Trouble in paradise: Can Kikwete light up Tanzania struggling energy sector? The Songas plant. File Picture By Rachel Keeler (email the author) Your Email Message Send Cancel Posted Monday, June 21 2010 at 00:00 Canadian energy producer Artumas Group has been trying to turn natural gas into commercial electricity in Tanzania for six years now. We started negotiating with the government in 2004 and we finally managed to get all the agreements in position at the end of 2008, says Salvator Ntoloma, country manager for the group in Tanzania. In 2004, Artumas won the concession to explore Tanzanias Mnazi Bay gas field. The group committed then to develop the field into a steady source of gas-to-power electricity for the surrounding Mtwara and Lindi regions. An agreement was finally signed with the government to launch the Mtwara Energy Project in December 2008 two years after Artumas had begun producing electricity at the site. But their wait did not end there: In 2008, the Tanzanian parliament was busy debating a new Electricity Act. The Act was expected to break the market monopoly of the state-owned Tanzania Electric Supply Company (Tanesco), and clear the way for more private sector involvement. But, ironically, a controversial clause that made it through prohibits independent power producers (IPPs), ie private developers, who had previous agreements with the government from obtaining any new licences for five years. This was a crude attempt to shut out corrupt IPPs of the past. But having signed its deal a few months before the Act passed, Artumas was banned from obtaining the licence it needed to secure donor support and go forward with the Mtwara project. After several months of petitions, the regulator granted Artumas an exemption in February 2010 to get a licence and finally start producing and distributing respectable amounts of electricity to the region. If all this sounds incredibly confusing and convoluted, thats because it is. Some blame the holdup at least partially on poor management at Artumas. But accomplishing any business in Tanzania is tough, and especially in the power sector. Ntoloma believes that if Artumas can succeed with the Mtwara project, the example may encourage more competition and private power production in Tanzania where only about 10 per cent of the population have access to electricity. Artumas is already in talks with the government to set up a 300MW power plant at Mtwara, which Ntoloma hopes could go online in two years. That would add nearly 50 per cent more capacity to the national grid. Overall, the Electricity Act is heading in the right direction. And Tanzanias new regulator, the Energy and Water Utilities Regulatory Authority (EWURA), set up in 2006, has been winning respect for its work to clean up the embattled industry. If this progress continues and Ntoloma gets his wish, it would mark a significant turning point in the history of Tanzanian electricity. Unfortunately, thats only because the history is so long and dark. Tragedy on a Bad Day Tanzanias power production playbook reads like a Greek tragedy on a bad day. Chronic shortages and power rationing have been plaguing the country for as long as it has been attempting to industrialise. Full-scale crises hit in 1992, 1994, 1997, 2000, 2006, and most recently in late 2009 when consumers were subjected to power cuts of up to 14 hours at a time. On the surface, all of these crises were caused by cyclical droughts, which dry up the hydropower dams that Tanzania relies on for most of its power. But droughts are a regular occurrence in East Africa. The overriding problem is the governments failure to develop alternative sources of electricity. In a country harbouring large natural gas and coal reserves, and the potential for wind and even more hydro power, there really is no excuse for this. Grand corruption, in partnership with diffused bureaucratic graft and a general lack of planning, capacity and co-ordination are to blame. Stealing public electricity funds appears to have become something of a national pastime in Tanzania over the past two decades. First there was the Independent Power Tanzania Ltd (IPTL) scandal. After the 92 and 94 droughts, several well-connected local businessmen decided to team up with an unqualified Malaysian company and build an extremely overpriced power plant. The government called it a shining example of South-South co-operation, and let the ordeal drag on through several court cases and millions of dollars in inflated capacity charges before the plant was finally shut down. Then came the drought in 2006, when a $170m emergency power contract was awarded to the Richmond Development Company, which turned out to be a shell company in Texas. That year the Ministry of Energy was also struggling to revive the Kiwira Coal Mine, which had been controversially sold in 2005 at an egregiously undervalued price to a company called Tanpower Resources soon shown as linked to former President Benjamin Mkapa and his former Energy Minister, Daniel Yona. Brian Cooksey, who wrote the 2002 exposé, The Power and the Vainglory, about IPTL, estimates the Malaysian scam cost Tanzanians hundreds of millions of dollars in inflated costs and lost opportunities. And on the string of these scandals taken together, he tells us: The negative consequences for local and foreign investors, businesspeople, and domestic consumers have been enormous. All the international surveys show power supply as Tanzanias greatest comparative disadvantage. Bare Minimum Mopping Up Since succeeding Mkapa as president in 2005, Jakaya Kikwete has offered a bare minimum mopping up of the top messes. Big names linked to the Richmond scandal were initially cleared by Kikwetes Prevention and Combating of Corruption Bureau (PCCB). Additional investigations by the National Assembly forced Prime Minister Edward Lowassa and several others to resign, but the case was recently dropped from further discussion in parliament. Kiwira has been pried back out of Mkapas clutches, but again the case awaits any prosecutions or financial reckoning. IPTL is still limping along in court. Most agree that grand corruption is no longer ongoing. But in many respects, widespread rot continues. Extensive lower-level graft persists at Tanesco and the ministry. Just last December, an audit committee found that the outgoing managing director of Tanesco, Idris Rashidi, had authorized a spending spree on luxury cars and swimming pools for the houses of top managers, while the bankrupt utility struggled to pay its legitimate bills. Insiders say the politically competitive corruption that dominated the Mkapa years has carried on straight through Kikwetes first