitalized. Computer softwaredevelopment costs recognized as assets are amortized using straightline method over their useful lives, not exceeding four years.

2.4 Stocks

Stocks are valued at the lower of cost and net realizable value. Costis determined on First In First Out (FIFO) basis. Any obsoleteitems are provided for in full in the year they are detected.

2.5 Revenues

Revenue of the Corporation comprises of allocations received fromthe Government and funds from sales of exploration data which areaccounted for as they are received. Rental income and gas sales netof VAT are accounted for as they accrue. Sale of stores isaccounted for as they are sold.

2.6 Financial Instruments

The Corporation does not hold non-derivative financial assets withfixed or determinable payments that are not quoted in active market. Non derivative assets arise when the Corporation provides goodsand/or services directly to a debtor with no intention of trading the

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receivables. The receivables are included in trade receivables in the balance sheet.

2.7 Provision for Impairment of Receivables

Trade receivables are recognized initially at fair value andsubsequently measured at cost less provision for bad and doubtfuldebts. Specific provision is made in the accounts against tradereceivables when it is able to collect all amounts due according tothe original terms or receivables. The amount of the provision isrecognized in the income statement. Bad debts are written off afterall steps to recover them have failed.

2.8 Employees Benefits

The Corporation has a defined benefit contribution plan scheme for

its employees with PPF. A defined contribution plan is a pension plan under which the Corporation pays fixed contributions, 20% ofemployee’s salary, to Parastatal Pensions Fund on a monthly basis.The Corporation has no legal or constructive obligation to payfurther contributions if the Fund does not hold sufficient assets to pay all employees the benefits relating to employee service in thecurrent and prior periods.

2004/2005 2003/2004T. SHS. T. SHS.

Employer’s PPFContribution

258,849,054 251,674,385

2.9 Related Party Transactions

There were related party transactions, which represents thefollowing:

2004/2005 2003/2004T. SHS. T. SHS.

(a) Directorsremunerations

37,500,000 37,500,000

(b) Key managementremunerations 163,830,362 117,690,694

(c) Loans to keymanagement

11,460,633 9,431,992

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2.10 Foreign Currency Translation

(a) Functional and Presentation Currency

The financial statements are presented in Tanzania Shillings,which is the Corporation’s functional and presentationcurrency.

(b) Transaction and Balances

Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailing atthe dates of the transactions. Foreign exchange gains andlosses resulting from the settlement of such transactions andfrom the translation at year-end exchange rates of monetaryassets and liabilities denominated in foreign currency arerecognized in the income statement.

2.11 Grants

Grants received in monetary form for capital expenditure, recurrentexpenditure or in form of non monetary assets are recognized asdeferred income in the balance sheet and are released to incomestatement during the useful life of the respective non-monetaryassets or when recurrent expenditure is incurred.

2.12 Cash and Cash Equivalents

Cash and cash equivalents are carried in the balance sheet at cost.For the purpose of cash flow statement, cash and cash equivalentcomprise cash on hand, demand and call deposits if they exist at the balance sheet date.

2.13 Impairment of Assets

Assets are reviewed for impairment losses whenever events orchanges in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount

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by which the carrying amount of the assets exceeds its recoverableamount.

2.14 Capital Commitments

The Corporation had no capital commitments that had beencontracted for as at the balance sheet date. It also had no approved projects that were not contracted for.

2.15 Contingent Liabilities

There is a contingent liability arising from the award given toAddax Limited in a case which was under arbitration filed byAddax Limited, on premature termination of crude oil supplycontract which ended on 31

st December, 2000 instead of 31

st March,

2001. The contingent liability involves an amount of USD

10,561,170.39 million being final award given by ICC InternationalCourt of Arbitration dated 19th

April, 2004. The Government ofTanzania as at 30th September, 2005 had paid USD 7,950,000 of theaward. Further, to this there is another contingent liability pertaining to TIPER amounting to T. Shs. 10,477,291,708.20 ofwhich the Government of Tanzania will pay in three staggeredinstallments. The First installment of T. Shs. 3,250,000,000 was paid to TIPER on 5th August, 2005. The liability to TIPER whichwas taken over by the Government as agreed on arbitration had been written back into the books of account for the year ended 30th June, 2005.

2.16 Deferred Tax

The Corporation did not make provision for deferred tax in theaccounts since there are no temporary differences to the extent thatit is probable that taxable profit will be available against which thedeductible temporary difference can be utilized as required by IAS12. Moreover, the Corporation does not intend to sale its houses inthe open market in the near future.

