21 January 2014

Tanzania: Energy Sector Reform - Setting New Goals to Beat Challenges

ONE of the biggest obstacles standing in the way of African economic growth and investment is electricity supply, which, in one way or another, affects almost every country on the continent.

The power crisis is exacerbated by drought, high petroleum prices, damage to infrastructure through wars, rapid demand growth, insufficient investment in maintenance and refurbishment and a lack of skills in the sector.

According to Africa Development Bank, the entire installed generation capacity of Africa's 48 Sub-Saharan countries is just 68 gigawatts, no more than Spain's.

"As much as onequarter of that capacity is unavailable because of aging plants and poor maintenance," notes the bank in its brief on power sector in Africa. It adds, in Sub-Saharan Africa, just one person in five has access to electricity.

If current trends continue, fewer than 40 per cent of African countries will reach universal access to electricity by 2050. It further notes that per capita consumption of electricity in Sub-Saharan Africa (excluding South Africa) averages only 124 kilowatt-hours a year and is falling.

"The rate of consumption is barely 1 per cent of that in high-income countries. If entirely allocated to household lighting, it would hardly be enough to power one light bulb per person for six hours a day," it notes.

It says that more than 30 African countries are now experiencing power shortages and regular interruptions in service, leading many to rely on very costly leased generating plants as an emergency stopgap.

The Bank notes that frequent power outages mean big losses in forgone sales and damaged equipment--6 per cent of turnover on average for formal enterprises and as much as 16 per cent of turnover for informal enterprises unable to provide their own backstop generation.

"The economic cost of power shortages can amount to more than 2 per cent of gross domestic product. For some countries, it has shaved as much as one-quarter of a percentage point off annual per capita GDP growth rates, " it notes. While the picture is far from rosy, it is not all doom and gloom.

Through a Power Sector Reform and Regulation in Tanzania breakfast briefing in Dar es Salaam next month organized by Kibuuka Law Chambers, the organizer and Managing Partner at the firm, Paul Kibuuka says that there are signs that things are beginning to change.

He says many African countries have started on power sector reforms to reduce the dependence on state-owned utilities and to encourage private sector investment and Independent Power Projects (IPPs). He notes that South Africa and Nigeria launched successful renewable energy IPP programmes, which have shown significant improvements.

Some African countries have begun unbundling stateowned utilities. "It is a crucial time in the industry in Tanzania which is why, understanding these challenges and the far-reaching changes that infrastructure utilities are facing around Africa has become imperative for industry leaders, government officials, economists, financial experts and all those working in the energy industry field," says Mr Kiibuka.

Next month, the firm will be working to enhance knowledge and boost capacity to manage the reform and regulation of the electricity sector in support of sustainable development. The briefing will expose participants to the frontiers of international experience, to best practices in Africa, in managing the challenges facing the electricity industry in Tanzania.

These include the restructuring of state-owned TANESCO to improve performance and private sector participation as well as the involvement of IPPs.

"Across Africa and elsewhere in the world, new regulatory regimes are being put in place and reformed utilities need to deliver expanded and affordable services for the poor, while underpinning and supporting economic growth," says Mr Kibuuka "There is a strong emphasis on participants applying lessons to Tanzania's context, to encourage the government to continue thinking about our own state-owned power utility.

The breakfast briefing will also look at ways to accelerate investment in renewable energy. "We have a good example in South Africa. After years of Eskom dominating the industry, government ran a competitive tender process for renewable energy power to feed into the grid."

"It has been an enormous success, with more than 2 400MW being contracted from 47 companies. All of these new wind and solar projects have started construction, representing a huge amount of private investment.

Mr Kibuuka notes that there is a need in Tanzania to understand how these deals are structured, how risk is assessed, procurement is undertaken and finance arranged so that they may be replicated.

"In the briefing, we bring people up to speed on where we are in the reform process in Tanzania so they have the insights and intelligence tools to make changes. If they operate in a utility, they understand better how it works, if they are from government, they learn how to manage reform and if they are regulators, they learn how to best regulate," adds the legal expert.

The Power Sector Reform and Regulation in Tanzania breakfast briefing is designed to help Tanzania capitalize on opportunities in the power sector. In addition, new smart metering and grid management present a range of potential benefits for African utilities grappling with the need to expand their grids on restricted budgets.

Aiming to address the challenges and analyse the trends, high-level panels and expert speakers will examine power policies, strategies and technologies in dedicated tracks. According to a policy brief by Economic and Social Research Bureau(ESRF), Tanzania is fortunate:

It can build on other countries' experiences to get the legislative, regulatory and policy framework right (OPM Workshop report, August 2013), but Tanzania should not be shy also build requisite capacity for participating strategically in the entire value chain of the gas industry.

Fittingly, the Government has defined a draft road map to guide activities in the natural gas sector in the future, in order to develop a robust natural gas industry, says the ESRF Brief.

"The key objectives in the short term, include launching the Gas Policy, Gas Act, Gas Master Plan, Institutional Reforms, Capacity Building, Security Enhancement, Management of Public Expectations, Gas Revenue Fund, Improving CSR strategies and Gas Pricing," it notes.

In the Medium term, the strategy addresses developing facilities for handling deep sea gas, creating efficient domestic market, launching intensive communication strategy countrywide and reviewing the fiscal regime.

The long term strategy will address participation of Tanzanians for enhancing reliability of natural gas supply, optimization of natural gas usage and promoting PPP (Private Public Partnership) in natural gas investments.

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