INVESTMENT OPPORTUNITIES FOR POWER SECTOR IN TANZANIA

Eng. William G. Mhando,
Managing Director, TANESCO

WELCOME REMARKS

On behalf of the Management and staff of the Tanzania Electric Supply Company Limited (TANESCO), may I extend a warm welcome to all the delegates of the Africa Investment Forum (AIF) to be held in Dar es Salaam, Tanzania from 17^th – 19^th April, 2011.

Tanzania is the destination of the world famous Serengeti National Park, the world wonder Ngorongoro Crater, and Africa’s highest peak, Mount Kilimanjaro.  Do not miss the rare opportunity of seeing these excellent tourist attractions, if you intend to stay longer in our country after the forum is over.

ABOUT TANESCO

The Tanzania Electric Supply Company Limited (TANESCO) is a vertically integrated utility which was established in 1964 under the Ministry of Energy and Minerals (MEM).

It is charged with the responsibility for generation, purchase, transmission and distribution of electricity in mainland Tanzania as well as bulk supply of electricity to Zanzibar where the distribution is undertaken by the Zanzibar Electricity Corporation (ZECO).

The Company employs about 5,700 workers who are engaged in various activities from generation to selling electricity in mainland Tanzania.

TANESCO operates a relatively small electricity utility although the demand for electric power has been increasing at a fast rate, despite load shedding.

The installed generating capacity by the end of March, this year, was only 1,007 MW, out of which 561 MW is hydro based generation and remaining 446 MW is thermal generation (natural gas and diesel).

Due to a significant drop in water inflows into the hydropower stations, the available generation capacity has been reduced to about 630 MW while the peak demand stands at 833 MW.  This has created a shortage of about 203 MW, hence necessitating the ongoing power rationing exercise, instituted in all the regions connected to the national grid network.

ACCESS TO ELECTRICITY

While electricity is an important source of modern energy for economic activities, only about 14 per cent of the Tanzanian population of more than 40 million people had access to grid electricity, by 2008.  Only 26 percent of sub Saharan Africa’s population had access to electricity by 2010.

Biomass fuels such as firewood and charcoal are the principal sources of energy for about 86 percent of the Tanzanian population.

People who live in rural areas greatly depend on these fuels, mostly for cooking, heating and business purposes at the household level and village community activities.  It is the same for the urban poor.  In Africa, more than 500 million people make their living without access to electricity.  Globally approximately two billion people have no access to modern energy services.

ABUNDANT NATURAL RESOURCES

Although a large portion of Tanzania remains un-electrified, the vast reserves of indigenous energy resources including water, natural gas, coal, wind, solar, ocean waves, uranium and even geo-thermal energy could meet the ever growing demands of the power sector for many years to come, and to export electricity to neighbouring countries.

Tanzania and indeed the African continent require significant investment over the next 20 years to meet the growing electricity demand.  The annual demand growth at present is between 8-12 percent compared to 4-5 percent between 1990 and 1999.

It is estimated that the Southern Africa region alone, require about 55,000 MW of electricity by year 2025 to reach its economic and social objectives.

The African continent is in the fortunate situation that it has abundant indigenous energy resources that can be turned into modern energy services, yet these have not been sufficiently tapped.

Let us cite a few examples.  If you take Africa’s total hydropower potential is about 1,100,000 GWh.  However, only approximately 7.0 per cent of this potential has been developed todate.  Key rivers such as the Congo, Zambezi, Nile and Niger could provide a solution to Africa’s power problems.

In Tanzania, hydropower potential is mainly concentrated in south-western parts of the country and in the Rufiji River basin.  The potential is estimated to be 4,800 MW with an annual firm energy capability of about 20,000 GWh.  Stiegler’s Gorge in Rufiji River basin has a potential of over 1,400 MW.

Coal reserves have been found in Western and Southwestern Tanzania.  These reserves have a potential for generating about 3,000 MW of electricity.  The coals are generally classed as bituminous, with high ash and low sulfur contents.

Recent geological surveys have proved that Tanzania is among countries in the sub Saharan region with large potential for geothermal energy that is estimated at 650 MW.

Globally, wind has proven to be the most economically viable form of renewable energy.  With a total of 150,000 MW of installed power globally at the end of 2009, it is unfortunate Africa has only tapped 683 MW (0.43%) out of which Tanzania can boast of none.  Most of the wind farms are located in Egypt, Tunisia and Morocco.

Wind power energy is plenty in Tanzania especially at Singida and Makambako, and recent studies have indicated a potential of over 500 MW, which alongside solar and geothermal could be developed to accelerate rural electrification.  The cost of electricity for wind energy has decreased substantially over past decades as the quality of wind turbines increased in the market.

WHY TANZANIA AND TANESCO SHOULD BECOME YOUR INVESTMENT PARTNER

Tanzania is not only a beautiful country, or rather a tourist paradise, it is indeed a country that it politically stable and peaceful.  As such it is enjoying quite fast rate of economic development that is including a high demand for electricity.