2.17. Group Accounts

No group accounts have been prepared since the Corporation isholding the shares in Songas Limited in trust for the TreasuryRegistrar. There is no effective control of the shares in theconcerned Company.

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NOTE 3.0 PROPERTY, PLANT AND EQUIPMENT

Land andBuilding

T. SHS.

Motor Vehiclesand Machinery

T. SHS.

Furniture,Fittingsand

Equipments

T. SHS.

TOT

T. SH

At 1st July 2003Cost or Valuation 3,073,490,75

01,740,463,038 893,035,702 5,706,9

Accumulated Depreciation 160,003,899 111,206,404 220,836,795 492,04

Net Book amount 2,913,486,851 1,629,256,634 672,198,907 5,214,9

Year ended 30th June, 2004Opening Net Book Amount 2,913,486,85

11,629,256,634 672,198,907 5,214,9

Additions 0 0 36,801,622 36,80Revaluation Surplus/(Loss) 3,906,633,65

4(1,295,703,780) (232,825,22

5)2,378,1

Adjustments 1,305,977,194

0 0 1,305,9

Depreciation Charge for theYear (160,003,899) (103,552,854) (165,780,304) (429,33

Closing Net Book Amount 7,966,093,800

230,000,000 310,395,000 8,506,4

Period ended 30th June,2005Opening Net Book Amount 7,966,093,80

0230,000,000 310,395,000 8,506,4

Adjustment on Land andEquipment

21,691,200 0 0 21,69

Adjustment on AccumulatedDepreciation 7,486,980 0 0 7,48Additions 0 0 77,386,612 77,38Disposals/Transfers (267,785,000) 0 0 (267,78

Depreciation Charge for theYear

(287,886,980) (57,500,000) (33,198,321) (378,58

Closing Net Book Amount 7,439,600,00 172,500,000 354,583,291 7,966,6

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0

NOTE 4.0 SHARES IN OIL COMPANIES

Name ofCompany No. ofShares (At Cost)NominalValue('000)

% 30.06.2005 30.06.2004

T. SHS T. SHS. T. SHS.

TIPER 2,500,000 50,000 50.00 0 78,872,5BP (T) LTD 1,320,000 6,600 50.00 0 206,400,0TAZAMA 3,000,000 30,000 33.33 0 84,714,S0NGAS LTD 30,000 USD3,000 3,292,241,036 450,0

TOTAL 3,292,241,036 370,436,7

The investments in oil companies have been determined on cost basis on the datethe shares were transferred to TPDC on trust by the Treasury Registrar. All sharesheld on trust in BP (T) Limited, TIPER and TAZAMA by the Corporation havenow been returned to the Treasury Registrar as requested. The value of shares had been written off by charging the same to income and expenditure account duringthe period.

NOTE 5.0 TRADE AND OTHER RECEIVABLES

30.06.2005T. SHS.

30.06.2004T. SHS.

Trade Receivables 1,328,989,893 158,694,614Staff Receivables 31,463,583 38,573,893Sundry Receivables 26,600,000 26,600,000Prepayments 184,822,065 106,517,150

1,571,875,541 330,385,657LESS: Provision for Doubtful Debts 26,600,000 0

TOTAL 1,545,275,541 330,385,657

NOTE 6.0 SHARE CAPITAL

Authorized Share Capital

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2,500 Ordinary Shares @ par valueT. Shs. 1,000,000 2,500,000,000 2,500,000,000

Issued and Fully Paid Up Share Capital

2,208,000,0002,208 Ordinary Shares @ par valueT. Shs. 1,000,000 2,208,000,000

The issued and paid up share capital are through conversion of retainedearnings, transfer of ownership in local oil companies and conversion of fundsextended to the Corporation as capital and development grants in 1988. Theshares are held by the Treasury Registrar.

NOTE 7.0 CAPITAL GRANT

The capital grant represents grants received from the Government for theacquisition of equity shareholding in oil companies. As at 30

th June, 2005 the

amount of the grant represents investment in the shares of Songas Limited.

NOTE 8.0 MOTOR VEHICLE LOANS REVOLVING FUND

The motor vehicle loans revolving fund represents a fund set up in 2004/2005to cater for motor vehicle loans to members of staff. Loans are to be given in

accordance with conditions laid down and bear a service charge of 3%.AMotor Vehicle Loans Committees has been set up to administer the grantingof the loans to employees. As at 30th June, 2005 no loans were granted.

NOTE 9.0 REVALUATION RESERVE

30.06.2005T. SHS.

30.06.2004T. SHS.

