How can Tanesco ensure that electricity problems do not hinder future economic growth in Tanzania? That issue is critical if you care about development in Tanzania, especially amid the ongoing worst power rationing in decades.
Based on official announcements, the peak demand for electricity is around 1,200 MW. That’s oddly low because that’s exactly where it was a decade ago. Given that ten years ago the demand grew at a rate of 15 to 20 percent per year, today that figure should be around 7,000 MW.
I tend to think that the reality is much higher.
Still, the status quo is terrible. Tanzania ranks among the top ten nations in the world for energy consumption per capita. In a decade, the total installed capacity has barely increased. And barely one-third of Tanzanian households have access to electricity.
Is Tanesco really up to the task?
A year or so ago, the powers that be placed on the new management team at Tanesco. To give Tanescu a new perspective, the new management involved many actors from the private sector. Many of these individuals have distinguished managerial profiles. But you look at some of them and you still wonder whose interests they serve in Tanesko.
The new management wasted no time in shaking things up. Public relations and communications staff were fired for failing to defend Tanesco against certain whistleblowers. That was curious. Generally, organizations start by improving their services and then consider how people experience them. The decision made by Tanesco signaled that management thought that plugging the cracks through PR took precedence over solving the problems plaguing Tanesco. A very strange decision indeed.
Following this, Tanesco announced a $30 million software solution deal with an Indian company called Tech Mahindra. While increased automation will do a company of Tanesk’s level good, $30 million sounds a bit much for a software solution. Besides, I think this is the kind of work that should have been given to local developers. I know several individuals who would enjoy the challenge while saving Tanescu a lot of money.
Later, the government decided to exchange Tanesco’s debts for equity. The idea made good financial sense. Since the debt was reflected in the national debt, it made no sense to spoil Tanesko’s balance sheet as well. This decision increases the creditworthiness of Tanesco, thereby improving its financial competitiveness. With that came the tantalizing prospect of listing Tanesco on the Dar es Salaam Stock Exchange (DSE). It is a welcome proposal, especially because it would, among other things, increase the transparency of Tanesco in its affairs.
That being so, we should not get carried away. The way Tanesco operates today is not fit for purpose. So much has to happen to eliminate the dead load and make Tanesco competitive as a public utility.
One of the most important strategic decisions that should take place now is the unbundling of Tanesk, especially by removing all of its activities related to electricity generation.
Tanzania’s electricity needs are met primarily by gas and hydropower, with some contribution from renewable sources. The country has significant reserves of gas and coal. However, due to strange power generation decisions, capacity has not kept pace with population and economic growth, leading to frequent blackouts.
Electricity production has been Tanesko’s Achilles’ heel for decades. It is the area that has attracted the most political interference. And this is the area that has created the greatest opportunities for grand corruption, draining Tanesco out of necessity by forcing it to pay excessively unfavorable rates.
In 2013, for example, the average price of electricity was three times higher than the tariffs charged by consumers. While the price of Tanesco’s own production was 10 cents per 1 KWh, Songas’s was 5 cents, IPTL’s was 31 cents, and Simbio’s was 40 cents. Given how high some of these costs were, it’s always alarming to hear that some of those companies are being linked back to Tanesco.
Lately there are rumors that IPTL is re-supplying electricity to Tanesco. I asked two insiders and they both confirmed it. If the arrangement is anything like what it was in the past, Tanzanians should lose sleep over it. In a year, the government would pay at least Sh300 billion more for purchasing power from IPTL than from comparable suppliers.
The government can convert debt into equity for Tanesco and other companies as often as it likes, but the future remains bleak if these decisions continue.
In today’s world, determining the price of electricity production given any technology is simple. Rough numbers can easily be found in several annual “state of energy” reports. So no one can pretend they didn’t know. If there is a bad decision, it is because the people at the helm colluded with the contractors.
A strict master plan of the national power system is necessary to exclude Tanesco from power generation. The power system should, first, highlight the resources for power generation, second, allow private operators to compete, and three, be accompanied by laws that determine the maximum price of electricity that Tanesco can pay.
Strategically, removing the power generation function from Tanesco would increase Tanesco’s independence, redirect the vast resources used in power generation to strengthening the ailing transmission and distribution infrastructure, increase efficiency, and cut off a source of massive corruption from Tanesco.
First of all, this would guarantee that Tanzanians will have an adequate supply of electricity for their development.