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Tanesco optimistic of good days ahead after improved revenue

Saturday April 11 2015
tanesco

A Tanesco substation in Dar es Salaam. Though the company revenue has increased by 60 per cent in the past two years, it still has huge liabilities. PHOTO | FILE

Tanzania power utility Tanesco is almost out of the woods but for huge liabilities and dwindling subsidies from the central government.

The company revenue has increased by 60 per cent in the past two years, but it still has huge liabilities that were in 2013 forecast to hit Tsh2.3 trillion ($1.28 billion) at the end of this year.

On Thursday, its managing director Felchesmi Mramba said the state-owned company had gone for a whole year without government handouts.

According to a Tanesco document on the bailouts, total grants and subsidies declined to Tsh237.2 billion ($131 million) in 2012 from Tsh406.8 billion ($226 million) in 2011 and reached less than Tsh170 billion ($94 million) in 2013.

“The government has been providing direct subsidy support of Tsh18 billion ($10 million) equivalent to 40 per cent of total annual capacity charge for IPTL.

The government has also been providing subsidy to cover fuel costs for emergency power producers (EPPs) and independent power suppliers (IPPs) and outstanding energy creditors amounting to Tsh450 billion ($250 million) from March 2012 to May 2013,” the company says in the document.

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For much of this and the past decade, Tanesco has received substantial public financial bailouts, with the World Bank putting direct government infusions at $165 million in 2002-2006.

In June 2013, the government slashed subsidies to 0.3 per cent of GDP from the 1 per cent ($354 million) it gave in 2012.

Mr Mramba said he was optimistic Tanesco would be back on its feet in the next three years but the International Monetary Fund and the government push that time to early next decade.

Tanesco last registered a profit in 2010, when it made Tsh24.5 billion ($13.6 million). In the two years that followed, it incurred losses amounting to Tsh43.3 billion ($24 million) and Tsh283.3 billion ($157.3 million) respectively. Its financial woes began during this period when drought crippled its hydroelectric generation capacity, forcing the company to adopt fuel generated electricity from expensive EPPs and IPPs.

Tanesco finances have improved from almost bankruptcy in 2011, largely due to three factors: The 40 per cent increase in tariffs in January 2014, increased reliance on hydropower as the result of good rains in 2014, and less reliance on the very expensive emergency power plants.

“The situation will certainly improve further, and on a more sustainable basis, when the gas pipeline (from Mtwara to Dar es Salaam) and the Kinyerezi I power plant will be operational, hopefully, in the next few months because this source of power is cheaper than fuel,” a diplomat involved in the financial recovery efforts said on Friday on condition of anonymity.

He told The EastAfrican that subsidies to the utility amounted to about $150 million in 2014. On debts, he said the level of arrears with energy suppliers has decreased from about $300 million in December 2013 to about $170 million last December.

In its blueprint to turn around Tanesco by investing $1.15 billion in 11 years, the government says the strategy can only succeed by paying its debts, which amounted to $270 million mid last year. According to Mr Mramba, the debts to power suppliers will be cleared by end of the year.

The company’s total liabilities were Tsh2,634 billion ($1.46 billion) in 2013 and were projected at Tsh2,495 ($1.38 billion) in 2014.

“Another cause of concern is that revenue collection is not improving as much as expected following the 40 per cent increase in tariffs,” the diplomat said.

“The main reason seems to be that government agencies are late in paying their bills. It looks increasingly like Tanesco is subsidising the government rather than the other way round.”

Last week, Mr Mramba said the firm’s financial position would have been better if its debtors honoured their obligations. At the start of last year, the debtors owed the utility Tsh233 billion ($129.4 million), of which Tsh129 billion was owed by the government entities.

The Tanesco financial recovery strategy also includes splitting it into three separate entities — generation, distribution and transmission — in the next six years.

Mr Mramba, who took over the management of the firm in December 2013, said the utility’s outstanding arrears have been slashed by half to $250 million today.

“These arrears will be addressed by the current initiative of Tanesco paying creditors on a weekly basis as well as ongoing implementation of the Electricity Supply Industry Reform Strategy and roadmap approved by the government on June 30, 2014,” Treasury says.

Tanesco is phasing out emergency power plants that have been costing it dearly. In July 2014, the 150MW Symbion generators at Ubungo in Dar es Salaam were shut down.

Tanesco’s financial recovery started in 2012/13 with the government and the World Bank working together. Its financial situation had deteriorated to alarming levels, beginning 2011 when the country suffered severe power shortages after droughts in late 2010 undercut hydropower capacity.

Under the emergency power production arrangement, Tanesco went for the expensive liquid-fuel generated electricity from EPPs and IPPs. On its part, Tanesco was directed to curb electricity thefts, improve collections and aggressively recover payment arrears.

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