Let us raise electricity tariffs, Tanesco pleads

Tanzania’s power utility has warned that failure to adjust electricity tariffs upwards may result in the delay of major projects.

In a submission to the Energy and Water Utilities Regulatory Authority (Ewura), the Tanzania Electric Supply Company (Tanesco) argues that it needs the regulator to approve a system-wide tariff adjustment over three years from January 1, 2011.

According to the power utility, the proposed average adjustments are 34.6 per cent in 2011, 13.8 per cent in 2012, and 13.9 per cent in 2013.

The new tariffs will enable Tanesco to fund its capital investment programme to demonstrate its bankability to donors offering concessionary loans or grants, to increase capacity needed to meet system peak demand and to adequately fund repair and maintenance to ensure a consistent and stable supply of electricity.

Tanesco has concluded that there are no acceptable alternatives to tariff adjustment. However, it admits that it needs to increase operating efficiency, and the financial projections include these improvements.

General manager for generation at Tanesco, Stephen Mabada, said the average tariff adjustment proposed is below the increase in costs implied by general inflation since the last tariff adjustment in January 2008; cumulative 2008-09 and projected 2010 inflation is estimated to be 37 per cent.

Mr Mabada said that in the event that the tariff adjustments are not approved, the company’s capital investments programme would be set back.

“Tanesco has a programme of internally funded investment targeted to improve its financial performance. Since the company’s current financial condition does not permit bank financing of these investments, the company is planning to fund them internally. If funds are not available, these investments will be delayed,” he said.

In 2011, the energy firm will make internal investments totalling Tsh125 billion ($83 million). Tanesco said delay in these investments would mean that loss reduction targets would not be achieved, as planned maintenance activities would have to be deferred. In the recent past, Tanesco has spent only a fraction of the amount dictated by international best practice on repairs and maintenance or R&M.

Past tariff review

The findings of Ewura’s last retail electricity tariff review were documented in Order No. 07-012 (December 28, 2007). In addition to authorising a tariff increase, that order specified a list of conditions imposed on Tanesco in pursuit of operational performance improvement.

Consultants report that 12 per cent of revenues is the desired target for R&M expenditures; Tanesco’s actual expenditure in 2009 was only about two per cent of revenues.

Continued deferral can only be expected to result in greater outages for both generating equipment and the transmission and distribution network, which in turn will result in poorer than projected performance.

Projects expected to suffer include the planned 400kV network expansion. The largest component of the planned capital investment programme is related to this major network upgrade.

Tanesco is also seeking approval of two indexation clauses designed to adjust tariffs periodically for changes in fuel costs and macroeconomic factors that are outside of Tanesco control; these clauses will ensure that Tanesco remains financially viable.

Tanesco said the principal motivation for the application for tariff adjustment to move gradually to tariff levels that would allow the company to cover its full cost of operations as required by government policy.

The tariff impact will not be identical for each class. It is proposed that class tariffs be rebalanced in 2011 to more accurately reflect the relative cost that each class imposes on the system.