News Column

U.S.$11 Billion Needed for Tanzania Power

August 25, 2014

Tanzania's Power System Master Plan for the years 2012 to 2017 will require short term financing of $11.4 billion.

The blueprint availed to East African Business Week in Dar es Salaam last week shows that in short term it requires $11.4 billion - about $1.9 billion per annum of which 73.5% is for generation.

As in a long run the government has embarked on reforming the Electricity Supply Industry (ESI). It is estimated that the ESI Reform Strategy will be implemented over a period of 11 years and will require about $1.15 billion (equivalent to Tsh1.9 trillion).

This amount would be used for paying Tanesco's debt ($412 million), capacity charges for existing IPPs ($635 million) and other expenses ($101.2 million).

This initiative is the biggest undertaking in electricity sub-sector in Tanzania since the de-specification of Tanzania Electricity Supply Company (Tanesco) from privatization in 2005.

The ESI Reform Strategy and the Roadmap describe the intended reform initiatives and key actions covering the period from 2014 to 2025.

The newly released energy blueprint dubbed Electricity Supply Industry Reform Strategy and Roadmap 2014-2025, shows that the government hopes to increase installed generation capacity from the current 1,583MW to over 10,000MW.

The blueprint shows that nearly 4,000MW will be generated from natural gas and 200MW from geothermal.

"So as to realize these targets, the country requires adequate, reliable, affordable and environmentally friendly electricity supply," the Minister for Energy and Minerals, Prof Sospeter Muhongo said.

As a result, Minister Muhongo said in a blueprint that the installed power capacity must increase from 1,583 MW (April 2014) to at least 10,000 MW by 2025 and transmission and distribution systems expanded.

At present, there are four primary sources of funding for investment in the power sector which are the government, Tanesco, development partners and financial institutions.

For decades, while the government and Tanesco have been the primary financiers with some forms of support from development partners, the projected growth exceeds existing resources.

Economists believe that the immediate availability of these funds could be a challenge as the government depends on taxes as its main source of revenue however its means of collecting revenue still weak.

Therefore, the private capital investment becomes an important option to bridge the financing gap within the context of appropriate controls and balancing the interests of both investors and consumers.

The implementation of the plan will engage the private sector in a shift that will see the financing of power projects move away from government hands.

ESI Reform Strategy aim at meeting the current and future demand for electricity; reducing public expenditure on ESI for operational activities; attracting private capital; and increasing electricity connection and access levels.

The ESI Reform Strategy and the Roadmap have been prepared by the government in consultation with various key stakeholders including the general public, academia, private sector, financial institutions and Development Partners.

The intended major outcomes of the ESI Reform Strategy and the Roadmap include: increased efficiency; quality services and goods; availability of affordable power; satisfaction of the client; satisfaction of the business partners and their shareholders; increased transparency and competition; and abolition of subsidies in the electricity sub-sector.

Tanzania is endowed with diverse forms of energy resources including natural gas, hydro, coal, biomass, geothermal, solar, wind and uranium which have not been optimally utilised. As of May 2014, Tanzania's total installed generation capacity was 1,583 MW composed of hydro 561 MW (35%), natural gas power plants of 527 MW (34%) and liquid fuel power plants of 495 MW (31%).

Tanesco also imports power Uganda (10 MW), Zambia (5 MW) and Kenya (1MW). Due to traditional dependence on hydropower, the droughts that occurred in 2010 resulted in power supply shortages in the country. To bridge the electricity supply gap in the country, in 2011, Tanesco contracted Emergency Power Producers (EPP) which is relatively expensive.

About 24% of the Mainland Tanzanian population is connected with electricity services of which 7% is in rural areas. Demand for electricity is on average growing between 10% and 15% per annum.

To achieve the desired socio-economic transformation, Tanzania aims to increase connection levels to 30% by 2015, 50% by 2025 and more than 75% by 2033.

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Source: AllAfrica

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