Tuesday, April 7, 2009


Few weeks ago the debate about TANESCO and DOWANS diffused across the media and local political arena. To my understanding this is not the first time to see the battle between Wananchi and Tanesco. Last year the name Richmond was added in Kamusi ya Kiswahili as a new vocabulary in power industry, and then few years ago it was IPTL. Tanesco has been part of the problem for many years, however recently our leaders saw the urgency of change. Despite, none of them provides the realistic path toward that change.

Tanesco control the whole Tanzania power system (Generation, Transmission and Distribution), that make them a monopoly on that sector. Because of monopoly status Tanesco influenced the over priced of services, inefficiency, lack of transparency to the shareholders (wananchi) and poor cost management structure. Tanzania economy is growing by average of 6%, with over 200% increases in Foreign Direct Investment since 1963 when Tanesco was formed. However, less than 15% of Tanzanian has access of electricity even though Tanesco has been in business for the past 46 years. In addition, those who have electricity face 130 days of power outages in a year (equal to 4 month and 10 days in a year). The power outages increase the operating cost for different industries which ends up reducing the total profit of those companies, and as a result Tanzania government collect less revenue through taxes.

In order for Tanzania to maintain 6% economic growth, increase the national revenue and archive MKUKUTA and MGD (which I don’t think it can happen), the urgency of energy reform should be on top of the list. Few things can be done toward that reform and this is my humble opinions.

First, Tanesco must be commercialized. This will include the revamping of the whole Tanesco value chain. Also, the door should be open for outsourcing some parts of the value chain as long it will increase efficiency and reduce management cost. This will provides a good transition process toward privatization.

Second, Tanzania government needs to create National Grid Management Council (NGMC) which will include engineers, lawyers, management gurus and qualified policy maker. The purpose of this council will be to advice the government toward the whole reform. For instance at the beginning the council will focus on advice the government toward the crafting of legislation which will provides a legal basis for power sector regulation, unbundling and privatization. Also, NGMC will assemble the team (the Czars) which will take over the management of Tanesco. This team will focus on one thing, a transformation of Tanesco into a competitive model.

Third, after NGMC assembled (the Czars) management team for Tanesco, the government should limit their power to broad policy issue. The Czars will operate day to day administration activities. This team will need to perform its activities professional with more freedom and without undue from any other interested party (government, parliament or consumer). For instance, if necessary the Czars will impose new price which will be necessary to recover costs, or the Czars might announce the massive lay off in order to reduce labor cost. The independence of the Czars doesn’t mean lack of accountability; the Czars should be accountable to the law lather than a minister which changing a day-to-day political priorities.

The fourth step in the reform process is unbundling. Unbundling means dividing Tanesco into separate companies on a vertical or horizontal or both bases. To my opinion I believe Tanesco needs vertical unbundling, means breaking Tanesco into three companies, where each new company will focus on one of the three major electricity functions: generation, transmission or distribution. The three companies will do business with each other on commercial basis and nothing otherwise. This will provide a good bridge toward privatization.

Finally, after the government enforced all of the above then private sector participation could be allowed. To limit the 100% take over, the government should own more than 40% stake, which in the future should be floated in DSE for Tanzanian to own part of each of the three main power companies.

I should put it clear that, this process will take more than five steps that I proposed, however I strong believe this steps can provide a strong debate among Tanzanian which might end up toward reforming of Tanesco. To tear down the bureaucratic organization like Tanesco will need more than a page and half proposal. Despite that, there is no golden bullet when it comes reform any power sector, to mention in few we saw in California, Chile, New York and Argentina.


Anonymous said...

Canada's Artumas Group Inc. said on Saturday a 300 MW natural gas-fired project it is working on in southern Tanzania will cost $700-million.

The Oslo-listed oil and gas firm, discovered a gas deposit in Mnazi Bay in Mtwara in south east Tanzania, in 2006, which the Tanzanian government says has about two-trillion cubic feet of proven gas deposit, or gas in place.

Artumas estimates a gas potential of three-trillion cubic feet.

The firm, which is working with the Tanzanian government, said a preliminary feasibility study was complete.

"The concept is to produce power, on a large scale in Mnazi Bay and transport this power to the national grid in northern Tanzania," the firm said in statement.

The company did not say how the money would be raised.

The results of the study were handed to the state-run Tanzania Petroleum Development Corporation, Tanzania Electric Supply Company (Tanesco) and Canadian mining giant Barrick, which has operations in the northwest of the country.

The statement said no formal agreements on the project had been signed yet. Artumas and the government have previously said they expect the project to be complete by 2012.

As of October, Artumas said it had invested $200-million in its business in Tanzania.

Last week, state-run Tanesco said it needed to add 105 MW on its grid each year to meet rising demand, but could not due to delays in building new plants.

Peak time demand in the east African nation of about 40-million people currently stands at 787 MW versus 595 MW available on the grid. The utility forecasts demand rising to 1 331 MW against 1 445 MW capacity by 2014.

Tanzania generates a bulk of its power from hydro dams, while it produces close to 300 MW from natural gas at another deposit on an island off its eastern coast.

It suffered acute power cuts in 2006 after a drought slashed hydro-power production

Anonymous said...

Nyerere on debt "I could say NO on those days, but VERY VERY DIFFICULT TO SAY NO NOW!!!"

"Considering we pay 40% of our debt to World bank, IMF, paris club, it would take a 60% of the Government Revenue "