Revaluation Reserve Brought Forward 5,614,535,945 3,236,431,296Revaluation Surplus/(Loss) (7,952,976) 2,378,104,649

Balance at 30th June 2005 5,606,582,969 5,614,535,945

The revaluation reserve is made up of the excess value over cost resultingfrom the revaluation of fixed assets comprising of buildings, motor vehiclesand machinery and furniture, fittings and equipment which were valued as at30th June, 2004 by professional valuers, the University College of Lands andArchitectural Studies (UCLAS), Dar es Salaam. The revaluation was basedon current market value in respect of buildings and current depreciated

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replacement cost in respect of motor vehicles and machinery and furniture,fittings and equipments. The revaluation reserve is not available fordistribution as dividends.

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NOTE 10.0 TRADE AND OTHER PAYABLES

30.06.2005T. SHS.

30.06.2004T. SHS.

Trade Payables 9,059,476 7,134,865,243Songo Songo Project Fund 43,233,105 44,353,105Provisions for Other Liabilities andCharges 2,358,239,165 70,443,385

TOTAL 2,410,531,746 7,249,661,733

SONGOSONGO PROJECT FUND

The Songo Songo Project Fund was established to raise funds to financeSongo Songo Gas Project. The source of the Fund was a levy of T. Shs.20.00 per litre on all petroleum products. The fund is managed by the

Ministry of Energy and Minerals and was established by Government Orderof 1

st September, 1996. The Funds were initially collected by the

Corporation up to 1997, when thereafter, collection of the funds wastransferred to the Tanzania Revenue Authority. The funds have beentransferred to the Government except for the related cash balance which isheld at Citibank (Tanzania) Limited.

NOTE 11.0 OTHER INCOME

2004/2005

T. SHS.

2003/2004

T. SHS.

House Rent Recoveries 325,378,149 193,999,70Dividends from Associate Companies 792,664,455Interest on Fixed Deposits 78,291 1,277,70Sale of Stores 120,000Refund from Tanzania Revenue Authority 0 1,027,758,32Write off of Provision on Impairment ofReceivables 0 753,468,86Write Back of Liabilities – Mafuta House 0 401,636,06Write Back of Retention Money – Mavji

Construction 0 260,707,44Refund of Insurance Premium 0 95,000,22Adjustment on Subsidy IncomeYear 2003 0 37,847,24Adjustment of PAYE Account 0 8,869,3Gain on Sale of Fixed Asset 58,498,655Income from Sales of Services 248,465,898Miscellaneous Income 10,085,955 14,403,69

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TOTAL 1,435,291,403 2,794,968,6

NOTE 12.0 ADMINISTRATIVE AND ESTABLISHMENT

EXPENSES

2004/2005T. SHS.

2003/2004T. SHS.

Salaries and Wages 1,870,030,067 1,318,854,31Traveling and Conveyance 407,920,335 331,156,66Postage, Telephone and Telex 71,956,197 86,177,38Electricity and Water 46,375,532 36,869,47Repairs and Maintenance 352,322,514 417,316,44Printing, Stationery and Books 71,520,682 89,787,23Rent 30,825,796 16,986,99Rates and Taxes 238,162,465 457,967,67

Insurances and Licences 26,868,320 39,722,11Audit Fees and Expenses 5,340,000 7,920,00Advertisement and Publicity 47,607,621 16,337,07Board Meeting Expenses 123,683,847 115,732,13Provision for Bad and Doubtful Debts 26,600,000Depreciation 378,585,301 429,337,05TOTAL 3,697,798,677 3,364,164,56

NOTE 13.0 FINANCIAL EXPENSES

2004/2005T. SHS.

2003/2004T. SHS.

Bank Charges 8,578,918 9,728,733Interest on Credit Supplies 4,135,090,920 0

TOTAL 4,143,669,838 9,728,733

NOTE 14.0 IMPAIRMENT LOSS ON INVESTMENT

The impairment loss on investment of T. Shs. 369,986,761 represents value of

shares held by the Corporation in TIPER, BP (T) Limited and TAZAMA intrust of the Treasury Registrar. The shares have been handed over to theTreasury Registrar and hence their value written off to profit and loss asimpairment loss on investment.

NOTE 15.0 POST BALANCE SHEET EVENT

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Following Government decision on gas sales revenue beginning July 01, 2005financial year, the entire proceeds from the sale of gas shall be collected andremitted to the Treasury through the Ministry of Energy and Minerals asopposed to being retained by the Corporation as was the case for the currentyear.

NOTE 16.0 COMPARATIVE FIGURES

Previous year's figures have been re-grouped wherever considered necessaryin order to make them comparable with the current year’s figures.

Documents

29th Compiled Annual Report Tpdc