Tanesco is bound to make losses, CAG report shows
What you need to know:
The CAG says Tanesco buys power at Sh544.65 per unit and sells it at Sh279.35 to customers, leading to a loss of Sh265.30 per unit
Dar es Salaam. Three months since President John Magufuli blocked the hiking of power tariffs, the Controller and Auditor General (CAG), Prof Mussa Asad, yesterday warned that current charges were costly to the state-run power firm, Tanesco.
The CAG tabled his 2015/16 financial year audit report in Parliament and noted, among other issues, that Tanesco had a huge accumulation of debts in form of capacity and energy charges from five Independent Power Producers (IPPs)/Emergency Power Producers (EPPs).
Tanesco buys power at an average price of Sh544.65 per unit and sells it at Sh279.35 to customers leading to a loss of Sh265.30 per unit.
“More efforts are needed to rescue it by replacing the expensive sources of power with cheaper ones, including hydropower and gas to do away with IPPs/EPPs,” notes Prof Assad in his report.
To improve Tanesco’s efficiency, the CAG recommends that energy charge tariffs approved by the Energy and Water Utilities Regulatory Authority (Ewura) should reflect the actual cost incurred by Tanesco after taking into account all costs related to capacity and energy charges paid to IPPs and EPPs.
“The price also should include a margin to allow the company meet its other operational costs and additional investment costs to enhance its sustainability.”
In December, President Magufuli overturned Ewura’s move to increase power tariffs by 8.5 per cent and sacked Tanesco Managing Director Felchesmi Mramba.
Originally, Tanesco proposed an 18.19 per cent tariff increase, noting that the move would increase the firm’s coffers and eventually enable it to undertake multiple development projects.
According to the CAG, a monthly capacity charge paid by Tanesco is $9,750,657 (Sh22 billion) in respect of power purchased from Aggreko, Songas and IPTL plants. Before the suspension of Symbion contract last year, Tanesco was paying $16,357,153 (Sh35 billion).
The alleviate the situation, the CAG recommends two measures to be taken. First, procurement of EPP and IPP projects should be made on a competitive basis to ensure that Tanesco gets IPPs, which are cost effective.
Second, the government should facilitate Tanesco to invest in cheaper sources of power production to avoid energy purchases from expensive sources.
