The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, May 20, 2015, a loan of US $70.5 million to finance the Tanzania Power Sector Reform and Governance Support Programme (PSRGSP). The objective of the operation is to promote inclusive growth and enhanced economic competitiveness through power sector, economic and financial governance reforms. The loan agreement will be signed next week, on the margins of the Bank's Annual Meetings in Abidjan. By providing financial resources to the national budget for fiscal year 2014/15, the loan will support the implementation of the government's reform agenda.

This operation is part of a US $140 million loan in a three-year programmatic series (for 2014/15-2016/17). Subsequent operations of US $35 million will be prepared each for 2015/16 and 2016/17 fiscal years.

By supporting Tanzania Government's reform agenda in the energy sector, the PSRGSP will boost efforts to implement energy sector and related PFM reforms, particularly (i) strengthening the institutional framework and operational efficiency of the power sector; (ii) enhancing competition and private sector participation in the power sector; and (iii) improving governance through PFM reforms, with emphasis on strengthening procurement systems and debt management, to help reduce fiscal risks posed by parastatals.

"Ensuring financial and operational sustainability, particularly in respect of TANESCO (the national power utility) is one of the hallmarks of the proposed operation, and the approach is two-fold: support cost-cutting and revenue-enhancing measures," Jacob Mukete, Director of the Governance, Economic and Financial Management Department, said.

The PSRGSP operation is critical to improving the performance of Tanzania's power sector, with direct impact on improving access to electricity, maintaining macroeconomic stability, poverty alleviation, economic competitiveness and private sector development

This operation is built on the previous US $58.2 million budget support operation approved by the Board in December 2013, which supported the development of the Electricity Supply Industry Reform Strategy and Roadmap. Through the Institutional Support Projects for Good Governance I and II, the Bank is also supporting important PFM reforms, including in the areas of audit, procurement and anti-corruption, which underpin this operation.

The Bank's management reiterated the importance of policy dialogue between the Bank, other development partners and the Government of Tanzania in the energy sector.

While recognizing the urgency of improving the financial sustainability of the energy sector, the Bank's President, Donald Kaberuka, underscored the importance of supporting African countries to develop a comprehensive energy subsidy strategy, including social safety nets for those most vulnerable to the impacts of these reforms.