UBA backs JPM vision for an industrial economy with cheap power supply

16May 2019
The Guardian Reporter
The Guardian
UBA backs JPM vision for an industrial economy with cheap power supply

 For many years most African countries including Tanzania have been moving at a snail pace in achieving adequate electricity power supply which is a very critical requirement in the implementation of development projects.

Permanent Secretary of Energy Hamisi Hassan Mwinyimvua (L) and TANESCO Managing Director Dr Tito Mwinuka display contracts of bank guarantee after the signing ceremony held in Dar es Salaam I April this year. United Bank for Africa (Tanzania) Limited and CRDB Bank Plc partnered to offer the $737.5m bank guarantees to the JV of Arab Contractors and Elsewedy Electric of Egypt for the construction of Rufiji Hydroelectric Power Project (RHPP). Right UBA Tanzania Managing Director and CEO, Usman Isiaka. File photo.

For instance, Nigeria is the largest economy in Africa; in 2013 its population was in excess of 170 million, with GDP of over US$500 billion (according to World Bank 2014). However, in the last 58 years, Nigeria’s electricity sector has performed below expectation as evident by more than 80 million Nigerians that did not have any form of electricity in their homes.

Nigeria’s first public electricity utility company, the Nigerian Electricity Supply Company (NESCO), was established in 1929, some 30 years after electricity generation had started in the country back in 1896.

After years of operation, NESCO reportedly had to handover the management of the country’s public electricity utility to the Electric Corporation of Nigeria (ECN), a successor that was established in 1951 to take over its assets and operations.

Following the conclusion of the 2013 reforms in the sector, upgrading the capacity of Nigeria’s electricity market to guarantee stability for the country has faced various challenges.

Reports from various agencies associated with the power sector in Nigeria indicate that up to 60 per cent of the country’s citizens are yet to be connected to the national grid, while the low percentage on the grid manages an average 3500MW generated and transmitted daily to the grid that is barely sufficient for their energy consumption requirements.

Due to importance of having reliable electricity as a pre-requisite for industrialization, towards the end of June 2017, President John Magufuli ordered commencement construction work of Rufiji Hydroelectric Power Project (RHPP) which has a generation capacity of over 2,000 megawatts.

History was made when President Magufuli led Tanzanians recently to witness the signing of the $2.95 billion (about 6.6trn/-) contract between state power utility, TANESCO and the joint venture of Arab Contractors and Elsewedy Electric of Egypt for the construction of the 2,100MW RHPP which has been in the pipeline for close to 40 years now.

The RHPP contract was signed at State House in Dar es Salaam in December last year and was witnessed by Egypt’s Prime Minister Dr Mostafa Madbouly who was accompanied by Energy Minister Dr Mohamed Shaqqah and over 150 delegates from the North African nation who comprised other high-ranking government officials, executives of Arab Contractors and Elsewedy Electric, among others.

Banks throw their weight

This historic bold move by the government of President Magufuli in revolutionizing the energy sector got a major boost last month when United Bank for Africa (Tanzania) Limited (UBA) and CRDB Bank Plc partnered Afreximbank to issue the foreign portion of the performance and advance payment guarantees for a total sum of $516m (about 1.16trn/-) required by the joint venture to access the US dollar funding from the government to commence the project work.

This constitutes 70 percent of the total bank guarantees required for the project while arrangements have also been concluded to issue the remaining local bank guarantees of $212m (about 496bn/-) representing the 30 percent local portion of the facility.

Speaking to pressmen during the handing over ceremony for the foreign bank guarantees in Dar es Salaam in April, United Bank for Africa Tanzania’s Managing Director and CEO, Usman Isiaka  said the bank is a big stakeholder in the economic development of Africa having presence in 20 African countries.

“We commend the fifth phase government of President John Magufuli for the Rufiji Hydroelectric power project initiative to drive its industrialization agenda and graduate the Tanzania economy into and industrialised middle income economy,” Isiaka said.

“African governments need to invest on such projects which will have significant multiplier effect on other sectors of the economy and contribute positively to GDP growth of each country as being demonstrated by President Magufuli,” Isiaka added.

Backing his boss, UBA Tanzania Head of Public Sector and Financial Institution Dominick Timothy expressed the bank’s full commitment of the Rufiji Hydropower project which will help the country attain industrialization by 2025 in line with the UN’s Sustainable Development Goals 2030 objectives.

“It is our expectation that, beyond increased availability of reliable power supply, the unit price of electricity will reduce significantly if we use power generated from water as compared to gas, solar or wind and even generators which have negative effect on the environment” Timothy said.

Currently, the industrial sector of Tanzania is comprised of manufacturing (53 percent), processing (43 percent) and assembling industries (4 percent). The manufacturing sector in Tanzania consists mainly of food processing (24 percent), textiles and clothing (10 percent), chemicals (8.5 percent) and others.

Since agriculture is the mainstay of the Tanzanian economy, it is highly desirable that we have manufacturing companies that will process the agricultural products for higher contribution to the country’s gross domestic product.

Currently, the majority of crops in Tanzania are sold and exported in their raw forms, while value-addition to agricultural products is mostly done on small-scale secondary level for products like cotton yarn, manufactured coffee and tobacco, sisal products (yarn and twine), and wheat flour.

Although, the country’s agriculture value-added net output rose by 61 percent during the period 2009–2014, from U$ 8.6 billion to U$ 13.8 billion, the country’s economy still has significant untapped value-adding agricultural products processing opportunities which the completion of the Rufiji Hydropower project will galvanize in due course.

In line with the country’s Vision 2025, industrialization backed by foreign direct investment is aimed at becoming a semi-industrialized country by 2025, for which the contribution of manufacturing to the national economy must reach a minimum of 40 percent of the GDP.

In order to achieve this, the government targets to transform the economy from being dominated by natural resource exploitation and extractive industries (agriculture, tourism and mining) to become an economy with a broad and diverse base of manufacturing, processing and packaging industries.

According to President John Magufuli’s speech during the inauguration of the new Parliament at the end of 2015, industrialization will be a key priority to the government so that the country stops exporting commodities.

In order to accelerate industrialization, the President urged banks to lower interest rates for industrial projects during the President’s Manufacturer of the Year Awards (PMAYA) held in May 2016. In addition, President Magufuli promised that his government will strengthen and transform Tanzania Investment Bank (TIB) so that it plays a key role in establishing an industrialised economy.

In dismissing criticism against implementation of PHPP, President Magufuli said, “The project has been opposed and I’m not surprised till today there are people with the same thoughts as in 1970s.” He said once the project is completed it will be able to generate electricity for 60 years during which the cost of electricity will lower significantly.

Currently, consumers in the country pay more for electricity compared to other countries which is 10.7 US cents per unit while Egyptians pay 4.6 cents while the Chinese pay less than 8 US cents. 

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