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Tanzanian energy roadmap to unbundle State co, increase capacity by 2025

27th October 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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The Tanzanian Ministry of Energy and Minerals (MEM) has published an Electricity Supply Industry Reform Strategy and Roadmap for 2014 to 2025, which aims to implement sweeping structural reforms that would streamline project finance structures and liberalise the country’s burgeoning energy sector.

While keen to participate in local energy projects, project developers had historically encountered issues of nonproject financeable risk allocation in power purchase agreements (PPAs) and had expressed concern about tariff structures.

Against this backdrop, the roadmap sought to strengthen the governance and performance of the sector and would likely involve investment of $11.4-billion, or $1.9-billion a year, of which 73.5% was allocated towards energy generation.

The roadmap further acknowledged that such funds could not be raised by the Tanzanian government and development funds alone, and therefore, that private sector involvement was required, particularly in respect of generation.

“This reference has been accompanied by clear statements of recognition across the government energy sector that private sector involvement is required and that such involvement entails credible financial and institutional reform,” African energy industry support firm EnergyNet said in a statement.

Following the recommendations of a series of external consultants’ reports, the roadmap proposed the staged unbundling of State-owned Tanzania Electric Supply Company (Tanesco), provision for Tanesco to pay off its current debts, and the retirement of costly emergency power producers (EPPs).

The roadmap took a 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 were broken down into immediate, short, medium and long term.

In terms of structure, the electricity sector was 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, among other reforms, the establishment of a task force to monitor the implementation of the roadmap; a transition and change management team at Tanesco to manage the reform process; ringfencing 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 PPA,” said the group.

The group’s indebtedness would, meanwhile, be “fixed” through an improvement in debt collection, prepaid revenue collection and the recent 39.92% retail tariff increase to ensure a cost-effective base.

This was expected to enable Tanesco to pay its EPP and independent power producer (IPP) creditors in the near term, with the further assistance of funds being drawn down through World Bank and African Development Bank disbursements.

The roadmap further outlined that the government would review the existing regulatory framework to create necessary conditions for private sector participation.

Under the current legislative framework, the State was only permitted to guarantee Tanesco’s liabilities in respect of its borrowings; it did not cover unpaid amounts under PPAs.

“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 record for supporting IPPs is realised, developers will need robust additional support from government to really push investment forward,” EnergyNet noted.

The roadmap further advocated the diversification of energy sources and, in particular, envisaged large increases in gas- and coal-generated power, at 3 968 MW and 2 900 MW of additional capacity respectively.

As for renewables, 200 MW of wind, 100 MW of solar and 200 MW of geothermal energy were contemplated.

The role of the regulator, the Energy and Water Utilities Regulatory Authority (Ewura), would 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 renewable energy feed-in tariff policy is not specifically mentioned in the roadmap, and the position of this policy within the energy sector must not be forgotten,” said the company.

The Rural Energy Agency would also continue its role in facilitating the installation and maintenance of rural grids and had similarly unveiled its strategy in this respect.

Despite being largely welcomed, there were industry calls for a clear statement of medium- to long-term changes.

“The roadmap is encouraging in stating that the government is committed to ensuring its timely implementation, and also recognises that delays in improving Tanesco’s financial performance would jeopardise reform,” EnergyNet concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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