Tanesco to go public, be split into three firms after $1.15b reforms

President Jakaya Kikwete and officials from the Ministry of Energy and Tanesco inspect the Ubungo Power Plant in Dar es Salaam. File 

By ERICK KABENDERA

In Summary

• BLUEPRINT: The government hopes to increase installed generation capacity from the current 1,583MW to over 9,000MW, by expanding sources of electricity.
• Nearly 4,000MW will be generated from natural gas and 200MW from geothermal.
• A state-owned generation company will be established through unbundling from the transmission and distribution segment by December 2017.
• The state generation company will be listed on the Dar es Salaam Stock Exchange, with the government retaining at least 51 per cent shareholding.

The government plans to invest $1.15 billion in the next 11 years to implement its turnaround strategy for the Tanzania Electricity Supply Company, which includes selling part of the utility to the public. At least $412 million of the amount will be used to pay Tanesco’s debts in the immediate term, while $635 million will be used to pay capacity charges for existing independent power producers (IPPs).

 

The strategy — one of the biggest energy reforms in recent years — will involve the private sector in raising the funds. Its full implementation will see at least 75 per cent of Tanzanians connected to electricity.

According to the blueprint, the government hopes to increase installed generation capacity from the current 1,583MW to over 9,000MW, by expanding sources of electricity. Nearly 4,000MW will be generated from natural gas and 200MW from geothermal.

READ: Tanzania to use gas to double its power by 2016

The newly released energy blueprint dubbed Electricity Supply Industry Reform Strategy and Roadmap 2014-2025, shows that the implementation of the plan will engage the private sector in a shift that will see the financing of power projects move away from government hands.

“A state-owned generation company will be established through unbundling from the transmission and distribution segment by December 2017. This is expected to intensify competition in power generation. The state generation company will be listed on the Dar es Salaam Stock Exchange, with the government retaining at least 51 per cent shareholding,” the blueprint reads.

Currently, only 24 per cent of Tanzanians are connected to the grid. In rural areas, only 7 per cent of people have electricity due to low purchasing power. The government aims to increase the connection level to 30 per cent by the end of 2015.

The implementation of the plan, which will start this year, will see the generation function split from transmission and distribution by December 2017, with further plans of listing the three independent companies on the stock market in 2025.

READ: Tanesco launches $14m plan to save energy costs

According to the roadmap, the government will adopt consumer-driven competition under which generators of electricity will compete in selling directly to distributors, retailers and final consumers.

“Generators have access to both transmission and distribution wires based on regulated prices. Trading rules and arrangements are required for both transmission and distribution. Final customers may purchase power from the retailer or directly from a generator,” the document reads.

Transmission companies will be owned by the government and will facilitate the supply of electricity from generators to distributors who will operate as separate companies. The companies, which will either be public owned or private, will sell power to retailers in their territories. This is expected to improve services and lower prices.

Tanzania will be the third country in the region to implement such an unbundling after Kenya and Uganda. Tanzania is looking to learn from Kenya where similar reforms undertaken in 2009 helped the country attract private investors into the geothermal sector and significantly increased access to electricity from 16.1 per cent in 2009 to 29 per cent in 2013.

The report says similar reforms in Uganda helped reduce losses from 38 per cent to 26 per cent.

The government has until next year to establish a taskforce to monitor the implementation of the roadmap and carry out a valuation of Tanesco’s generating, transmission and distribution segments. Furthermore, it will seek to reduce system losses from 19 per cent to 18 per cent by June 2015.