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Building a case for investment in Tanzania’s energy sector
Songas Ubungo Power Plant. PHOTO | COURTESY
What you need to know:
- Tanesco and the government could build solid business cases for power uptake to alleviate the risks that private investors have and even eliminate the need for sovereign guarantees by providing alternative means
About a year ago, I had the pleasure of meeting with the leadership of the East African Crude Oil Pipeline Project (EACOP) in their office at Masaki in Dar es Salaam. They explained what they intended to do and the challenges they were facing. I had the opportunity to ask pertinent questions about EACOP, including why the project faced so much resistance in Europe and not in East Africa.
While they were taking me through a step-by-step map of their planned 1,443 km pipeline running from the Lake Albert basin in Uganda to the port of Tanga in Tanzania, I noticed something curious. The crude oil from Uganda is waxy which solidifies at room temperature and needs to be heated for transportation. That process is mission-critical and requires highly reliable power sources. So, when I observed that in EACOP’s Tanzanian network, they planned for at least two power plants to support their infrastructure while there were none in Uganda, I felt that they needed some power redundancy, but still, I had to ask. The answer was that they had to build those plants to generate – if my memory serves me right – a total of 600MW (half for EACOP, half to be injected into the Tanzanian grid) because, unlike Uganda, Tanesco could not supply power to EACOP before 2026.
I had been writing about Tanzania’s energy sector for a while before that. I went as far as to argue that energy was the most critical developmental need for Tanzania then and still is now. I have been arguing that the true demand for electricity is far beyond what is admitted by government officials. Unfortunately, we keep equating what we offer to subscribers with demand, thus lying to the public and ourselves. I am not sure where we find that definition of demand – but I know that economists will have much to say about that. All said and done, here I was, unexpectedly, witnessing again the failure of our government to provide power to prospective clients because there was no power to supply and no grid for transmission then.
I have seen that scenario repeating itself over and over. I am informed of planned industrial parks in Kigamboni, Kibaha, Bagamoyo, and Kisarawe all waiting for energy to be sufficient for them to take off. If only this story were to be told in greater detail for Tanzanians to see how much they lose thanks to the mismanagement of the power sector, the political cost would be quite high. Yet, we could have easily engaged the private sector to develop power plants for us – at no cost to us whatsoever.
In the past two weeks, we have reviewed the challenges that exist in engaging the private sector in power generation in Tanzania, highlighting issues such as sovereign guarantees, bureaucratic red-tape, and regulatory challenges. But those issues aside, I think Tanesco and the government could build solid business cases for power uptake to alleviate the risks that private investors have and even eliminate the need for sovereign guarantees by providing alternative means.
The Lake Victoria region, home to Mwanza, one of the world’s fastest-growing cities, faces a surging need for reliable power. This densely populated region, encompassing over a third of Tanzania’s population, experiences a multiplying demand with every new development. Existing factories and mines struggle with unreliable or limited power, hindering their full potential. The story doesn’t end there. Many projects – even as I am writing these articles readers share more information – await the potential unlocked by reliable power. Hundreds of megawatts are needed to meet their needs, and reliable power would readily translate to increased consumption, thus unlocking economic growth and improved livelihoods in the region.
If the government is to develop all these cases, it is possible to forecast and guarantee power demand that a prospective investor would be interested in. This is crucial for the development of multiple and diverse sources of power. If – say 60 percent of the power generated can go to serve existing demand and the rest can be injected into the grid for uses elsewhere, most investors would find that to be reasonable and managing them would be effective.
This approach requires proactivity in business development. We need power. We know about our latent demand. But that may not always be enough for some investors. We need to engage other investors to mobilise their resources to make use of the power generated. All of that is the function of the government of the day.
In conclusion, Tanzania’s energy sector is a bottleneck, hindering development and stalling potential. We can no longer afford self-deception – the gap between current supply and true demand is vast. The solution lies not just in attracting private investment, but in actively building compelling business cases for them. By leveraging the potential of the power-hungry regions such as Mwanza, utilising existing infrastructure, and fostering collaboration with diverse stakeholders such as TIC and EPZA, Tanzania can offer investors guaranteed returns. This requires a proactive approach by Tanesco and the government. By showcasing long-term benefits and mitigating risks through innovative solutions, Tanzania can ignite the spark needed to power a brighter future.
