Tanzania’s chronic energy crisis deepened last week after the country announced a 12-hour power-rationing schedule.

A drastic drop in the water level of the Mtera hydroelectric dam in Iringa Region forced the Tanzania Electricity Supply Company (Tanesco) to announce an alternating power rationing programme ushering in 12-hours of power cuts during daytime and six hours at night in most regions.

The Tanesco management says it needs no less than $850 million to provide reliable electricity. But can Tanzania’s struggling economy afford to inject such amounts into a firm that is fighting a credibility crisis due to the power shortages? Tanzania’s interconnected grid system has an installed capacity of 773MW, of which 71 per cent is hydropower.

Power shortages and expensive energy continue to pile pressure on manufacturers in Uganda, Rwanda, Burundi and Kenya. East Africa’s grid connection rate is the lowest in Africa. According to the World Bank, only 15 per cent of households in the region are connected to national grids. Tanzania is the least electrified of all, with 7.2 million off-grid households. This is followed by Kenya (6.2 million), Uganda (5.5 million), Rwanda (1.7 million) and Burundi (1.4 million).

A recent study by the Lighting Africa programme of the World Bank shows that Rwanda experiences the greatest number of power outages, with approximately 14 blackouts per month, followed by Burundi and Tanzania, both with 12 blackouts in a month. Ugandans can expect 11 blackouts a month. Kenya’s power grid is relatively more reliable, but this still translates into an average of seven blackouts a month. As a result, it is estimated that 56 per cent mid- to large-sized firms in the EAC have to rely on generators for some part of their production process, pushing up the cost of doing business.

By contrast, Japan, to take one example, experiences an average of only four minutes of interrupted power service a year.

“Clearly, the power rationing will push up the cost of production, which is already too high. The prices of commodities will as a result continue to climb,” said Mbuvi Ngunze, general manager of the Mbeya Cement Company. “In order to continue with production, we are being forced to use fuel oil, which doubles the production costs,” he added.

Tanzania plans to increase grid connections to 29 per cent of the population (63 per cent urban and two per cent rural) by 2015. To achieve this, the power sector needs to install 2,046 MW of new generation capacity and 266 MW in interconnectors in the next three years in order to keep pace with demand.

Manufacturers argue that the divestiture of Tanesco, which was meant to help improve power supply in the EAC’s second biggest economy, has not helped. “For 10 years we never had any serious new investment in our infrastructure; so the coming of the Net Group Solutions management firm from South Africa in 2002 made no difference,” said a senior manager at Tanesco who requested anonymity. “If the country had made investments in alternative sources of generating power during this time, the current and almost permanent power shortages would have been minimised.”

Investors’ loss

The power rationing could force factories to shut down and cut jobs to survive. “If a company is forced to use generators for 10 hours a day, the end user will suffer and our products will become unaffordable in local and regional markets,” said Alfred Vililo, a senior engineer at Aluminium Africa, the leading manufacturer of roofing sheets and building materials in Tanzania. “We need reliable power to make Tanzania an attractive investment destination,” said Mr Vililo. It is estimated that the burden of power outages on Tanzania’s economy is as high as 4 per cent of GDP.

The power sector’s high hidden costs are a major budgetary burden for the country. Tanesco’s hidden costs — in the form of underpricing, collection losses and distribution losses — comprised as much as 2.1 per cent of GDP in 2008. During the past decade, the average historical cost of producing electricity in Tanzania has been $0.16 per kilowatt-hour. The average effective power tariff in the country is $0.06 per kilowatt-hour, substantially below the cost.

Currently, Tanesco’s revenue barely covers operational costs, so capital expenses must be subsidised by the public sector or donor financing. The company reports transmission and distribution losses of 26 per cent compared with a best practice standard of 10 per cent. As a result, it captures only up to 64 per cent of potential revenue.

Recent pronouncements by Minister for Energy and Minerals William Ngeleja that the government planned to make the perennial power problems “history” now look like hollow promises. The Confederation of Tanzania Industry recently voiced dissatisfaction over government failure to implement recommendations made by the Confederation and other industry players.

The CTI says that prolonged power disruption reduces industrial production — which in turn leads to laying-off of workers. Tax revenue is also affected when production is reduced and operating costs are high. New investment is frustrated or delayed when electricity supply is not assured.

CTI has recommended that when it is unavoidable, industries use standby generators, but the government has to waive duties and taxes on fuel. Power generated from standby generators is up to four times more expensive than power from the national grid, thereby increasing the cost of production in large industries, and is not an option for SMEs.
Reported by Joseph Mwamunyange, Christine Mungai, John Mbalamwezi and Leornard Magomba