14 July 2008
Tanzania may have to implement another electricity tariff increase later this year to enable power utility, Tanesco, to operate profitably.
Although a substantial 21.7 per cent tariff increase was effected on February 1, 2008, this has been found to fall short of the cost recovery level that was requested by Tanesco.
The upshot is that the state controlled utility will continue to experience operational cash shortfalls, which could reach Tsh50 billion ($28.5 million) in 2008.
The details are contained in minutes of discussions between the government and a mission of the International Monetary Fund that visited the country in March this year.
While it is not anticipated that Tanesco will need subsidies in the current financial year, the government has recommended that the power utility considers cost-cutting measures.
Tanzania must get Tanesco to financial viability if the country is to enjoy a reliable electricity supply.
Last year, Tanesco had applied to electricity industry regulator, EWURA, for a 40 per cent power tariff increase.
It is understood that EWURA has agreed to consider another request for a tariff increase once Tanesco completes a cost of service study and takes measures to reduce non technical losses - notably theft of electricity.
Tanesco is currently reviewing its financial situation in view of EWURA's ruling.
In the meantime, the power utility is using the private emergency power generators to meet intermittent power supply deficits.
Currently, the company is in the process of procuring its own 145MW gas-fired generation capacity.
Despite good rains, the financial situation of Tanesco remains vulnerable, partly because of failure to implement cost reducing measures in its financial recovery plan, including the buy out of IPTL, the conversion of its plant and the refinancing of the Songas expansion. Negotiations with IPTL's main creditors are currently under way.
Tanzania's energy budget has increased steadily in recent years mainly as a result of the emergency power projects, consisting mainly of leased and owned generators funded through the multilateral debt relief initiative from the IMF.
Although the economy has remained strong - averaging 7 per cent during 2001-2007, thereby outpacing the average for sub-Saharan Africa, intrinsic weaknesses have began to emerge lately.
Government expenditure has bloated significantly, financed mainly by a significant broadening of the revenue base and scaled up donor assistance.
This year's budget was written against the background of uncertainties in donor financing. Consequently, the government may this year be forced to borrow more from the domestic market to substitute foreign financing.
The circumstances may force the government to introduce expenditure cuts to cushion the budget from the impact of temporary financing uncertainty.
Secondly, inflation has increased in recent months, mainly reflecting rising global food and fuel prices.
There are also risks that inflationary pressures could spread in an environment of rapid credit expansion.
Still, Tanzania's performance ranks among the best for non-oil exporting countries in sub-Saharan Africa.
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