FINAL EXECUTIVE SUMMARY - NKRA ENERGY - 2013 04 11 · PDF fileComplete GSA negotiations Ensure...

NKRA EnergyEnergy Lab Final ReportExecutive Summary

11 April 2013

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission is strictly prohibited

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The Energy lab devoted 14,112 thinking hours to solving the sector’s key challenges and coming up with high-impact, business-unusual solutions

14,112 thinking

hours from 48 participants

300+ pages of implementation plans

detailed to 3 feet

414 supporting analyses

done using up 87 markers

2

▪ Shaban Kabunga, Attorney General Chambers▪ Barke M.A. Sehel, Attorney General Chambers▪ Mohamed Abdulla Mohamed, Zanzibar▪ Samer al Fayadh, SIDA▪ Charles Stephen Omujuni, EWURA▪ Noel Mwakabungu, EWURA▪ Godfrey Chibulunje, EWURA▪ Msafiri Mtepa, EWURA▪ Deo Onyango, General Electric▪ Hamza Mwapachu, Kilwa Energy▪ Eliakim C. Maswi, Ministry of Energy and Minerals▪ James Andilile, Ministry of Energy and Minerals▪ Innocent Luoga, Ministry of Energy and Minerals▪ Juma Mkobya, Ministry of Energy and Minerals▪ Leonard R. Masanja, Ministry of Energy and Minerals▪ Ebarhart Dilliwa, Ministry of Energy and Minerals▪ Wanja A. Mtawazo, Ministry of Energy and Minerals▪ Godwill G. Wanga, NDC▪ Pascal Malesa, NDC▪ Sospeter Kerefu, NDC▪ Kamugenyi Luteganya, NEMC▪ Glory Bildard, OPHIR / OGAT▪ Benjamin Kisungwe, OSHA▪ Jamidu Katima, University of Dar es Salaam

▪ Bizimana Ntuyabaliwe, PanAfrican▪ David Mwankenja, POPC▪ Nyanzala S. Nkinga, POPC▪ Omari Athumani, POPC▪ Happiness Mgalula, POPC▪ James Kilabuko, POSH▪ Jones Olotu, REA▪ Prosper Msellem, REA▪ Sebastian Kastuli, Songas▪ Dominic Mosha, Sumitomo▪ Theodory F. Bayona, TANESCO▪ John Kabadi, TANESCO▪ Abubakar K. Issa, TANESCO▪ Simon Jilima, TANESCO▪ Gregory Chegere, TANESCO▪ Abdi Kagomba, TIC▪ Modestus Martin Lumato, TPDC▪ George Kibakaya, TPDC▪ Daniel Moore, USAID▪ Steven de Backer, Webber Wentzel▪ Mohd Taufik Abd Mujib, PEMANDU▪ Adam Kendall, McKinsey & Company▪ Mikhail Nikomarov, McKinsey & Company▪ Jemima Peppel, McKinsey & Company

On behalf of 48 participants …

3

… from 25 different institutions …

KilwaEnergy

Occupational Safety & Health Authority

4

… a big Asante Sana! Bring on Big Results Now!

The Big Results Now Energy Delivery Lab –February 22nd to April 5th, 2013

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Abbreviations

CFL Compact fluorescent lightDiscos Distribution companiesDP Development PartnerDSM Dar es SalaamDx DistributionEMS Energy Management SystemEPC Engineering, Procurement &

ConstructionEPP Emergency Power ProducerEWURA Energy and Water Utilities

Regulatory AuthorityGDP Gross Domestic ProductGencos Generation companiesGoT Government of TanzaniaGSA Gas Supply AgreementGWh Gigawatt hourGx GenerationHFO Heavy fuel oiliMDU Interim Ministerial Delivery UnitiPDB Interim President’s Delivery BureauIPP Independent Power ProducerIPTL Independent Power Tanzania LimitedKPI Key Performance Indicator

kV kilovoltskWh kilowatt hourMDU Ministerial Delivery UnitMEM Ministry of Energy and MineralsMoF Ministry of Financemmscfd Million standard cubic feet per dayMWh Megawatt hourNBS National Bureau of StatisticsPDB President’s Delivery BureauPPA Power Purchase AgreementPPP Private Public PartnershipPSMP Power System Master PlanREA Rural Energy AgencySIDA Swedish International Development

Cooperation AgencyT&D Transmission & DistributionTANESCO Tanzania Electric Supply Company

Limited TPDC Tanzanian Petroleum Development

CorporationTx TransmissionTZS Tanzanian ShillingsWBAs Water Basin Authorities

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Executive summary for NKRA Energy Lab

▪ Tanzania’s electricity sector lags behind its East African neighbours, with annual kWh consumption of 97 per capita; while sector demand will double in next three years, production and distribution are not currently poised to grow in equal measure, limiting Tanzania’s growth potential

