OPPORTUNITY KNOCKS

Tanzania 2014 | ENERGY | REVIEW: ENERGY

Tanzania's power problems are being dealt with gradually through a combination of public and private investment, but recent developments promise a bright future for the sector.

The government of Tanzania is facing the issue of developing an inherited system that has been unable to keep pace with developments in modern times. Today, less than 21% of the population of Tanzania has access to electricity, and those that do are subject to widespread power shortages. However, the government has announced a development initiative for 2025, which aims to take Tanzania to middle-income status. A crucial element of this strategy is to significantly expand access to electricity. The country's current installed capacity is 1,438.24 MW, and it has a per capita electricity consumption of approximately 46kWh per annum, which is growing by between 11% and 13% annually. “Electricity is essential for growth, and our intention as a ministry and a government by 2015 is to have doubled our installed capacity to 2,780 MW," explained Sospeter M. Muhungo, Minister of Energy and Minerals in conversation with TBY. The Ministry is looking to have at least 3,000 MW of installed capacity within the next three years, and believes that the country needs a minimum annual economic growth rate of 8% to reduce poverty. However, it predicts that it will need closer to 12% growth if it is to become a middle-income country by 2025, and will require a minimum of 10,000 MW in order to achieve its set goals.

The Tanzania Electric Supply Company (TANESCO), a state-owned entity, is responsible for reaching these targets; it is set to undergo restructuring in order to revitalize the electricity sector. Current plans involve dividing the company into three parts in order to deal with generation, transmission, and distribution separately. The generation and distribution sectors will also be opened up to private players, with the former pegged to be most liberal, while the transmission segment will remain in the hands of the state. “By doing this, each unit will have a small area to focus on, which will give them more space to practice what they are suited to," said Felchesmi J. Mramba, Acting Managing Director of TANESCO. To expand the access of electricity to more of the population, the government and TANESCO are also planning to diversify the energy matrix, expand the national grid, and introduce new technologies.

Currently, Tanzania relies heavily on liquid oil; however, the Ministry of Energy and Minerals managed to secure a $1.2 billion loan from Ex-Im Bank of China to build the Mtwara-Dar gas pipeline. At 500 kilometers in length, it will transport gas from the south of the country up to Dar es Salaam. The pipeline should supply enough gas to be able to generate 3,900 MW of electricity. Tanzania is looking to move away from its liquid oil dependency, with gas being the number one priority. The country has recently discovered large reserves of natural gas in the south, and it is looking to capitalize on its natural resources to become self-sufficient in energy terms. The latest estimates put Tanzania's reserves at over 40 trillion cubic feet (tcf), while Minister Muhongo is convinced that this number could reach 100 tcf over the next couple of years, a belief borne out by the September 2013 purchase of three major offshore gas fields by Pavilion Energy, part of Temasek, Singapore's state investment company. The $1.3 billion price tag will hearten Tanzania's government, especially since Statoil has also recently discovered between 4 tcf and 6 tcf, bringing Tanzania's total recoverable resources to between 10 tcf and 13 tcf. Like its neighbor Mozambique, Tanzania is in a prime position to become an important LNG exporter given its enviable position on the Indian Ocean, with direct access to the gas-consuming economies of Asia. In an effort to increase installed capacity, the government signed a public-private partnership (PPP) with the Japan-based Sumitomo Corporation in June 2013 to construct a 240 MW gas-fired power plant, which will greatly contribute to the nation's current 300-350 MW shortfall. The project will cost $414 million and will be based on the outskirts of Dar es Salaam.

While gas has the potential to meet many of the country's domestic needs in addition to providing an income through its exportation, the government wants to develop a diverse energy matrix. Natural gas is going to be the main source, but it will be supported by hydro, coal, and renewable energies. Tanzania has consiiderable hydroelectric potential, with some estimates putting the country's possible total capacity at 5,000 MW. It also has 200 million short tons of coal, which it plans to use increasingly. Kibo Mining runs the Rukwa coal deposit in the south of the country, which has a total metric tonnage of 71.3 million. The project also has a 300 MW coal-fired power plant that Kibo Mining supplies. This is a typical model in Africa as the necessary infrastructure for export is generally lacking. The potential of Tanzania's power plants was highlighted during US President Barack Obama's 2013 visit to the country. The US' “Power Africa" scheme plans to support target countries' energy objectives by supplying $9 billion from the private sector and $7 billion from public funds to boost African power infrastructure. Tanzania will be the first country to benefit from this support. Meanwhile on the other side of the world, Tanzania signed power plant construction contracts worth $1.7 billion with Chinese firms in the autumn of 2013. The agreements mark a major step forward for power generation prospects in the country, and the continuation of a longstanding relationship with Chinese businesses.

Around 80% of Tanzania's population lives in rural areas, and the lack of infrastructure in these provinces is a key reason for the country's low energy access figures. However, the government does have a plan as part of Vision 2025. Instead of connecting every village and town to the national grid, it plans to build renewable energy generators in situ. The first preference is solar power, as the country is blessed with abundant sunshine for most of the year. “With TZS4 million ($2,450), we can electrify a school with eight classrooms. With TZ13 million ($7,960), we can electrify a rural health center using solar technology," TANESCO's Mramba added. The government is not just aiming to use solar power – it also wants to take advantage of its hydro potential; however, it still feels that the right technology needs to be developed. “If a small hydro plant that provides electricity for 3,000 people can be developed, then we can go to other places and build more small hydro facilities," Mramba continued. Realizing these mini-grid projects will greatly reduce the burden on TANESCO.

If TANESCO is successful in it's restructuring, it hopes to encourage more PPPs and private investment in the energy sector, while it also looks to improve efficiency when dealing with the public. As part of that, the build-up to the Global 2013 Smart Partnership Dialogue is also helping to generate ideas on how technology can be leveraged in the sector. Such examples include the introduction of pre-paid meters, making Tanzania only the second country in Africa to implement such a system, after South Africa. Customers are able to top up their credit by M-Pesa and mobile phones, as well as pay bills using an ATM or through a point-of-sale. It has also introduced the semi-smart automatic reading (AMR) meter. These new meters can communicate remotely with the power company, meaning it doesn't have to send people out to take readings. It also allows the companies to connect or disconnect power if the customer hasn't paid their bill.

Tanzania is facing many historical problems when it comes to its energy market; however, its various initiatives provide the opportunity of solving these issues. And with time and investment, the country has the potential to reach its 2025 vision of being a middle-income country and expanding access to electricity.