Electricity – the pursuit of excellence

Presentation to the ABA

20 April 2006

Clean, reliable, cost-effective electricity available to all

> Context – overview of the sector

> Poor performance – symptoms and diagnosis

> Solutions – medium term and immediate

Overview of the sector

Customers

Customers

Customers

Customers

Generation650MW

Transmission

distributionIPTL

100MW

Songas180MW

New genco?

New genco?

Policy and regulation by MEM

Tanzania’s electricity sector is dominated by TANESCO

Customers

Customers

Customers

Customers

Transmission

distributionAggreko

50MW

OFPC380MW

Bujagali200MW

Regulated by an independent regulator

Government retains some ownership in Uganda’s electricity sector but mostly it is commercially driven

New 100MW

Customers

Customers

Customers

Customers

Transmission

distribution

Genco

Genco

Genco

Regulated by an independent regulator

UK, like many European, US and Latin American countries has no government ownership

Genco

distributiondistribution

distribution

Poor performance – symptoms and diagnosis

We are all familiar with the problems…

> poor reliability

> higher prices

> low access

> load-shedding

…and the impact on our businesses and homes

> unable to operate

> loss of production batches

> damage to equipment

> high cost of back up generation

cost of lack of electricity supply is estimated at between 50c and $2.00 for each unit not supplied

Tanzania’s generation capacity is mostly hydro-electric and dependent on rainfall…

80

200

180Kidatu

Mtera

Kihansi

rain rain rain

…and today long term water levels are critically low (though ‘run-of-river’ stations are OK)…

0

120

180Kidatu

Mtera

Kihansi

rain rain rain

…so when the rains stop, we will be back to where we were a few weeks ago…

10

20

20Kidatu

Mtera

Kihansi

rain rain rain

…and without hydro generation TANESCO cannot meet daily demand

Daily demand

0

100

200

300

400

500

600

1 2 3 4 5 6 7 8 9 1011 1213 1415 1617 181920 2122 2324

Demand

Without immediate short term generation demand will outstrip supply for between three and five years

Average capacity v demand

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011

Year

MW

CCGT

Tegeta EPP

Kinyerezi

IPTL

EPP

Songas

Hydro

Supply is just about enough to meet demand if two new emergency plants are brought on line this year

Average capacity v demand

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011

Year

MW

CCGT

Tegeta EPP

Kinyerezi

IPTL

EPP

Songas

Hydro

Reasons for poor performance

> Historical under-investment

> TANESCO is under-resourced

> Management has not been performance-focused

> Poor planning process

Reliable electricity supply is achievable within five years

Reliable electricity supply is achievable within five years

> commercial management focused on bottom line performance

> rules based regulation setting targets for efficiency and reliability

> set tariffs to reflect actual costs of the sector including cost of capital

> step back, let managers manage and reward/penalise success/failure

Tanzania has the lowest average electricity price in East Africa

Comparative electricity prices in East Africa

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Domestic General Small industrial Large industrial

Type of customer

US

ce

nts

/ k

Wh

Kenya

Tanzania

Uganda

Today’s load-shedding and ongoing poor reliability are the result of a prolonged historical failure of the sector investment process

Forecastgrowth, and

reservemargin

Identify investment

needs

Identify capital

available

Structureprojectsand getcapital

Implement

Causes of failure to invest:

• bankrupt sector• donor / subsidy reliant• insufficient experience• political decisions / indecisions

Capital is available:

• Commercial banks• Institutions / pension funds• Dar Stock Exchange• Strategic investors• Development Finance • Multi-laterals

Clean, reliable, cost-effective electricity available to all