▪ The NKRA Energy Lab recommends achieving results in 3 initiative areas that will result in more than doubling of base capacity and energy delivered by 2015; 1. Achieving 50% increases in energy delivered and TANESCO revenue by

revamping operations of existing assets: delivering new gas to underutilisedplants, upholding water management practices and improving in-dam operations, limiting energy losses in transmission and distribution, launching demand management initiatives and optimising EPP dispatching and fuel supply

2. Growing the sector by prioritizing and delivering against 14 prioritized generation projects and 590,000 new connections, supported by business unusual approaches to delivery; this will involve greater focus on prioritization, M&E, use of alternative sources of funding and fast-tracking approval for current system bottlenecks

3. Redefining the sector strategy and structure, including a gradual restructuring of TANESCO to bring viability to the entire system

▪ The NKRA Energy Lab’s initiatives will be supported by a Ministerial Delivery Unit, chaired by the President and supported by a Steering Committee, POPC, and PDB

▪ Overall budget for the proposed initiatives is roughly TZS 9.8 trillion, with at least 40% being covered by private investment and Development Partners

▪ The NKRA Energy lab is ready to move forward with implementation and the transformation of the Tanzanian energy sector!

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Contents

▪ Sector context and case for change

▪ Vision and overview of initiatives

▪ Funding requirement, governance structure, KPIs and quick wins

EXECUTIVE SUMMARY

8

Electricity consumption and economic development are closely linked

SOURCE: World Bank Energy Statistics, Global Insight (WMM)

Electricity consumptionMWh/capita

Economic developmentGDP/capita Trend

6 9 1412117 15 181716

55

90

26

5

3

25

30

20

4035

45

15

Australia

Norway

Italy

UAE

Sweden

21 13

Korea

0

Tanzania10

54 108

50US

EXECUTIVE SUMMARY

9

But today, electricity consumption in Tanzania is very low

Electricity consumption from select countries

kWh/capita/year, 2010

136

320

394

616

795

97Tanzania20121

Nigeria

Ethiopia

Mozambique

India

Kenya

Brazil 2,384

China 2,944

South Africa 4,803

SOURCE: World Bank Energy Statistics, TANESCO; NBS1 An estimated additional 38kWh / capita of constrained demand was unmet in 2012

EXECUTIVE SUMMARY

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Constrained electricity sector growth

1 Emergency Power Producers

The development of Tanzania’s electricity sector is constrained by a number of challenges

Evolving structure of electricity sector

and TANESCO

Insufficient monitoring and

execution capacityReliance on expensive EPPs1

Over-reliance on hydro generation

High energy losses from aging transmission and distribution system

Rapidly growing demand

Insufficient gas supply

Constraint on government

funding

EXECUTIVE SUMMARY

11

In particular, demand is forecast to grow rapidly, nearly doubling in the next 3 years

2015

+9% p.a.

11,246

47,724

2035

+85%

2025

27,139

2012

6,085

Forecasted electricity demand by Tanzanians1

GWh / year

1 Unconstrained demandSOURCE: Power System Master Plan

EXECUTIVE SUMMARY

12Source: TANESCO

800

1,000

1,200

600

400

200

05,0004,5004,0002,5002,0001,500 3,5001,0005000

SymbionAggreko

Ø 151

3,000

Independent Power Producers (IPPs)TANESCO

Emergency Power Producers (EPPs)

IPTL

High reliance on expensive generation sources that has made the sector financially unviable

Generation cost (excludes transmission and distribution cost)TZS/kWh

GenerationGWh / year

Songas

Hydro plants Gas plants Other fuels, such as jet fuel and Heavy Fuel Oil (HFO)

Current average tariff

In 2012, almost 20% of generated electricity came from EPPs and IPTL, running on expensive fuel, cost 5-8x more than TANESCO or IPP gas plants and 3-4x more than current tariff levels per unit

EXECUTIVE SUMMARY

13

How do we turn on the lights in Tanzania?

Tanzania’s vision for the futureTanzania today

EXECUTIVE SUMMARY

14

Contents



1. Maximise existing assets

2. Deliver prioritised projects

3. Continue sector evolution


EXECUTIVE SUMMARY

15

To turn the lights on, the energy sector will witness big changes over the next 3 years

Complete 14 major Tanzanian power projects

More than double base capacity from 1,010 to 2,260 MW

Provide access to electricity for ~5 million more Tanzanians

Increase annual consumption from 97 to 236 kWh/capita

Install over 3,000 km of high voltage power lines

Increase TANESCOrevenue by 50% (from existing plants)

Replace 3.2 million inefficient light bulbs Eliminate EPP1 reliance

1 Emergency Power Producers

EXECUTIVE SUMMARY

16 16

Realise Energy sector aspirations by making the sector financially viable, creating and publishing a roadmap for sector reform, and gradually restructuring the national utility

Deliver generation, transmission & distri-bution projects by focusing on execution

