UBA financing for Stiegler’s Gorge increased as mega project takes off

25Jun 2019
The Guardian Reporter
The Guardian
UBA financing for Stiegler’s Gorge increased as mega project takes off

AS construction work of the Rufiji Hydro-electric Project commences in earnest this month, credit guarantee being provided by United Bank for Africa and CRDB Bank Plc has increased from the U$ 212m (over 496bn/-) which was initially issued in April to U$ 516m (over 1.16trn/-).

UBA Tanzania CEO, Usman Isiaka speaks at a past event. File photo.

In an update, UBA’s Managing Director, Usman Isiaka said in the latest arrangement which also involves Egypt based Banque Misr, his bank and CRDB’s financing has increased. “The foreign portion was U$516 million where UBA Bank will give U$258 million and CRDB U$258 million.

Isiaka and his CRDB peer, Abdulmajid Nsekela had promised that if need arises, they are capable of increasing their funding to cover the entire first phase project cost. 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 (RHPP) initiative to drive its industrialization agenda and graduate Tanzania into an 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,” the UBA Tanzania CEO added.

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

History was made when President Magufuli led Tanzanians end last year 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.

This historic bold move by the government of President Magufuli in revolutionizing the energy sector got a major boost last month when UBA and CRDB Bank Plc partnered Afreximbank to issue the foreign portion of the performance and advance payment guarantees.

The UBA and CRDB deal constituted of 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.

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 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.

“Without industrialization, as a nation, we can’t develop because we will continue to export raw materials and thus exporting jobs as well,” Dr Magufuli told lawmakers while stressing that his administration will lay emphasis on industrialization.

“But in order to industrialised rapidly, we need plenty of cheap electricity which we currently don’t have,” he observed saying his decision to invest in RHPP is aimed at increasing power generation significantly.

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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