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Govt faces tough moment as power woes loom large

15th December 2012
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TANESCO

The Government faces difficult choices of approving the 81.27 percent increase in electricity tariffs or continue spending tax-payers monies estimated at Sh160 billion in monthly subsidies to the financially troubled Tanzania Electrical Supply Company (TANESCO).

Tanesco’s total monthly revenue collection stands at Sh90 billion but it spends Sh250 billion to sustain its power generation – a deficit of Sh160 billion.

From these figures, it is clear that even if the government were to approve a hike in power tariffs by 81.27 percent as requested, that increase would bring only Sh72 billion – and there would still be a deficit of Sh88 billion.

Earlier this week, the Minister of Energy and Minerals, Professor Sospeter Muhongo assured the public that there would be no hike in power tariffs, but that statement is likely to prove a mere temporary reprieve.

And if Muhongo’s public statement could stand – partially sanctioned by the Energy and Water Utilities Authority (EWURA) -- there would still be a huge financial burden on government business as Tanesco continues to operate on unimaginable losses.

Tanesco business figures reveal that the national utility firm is nowhere near breaking even in its routine operations, leave alone making a profit.

The main question here is; who will bear the cost emanating from Tanesco’s losses to the tune of Sh160 billion a month? This staggering amount of money comes from the fact that the state-owned utility firm spends Sh249.6 billion a month to generate electricity.

Based on that figure, it implies that Tanesco needs Sh3.036 trillion ($1.89 billion) per annum, which exceeds 20 percent of the current country’s annual budget of Sh15.1trillion (for the 2012/13 fiscal year).

The exorbitant costs of generating electricity is rooted in the privately owned diesel and Heavy Fuel Oil (HFO) powered plants located in Dar es Salaam, Dodoma and Arusha, consuming Sh42 billion monthly in capacity charges -- which is nearly 50 percent of Tanesco’s total monthly revenue

Capacity charge is money paid to the owner of the power generating plant regardless of the operation of that plant, which means the money accumulates every month and has to be paid even if the plants were to switch off.

These costs do not include the price tag for buying power from the same independent power producers – while the so-called capacity charges still have to be paid whether Tanesco consumes electricity or not.

The financially troubled Tanesco is now asking for the 81.27 percents increase in power tariffs -- or risk bankruptcy.

Tanesco acting Managing Director, Felchesmi Mramba told this paper on Thursday that his office sought the tariff hike as agreed with Ewura through a formulae prepared by a Spanish consultant, AF-MECADOS.

“There were a number of factors which the consultant did not take into account … we argued that considering those factors … including increased dependency on fuel-powered generating plants, an 81.27 percent increase was deemed appropriate,” noted Mramba.

On Muhongo’s statement that there will no tariff hike Mramba said Tanesco was aware of the ministry’s position before they engaged in the discussion with Ewura for the proposed increase on electricity charges.

He expressed: “We do not see any problem in the statement by the minister … so long as the central government is ready to provide the much-needed funds so that Tanesco can carry on with its smooth operations.

“There are two different ideas; the first one is that every person who consumes electricity should pay appropriate tariff, and the second idea is for the government to subsidize the tariff from taxpayers’ money.

“This is because most of the people prefer paying low tariffs and that forms the basis for the government’s continued subsidy … though this is unfair to taxpayers who are not connected to the power grid,” Mramba observed.

Official figures at the ministry of Energy and Minerals show that only 18 percent of Tanzanians are connected to electricity, most of them urban areas – and just 6.5 percent of rural residents have access to power, even though they form 75 percent of the country’s population. The national five-year development plan inaugurated in June 2011 projects the increase of connectivity to electricity at 30 percent by year 2015.

Mramba is optimistic that the current overspending on power generation would end in the next two years upon completion of the Mnazi Bay/Songosongo – Dar es Salaam gas pipeline which is under construction. Power generation by gas is billed to be 50 percent cheaper.

The 532-Kilometer pipeline is expected to haul an estimated 420 million standard cubic feet a day, enough to generate more that 2000MW of electricity.

The Ghost of capacity charges

Last July this paper reported exclusively that, according to Tanesco’s financial analysis and forecast for the period between July and December 2012, capacity charges alone would cost the state power utility a whopping Sh256 billion. At the same time, Tanesco would spend another Sh331 billion during the same period an average of Sh55 billion per month to buy electricity from private producers.

This means that, when all the sums are done, Tanesco would be left with a monthly deficit amounting to Sh3 billion shillings.

However, the problems have since worsened with the drastic drop of water levels at the six hydropower generating dams, namely Kidatu, Mtera, Kihansi, New Pangani, Hale and Nymba ya Mungu.

The biggest winners in Tanesco’s spending spree are Songas, Independent Power Tanzania Limited (IPTL), Symbion and Aggreko.

Symbion alone would pocket a staggering Sh85.755 billion in six months in capacity charges from its plant located in Dodoma, but would still sell power to Tanesco worth Sh19.602 billion -- which surpasses its ability to sell by more than 400 percent. According to technical documents made available to The Guardian, the same company (Symbion) would receive a monthly Sh74.327 billion over the next six months (Sh12 billion) in capacity charges, but would still sell power worth Sh20 billion at its heavy fuel powered plant in Arusha.

Songas was meanwhile projected to make Sh28.248 billion in capacity charges over the same period, but would sell power worth Sh56.103 billion (Sh9 billion) every month. IPTL is the only independent producer making lowest returns on capacity charges, projected at Sh4.964 billion during a period it expects to produce energy worth Sh168.9 billion.

Symbion Dar es Salaam will charge comparatively lower expenses on capacity charges against money spent on power purchases, now currently estimated at monthly incomes of Sh22 billion in capacity charges and Sh35.3 for sale of energy from its Jet A1 fuel-powered plant, while Aggereko would receive is Sh12 billion in capacity charges compared to Sh24.691 for energy produced.

This paper had also established that Tanesco had projected to spend Sh69.83 billion in six months on fuel and lubricants to run the independent power plants and some owned by Tanesco – all amounting to Sh11.6 billion.

SOURCE: THE GUARDIAN