Deliver more energy from existing assets and phase out EPPs

The Energy Lab recommends achieving Big Results Now through a three-pronged focus

a. Ensure on-time completion of the Mtwara-Dar portion of the pipeline

b. Manage catchment-area water usage and in-dam operations at Mtera

c. Reduce technical and non-technical losses through transmission and distribution upgrades and meter replacement

d. Introduce targeted demand management to reduce evening peak load

e. Reduce EPP costs and reliance by optimising dispatch and fuel procurement

a. Prioritise projects based on ability to complete in 3 years

b. Set up the Ministerial Delivery Unit (MDU) that works with the Presidential Delivery Bureau (PDB) to coordinate and diligently monitor implementation progress and execution

c. Utilise alternative funding models to reduce the Government of Tanzania’s burden to finance projects

d. Streamline critical processes to minimisetimelines and risk of delay

1 2

3

EXECUTIVE SUMMARY

SOURCE: Energy lab

17

Contents







EXECUTIVE SUMMARY

18 18

5 business-unusual initiatives will enable Tanzania to make the most of existing assets and transform sector operations and financial viability

1 Figures are annualisedSOURCE: Energy lab

Initiative Primary impact1

Ensure on-time delivery of Mtwara –Dar pipeline

a1,354

more GWhdelivered

Manage water and operate dams sustainably

b40

TZS billion cost reduction

Introduce targeted demand manage-ment initiatives

d67


Upgrade transmission and distribution system

c68

TZS billion revenue increase

Optimise EPP and IPPdispatch and fuel supply

e137


EXECUTIVE SUMMARY1

19

The Mtwara-Dar pipeline must be delivered by Q4 2014, allowing 63% more generation and savings of TZS 25 billion/month in EPP fuel cost

SOURCE: TPDC

Key actions Review potential to

accelerate processing plant completion

Complete GSA negotiations

Ensure temporary port in Ziwani and roads to constru-ction site can handle oversized / heavy equipment

Reinforce project monitoring team

Acquire financing for gas supply metering and surface facilities

Planned additional gas infrastructure

Dar es Salaam

Mnazi Bay

Gas-receiving station

Songo Songo field24“ pipeline

(25km)36“ pipeline (482 km)

Mnazi Bay processing plant: 210 mmscfd Mnazi field

Songo Songo processing plant: 140 mmscfd

Gas infrastructure expansion plans Impact1

+1,354 GWhdelivered

(+63%)

▪ TZS 253 billion revenue increase

▪ TZS 294 billion cost savings

a

Situation: Existing gas infrastructure cannot supply enough gas for gas-fired plants to run at target 90% utilisation

1 Annualised

Success factor: To ensure on-time or even early delivery of the pipelines, a number of potential risks must be addressed proactively and any opportunity to accelerate delivery should be considered

EXECUTIVE SUMMARY

20

Managing dam operations and Mtera catchment area water usage sustainably can increase hydro generation by 24% and save TZS 40 billion

Key actions to be taken

a. Set up task force to ▪ Conduct stake-holder

awareness campaign

▪ Address challenges in implementation of Water Resources Management Act

▪ Facilitate joint associations among water users, WBAsTANESCO and EWURA

b. Operate dams betterand determine strategy and enforcement mechanism to optimisedam operations

Sustainable water usage and dam operations proposal Impact1

Catchment area

Mtera dam

Increased awareness and enforcement of existing water usage regulation

Improved dam operations based on optimal annual generation path

b

a

+418 GWhdelivered

(+24%)

▪ TZS 80 billion revenue increase

▪ TZS 40 billion cost savings

b

Situation: Low dam levels and unsustainable dam operations are constraining generation from hydro plants

1 Annualised

Success factor: Success of the initiative depends on setting the right incentives to encourage behavioural change of both power station operators / managers and the water users and regulators in the Mtera catchment area

SOURCE: Energy lab

EXECUTIVE SUMMARY

21

Key actions to be takenT&D upgrade proposal Impact1

Reinforcing the existing transmission and distribution network to reduce losses to 15% will increase revenue by TZS 68 billion

Rehabilitate 7,722km of high-voltage and 6,586km of low-voltage distribution lines

Replace 288,000 meters with prepaid ones and install 17,700 automatic ones

Rehabilitate 16 overloaded transmission substations +324 GWh

delivered(+7%)

c

TZS 68 billion revenue increase

▪ Secure financing, e.g. AFD▪ Upgrade overloaded

substations, provide additional transformers and install voltage compensation equipment

▪ Extend the EMS to cover entire grid and build operator capabilities

▪ Rehabilitate distribution lines by replacing rotten poles, upgrading conductors, refurbishing distribution transformers and repairing defective switches and upgrade 16 key primary substations

▪ Roll out prepayment meters and install Automatic Meter Reading

Situation: Overloaded lines, transformers and feeders, rotten poles and electricity theft are causing 21% T&D losses

1 Annualised

Success factor: The initiative will pay for itself in less 5 years or less, and is an essential component towards ensuring system stability and sufficient revenue recovery when additional capacity comes online

Extend energy management system (EMS) to cover entire grid

SOURCE: Energy lab

ii

i

iii

iv

EXECUTIVE SUMMARY

22

Demand management can reduce the daily evening peak by 60% and save TZS 67 billion in EPP fuel cost per year

