16 June 2014

Tanzania: Is Tanzania Stepping Into Energy Trap?

Photo: Trygve Bolstad/UN
Natural gas pipeline.


Arusha — The need for good decision-making in the management of natural resource wealth is exceptionally important.

The damage caused by bad decisions can become a burden for future generations to come.

This observation was made in mid-January, this year, by a Ugandan State Minister for Finance, Planning and Economic Development (Privatization) Aston P. Kajara, when addressing a workshop on fiscal management of oil and gas, jointly organized by the East African Community (EAC) Secretariat and the International Monetary Fund (IMF) at Arusha.

On the ground, this raises the question of forging a common East African strategy, particularly in view of the influx of multi-nationals in the region for the business.

In this aspect, one would wish the words of Minister Kajara could be played back to decision makers in Tanzania, where there is evident need for addressing and mitigating challenges that either delay or become impediments to enabling the people and economy realize full benefits across the whole value chain of oil and gas production and sale.

On the whole, Tanzania looks risking to lose out. When Members of Parliament boycott debate on energy issues, what united component can the country put forward as its contribution to whatever envisaged regional good practices in the sector?

Recently, opposition camp lawmakers stormed out of Parliament at the very crucial time of passing the 2014/15 budget estimates for the Ministry of Energy and Minerals. Their boycott tangent comprised, among other issues, what was expressed as the non-ending Independent Power Tanzania Limited (IPTL) saga.

Whether by design or default, what has eluded many Tanzanian decision makers in the IPTL case on the whole is the distinction between private and public interest. Indeed, Members of Parliament and, in fact any section of society, including other policy and decision makers, have every right to raise good governance issues. But, whatever course of action is adopted, it must take Kajara's caution into consideration-failure of which, the people and the national economy suffer.

The Tanzania picture is such that in September last year, the High Court issued an order that it was in the interest of all stakeholders, including the public, to convert the IPTL power plant on the outskirts of Dar es Salaam to natural gas firing in order to reduce the company's tariff to TANESCO from the current rate of between US cents 45/kWh and UScCents 55/kWh to between US cents 6/kWh and US cents 8/kWh and to expand the plant capacity to about 500MW. The State House, in fact, had seen the usefulness of this move and blessed it much earlier.

A gas pipeline reached the IPTL plant, ready for the conversion exercise way back in 2003, but valves have since remained closed. Other customers started using the facility in 2004. IPTL has remained the odd customer out, leading to the national economy continuing to bear the unnecessary tariff burden.

In the meantime, legal attempts have been made supposedly in the national interest suggesting that converting the IPTL plant to gas firing would be uneconomical to TANESCO because it would lead to higher tariffs.

Tanzania's Energy and Minerals Minister Prof. Sospeter Muhongo, has taken interest in making the IPTL issue come to an end without success so far. Some stakeholders have filed an appeal with the Administrator General (AG) to step in while others are seeking further action through national and international judicial systems.

In between, the Tanzania economy suffers, putting to the fore exactly what the Uganda Privatization State Minister warned against about six months ago at the EAC headquarters, Arusha.

But, the question remains. Namely, what does Tanzania stand to gain in mulling over converting the Tegeta IPTL plant to gas firing if that leads to such a big reduction in electricity costs?

In whose interests are the costs being kept high -- even in the event where the IPTL itself stands for the gas firing option?

From the fiscal management point of view raised by Uganda State Minister for Privatization Kajara, Tanzania decision makers in the energy sector must have second thoughts on the whole value chain of oil and gas production and sale.

In the case of IPTL electricity, for example, what makes them have a different perception from that of the State House and the High Court? Positive fiscal management decisions can also dawn on the Tanzania energy sector as is the experience with Kenya and Uganda.

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