Dar es Salaam: Cash-strapped Tanzania Electric Supply Company Limited (Tanesco) is seeking to borrow Sh408 billion ($257 million) from local banks to pay for power supplied by private producers during last year’s electricity crisis. Tanesco managing director William Mhando told a US newspaper on Thursday that the loan talks with the banks, including Citibank (T) Ltd, were at an advanced stage, adding that the discussions were to be concluded this week.
“The money is needed to fund emergency power projects that we undertook last year to meet demand,” Mr Mhando told the New-York based Bloomberg. “We expect to conclude negotiations with a group of financiers led by Citibank today (Thursday) or tomorrow (Friday).”
Attempts to reach him to confirm the development to The Citizen on Saturday yesterday failed. The utility’s public relations manager, Ms Badra Masoud, said she was unaware of the negotiations.
Mr Mhando said Tanesco would use the loan to pay for fuel used to generate electricity until December 2011 and offset charges demanded by power generators when their plants were not running at full capacity.
Tanzania had an electricity deficit of 264MW last February following a drop in hydropower generation after a drought that resulted in power rationing, mostly in the second half of the year. The deficit prompted MPs to refuse to endorse the Energy and Minerals ministry’s 2011/12 budget until it came up with a Sh1.24 trillion plan to tackle the crisis.
Mr Mhando said Tanesco was also pursuing financing for new generation projects to be commissioned this year. The government was expected to reach an agreement with HSBC Holdings Plc (HSBA) to fund a 100MW gas- fired plant in Dar es Salaam, estimated to cost $165 million, he said.
“This and another 70MW plant fired by heavy fuel oil in Mwanza have been contracted to (Norwegian power-plant builder) Jacobsen Elektro AS,” Mr Mhando said. In addition, the utility is seeking 83 million euros ($107 million) for a 70MW plant in the northern region of Tanga. Tanesco has for quite some time been facing cash flow problems and the utility made an annual loss of Sh200 billion last year.
“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.”
The move to borrow from the banks has been welcomed by the director of policy and advocacy of the Confederation of Tanzania Industries (CTI), Mr Hussein Kamote, who said it was vital in helping Tanesco to sort out its financial problems. He, however, said that could lead to more tariff increments in the future to enable the utility to finance the loan.
Tanesco last year entered into a power-purchase agreement with Washington, D.C.-based Symbion Power LLC to produce 125MW 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 (AGK) to produce 100MW using diesel, and boosted production at heavy fuel oil-fired generators run by Independent Power Tanzania Ltd. to 100MW from 20MW. Electricity output in Tanzania is currently 700MW, 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 per cent increase in electricity tariffs. Tanesco had applied for 155 per cent price increase. 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, Mr Mhando said.
A 155 per cent increase in tariffs would have raised income to Sh359 per kilowatt hour from Sh141 per kilowatt hour currently, the power utility told the regulator in an application for the adjustment.
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, Mr Mhando said.
“We shall postpone some projects in rural electrification, and concentrate on those that bring returns in at most two years.” In the event that the loan raised is less than the amount required, the utility expects to receive a government subsidy, Mr Mhando said.