Demand management proposal Impact1 Key actions to be taken

Run pilot to retrofit 3.2 million incandescent light bulbs with CFL in selected areas and assess implementation challenges of a country-wide rollout

Conduct large-scale public awareness campaign about efficient use of electrical household appliances

Conduct round table discussions between TANESCO and the largest industrial power consumers to shift load away from the evening peak

Develop National Energy Efficiency Programme to assess other opportunities

Demand managementEncourage a shift industrial demand away from peak hours to flatten peak and reduce need for EPPs to run during peak hours

Replace incandescent bulbs with more efficient CFL bulbs and develop National Energy Efficiency Programme

Energy efficiency60% lower

evening demand spike

TZS 67 billion cost savings

d

Situation: The evening spike in daily demand is 100MW above average and requires expensive EPPs to kick in to cover it

1 Annualised

Success factor: After having been detailed in the Lab process, SIDA committed to support the activity of replacing incandescent lightbulbs, which will facilitate running the pilot and gives momentum to the whole initiative

Funded during Lab

SOURCE: Energy lab

EXECUTIVE SUMMARY

23

Improve dispatching and fuel supply to run IPTL moreGWh, 2012

Monitor fuel consumption and financial flowsTZS per kWh, 2012

Impact1EPP and IPP dispatch enhancement proposal

EPP fuel expenditure can be cut by up to TZS 137 billion through least-cost dispatching and timely fuel delivery to the cheapest plants

0

50

100

150

Mar

Ø31%

DecSeptJun

Expected cost3

703+29%

Effective price paid2

907

Part IPTL could have covered EPP generation

1 Annualised 2 Based on actual expenditure to EPPs from June to December 2012 3 Given contractual agreement and actual MWh generation from June to December 2012

TZS 137 billion cost savings

Key actions to be taken

Implement efficient dispatching so that cheaper plants are run first and that fuel supply is sufficient to allow for this prioritisaion

Install fuel metering systems to monitor fuel consumed by EPPs and IPPs

Publically publish EPP and IPP fuel consumption and payment data

Convert IPTL 100MW HFO to natural gas (dual fuel) in 2014, when gas becomes available

e

Situation: Fuel supply issues mean that dispatching is not based on lowest cost, exacerbating the financial strain EPPs cause

Success factor: EPPs are here to stay until 2014 – but in the meantime, it makes financial sense to optimise their operations

SOURCE: Energy lab

42 billion TZS from

better dispatching 95 billion

TZS from monitoring

EXECUTIVE SUMMARY

24

Business unusual in operating existing assets will create significant impact before 2015

Expected impact of business unusual, 2013-2015, GWh, TZS million

SOURCE: Energy lab

2,000

1,500

22

Additional energy deliveredGWh/annum

Additional revenueTZS million / annum

Cost savingsTZS million / annum

400,000

225,000

3,500

2013 2014 2015 2013 2014 2015 2013 2014 2015

500,000

310,000

72,000

EXECUTIVE SUMMARY1

25

Contents







EXECUTIVE SUMMARY

26

In ensuring delivery against Tanzania’s energy needs, the lab recommends 4 business unusual approaches

4 business unusual approaches must be utilised to ensure that new energy projects are implemented

▪ Prioritize to focus only on feasible projects

▪ Monitor and execute projects using a new governance model

▪ Reduce Government of Tanzania’s financing burden

▪ Streamline critical processes to reduce delays

a

b

c

d

Generation 7 new plants 1,310 MW in new

capacity

Transmission 7 new lines >3000 km of new

high voltage lines

Distribution 590,000 new connections ~5 million more with

access to electricity 30% electrification rate

EXECUTIVE SUMMARY

SOURCE: Energy lab

2

27

Prioritization: 7 generation projects will deliver1,310 MW in the next 3 years

Prioritized Projects MW potential

Gas Coal Hydro Wind Other technologies

a

Tim

ing

Big

Impact of results

1310

Biomass potential

Kinyerezi I

Kilwa Energy, Phase 1

Kinyerezi II

Kinyerezi III

Kiwira Power

Singida Geo Wind Phase 1

Mchuchuma coalNgakacoal

Singida Geo Wind Phase II

Solar potential

Kinyerezi IV

Geothermal potential

Mapembasi

Mbamgamao

Stiegler's Gorge

Kilwa Energy, Phase 2

Somanga Fungu JV

Mwanza (HFO)

PPP funding

Private sector funding

GoT funding

3000Singida Wind East Africa

Now

-201

5/16

Afte

r 201

5/16

Small

Prioritization for generation projects was based on

▪ Size of generation impact (MW)

▪ Timing for completion (before versus after 2015/16 target)

