Interviewer Director General of the Energy and Water Regulatory Authority

TanzaniaInvest spoke with Mr. Haruna Masebu, Director General of the Energy and Water Regulatory Authority (EWURA). TanzaniaInvest and Mr. Masebu discussed the current state of electrification and water supply in Tanzania, electricity rates, solar energy, water supply and the role of private investment in the sector. TI: Tanzania has experienced shortages of electricity for years, which has affected investment in the industrial sector. What is the current situation? How far are we from providing 100% of electrical needs and can we keep up with the continuous need for more electricity? HM: For years we were reaching about 14% of demand, and now we are at about 21% and the government of Tanzania estimates we will reach 30% by 2016. Supply has been low because Tanzania is a vast country with high population density around the boarders, but low density in the center. You have to go great distances to bring electricity to the dense areas. Other countries in East Africa are much smaller and it's therefore easier to distribute electricity. Also, we have just recently been venturing into gas and cheaper forms of electricity. We've used hydro in the past, but have also suffered from droughts. With all of the new gas discoveries, chances are we will be able to roll out more electrification. For years we were reaching about 14% of demand, and now we are at about 21% and the government of Tanzania estimates we will reach 30% by 2016. For years we were reaching about 14% of demand, and now we are at about 21% and the government of Tanzania estimates we will reach 30% by 2016. The population of Tanzania without access to electricity is immense. The demand is immense. Even those who have electricity have issues with reliability, but it's more reliable now than it was even two years ago. We used to only have one electricity producer, the Tanzania Electric Supply Company Limited – TANESCO -, but now there are many private electricity producers who are happy with the investment environment here. TI: It is estimated that it will take seven to ten years for gas from recent discoveries to be available in Tanzania, so how will the gap be filled between now and then? HM: The gas that will be extracted over the next two years is enough to jump electrification up to 50%. The gas that will take a long time to reach us is that which has been discovered offshore. But the onshore gas we are discovering is able to jump electricity for quite some time- we won't have to wait many years Now there is a move towards building power plants and transmission systems, and to link Tanzania to the north so we can get electricity from others countries such as Ethiopia or any other countries with a surplus. We also want to link the south to Congo for electricity. I am confident that within the next five years we will be able to meet the growing demand; not 100% but enough to meet the needs of many more people. The gas that will be extracted over the next two years is enough to jump electrification up to 50%. The gas that will be extracted over the next two years is enough to jump electrification up to 50%. TI: EWURA regulates the price of electricity, which is always a topic up for discussion. TANESCO is expected to further increase electricity tariffs for 2014. If we consider this from a global perspective, is the cost of electricity in Tanzania adequate for the population as well as investors looking to get involved in this sector? HM: The law says we should make a cost reflective tariff that compensates investors for their returns. Our goal is to come up with a tariff that meets that objective. Currently the rate is about 14 cents USD per kilowatt-hour, which compares favorably to rates in other countries. It's about 20 cents USD in Rwanda and Uganda, and 18 in Kenya. Also we don't use cheap sources of electricity like coal, which is used in South Africa or hydro in Ethiopia. We don't use coal because it's only cheap when found in abundance. If you have to ship it, then it's not cheap anymore. Out electricity rates may be higher than those of the Southern African Countries, but in East Africa we are the cheapest. Affordability of electricity is relative. Compared to income that many people have, it is expensive but it's still cheaper for an individual or family than alternative energy sources like charcoal. If you look at the proportion of money a person spends on electricity in relation to total income, it's still within acceptable levels of 4% to 10% of the income of a normal middle-income person. Also, people won't just stop using electricity because the alternatives are too expensive. Tanzania is a place where the rates are low enough for the population to purchase the electricity and high enough for investors to make money. The current tariff is good for investors, but not punitive to the client. TI: What sort of role can solar power play in electrifying Tanzania? HM: Solar power cost is about 28 cents USD per kilowatt-hour. This is the rate at which investors will see a return on their investment. Solar power is expensive, but the rates are going down. Ten years ago it was 40 cents USD so over time solar will be a viable commodity in the mix. There are no subsidies on solar in Tanzania though, so that's why the contribution of solar to renewable energy is small. At some stage it would be good to subsidize solar, but currently there is no real interest from the government. However it could be that they are reviewing policies that were put in place in countries like Germany or South Africa where solar subsidies make solar electricity very cheap. TI: In additional to electricity, EWURA also oversees water supply. A recent World Bank Report estimates that by 2050 Tanzania could be the 5th most populated country on earth. All of these people will need access to clean water. What is the expected role of private investors? HM: There is a need for private sector involvement, but the public sector has been doing a good job supplying to urban areas. The private sector contributes to water supplies at the household level in rural areas, but in urban areas it's really the public sector that supplies water. 88% of the urban population has access to water, and in some towns like Moshi, Arusha, Tanga and Mwanza access to water meets the highest of standards and is available for most of the day and it is billed correctly. These are towns where the government used a lot of donor finances, which is what they will soon do for Dar es Salaam. Over the next two years we should see Dar es Salaam having more clean water. Previously, the water sector in Dar es Salaam was privatized into City Water by foreign investors. City Water lasted for two years but didn't accomplish anything so the sector went public again. In that example, the private sector failed, but there is still room for private participation. Currently there are special interest investors from Israel who want to do desalination in Dar es Salaam. Negotiations are still in the early stages, but this will allow companies to come, invest and sell water to utilities companies. TI: What are the most pressing issues for which Tanzania needs investors? HM: Apart from electricity and water, which I've already discussed, I believe we need investments in a pipeline and infrastructure to better connect us other East African nations and the Congo so we can transport fuel. These countries will likely rely on us for fuel. So if we can develop a good pipeline to transfer oil and gas, it will be a moneymaker. If you look at the proportion of money a person spends on electricity in relation to total income, it's still within acceptable levels of 4% to 10% of the income of a normal middle-income person. Also, people won't just stop using electricity because the alternatives are too expensive. If you look at the proportion of money a person spends on electricity in relation to total income, it's still within acceptable levels of 4% to 10% of the income of a normal middle-income person. Also, people won't just stop using electricity because the alternatives are too expensive. Reserves and storage facilities would also be moneymakers because Tanzania as well as other countries could utilize them for storing petroleum. TI: If you had to explain in few words to a foreigner what Tanzania is all about, what would you say? HM: Tanzania is emerging in Africa. Each continent has had its time. Asia has developed so fast that most of the countries are at the same level as the rest of the developed world. Now it's Africa's time and Tanzania is the place to be at, as we continue with our high growth potential.