It is in fact a centre of economic and political stability in sub-Saharan Africa.  There are no political risks involved in financing power projects in our country.

Developing energy infrastructure on the African continent and especially in Tanzania is widely regarded as one of the key economic growth strategies.  The continent electricity supply industry will require up to 600 billion US dollars of total investment, over the next 20 years.

Private companies, individuals, investment agencies and donor financiers, from all over the world, should invest in Tanzania’s power sector because of the following reasons:-

• Tanzania is faced with power shortages at present.  The continuous demand for electricity due to sustained economic activities has not been matched with supply. 

A long range Power System Master Plan (PSMP) covering the period up to 2025 is in place and forecasts a growing consumer demand.  In order to satisfy the growing demand and a huge electricity market, and have “spinning reserve” (surplus electricity) there is need to commission between 150 MW – 250MW into the power system annually. 

There is strong determination to get out of the current power crisis not only to achieve customer satisfaction but also attract investors.

• The pro-investment attitude of the Government is vividly demonstrated by the legislation of the Tanzania Investment Centre (TIC) which is mandated to provide assistance to all investors and create a positive private sector investment climate, among other objectives.  Investment procedures, taxation, labour regulations and other operating guidelines have been eased considerably in the recent years.

• Energy and Water Utilities Regulatory Authority (EWURA) has also been established to protect the interests of investing companies and individuals who are eyeing the energy and water sectors. EWURA is empowered to approve and enforce tariffs and fees charged by licensees, and award licences to selected prospective investors.

• Tanzania’s power sector has undergone many reforms since the country attained its independence in 1961.  Most of these reforms have sent positive signals to potential investors. They include laying down an Electricity Industry Policy and a National Energy Policy which spelt out new policies in favor of local and international investors, thus abandoning socialist policies which existed hitherto.

• The Electricity Act of 2008, enacted by Parliament of the United Republic of Tanzania, revises the old policies which gave TANESCO a monopoly in the generation, transmission, distribution and supply of electricity.  The Act gives powers to individuals/companies interested to carry out such activities in the electricity sector.  EWURA, under the Act, is authorized to establish systems and procedures to monitor and measure a licensee’s performance and compliance with the Act, and monitor all the market operators, thus removing the monopoly status which TANESCO enjoyed in the past.

• TANESCO is a non operating member of the Southern African Power Pool (SAPP).  SAPP was created in 1995 to provide a forum for regional solutions to electric energy problems.  TANESCO is keen to become an operating member so that when faced with power deficits at home can import from SAPP within the set general tariff guidelines.  This however requires financing of transmission lines between Tanzania and other SAPP members.  SAPP vision is to facilitate the development of a competitive electricity market in the Southern African region.

• TANESCO has a policy of carrying out its projects in an “environmentally friendly manner” to minimize wanton destruction of vegetation, wildlife, fisheries, wild lands and other social economics.  The existence and presence of the rare Kihansi toad is a case pointing out that our company seriously cares about environmental preservation and energy security.

There are many other reasons why TANESCO should become your investment partner.  The service level standards have drastically improved in recent years following the promulgation of the “Customer Service Charter” spelling out obligations of TANESCO to customers, and vice versa.  Safety record is one of the best in East African region.

TANESCO’s present management structure is decentralized but with limited authority left to the zones and hydro plants.  The introduction of Performance Development Programme (PDP) in which targets are set and bonus is given to the best performing team, has raised revenue collection to 96 percent in 2011.

TANESCO was the first utility in East African region to introduce the pre-paid metering system in 1996 and last year the AMR meters for large power users were introduced.

CONCLUSION

The availability of adequate electricity supplies in a developing country like Tanzania is indispensable for the growth of agriculture, energy, tourism, industry and other economic sectors.

It is a prime contributor to the “quality of life” in the household sector.  It is also a prime contributor to industrialization.

TANESCO therefore invites private and international investors as well as donor community to come forward and become partners in power sector development a move which will reduce deforestation, impact on environmental degradation, fight poverty and promote economic growth.

In its new organizational structure TANESCO will have at the highest managerial level a Deputy Managing Director incharge of Investments, who will closely work with potential investors and existing donor financiers, whom we are grateful for their contribution to the power sector over the years.

Our corporate strength however rests in our people, a motivated workforce, who will ensure the available investments are properly utilized for the present and future generations.

Once again, you are welcome to the AIF and I wish you fruitful deliberations.  A list of power projects requiring investment decision can be viewed if you visit our Website: www.tanesco.co.tz, Blog: www.umemeforum.blogspot.com

ENG. WILLIAM GEOFREY MHANDO

MANAGING DIRECTOR

For more details:

Email: info@tanesco.co.tz

Tel:  +255 22 2451130/9

Fax: +255 22 2452026