Summary
· Tanzania requires $30 billion for power generation in the next 20 years, and this money could be better allocated to other development needs if companies like Songas are given the chance to invest in power generation while Tanesco focuses on transmission and distribution
In the 1990s, Tanzania heavily
relied on hydropower for electricity generation, but due to drought, poor
maintenance, and mismanagement, frequent power outages became a common issue.
To address this, experts proposed utilising natural gas discovered off Songo
Songo island as a cost-effective and reliable solution.
Also Read: Why Bunge team does not want
Tanzania to renew Songas deals
To achieve that, the government
initiated a public tender in 1993, seeking a private investor to develop the
project. The chosen model was a public-private partnership (PPP), considering
funding limitations and the belief that private actors would be more invested
in the project’s success.
That is what led to the
establishment of Songas through the consortium that won the tender.
During that time, Tanzania faced
further challenges with power rationing in 1994, prompting the government to
engage in fast-tracked negotiations and procure a $163 million 100 MW
diesel-based power project from Independent Power Tanzania Ltd (IPTL). The
subsequent events and consequences of this decision have been extensively
discussed in academic works. Notably, the IPTL deal was inflated, legal
disputes caused delays in both Songas and IPTL projects, and to add credibility
to IPTL, the government announced the signing of both IPTL and Songas deals on
the same day.
Once the legal requirements were
fulfilled, Songas successfully completed the pipeline construction in May 2004,
and commercial operations commenced in July 2004 with a 20-year contract in
place. In addition to powering the Songas plant, which accounted for a
significant portion of Tanzania’s electricity production, gas from Songo Songo
also served three Tanesco plants and Twiga Cement Factory, resulting in
substantial cost savings of $5 billion by 2015, according to TPDC.
By 2015, Songas generated 23 percent
of Tanzania’s power while contributing only 8 percent to the overall cost. In
contrast, IPTL generated 11 percent of power but accounted for a staggering 25
percent of the total cost. This unsustainable arrangement placed Tanesco under
severe financial strain to sustain the IPTL deal, while Songas proved to be a
far more efficient and cost-effective solution.
Why is this historical background
relevant? Many people tend to associate Songas with the infamous IPTL,
Richmond, and Symbion deals. I, too, used to hold that belief. However, to
truly understand why Tanzania has struggled with energy scarcity, we must
examine our history.
Now, a more pressing issue arises.
By 2024, Songas’ contract with Tanesco will come to an end. Despite Songas’
efforts to secure a contract extension, the government has been indecisive for
a considerable period. I have been aware of this fact for at least a year and a
half, and it leaves me wondering: why the hesitation when Songas has been a
significant asset to Tanzania’s energy sector?
A few months ago, I had a meeting
with the President of Akuo Africa, a power company that previously won a
Tanesco tender, only for it to be unexpectedly withdrawn. I sought to
understand the thought process of our officials, so I asked about Tanesco’s
required unit power cost. Akuo informed me that Tanesco’s target was 4.5 US
cents per unit, encompassing running costs and capacity charges.
This point is worth noting. Power
generation has been Tanesco’s greatest challenge, and reducing costs is
crucial. Considering that the Power Master Plan suggests 8 US cents per unit,
the 5 US cents per unit that Songas has been providing for 20 years should be
an attractive offer. Or is it not?
Another aspect to consider is that
the Songas deal operates under a Build-Own-Operate arrangement, meaning that
when the contract expires, Songas will retain ownership of the assets. As
Songas has already collected capacity charges from the government and the
infrastructure investment has been effectively paid off, this provides an
opportunity to negotiate even more favourable payment terms than before.
Furthermore, gas reserves in Songo
Songo are depleting. While production can continue for some time, we have
likely reached the tipping point. Therefore, there is no room for alternative
investments that could delay the agreement.
Tanzania requires $30 billion for
power generation in the next 20 years, and this money could be better allocated
to other development needs if companies like Songas are given the chance to
invest in power generation while Tanesco focuses on transmission and
distribution. Hence, the question arises: why is the government hesitant?
If a company, such as Songas, is not
recognised for following best practices, ultimately saving the economy billions
of dollars, what more must it do to gain some confidence in this nation? Or are
we waiting for conditions to deteriorate, aligning with our historical
experiences, before we enter yet another fast-tracked opaque arrangement that
will not serve the nation’s interests? By
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