By In its bid to attract investors who have always been complaining about unreliable power supply as one of the major reasons why they are not investing in Tanzania, the government of Tanzania through its Ministry of Energy and Minerals (MEM) has published an Electricity Supply Industry Reform Strategy and Roadmap for 2014 to 2025.
This comes after the government of Tanzania realizing that project developers are keen to participate and that a multitude of funds are available to support them, however developers encounter the stumbling blocks of non-project financeable risk allocation in power purchase agreements and concerns with tariff structures.
According to a statement issued by Africa Press Organization (APO) on behalf of on behalf of EnergyNet this view was echoed during the Tanzania panel at the Africa Energy Forum in Istanbul in June at which Tanzania Electricity Supplying Company (TANESCO) specifically addressed this point.
“The Roadmap seeks to respond to private sector concerns with its key focal points being TANESCO operational and financial transformation, strengthening of the governance and performance of the sector and attracting private investment,” said in the statement.
The Roadmap has reportedly attracted headlines due to its reference that the proposed reform would involve investment of $11.4 billion ($1.9 billion per annum) of which 73.5 percent is allocated towards generation.
Further, the Roadmap acknowledges that such funds cannot be raised by Government of Tanzania and development funds alone, and therefore private sector involvement is required, particularly in respect of generation. This reference has been accompanied by clear statements of recognition across the government’s energy sector that private sector involvement is required and that such involvement entails credible financial and institutional reform.
Following the recommendations in a series of external consultants’reports, the Roadmap proposes the staged unbundling of TANESCO, provision for TANESCO paying off its current debts, and the retirement of costly emergency power producers (EPPs).
The Roadmap takes the long term view, focusing on an increase in installed power capacity to at least 10,000 MW by 2025, at which point the phased unbundling of TANESCO would be completed. The time periods are broken down into immediate term, short term, medium term and long term. In terms of structure, the electricity sector is set to transition from the current integrated monopoly model through to a single buyer model (with a separate state generation company and distribution companies), and thereafter to a retail competition model which should ensure competition and cost efficiency.
Amongst other reforms is according to the statement to, establishment of a task force to monitor the implementation of the Roadmap, a transition and change management at TANESCO to manage the reform process.
TANESCO’s indebtedness is to be fixed by improvement of debt collection, prepaid revenue collection – the mass roll out of LUKU prepaid meters, including at governmental institutions – and the recent 39.92 percent retail tariff increase to ensure a cost-effective base. This is expected to enable TANESCO to pay its EPP and IPP creditors in the near term, with the further assistance of funds being drawn down through World Bank and AfDB disbursements.
The Roadmap states that Tanzania government will review the existing regulatory framework to create necessary conditions for participation of the private sector.
Under the current legislative framework the agreement is only permitted to guarantee TANESCO’s liabilities in respect of its borrowings; it does not cover unpaid amounts under power purchase agreements.
The Roadmap nods to the diversification of energy sources, and in particular envisages large increases in gas and coal at 3,968MW and 2,900MW of additional capacity respectively. As for renewables, 200MW of wind, 100MW of solar, and 200MW of geothermal are contemplated.
The point was reportdely well made by a renewables developer at the Africa Energy Forum that as many of TANESCO’s problems were caused by the dire effect of climate change on East Africa’s previously predictable rainy seasons curtailing output of hydropower plants – it is right that renewable power is a strong feature of Tanzania’s proposed energy portfolio.
The role of the regulator, EWURA, will be unchanged during the unbundling process except for naturally transitioning its realm of responsibility to cover the proposed unbundled entities and preparing the necessary licensing regime and other documentation to support the Roadmap.