Tanesco power sub-station in Dar es Salaam. Photo/FILE

Despite the ups and downs that the energy sector has gone through in the past, the sector remains one of the significant stimuli of the economy, with substantial investments required to keep the economy running through reliable power supply. Power generation is increasingly becoming unbearable challenge for many developing countries including Tanzania.

Developing countries, from the Sub-Saharan Africa in particular, are the hardest hit by erratic power supply. Yet, Africa in general and Tanzania in particular, are endowed with vast natural resources for power generation—rivers for hydropower, coal, natural gas and renewable sources like solar, wind and biofules—are in abundant supply in the country.

It’s a paradox therefore that the country experiences power scarcity, clean water, health services and other basic needs for the citizens, despite all the riches in natural resources. Some experts link the problems to poor planning and lack of investment priorities.

Lack of strategic investments by the Tanzania Electric Supply Company (TANESCO), for instance, is one of the major factors impeding reliable power supply in the country. Poor investments by the public power utility firm have stalled development, supply and consumption of electricity.

Under-capacity production by local industries coupled with increased costs in terms of standby generators have adversely affected prices of goods and services, created unemployment and slowed economic growth. Investment into power supply is often not directly linked to the economic growth of the country.

The International Monetary Fund (IMF) Third Review under the Policy Support Instrument report show that Gross Domestic Product (GDP) growth dropped from 7.25 percent in 2009/10 to 6.50 percent in 2010/11 due to power shortage. “After low 2010 rainfalls cut hydroelectric generation, businesses largely weathered the 40 percent reduction in the national power supply by using back-up generators.

Growth was high in transport and communication, construction, and financial intermediation,” stated the report. Growth in 2011/12 according to the IMF report is projected to ease to six percent under the impact of domestic power shortages and a softening world economy.

Although efforts to fully restore power generation are underway, says the report, it will take time to be implemented. But for 2012/13, a gradual growth recovery is projected, assuming that energy issues are addressed and in the absence of negative external shocks, commented the IMF report.

Early this year, the state run power supply TANESCO was permitted to hike electricity charges by 40 per cent but the IMF cautioned on the significance that the tariffs reflect the new cost structure to avoid risks to public finances. The 40 per cent tariff hike would cover part of the higher short-term generation costs while strengthening TANESCO finances for the medium-term, stated the PSI report.

Temporary operating losses will be financed by mediumterm domestic bank borrowing by TANESCO of no more than 1 percent of GDP, guaranteed by the government. Building a gas pipeline project for 1.2 billion US dollars is being considered with its financing equivalent to 4.5 percent of the GDP expected to be contracted in 2012/13 from Chinese banks.

The financing, comprising a 70- 30 combination of concessional and non concessional loans, would not pose risks to debt sustainability, being structured to comply with the PSI non concessional borrowing limits. The project, to be implemented largely within 2012/13, would transport gas from domestic fields to electric power plants. Tanzania has good prospects as a major producer of natural gas in about a decade.

This could result into not only multi-billion dollars from Foreign Direct Investment (FDI) over the next five years but also reliable power production that will call to an end energy crisis. Borrowing by the state power utility to finance a projected temporary spike in power generating costs should be regarded as exceptional and kept to limited amounts.

The Bank of Tanzania (BoT) has commended the present efforts by the government to improve the power availability because it would contribute greatly in economic stability, BoT Director of Policy and Research Dr Joe Massawe said in Dar es Salaam over the weekend, noting that short and long term measures, including temporary power tariff hike would finally guarantee reliable power supply.

By SEBASTIAN MRINDOKO, Tanzania Daily News

Do you have a story or an article to publish? Please email us to submit@in2eastafrica.net.