Businesses: Tanesco unbundling good

Dar es Salaam. The business community has seen the move to unbundle the Tanzania Electric Supply Company (Tanesco) announced recently as the right direction in efforts towards addressing challenges that face the energy sector in Tanzania.

According to an online TanzaniaInvest Weekly Newsletter, the government recently announced that six private companies will replace the current state-owned Tanesco in power generation and transmission by 2022, to reduce the financeable risk in power purchase agreements and improve tariffs’ structures.

The six companies would be established in Tanzania’s Eastern, Northeastern, Northwestern, Central, Southeastern, and South Highlands regions to strategically deliver electricity across the country and support development objectives.

The transition process from the current integrated model with one parastatal organisation alone, to six private companies is part of the electricity generation sub sector unbundling process, which aims at separating the power transmission and distribution segments to ensure competition and cost efficiency.

It is in line with the Electricity Supply Industry Reform Strategy and Roadmap 2014 – 2025 (The Roadmap) published by the Tanzanian Ministry of Energy and Minerals, which seeks to involve the private sector in electricity generation by improving Tanesco’s operational and financial situation to strengthen governance and performance in the energy sector.

With the transition process, Tanzania expects to increase its installed power capacity from the current 1,583 MW to 10,000 MW by 2025 at a total investment of $11.4 billion with equal installments of $1.9 billion per annum.

However, such investment cannot be solely raised by the government and Tanesco’s financial structure is currently being assessed to establish a payments’ plan and payoff its total debts by 2021, when the unbundling process is expected to be completed, stated the newsletter citing commissioner of Energy and Petroleum affairs, Mr Hosea Mbise.

The Confederation of Tanzania Industries (CTI) and Tanzania Private Sector Foundation (TPSF) have expressed their optimism over the move calling it the right direction.

“We see this as the right move considering that we have been calling for the unbundling of Tanesco for a long time now. Tanzania is targeting to become a middle-income country by 2025 and that means even power demand will be higher than now. So, this is timely as it goes hand in hand with strengthening Tanesco’s performance and improving power supply in the country,” says Dr Samuel Nyantahe, the chairman of CTI.

He says the initiative is also in line with public-private partnership and comes when the government was making efforts to increase power generation, especially through natural gas-fired plants.

TPSF executive director Mr Godfrey Simbeye, says unbundling of Tanesco was a long-time cry as it will increase efficiency in the energy sector.

However, he asked the government to create an environment which will allow private investors to participate in the power sector.

“The main challenge is about tariffs. The government normally sets its power prices from independent producers without considering production costs. Usually there are no negotiations and that has been putting off private investors from engaging in the power production,” says Mr Simbeye.

He says, currently the power losses incurred due to inefficiencies may reach up to 40 per cent and therefore unbundling Tanesco will reduce power charges in Tanzania.

There has been a long overdue recommendation to restructure Tanesco so as to retain electricity transmission business under public ownership, to separate distribution and transmission business, move to a wholesale electricity competitive market structure and, finally, to separate supply from distribution to facilitate retail competition.

But, for some unclear reasons, the government has continued to operate Tanesco as a vertically integrated utility.

CTI also recommended unbundling of Tanesco in a Policy Research Paper submitted to energy sector stakeholders in advocacy for ensured reliable electricity supply to Tanzanian manufacturers in July 2011.

The paper stated that Tanesco has been operating with monopoly power that leads to inefficiencies, corruption and poor customer service. The tendencies of power cuts and interruptions, delays in billing customers, slow response to customer complaints, slow connections of electricity, etc. are some indicators of Tanesco’s inefficiencies.

Tanzania’s power supply is characterised with frequent cuts, rationing, shortages and low and fluctuating voltage levels, which in essence entail high production costs to manufacturing firms.

This is because some of them either stop production for a number of hours or the whole day due to unavailability of power, or resort to temporary use of other very costly sources of energy (notably fuel).

Lack of assured electricity supply is one of the major impediments in Tanzania’s investment climate given that investors are so much concerned about the power input in their production processes, both in the contexts of tariffs and supply reliability.

Although the government implemented reforms in the National Energy Policy in 2003 allowing private sector participation in electricity business as a way to ending the Tanesco monopoly, the company still vastly dominates the sector with the core business of generation, transmission and distribution of electricity in the country.

With the growth of the manufacturing sector in Tanzania, it was estimated that the demand for electricity would triple from the level of 14 per cent in 2011 to a higher level of demand by 42 per cent of the population by 2020.

CITIZEN VOICES

Salum Mtolela

Tanzania’s tax system normally hits hard on traders. Look at the taxes charged to a car imported from either Japan or China. It’s normally the same as the buying price of the car. The same applies to goods imported from even Zanzibar…charges are sometimes higher than the value of the goods. I think they overcharge us so that we opt for corruption. The government should create a conducive environment for taxation and control corruption.

Pius Makundi

There is no country in the world that has done everything to develop things like industries without the participation of the private sector from within and outside the country. For a country to grow economically, it should create a friendly environment for both local and foreign investors by offering reliable power supply; strong infrastructure like roads etc; having an effective anti-corruption legal framework; and reducing taxation cost on the business community. I believe if all these are effectively placed in the country, Tanzania will be a safe place for investors.