EXECUTIVE SUMMARY

SOURCE: Energy lab

28

Dar Es Salaam

Kilimanjaro

Mbeya

Dodoma

ShinyangaArusha

Ruvuma

Kihansi

Kilwa

Kagera

Mwanza

12

3

4

5

6a7

6b

Prioritization: 7 transmission projects will evacuate power from new plants and extend grid coverage

x Priority

1Based on 220kV analysis

Backbone1Dar-Arusha2

Singida-Arusha3

Somanga-Kinyerezi4

Makambako-Songea5

North West Grid Ph.16

Dar-Dodoma7

Cost (TZS)Projects Size400kV400kV

400kV

220kV

220kV

400kV1

400kV

481 Bil1,232 Bil

391 Bil

136 Bil

146 Bil

218 Bil1

325 Bil

New 400 kV line

New 220 kV line

a

Prioritization for transmission projects was based on

▪ Criticality of the transmission line to evacuate or deliver energy

▪ Timing for completion (before versus after 2015/16 target)

EXECUTIVE SUMMARY

SOURCE: Energy lab

29

Prioritization: distribution projects will provide electricity access to nearly 5 million more Tanzanians by 2015/16

a

Prioritization for distribution electrification projects was based on

▪ Feasibility to complete projects by 2015/16

▪ Availability of funding for the project

▪ Average cost per connection

EXECUTIVE SUMMARY

SOURCE: Energy lab

30

The new monitoring and escalation structure will eliminate bottlenecking of inter-ministerial and inter-institutional issues

b

Fast-track pathNormal pathInformation only

Ministry Delivery Unit

HE President

Inter-Ministries/ Inter-Institutions

President Delivery Bureau

Contractor

Minister of Energy

& Minerals

Developer/ Project Manager

Most common source of bottlenecks

MDU monitor prioritized projects daily, to escalate any unresolved issues to MEM / PDB

PDB escalates issues to HE President on request from MDU

New fast track path available for prioritized projects

▪ Improved monitoring and execution(M&E) of the prioritisedprojects is a critical element of the new governance model

▪ Addition of an escalation process all the way to the HE President, will streamline removal of bottlenecks

EXECUTIVE SUMMARY

SOURCE: Energy lab

31

In generation, private sector funding through two PPP options will reduce GoT’s financing burden

2. Direct negotiation with ready investor (i.e. “closed tender”)

Negotiate between committee and identified PPP investor

Awarding of contract and finalize financing arrangements

Close deals and form Joint Venture company

Start project construction and commission plant

Obtain approval for project’s proposal by PPP committee

Shorter lead time to project commencement but likely more expensive

Obtain approval for project’s feasibility study by PPP unit

1. Open bidding by TANESCO through PPP unit in Ministry of Finance

Float bid documents and evaluate proposals

Awarding of contract and finalize financing arrangements

Close deals and form Joint Venture company

Start project construction and commission plant

Longer lead time through current PPP process but likely the cheaper option

c

▪ Reducing the government’s funding burden can be done via a Public-Private Partnership (PPP) model for generation projects

▪ Kinyerezi III and IV are two projects recommended for PPP

EXECUTIVE SUMMARY

SOURCE: Energy lab

32

On Transmission, the cost of the Dar-Arusha 400 kV transmission line can be reduced to match benchmarks for similar projects

Cost/km Benchmark cost/km Expected new costUSD770mil /TZS1,312.85bil

USD1.10 mil/km ▪ Backbone line: USD 0.6 mil/km

▪ Mombasa-Nairobi: USD 0.47 mil/km

▪ USD 0.5 mil/km ▪ USD 351 mil total

(TZS 600,000 bil)

Current cost

Option 2

I. TANESCO and current EPC do not agree. TANESCO waits for expiry of current contract and tenders for new proposals.

II. New proposals are evaluated and the new EPC is awarded upon expiry of current contract (in 2014)

III. New contractor commences project construction. This option would delay construction by around 12 months

Option 1

I. TANESCO and current EPC agree on a better, more cost-reflective contract value

II. TANESCO and current EPC sign new contact

III. Current EPC commences project construction, as per current timelines

Two options are available to reduce the cost

government’s Reducing the government’s funding burden on transmission could be possible on the Dar-Arusha line, through renegotiating the existing EPC contract or allowing it to expire (and retendering)

Potential cost reduction by

up to 50%

Cost/km Benchmark cost/km Expected new cost

EXECUTIVE SUMMARYc

33

Proactively fast-tracking potential roadblocks is key to ensuring project implementation timeliness

35 weeks 16 weeksEnvironmental & Social Impact Assessment

Proposed timelineto be enforced

Transmission Line Agreement & Gas Supply Agreement

24 weeks 5 weeks

Power Purchase Agreement 10 weeks22 weeks

Land Title Deed 25 weeks46 weeks

Project Financing – Loan Agreement 60 weeks 25 weeks

Transport and Communication 15 weeks 7 weeks

Tariff Approval Process 26 weeks 10 weeks

Initial Public Offer (IPO) 15 Months 6 Months

Current timeline

Public Private Partnership (PPP) 3 years 2 years

d

Streamlining critical processes where bottlenecks are likely to occur is a proactive method to reduce delays

EXECUTIVE SUMMARY

SOURCE: Energy lab

34

Contents







EXECUTIVE SUMMARY

35

The electricity sector must continue to evolve to increase the reliability and affordability of electricity while enhancing development of private investment

