Tanzania's over-reliance on hydro has had many ramifications for its economy... right down to a reduction in new rural electrification connections.
The discussions may conclude this week, William Muhando, managing director of Tanzania Electric Supply Co., said in an interview today in Dar es Salaam, the commercial capital.
"The money is needed to fund emergency power projects that we undertook last year to meet demand," Muhando said. "We expect to conclude negotiations with a group of financiers led by Citibank today or tomorrow."
Tanzania, East Africa's second-biggest economy, had an electricity deficit of 264 megawatts last February following a drop in hydropower generation after a drought. The resulting power outages caused a slowdown in economic growth to 6.4 percent in the third quarter of 2011 from 6.7 percent a year earlier, the National Bureau of Statistics said on Jan. 17.
Tanesco, as the utility is known, is also pursuing financing for new generation projects to be commissioned this year, Muhando said. The government is expected to complete an agreement with HSBC Holdings Plc to fund a 100-megawatt gas- fired plant in Dar es Salaam, estimated to cost $165 million, he said.
"This and another 70-megawatt plant fired by heavy fuel oil in Mwanza have been contracted to Jacobsen Elektro AS," the Norwegian power-plant builder, Muhando said. In addition, the utility is seeking 83 million euros ($107 million) for a 70- megawatt plant in the northern region of Tanga, he said.
Tanesco expects to report an annual loss of 200 billion shillings for year 2011 and the same amount for this year because of the drought, Muhando said.
"We made a profit of 15 billion shillings in 2010, and 5 billion shillings in 2009," he said. "But the low water levels caused a loss in 2011, and this will continue this year."
Tanesco last year entered into a power-purchase agreement with Washington, D.C.-based Symbion Power LLC to produce 125 megawatts of electricity using both gas and Jet-1 fuel, as one of the emergency projects. The company also contracted Glasgow, U.K.-based Aggreko Plc to produce 100 megawatts using diesel, and boosted production at heavy fuel oil-fired generators run by Independent Power Tanzania Ltd. to 100 megawatts from 20 megawatts.
The 408 billion-shilling loan will be used to pay for fuel used until December 2011 and for a charge demanded by power generators when their plants aren't running at full capacity, Muhando said.
Electricity output in Tanzania is currently 700 megawatts, matching demand, "which means the impact of any shortfall is significant," he said.
The talks on the loan are concluding a week after the country's energy regulator approved a 40 percent increase in electricity powers. Tanesco had applied for prices increase by 155 percent. The utility was hoping to use a "cost-reflective" tariff as a bargaining chip for the loan, as it would guarantee a specified amount of revenue, Muhando said.
A 155 percent increase in tariffs would have raised income to 359 shillings per kilowatt hour from 141 shillings per kilowatt hour currently, the power utility told the regulator in an application for the adjustment.
"We understand it is going to be an average hydrology year, meaning there will be water to generate electricity at the hydropower dams," Haruna Masebu, director-general of the Energy and Water Utilities Regulatory Authority, said in a Jan. 12 interview. "We also cannot increase the tariff so much because that could cause inflationary pressures."
Tanzanian inflation accelerated to 19.8 percent in December, as energy and food costs increased.
Tanesco is revising its budget for 2012 to reflect a "non- cost-reflective" power tariff, and will postpone projects whose return on investment is long-term, Muhando said.
"We shall postpone some projects in rural electrification, and concentrate on those that bring returns in at most two years," he said.
In the event that the loan raised is less than the amount required, the utility expects to receive a government subsidy, Muhando said.
--Editors: Paul Richardson, Antony Sguazzin.