...and why nothing has been done to those responsible of this situation!? Tanesco losing $5m a month due to low tariffs By JOSEPH MWAMUNYANGE THE EAST AFRICAN The Tanzania Electric Supply Company (Tanesco) has been losing an average of Tsh6.4 billion ($5.1 million) a month for the past nine months running after the energy regulator dropped its bid to raise tariffs. Tanesco managing director Dr Idris Rashidi told The EastAfrican the firm's audited accounts for last year show that it is incurring heavy losses. "For the company to fully recover its cost of service by charging a ‘cost reflective' tariff, last year's tariff would have to be increased by 118 per cent. However, we have submitted an application to the Energy and Water Utilities Regulatory Authority (Ewura) for a 40 per cent tariff adjustment and the reasons for it," he said. Ewura currently has a team going round the country collecting views from the public and other stakeholders before it decides whether to allow a tariff increase. Dr Rashidi said Tanesco was aware of the fact that the proposed tariff increase was a steep one and would have an adverse impact on its customers, adding, "That is why we are exploring alternatives to mitigate the impact of the tariff increase. "The current cost of supply to consumers is Tsh183 ($0.1464) per kWh, and the average tariff charge is around Tsh84 ($0.1464). This means that Tanesco loses Tsh99 ($0.0792) on every kWh sold. As a consequence, the company is deeply in the red," he said in a candid admission to The EastAfrican. The accumulated loss up to 2006 was Tsh677 billion ($541.6 million) due to the heavy use of the more expensive thermoelectric generation necessitated by severe drought. "During the first nine months of 2007, the loss amounts to Tsh58 billion ($40.8 million) which is the equivalent of Tsh6.4 billion ($5.1 million) per month," said Dr Rashidi. He added: "The shortfall between our revenues and our costs has historically been covered by bank borrowing, late payments to suppliers and direct subsidies from the budget, but from this financial year, the government will no longer subsidise Tanesco for operating costs, only disbursing Tsh18 billion ($14.4 million ) as part payment of the Independent Power Tanzania Ltd capacity charges." The average cost per unit over the past three years has been varying. But Tanesco's failure to raise enough money to meet the real cost of the service it is providing has seen it fail to improve reliability and general efficiency. The cost of service from the audited accounts ranged from 70 to 118 per cent above actual revenue. In August, banks and financial institutions in Tanzania teamed up to arrange a loan for Tanesco that represents the largest single financing deal ever undertaken in the East African region. Dr Rashidi said some of the money will go towards paying off debts the company owes banks and the rest to revamping services and buying equipment needed to improve the provision of services to customers. He said that the signing of the Tsh300 billion ($240 million) loan agreement was the first of a series of critical steps that Tanesco needs to undertake to return to a sound financial footing. The firm's Tsh1,266 billion ($1 billion) financial recovery plan, which enjoys government as well as donor support, contains a number of initiatives the loan will fund. Under the plan, the company has embarked on an ambitious programme to sustain an average load growth of 15 per cent per annum over the next five years. This will cater for new infrastructure and new customers. Tanesco serves less than one million clients out of a population of 37 million. The electricity coverage is 10 per cent nationally but in many regions is in single digits. Rural coverage is below 2 per cent. The main reasons for this low coverage are the limited reach of the company's grid and low intensity of connections in the grid areas, lack of funds to expand the grid, weak policy, regulatory and financing mechanisms for rural electrification in general and alternative off-grid solutions in particular. Tanzania is endowed with diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, much of which is untapped.