By 2015/16

Next 12-18 months

Through 2020

Split structureExisting structure New structureTanescostructure

▪ Split TANESCO into 2-3 companies

▪ Perform operational improvement in each company

▪ Create an independent system operator

▪ Adopt cost reflective tariff

▪ Divide TANESCO among 3 profit & cost centers

▪ Create and publish sector roadmap

▪ Create and publish subsidy policy

▪ Restructure TANESCOinto Gencos and Discos, as per MEM roadmap

▪ Commercialise, as per MEM roadmap

▪ Eliminate GoT subsidy

Key actions

▪ TANESCO consists of 2-3 companies

▪ Tariff is cost reflective (after subsidy)

▪ Each TANESCO company is profitable

▪ All non-capital TANESCOdebts paid

▪ TANESCO Generation, Transmission and Distribution ringfenced

▪ Roadmap and subsidy reports published

▪ TANESCO debts reduced

▪ Zero government subsidy of electricity utilities

▪ Restructured Generation and Distribution

Mile-stones

EXECUTIVE SUMMARY

SOURCE: Energy lab

3

36

The Lab proposes an evolution of TANESCO structure that is to be implemented gradually over time

TANESCO step-by-step structure evolution

TANESCOIPPsEPPs

TODAY

IPPsEPPs

Next 12-18 months TANESCO DxTANESCO Gx TANESCO Tx

IPPsBy 2015/16TANESCO DxTANESCO Gx TANESCO Tx SO

IPPsBy 2020 Dx1

Dxn

Dx2

Gxn

Gx2

Gx1Public Tx SO1

Exact number of resulting Generation and Distribution companies will depend on sector demands in 2020

Sector evolution should be gradual, following step-by-step timeline

Evol

utio

n

EXECUTIVE SUMMARY

SOURCE: Energy lab1 System Operator

3

37

In the next year, MEM will need to develop and publish 2 documents to outline its vision for the electricity sector

SOURCE: Energy lab

Roadmap for sector reform Subsidy policy

▪ Outlines the government’s plans to subsidise the electricity market annual through 2020– Describes the level of the

subsidy, including target tariff level and subsidised consumers

– Describes the process of subsidy provision (i.e. to utility or directly to consumers)

To be published by 31 December 2013

▪ Details the medium and long term structure and policy plan for the sector (e.g. structure of national utility, private sector participation, privatisation)

▪ Matches the objectives and targets of the PSMP

▪ Details expected electricity sector state in 2015, 2020 and 2035

To be published by 30 June 2014

EXECUTIVE SUMMARY3

38

The energy lab proposes 3 additional initiatives that could not be detailed and fully evaluated during the lab process

▪ Development of 100 MW wind-powered plant in Singida

▪ Wind East Africa consortium (Six Telecom Ltd, Aldwych International and International Finance Corporation) is planning to invest USD 89 million into this USD 285 million project

▪ The project has the potential to enhance power supply reliability, increase diversification of power sources and help fight climate change

▪ 100 MW of wind powered generation

▪ TZS 485 billion worth of investment (private + development partner)

▪ Could be on-line prior to June 2016

SingidaWind East Africa project

Initiative description Impact expectedEnhance effectiveness of plant maintenance by Ensuring timely procurement and availability of

spare parts and tools through framework contracts

Entering into training contracts to enhance repair skills and effectiveness

▪ 123 additional GWhdelivered per annum

▪ TZS 21 billion additional revenue per annum

Mainte-nancestrategy

Rental solar farms

Replacing Diesel / HFO generation with a rental solar plant with up to 100 MW capacity and a lead time of 6 months

Per-unit price is 30-50% less than that of Diesel / HFO generators

▪ Up to 100 MW of solar powered generation

▪ Reduction in generation cost

SOURCE: Energy lab

39

Contents




EXECUTIVE SUMMARY

40

More than 40% of the cost for Lab recommendations will be covered by the private sector and Development Partners

610521

Optimisingexisting assets

Sector structure

Development - GoT1

5,502

Development - DPs

1,868

Recurring - GoT

196

2,147

Total required investment through Jun’16

9,793

2,268

3,139

3,255

NewDistribution

Recurring - DPs

Private setor(including PPPs)

80NewGeneration

NewTransmission

TZS billion

1 Excludes TZS 170 billion minimum Government equity contribution to PPPsSOURCE: Energy lab

Includes Kinyerezi III and IV generation projects that were previously dependant exclusively on GoT funding

A further TZS 500-650 million could be removed from the budget by renegotiating the Dar-Arusha EPC contract

EXECUTIVE SUMMARY

Total required investment through Jun’16

41

Detailed budget request for Energy Lab initiativesTZS billion

No Initiatives / Projects RE DE TOTAL1 Ensure on-time completion of Mtwara-Dar pipeline 0 133.616 133.616 2 Manage water and operate dams sustainably 0.046 0.361 0.407 3 Strengthen transmission and distribution network 26.632 391.978 418.610 4 Introduce targeted demand management initiatives 1.007 23.188 24.195 5 Optimise EPP and IPP dispatch and fuel supply 111 32.710 32.821

