MINISTRY OF ENERGY AND MINERALS-TANZANIA

A NEW ERA IN TANZANIA’S ELECTRICITY INDUSTRY

INTRODUCTION

Ladies and Gentlemen, Distinguished members of the audience Yesterday while rushing to the airport I had an unfortunate minor accident which

meant I spent time, valuable time sorting out the incident and as a result I missed my direct flight to Joburg. I would have arrived here in this wonderful city of Cape Town in time for a nice dinner and much deserved rest which I am sure would have significantly improved the quality of my following presentation, if anything just by being awake. These are the experiences of life and maybe next time I will travel to the airport with an escort just in case I have a similar mishap. Nevertheless, notwithstanding the fact that over the past 48 hours I have been traveling in one form of transport or the other for over 30 hours I still would not miss this gala event for the world.

I was in Joburg in March of this year for the Hydro Power Conference where we first learnt of the Power Indaba. I have ever since tried to squeeze it into my very busy schedule and more than anything I am very excited to be among such distinguished individuals in the Power sector, and most of all the African power sector.

In Tanzania we have a saying: it is best to declare your intentions before something suddenly comes by and you’re forced to abandon the initial plans. Under that pretext I wish to thank very sincerely the organizers of this wonderful event for having us.

HISTORY

The first supply of electricity was established by Germans in 1908 at Dar Es Salaam

Electricity power served railway workshops and part of the town In 1920 a colonial government formed Electricity Department under the Tanganyika

Railways In 1931, the government handed over the undertaking at Dar es Salaam, and the

new ones, which had emerged at Dodoma, Tabora and Kigoma to private enterprise and following expanded use of electricity a legislation by the electricity ordinance Cap 131 was put in place.

Two private companies were formed; Tanganyika Electric Supply Company Ltd and Dar es Salaam and District Electric Supply Company LTD

In 1964, three years after independence, the government bought all shares from two private companies and merged them into single utility under TANESCO

Since then, TANESCO started planning new power projects aimed at meeting the increasing industrial, commercial, and residential power demands

Cont’d …HISTORY

The power projects includes Kidatu (204 MW), Kihansi (180 MW), Mtera (80 MW), North Pangani Falls (68 MW) and Nyumba ya Mungu (8 MW) which are connected to the national grid system.

Many isolated diesel power stations and rural electrification schemes have been constructed. However only about 11% of the country’s estimated 38 million have access to reliable electricity.

ENERGY SITUATION IN TANZANIA

The main source of primary energy supply in Tanzania is biomass-based fuels particularly fuel-wood (Charcoal and firewood) which are the main source of energy to both urban and rural areas. Biomass-based fuel account for more than 90% of primary energy supply. Commercial energy sources i.e petroleum and electricity, account for about 8% and 1.2% respectively, of the primary energy used.

THE CURRENT ELECTRICITY SYSTEM

The current installed capacity in 2006 from both TANESCO and IPP assets amounts to about 1288MW

The System is hydropower dependent constituting about 561 MW , or 44% of total installed capacity

Thermal generating capacity forms the rest, mainly from IPP’s

Tanzania along with the sub-Saharan African countries had experienced a prolonged drought (From 2003-2006) and this had depleted the entire hydropower reservoir system

Cont’d.. CURRENT ELECTRICITY SYSTEM

In 2006, the total available electricity in the country reached 3,590 GWh units that consisted of 1,981 GWh (55%) from IPP generation, while hydro contributed 1,436 GWh (40%).

The isolated systems contributed 86 GWh (2.4%) while cross border electricity from Zambia and Uganda amounted to 61 GWh (1.6%).

The thermal plants in the grid contributed about 25 GWh, less than two percent of the total.

INSTITUTIONAL FRAMEWORK

The Energy sector in Tanzania involves the number of stakeholders, both the government and non-governmental institutions within and outside the country.

The degree of their involvement in energy activities varies significantly, ranging from users of energy, production of energy equipment, financiers of energy projects, researchers (R&D) , Non governmental organizations (NGO’s), policy makers and regulation of energy sector

Key players includes Ministry of Energy and Minerals (MEM), Rural Energy Agency (REA), Rural Energy Fund (REF), the Energy and Water Regulatory Authority (EWURA) and Developing partners such as the World Bank, the African Development Bank, the Swedish International Development Agency and the Norwegian Agency for Development

Review of the National Energy Policy

The Energy Policy is the document that charts out Government strategies, plans and commitment in the development of energy sector, in order to foster economic development

The National Energy Policy of the United Republic of Tanzania was

formulated in 1992. A new policy formulated in 2003 depicts the structural changes that occurred over the last decade in the economy, social and political transformations at national and international levels.

Policy Objectives

To ensure the availability of reliable and affordable energy supplies and their use in a rational and sustainable manner in order to support national development goals

Efficiency in energy production, procurement, transportation, distribution and end-use systems in an environmentally sound and sustainable manner.

On the other hand the National Energy Policy is aimed at meeting national development goals of Economic Growth and Poverty Reduction Strategies (MKUKUTA) and to fulfil the ruling party Election Manifesto of 2005.