term, with politicians and civil servants plundering state coffers to use as patronage and a source of power. Some estimate that 70 per cent of the national budget goes missing every year, and that all public projects are laden with inflated costs. MPs debating the new Electricity Act often blamed private-sector conspirators for these excesses, and used this as an excuse to stall further privatisation of power provision. But the problem here is clearly primarily dirty politics from the top straight down through to the far-reaching corners of Tanzanias massive bureaucracy. Grand corruption Observers say bureaucrats at Tanesco steal almost constantly, and have deliberately blocked small-scale hydropower producers from connecting to the national grid because these deals do not offer enough fat to skim off the top. Ntoloma gives more credit to Kikwete: The president is very passionate about investment, he says, but sometimes the presidents passion does not go down to the bureaucracy. The bureaucracy is still not excited about the private sector. Ntoloma refers to this as a hangover from socialism. Others say bureaucrats have simply become so corrupt that they are unwilling to allow privatisation of parastatals like Tanesco, which would jeopardise their access to funds. Add to this persistent corruption a basic lack of technical capacity or will to plan, and you get a government that is at best capable of shutting down corrupt power projects, but seemingly unable to develop clean new ones. The Ministry of Energy has not had a workable master plan for power production in years, which means no ability to plan ahead and thus constant reliance on costly emergency supplies. Management of the existing large hydropower dams is highly disorganised. Much of the countrys electricity is also lost through faulty transmission lines 24 per cent on average, in contrast to the 14 per cent considered normal. The latest international tender to go through Tanesco, a simple equipment supply contract, reportedly took six months to evaluate and was eventually cancelled due to technical problems. While many upstream stakeholders put proposals forward for new projects, the government is often unable to cobble together a reasonable bid to attract new IPP investors. Perhaps the most discouraging aspect of the ongoings in the energy sector is the apathy continued abuse has inspired in the Tanzanian public and business community. Everyone now simply assumes that most government officials are on the take, and there is nothing to be done about it. Even the private sector protests little when considering how much high power costs have hurt business. Ultimately, this means that governments are not judged on election day based on how successfully they provide the basic necessity of power to their citizens. Until this changes, not much else will, especially considering continued support from donors who are either too busy to notice all the corruption, or simply look the other way. And yet, at least some people on the ground hold out hope that deals like Artumas can pave the way for change. While IPPs have produced power in the past, Artumas has actually won the rights to transmit its power from Mtwara directly to consumers, an important step toward unbundling Tanescos monopoly. One observer argues that copycats are unavoidable, and that we can expect to see progress in the next 15 months. With EWURA in, we see a level playing field beginning to develop now, Ntoloma says. He also thinks the Energy Minister, William Ngeleja, is doing the best he can to court investors and is backed by a very capable team of technocrats. Mr Ngelejas biggest problem is one of overstretch, as he is expected to direct numerous sectors including petroleum, natural gas, and mining. New electricity projects will still require some hand greasing at the ministry, and local partnerships to appease that socialist hangover. But in the face of successful public-private partnerships, it will be harder for the bureaucrats to resist further privatisation of the power complex. However, full privatisation of Tanesco remains a far way off. There is talk of attempting to mimic Kenyas partial privatisation of KenGen through an initial public offering. But the government has already attempted four times to bring in outside consultants to clean up Tanesco, to no avail. Few private investors would find the utility attractive in its current dilapidated and highly indebted state. There is some hope that this may change gradually: A new CEO has been appointed on 1 June 2010, and one of his first initiatives was to begin retrieving TZS300m in unpaid bills from both government and private clients. Tanesco is also introducing a computerized billing system. In the meantime, persistently low government capacity for project development and attraction of financing will keep the pace of development arduously slow. Gas reserves Similar problems persist in the ongoing bid to commercialise Tanzanias natural gas reserves. Ntoloma says much more exploration will have to happen before Tanzania even has enough gas available to power the planned 300MW plant at Mtwara. Availability of gas in the short term is limited nationwide, as supplies have been monopolised via Songas, which operates the Songo Songo fields, and the Tanzania Petroleum Development Corporation (TPDC). Further concessions to exploration and production companies could help bring more upstream acreage online and make room for more gas-to-power projects. But this has so far been stalled by a lack of financing and pricing agreement between upstream developers and the government as offtaker. Many say if the government can get the policy right, Tanzania could export gas to other East African countries and eventually even to South Africa and India. The energy source could also spur industrialisation in Tanzania through access to cheap power. Songas 300MW Ubongo gas-to-power plant has saved the government USD1.3bn in foreign exchange from reduction in fuel imports since it went online in 2004. But in the post-global crisis climate, costs for further large-scale development may be prohibitive. It has taken 30 years to develop the Songo Songo fields. Artumas has already sunk USD200m into Mtwara, which is now a loss-making endeavour after half a decade of delays. The group was recently forced to seek bailout support from the government and donors. And the new 300MW plant Artumas seeks to build will cost at least USD700m. Thats a big chunk of cash to dedicate to a country that has consistently underperformed and short-changed itself. The East African: - News |Trouble in paradise: Can Kikwete light up Tanzania struggling energy sector?