DAR ES SALAAM, Tanzania, October 27, 2014/African Press Organization (APO)/ — In its recent Investment Policy Review the OECD cited energy in Tanzania as a “critical bottleneck” and that the problem of reliable energy was the top barrier to doing business in Tanzania. This view was echoed during the Tanzania panel at the Africa Energy Forum in Istanbul in June at which TANESCO and EWURA specifically addressed this point. (http://www.energynet.co.uk/fr/event/powering-africa-tanzania)
It’s clear 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. The issue of how to implement structural reform that would result in, rather than undermine, a streamlined project finance structure in Tanzania, providing predictable investment returns for investors and therefore confidence to funders is therefore hugely important to the market.
Against this backdrop, the Ministry of Energy and Minerals (MEM) has published an Electricity Supply Industry Reform Strategy and Roadmap for 2014 to 2025 (the Roadmap). 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. The Roadmap has attracted headlines due to its reference that the proposed reform would involve investment of US$11.4 billion (US$1.9 billion per annum) of which 73.5% is allocated towards generation. Further, the Roadmap acknowledges that such funds cannot be raised by Government of Tanzania (GoT) and development funds alone, and therefore that private sector involvement is required, particularly in respect of generation. This reference has been accompanied by clear statements of recognition across the GoT 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, focussing 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.
We are currently in the immediate term (which expires in June 2015), and during this period can expect to see, amongst other reforms, establishment of a task force to monitor the implementation of the Road Map, a transition and change management team at TANESCO to manage the reform process, ring-fencing of TANESCO into strategic business units, valuation of TANESCO’s assets and liabilities, a human capital needs assessment, retirement of EPPs upon expiry of their contracts and development of a technology based standard power purchase agreement.
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% 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 GoT will review the existing regulatory framework to create necessary conditions for participation of the private sector. Under the current legislative framework GoT is only permitted to guarantee TANESCO’s liabilities in respect of its borrowings; it does not cover unpaid amounts under power purchase agreements. It was anticipated that the Public Private Partnership Act would deal with this, but this remains under development. Until these challenges are addressed and a strong track record for supporting IPPs is realised, developers will need robust additional support from GoT to really push investment forward.
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 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. However, we note that EWURA’s role on the proposed REFIT policy is not specifically mentioned in the Roadmap, and the position of this policy within the energy sector must not be forgotten. The Rural Energy Agency will also continue its role in facilitating installation and maintenance of rural grids and has similarly unveiled its strategy in this respect.
From Norton Rose Fulbright’s engagement with the private sector and stakeholders, what they wish to see going forward are mechanisms to back up the Roadmap, together with a clear statement of mid to long term changes. The Roadmap is encouraging in stating that GoT is committed to ensuring its timely implementation, and also recognises that delays in improving TANESCO’s financial performance would jeopardise reform.
Furthermore the Roadmap’s reference to increased communication and participation by MEM and TANESCO at conferences is encouraging – they were part of a key session at the Africa Energy Forum in Istanbul and indeed it is anticipated that they will have a strong presence at the upcoming EnergyNet Powering Africa: Tanzania meeting this November 13-14 in Dar Es Salaam.
Distributed by the African Press Organization on behalf of EnergyNet Ltd.
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