15 Energy industry reform 0.567 0 0.56716 Enhance TANESCO’s financial viability & accountability 40.977 480.000 520.977

Private-sector contribution 0 2,147.453 2,147.453Total 275.557 9,517.713 9,793.270

Ener

gy

Del

iver

yPr

ojec

t Del

iver

ySe

ctor

st

ruct

ure

6 Kinyerezi I and II 0 1,107.989 1,107.989 7 Backbone Transmission Investment Project 0 481.803 481.803 8 Dar-Chalinze-Tanga-Arusha 0 1,312.850 1,312.850 9 Dar-Morogoro-Dodoma 0 368.195 368.195 10 Singida-Arusha 0 412.746 412.746 11 Somanga-Kinyerezi 0 144.925 144.925 12 Makambako-Songea 0 146.360 146.360 13 North West Grid Phase 1 0 271.820 271.820 14 Execute electrification distribution projects 206,217 2,062.172 2,268.389

Lab recommends attempting to revise/replace contract to reduce cost by 35-50%

SOURCE: Energy lab

EXECUTIVE SUMMARY

42

Overview of KPIs for the Ministry of Energy and Minerals (1/3)

SOURCE: Energy lab

EXECUTIVE SUMMARY

ENERGY KPIKPI description Unit Dec 2012

value30 June 2014 Target 30 June 2015 Target 30 June 2016 Target

Top Line indicatorIncrease annual energy delivery to Tanzania (consumption) (Annual energy produced ‐ losses) / population fof Tanzania (as per NBS)

kWh/capita

97 102 165 236

(1) Energy deliveryGWh produced from existing power plants (excluding EPP plants)

GWh 5498 5800 7350 7600

% of energy lost during transmission and distribution

% of total units sent out

21% 19% 17% 15%

CFL light bulb replacement and energy efficiency standards and lebels prepared .

Milestone 0 By 30 June 2014,‐ 3.2 million flurescent lightbulbs replaced in pilot phase and impact of pilot evaluated‐ Industrial roundtable conducted

Energy efficiency programme report published by 30 June 2015

Energy efficiency standards and lebels in place by 30 June 2016

Number of connections added (grid and offgrid) during the year

Electricity connections

125.000 150.000 175.000 265.000

Energy generated in GWh by EPPs phaseout (annual)

GWh 617 520 120 0

43


SOURCE: Energy lab

EXECUTIVE SUMMARY



(2) Project deliveryMtwara‐ DSM pipeline constructed and commissioned by November 2014

Milestone Not started To be confirmed Completion of on‐shore pipeline construction by 30 June 2014

N/A

Kinyerezi I gas fired power plant constructed and commissioned by 2015/16

Milestone Not started Mechanical erection and installation completed by 30 June 2014

Commisioned by 30 September 2014 N/A

Kinyerezi II gas fired power plant constructed

Milestone Not started Site construction started 4 GTGs (112MW) attain COD Commisioned by 31 January 2016

Kinyerezi III gas fired power plantconstructed and commissioned by 2015/16

Milestone Not started 100% of funding secured by 31 October 2013

Commisioned by 31 January 2015 N/A

Kinyerezi IV constructed and commissioned by 2015/16

Milestone Not started 100% of funding secured by 31 October 2013

Commisioned by 31 January 2015 N/A

Singida GeoWind Phase I constructed and commissioned by 2015/16

Milestone Not started Turbines delivered to site by 30 June 2014

Commisioned by 31 December 2014 N/A

Kilwa Energy Phase I gas fired power plant constructed and commissioned by 2015/16

Milestone Not started Site construction started by 30 June 2014

Phase 1 commisioned by 30 June 2015 N/A

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(2) Project delivery (continued)“Backbone:” Iringa – Dodoma‐Singida –Shinyanga line implementation progress

Milestone In tender review

Foundation construction commenced by 30 June 2014

300 km of stinging completed by 30 June 2015

657 km completed and commisioned by 28 February 2016

Makambako – Songea transmission line implementation progress

Milestone In EPC procurement

All wayleave cleared and first construction started by 30 June 2014


300 km completed and commisioned by 30 October 2015

Dar – Chalinze‐Tanga‐ Arusha transmission line implementation progress

Milestone Not started All wayleave cleared by 30 June 2014


702 km completed and commisioned by june 2016

Somanga – Kinyerezi transmission line implementation progress

Milestone Not started Site construction started by 30 June 2014

203 km completed and commissioned by June 2015

N/A

North West Grid Phase 1 and north extensions implementation progress

Milestone Not started All procurement completed by 30 June 2014 (for all portions)

250 km of stinging completed by 30 June 2015 for NW Grid‐Bulyanhulu line (55km) commisioned by 30 June 2016

