Power Export Aspirations Could Leave Population In The Dark

BMI View: Although we believe that the Tanzanian government's plans to export power over the short-term are unfeasible, given the current dynamics in the country's power sector, the announcement serves to highlight the government's apparent willingness to side-step vast portions of the population in order to boost economic growth. Such a move could potentially elevate already heightened tensions amongst the population who are becoming increasingly dissatisfi ed with the levels of economic disparity across the country.

We have long highlighted the inadequacies of the Tanzanian power sector, as under-investment and inefficiencies have curtailed growth in the industry, particularly in terms of the transmission and distribution network and installed capacity. The supply/demand gap remains tight, exacerbated by unreliable output from the hydropower segment during times of low rainfall.

However, we have begun to see signs of progress during 2013 with several new power project announcements and investor interest picking up. For example, in March two new power station projects were announced, a US$900mn 400MW gas-fired station in Mtwara, in the south east of the country, and a 150MW hydropower plant, to be built by Kitonga Electric Power Company Limited, to power the Kitonga Valley region (see 'New Power Projects Do Not Prompt A Change In Outlook', March 11). Most recently, an agreement between TANESCO and China Power Investment Cooperation Limited (CPI) to develop the Kinyerezi III 600MW gas-fired power station has prompted the government to announce that it plans to start exporting electricity by the end of the year - as the capacity surplus will be about 500MW, according to the Minster for Energy and Minerals, Sospeter Muhongo. The Minister went on to say that the surplus will reach 1,500MW by 2015, thus providing even greater scope for power exports.

Precarious Margins
Tanzania Electricity Consumption, Generation and T&D Losses, 2012-2022

BMI View: Although we believe that the Tanzanian government's plans to export power over the short-term are unfeasible, given the current dynamics in the country's power sector, the announcement serves to highlight the government's apparent willingness to side-step vast portions of the population in order to boost economic growth. Such a move could potentially elevate already heightened tensions amongst the population who are becoming increasingly dissatisfi ed with the levels of economic disparity across the country.

We have long highlighted the inadequacies of the Tanzanian power sector, as under-investment and inefficiencies have curtailed growth in the industry, particularly in terms of the transmission and distribution network and installed capacity. The supply/demand gap remains tight, exacerbated by unreliable output from the hydropower segment during times of low rainfall.

Precarious Margins
Tanzania Electricity Consumption, Generation and T&D Losses, 2012-2022

However, we have begun to see signs of progress during 2013 with several new power project announcements and investor interest picking up. For example, in March two new power station projects were announced, a US$900mn 400MW gas-fired station in Mtwara, in the south east of the country, and a 150MW hydropower plant, to be built by Kitonga Electric Power Company Limited, to power the Kitonga Valley region (see 'New Power Projects Do Not Prompt A Change In Outlook', March 11). Most recently, an agreement between TANESCO and China Power Investment Cooperation Limited (CPI) to develop the Kinyerezi III 600MW gas-fired power station has prompted the government to announce that it plans to start exporting electricity by the end of the year - as the capacity surplus will be about 500MW, according to the Minster for Energy and Minerals, Sospeter Muhongo. The Minister went on to say that the surplus will reach 1,500MW by 2015, thus providing even greater scope for power exports.

Despite this positive rhetoric, we believe that the likelihood of electricity being exported from Tanzania in the short-term is extremely small. The government's capacity expansion plans are undoubtedly ambitious; however, we have included only a fraction of the proposed capacity in our forecasts as we believe there are still too many constraints to growth, primarily stemming from feedstock-related issues and Tanzania's challenging business environment ( see 'Delays And Fuel Difficulties Expected To Weigh On Capacity Expansion Plans', April 10). As such, delays and some cancellations are to be expected, and this will no doubt affect the surplus of capacity envisaged by the government - the surplus that that would enable the export of power. Furthermore, the construction of the Kinyerezi III power station is expected to begin shortly after the commissioning of the Mtwara to Kinyerezi pipeline (expected end-2014); however, considering the recent controversy and protests surrounding the project, delays to construction of the pipeline are also likely, which would further jeopardise the export plans.

Regardless of whether or not electricity trade is successfully implemented, we believe the Minister's announcement highlights the government's willingness to side-step vast portions of the population in order to boost economic growth , a trend that we have witnessed in a number of other Sub-Saharan African countries such as Ethiopia and DRC. Power infrastructure in the country is largely underdeveloped, as illustrated by the fact that the World Economic Forum scores Tanzania 132 out of 144 countries for quality of electricity supply. In addition, only about 18% of the population has access to electricity according to TANESCO , with more than 80% supplied in the urban areas. A lack of adequate energy supply continues to h inde r growth in the country, particularly in the s outh where electrification rates are lower, and this has a knock-on effect on other major services such as water supply, education and health.

As such, choosing to export electricity rather than focus on meeting domestic demand is likely to be met with dissatisfaction am ongst the population, who have already expressed concerns over the growing economic disparities across the country. Violent protests against the planned construction of a pipeline that will transport natural gas from reserves in Mtwara in southern Tanzania to the commercial capital of Dar Es Salaam are the latest indication of discontent simmering among ordinary citizens (see ' Government Faces Tough Choices Following Mtwara Protests', May 24). If the Tanzanian government pursue s plans to export electricity and leave s the domestic power sector underdeveloped , while forgo ing efforts to improv e electrification rates, we expect to see tensions heighten.

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Sector: Power
Geography: Tanzania, Tanzania, Tanzania, Tanzania, Tanzania, Tanzania
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