The story of Tanzania points to the loss encountered by utilities due to their inefficiencies and corruption, a picture for most of African utilities. This has to change

Michael Tichareva

In this – the third article in a series on the subject of clean energy, climate change and poverty reduction, we highlight emerging trends and case studies as reported in the 2015 Africa Progress Report (“APR”) where some African countries can be considered success stories and others failures.

Tanzania is a case in point on failure. The 2015 APR states that Tanzania’s state energy provider, the Tanzania Electric Supply Company (“TANESCO”) has accumulated debts that are so large as to compromise the county’s entire budget, forcing government to undertake painful fiscal adjustments.

In 2012, transfers from the national budget to cover losses amounted to 0.3 percent of GDP.

Non-payment of bills to power providers and other suppliers amounted to another 1 percent of GDP, undermining incentives for private sector investment in the process.

Tanesco’s operations contributed to one of Africa’s largest current account deficits and a deteriorating fiscal deficit, averaging 6.37 percent from 1980 to 2019.

Rising demand and under-investment in maintenance and operations has exacerbated power shortages.

Outages are especially common during the dry season as the water levels fall in reservoirs serving hydropower stations. Reliance on emergency power provision has reinforced underlying economic problems.

In 2013, TANESCO was spending twice as much on emergency provision as it was receiving in revenue, adding to an already large operating deficit.

 

 

The company was forced to borrow US$250 million on commercial terms with a government guarantee. It also received a direct budget transfer of US$220 million, financed by the World Bank and the African Development Bank.

One interesting episode involves allegations over the irregular withdrawal of US$124m from an escrow account jointly held by Tanesco and Power Tanzania Ltd. (IPTL), a company formed under a public-private partnership.

A Parliamentary Public Accounts Committee raised concerns over the acquisition of IPTL from a Malaysian company by a company called Pan Africa Power Solutions, through a British Virgin Islands connection and linkages to a businessman prominent in Kenya.

The parliamentary committee raised concerns over transfers from the escrow account into off-shore funds.

Payments include over US$70 million to one of Tanzania’s richest men.

While several senior political figures were forced to resign, the committee’s investigations ran into a web of offshore accounts with unknown beneficial ownership structures.

Tanzania’s Revenue Authority (TRA) called for Interpol to investigate.

Whatever the precise circumstances and scale of illicit payments, the diversion of resources from an energy system unable to provide reliable power or to reach 7.2 million Tanzanians has been considerable.

The story of Tanzania points to the loss encountered by utilities due to their inefficiencies and corruption, a picture for most of African utilities. This has to change.

 

 

Despite the bleak picture painted on Tanzania, there has been policy shift in a bid to turn things around.

The 2015 APR states that with power demand rising by over 10 percent a year and perennial electricity shortages acting as a brake on growth, Tanzania is reorienting its natural gas priorities.

There is a growing emphasis on developing the country’s huge natural gas reserves in the Ruvuma Basin to supply local industry and create jobs at home.

While foreign investors and several donor governments have been unsympathetic to the policy shift, there has been some initial success.

The Songas gas-to-power project now provides Tanzania with around one-fifth of its grid-based electricity, reducing dependence on imported fuels and seasonal unreliability associated with hydropower.

Around 30 industrial companies receive electricity from Songas that signed a 20-year power purchase agreement with Tanesco in 2004.

The was priced well below the equivalent costs of electricity generated using imported fuel, saving Tanzania a reported US$1.8 billion since it began operation.

The Tanzania story illustrates that it is not impossible to turn things around and take a leadership role.

A more success story painting a much brighter future is the energy transformation in Rwanda where the 2015 APR states that Rwanda put in place ambitious plans to increase power-generation and expand access to electricity through sustained engagement by the country’s leaders.

 

 

Reform of the electricity utility opened the door to wide-ranging investment opportunities. Plans envisage that 70 percent of the population would have access to electricity in a short space of time.

The strategy aims at increasing electricity generation from a range of sources such as hydropower, solar, geothermal, biogas. Total investment requirements for 2013-2017 were estimated at US$845 million a year.

Public financing was to cover around 40 percent of the cost based on public-private partnerships.

Rwanda is one example that most of Africa must follow. Let’s industrialise Africa through clean energy, starting with Zimbabwe.

 

Michael Tichareva is the Managing Director of National Standard Finance Africa and the Executive Chairman of its affiliate, Claxon Actuaries. He can be reached on mtichareva@natstandard.co.za or michael.t@claxonactuaries.com.

 

 

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