The government plans to invest $1.15 billion in the next 11 years to implement its turnaround strategy for the Tanzania Electricity Supply Company, which includes selling part of the utility to the public. At least $412 million of the amount will be used to pay Tanesco’s debts in the immediate term, while $635 million will be used to pay capacity charges for existing independent power producers (IPPs).

The strategy — one of the biggest energy reforms in recent years — will involve the private sector in raising the funds. Its full implementation will see at least 75 per cent of Tanzanians connected to electricity.

According to the blueprint, the government hopes to increase installed generation capacity from the current 1,583MW to over 9,000MW, by expanding sources of electricity. Nearly 4,000MW will be generated from natural gas and 200MW from geothermal.

READ: Tanzania to use gas to double its power by 2016

The newly released energy blueprint dubbed Electricity Supply Industry Reform Strategy and Roadmap 2014-2025, shows that the implementation of the plan will engage the private sector in a shift that will see the financing of power projects move away from government hands.

“A state-owned generation company will be established through unbundling from the transmission and distribution segment by December 2017. This is expected to intensify competition in power generation. The state generation company will be listed on the Dar es Salaam Stock Exchange, with the government retaining at least 51 per cent shareholding,” the blueprint reads.

Currently, only 24 per cent of Tanzanians are connected to the grid. In rural areas, only 7 per cent of people have electricity due to low purchasing power. The government aims to increase the connection level to 30 per cent by the end of 2015.

The implementation of the plan, which will start this year, will see the generation function split from transmission and distribution by December 2017, with further plans of listing the three independent companies on the stock market in 2025.

READ: Tanesco launches $14m plan to save energy costs

According to the roadmap, the government will adopt consumer-driven competition under which generators of electricity will compete in selling directly to distributors, retailers and final consumers.

“Generators have access to both transmission and distribution wires based on regulated prices. Trading rules and arrangements are required for both transmission and distribution. Final customers may purchase power from the retailer or directly from a generator,” the document reads.

Transmission companies will be owned by the government and will facilitate the supply of electricity from generators to distributors who will operate as separate companies. The companies, which will either be public owned or private, will sell power to retailers in their territories. This is expected to improve services and lower prices.

Tanzania will be the third country in the region to implement such an unbundling after Kenya and Uganda. Tanzania is looking to learn from Kenya where similar reforms undertaken in 2009 helped the country attract private investors into the geothermal sector and significantly increased access to electricity from 16.1 per cent in 2009 to 29 per cent in 2013.

The report says similar reforms in Uganda helped reduce losses from 38 per cent to 26 per cent.

The government has until next year to establish a taskforce to monitor the implementation of the roadmap and carry out a valuation of Tanesco’s generating, transmission and distribution segments. Furthermore, it will seek to reduce system losses from 19 per cent to 18 per cent by June 2015.

Debt burden

However, the blueprint warns that implementing such a plan without paying Tanesco’s debts would have an adverse outcome. Tanesco managing director Felichesmi Mramba told The EastAfrican that the introduction of the new tariff of 40 per cent in January has helped reduce the company’s deficit and improve its financial status.

Losses have gone down by half, and it is expected that Tanesco will have paid off all its debts, currently amounting to Tsh450 billion ($270 million), by the end of 2015, and will start making profits from 2016, according to Mr Mramba.

Mr Mramba said the company is expecting to phase out most of the emergency power producers (EPPs) after the completion of the Kinyerezi 1 power project, which is expected to add 100MW to the grid by the end of this year.

“Symbion Dodoma and Arusha, which produce 105MW, have been paid off, and efforts are underway to convert two EPPs, Symbion Ubungo and Aggreko, to gas, thus reducing costs,” said Mr Mramba.

Jacques Morisset, the World Bank’s lead economist for Tanzania, Burundi and Uganda, said the decision by the government to increase tariffs, borrowing from commercial banks and receiving transfers from the central government seems to have improved Tanesco’s financial standing, and the level of arrears has stabilised.

“The government has been investing in different projects to reduce the electricity production costs by shifting from fuel to gas. It is expected that the implementation of these investments will lead to lower production costs that will be aligned to existing tariffs,” said Mr Morisset.