340 km completed and Bulyanhulu‐Geita line commisioned by 30 September 2015

Dar –Morogoro‐ Dodoma transmission line implementation progress

Milestone Not started 100% of procurement completed 30 May 2014

Dar‐Morogoro phase of lline completed by 30 June 2015

431 km completed and commisioned by June 2016

Singida‐Arusha (Kenya connector) transmission line implementation progress

Milestone Not started EPC contractor award completed by 30 June 2014

414 km completed and commisioned by June 2015

N/A

(3) Sector structureReduce TANESCO's debt level TZS at

budget year end

344 billion 230 billion 150 billion 50 billion

MEM documents on sector reform published for public knowledge

Published papers

In process Roadmap for sector reform published by 30 June 2014

Sector subsidy policy published by September 30, 2014

N/A

EXECUTIVE SUMMARY

45

Five projects and initiatives will realise impact in the first 12 months

Initiative Impact Timing of impact

SOURCE: Energy lab

Sep 2013

Jun2014

Jun2014

Jun2014

Jun2014

Optimise EPP usage TANESCO cost reduction of TZS 11.4 billion/month

Deliver year-1 prioritisedelectrification projects

150.000 new connections 1.2 million Tanzanians with electricity access

Demand management 3.2 million florescent bulbs replaced Evening peak demand reduced by 85

MWh

Strengthen Transmission and Distribution grid

T&D losses reduced from 21% to 19%

Optimise dam operations Enhance in-dam operations to follow optimal path and adapt to demand profile

EXECUTIVE SUMMARY

46

Post-lab : Governance Structure

Proposed Members:▪ MEM▪ TANESCO▪ REA▪ TPDC▪ EWURA▪ Private sector (TBD)▪ Ministry of Water (rep)▪ Ministry of Agriculture (rep)

Proposed Members:▪ MEM▪ TANESCO▪ REA▪ TPDC▪ EWURA▪ Private sector (TBD)▪ Ministry of Water (rep)▪ Ministry of Agriculture (rep)

NKRA Steering CommitteeChair: PresidentDeputy Chair: Minister of Energy & Minerals

NKRA Steering Committee level: Meet once a month▪ Workstream / initiative

owners to provide progress updates

▪ Make decisions and provides guidance / direction to the team

▪ Resolves conflicts▪ Oversees all other matters

related to NKRA

Working level:Meet more frequently (i.e. fortnightly)▪ Liaise directly with

Ministry’s Delivery Unit and respective PDBdirectors

▪ Permanent secretary of Ministry of Finance

▪ Confederation of Tanzanian Industry

▪ Exec Secretary of POPC▪ Other members TBD

Owners:TANESCO

Secretariat:Ministry Delivery Unit (supported by PDB)

Secretariat:Ministry Delivery Unit (supported by PDB)

Owners:Kilwa Energy

Owners:NDC

Owners:TPDC

Project Manager Kinyerezi I, II, III, IV (incl. Tx)

Project Manager Kilwa (incl. Tx)

Project Manager Singida

Project ManagerMtwara-Dar

Owners:TANESCO

Project ManagerNW Grid

Owners:TANESCO

Project Manager Backbone

Owners:TANESCO

Project Manager• Dar-Arusha• Somanga-Kinyerezi• Singida-Arusha• Dar-Dodoma

Owners:TANESCO

Project ManagerMakambako-Songea

Owners:REA/ TANESCO

Project ManagerElectrification Urban & rural

Owners:TANESCO

Project ManagersTx/Dx Upgrades

Owners:TANESCO

Project ManagerWater Management

Owners:MEM

Project ManagerEPPs Operations

EXECUTIVE SUMMARY

Owners:TANESCO

Project ManagerDemand Management

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Initiatives Stakeholder 1 Stakeholder 2 Stakeholder 3 Stakeholder 4 Stakeholder 5

Increase utilisation of existing gas plants bydelivering Mtwara pipeline

Manage catchment area water usage at Mtera and in-dam operations at all hydro plants

Reduce technical and non-technical losses through transmission and distribution upgrades and meter replacement

Introduce targeted demand management to reduce evening peak load

Reduce EPP costs and reliance by optimisingdispatch and installing meters

NKRA Energy Lab ReportBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFFBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFF

I hereby affirm my support for the findings of the NKRA Energy Lab (conducted between February 22, 2013 – April 12, 2013) and endorse the lab’s recommended initiatives and implementation programme. I also hereby pledge the efforts of my

ministry/department/agency/organization to achieving the initiatives and outcomes detailed in this report

Page 1 of 2

48

Initiatives Stakeholder 1 Stakeholder 2 Stakeholder 3 Stakeholder 4 Stakeholder 5

Prioritise projects based on feasibility of completion in 3 years

Monitor and execute projects using a new governance model

Utilise alternative funding models to reduce the Government of Tanzania’s burden to finance projects

Streamline critical processes to minimisetimelines and risk of delay

Evolution of sector strucutre

NKRA Energy Lab ReportBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFFBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFF

I hereby affirm my support for the findings of the NKRA Energy Lab (conducted between February 22, 2013 – April 12, 2013) and endorse the lab’s recommended initiatives and implementation programme. I also hereby pledge the efforts of my

ministry/department/agency/organization to achieving the initiatives and outcomes detailed in this report

Page 2 of 2

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