Policy Challenges

Increased supply and distribution: Generation of electricity is expected to triple during the next twenty years in order to meet the projected increase in demand

Regional interconnection: Regional and international integration of power systems is essential for Tanzania and neighbouring countries to reach the projected economic growth

Rural Electrification: Electricity needs to made available for economic activities in rural areas

Reaching Rural households: Around 80% of the population has low purchasing power and depends mainly on wood-fuel for cooking and kerosene for lighting, which have negative consequences to the environment and the quality of life, especially the rural poor

TANESCO AFTER ECONOMIC LIBERALIZATION

It is impossible to talk about the future of TANESCO without referring to the ten years from 1997.

After 30 years as a public utility TANESCO was put in the market as one of the utilities targeted for privatization, it was expected that offers would rush at the opportunity

What followed: complete paralysis of all forms of expansion (Zero capital expenditure), poor maintenance of structures, paralysis of all forms of development of human resources schemes, decline of entry of new clients and poor service delivery characterized by 24% loss of power.

Management contract was entered with private firm during the transformation period. In 2005 TANESCO was de-specified (pulled of the list for sale)

Cont’d…TANESCO AFTER ECONOMIC LIBERALIZATION

TANESCO not withstanding the fact that has been heavily and continuously subsidized and providing power mostly by hydro sources (Over 85%) which is significantly more economical than thermal, still continuously registers annual operating losses

Over the past 5 years for example, TANESCO has continuously registered losses, offering electricity at rates that are not reflective of costs.

The Regulator (EWURA) has gradually been introducing charges but anything higher will be excessive and inflationary.

CHALLENGES FACING ELECTRICITY SUB-SECTOR

Limited accessibility: It is estimated that only 10% of the population have access to electricity

Low Investment: Investment in generation, transmission and distribution of electricity infrastructure has not been adequate to match the demand.

Dilapidated Electricity Infrastructure: Despite the fact that there is limited investment in electricity infrastructure, also the infrastructure is by and large dilapidated and in dire need of repair

Monopoly: TANESCO has up to now, been the only entity that is allowed to engage in the commercial production, transmission and distribution of electricity. The New Electricity Act has been prepared to address the challenge by ushering in new investors in the sector as Private Public Partnership (PPP)

Highly Hydropower Dependant: Hydro constitutes about 70% of the total generation, there by posing threat during prolonged periods of drought as in 2003-2006

Cont’d CHALLENGES

Electricity must be cost reflective. The alternative is that it becomes a burden on the economy rather than a catalyst for development

Resources allocation and priorities determination is necessarily going to depend on social economic arguments on the issue rather than socio-political

The use of electricity must be perceived in the same vein as for example water, as an agent for poverty eradication in rural areas and it is something cost is incurred so it must be provided for cost-effecivelly

OPPORTUNITIES

Increased Demand: With increased Economic growth as a result of economic liberalization, a demand for power is increasing too

Untapped Hydropower Potential: The potential is about 3181 as opposed to 561 installed capacity. The untapped potential andl capacity includes: Kakono (53 MW), Upper Kihansi (120MW), Mpanga (144MW), Masigira (118 MW), Ruhudji (358 MW), Rumakali (222 MW), Rusumo (62 MW), Songwe (340 MW) and Stigler's Gorge (1200MW)

Huge Potential : Despite hydropower potential, there huge potential in Coal, Gas, Wind and Geothermal. Coal potential includes: Mchuchuma (200 MW), Kiwira (100 MW) and Dar es Salaam (100 MW). Geothermal potential is estimated at 650 MW

A NEW ERA: THE WAY FOWARD

The fiscal year 2007/08 has been eventful year in the Power sector in Tanzania, because various events and issues have significantly brought new changes to the sector, generally considered new dawn in order to address the challenges and take advantage of opportunities:

The Revised Energy Policy: has been formulated to take into account changes in social, political and economical landscape

New Electricity Act: The Energy bill has been presented to the Parliament, once passed into law it will enable to implement the energy policy

Improving Regulatory Framework: A regulator, Energy and Water Regulatory Authority has been introduced

Rural Electrification: The Rural Energy Agency (REA) has been introduced to speed up the process of rural electrification

Power Sector Reform Strategy: The new power sector reform strategy has been introduced to stimulate growth in the sector

Cont’d.. WAY FOWARD

TANESCO together with the government developed a new Power System Master Plan (PSMP) that will guide the next 25 years (Starting 2007) of its development and strengthen its planning capabilities.

The PSMP basic premise taken in energy needs assessment is that it will provide an estimate of needs of the customers and not an estimate of what can be supplied to the customer.

Expansion Planning:- Short term (5 years) the plan will be fixed i.e. any new installations will have been committed. Medium term (6-15 years) the selection of the least cost will give clear indicators on the prioritization of new projects. For the long term the plan can only provide an overview of what resources may be candidates

CONCLUSION

Why am I at IndabaPower?

As a decision maker, public servant burdened with the task of making very hard choices that unavoidably will make a few happy and many more very unhappy, I come to learn from other experiences. I also hope financiers and project developers have been listening, and therefore have taken note of very attractive, juicy investment opportunities in the power sector of Tanzania.

Because of the linkages between power and economic growth , expansion through investment of related sectors I also hope that other investors have been listening as well.

Cont’d.. CONCLUSION

I welcome you all to Tanzania the land of Kilimanjaro, and the Serengeti and Zanzibar, possibly the country with the richest potential for power generation (After DRC) in the Sub-Saharan Africa.

I hope to welcome you to Tanzania in the near future and I thank you for listening.

THE END

THANK YOU!