Stakeholders' perceptions on the factors constraining electricity generation by the local private sector in Tanzania : a review of financiers and investors

Chikowero, Joshua (2012-03)

Thesis (MDF)--Stellenbosch University, 2012.


The provision of infrastructure in developing countries is traditionally a preserve of government discharged through state-owned monopolies. This arrangement enables the government to charge tariffs below cost recovery as a way of protecting consumers. Unfortunately, the state utilities are generally run inefficiently, relying on the public budget for both capital and operational expenditure. Private sector players have gradually started to engage in the provision of infrastructure in recent years. Working alone or in co-operation with government, these players have offered a viable alternative for securing financial resources by using well-structured project finance structures and expertise for efficient delivery of services, such as roads, water, electricity and hospitals. The private sector participation has resulted in fiscal relief as funding sources are broadened to include domestic and offshore capital markets. It has also been accompanied by necessary sector reforms, such as legislative amendments to protect private property, allowing private players to invest in the respective infrastructure domains. Consumers‟ perceptions have been mixed, largely due to resultant higher costs of services. In Tanzania, the Tanzania Electricity Supply Company (TANESCO), a vertically-integrated state monopoly, is responsible for generation, transmission, distribution and retailing of electricity. As sole provider, TANESCO has woefully failed to serve the estimated demand of about 1 200MW. Lack of adequate funding for new capital investment and maintenance of the existing network has seriously curtailed output to just over 500MW – less than half of installed capacity. This situation has been compounded by drought on the predominantly hydro-based generation. Transmission losses have also worsened electricity delivery. The result is that only 14 percent of the urban and about two percent of the rural population had electricity access as at 2010. Sector reforms introduced in the 1990s allowed independent power producers (IPPs) to set up fuel and gas-fired generation facilities and selling output to TANESCO under Power Purchase Agreements. Worsening electricity shortages have forced the Ministry of Energy and Minerals to engage more IPPs on an emergency basis at very exorbitant feed-in tariffs. Other smaller-scale private generators have also entered the deregulated generation sector using the regulatory framework set up by the Energy and Water Utilities Regulatory Authority (EWURA). Various generation technologies are used and off-grid installations have enabled potential consumers beyond the national grid to have access. This study presents perceptions on challenges faced by private sector investors and financiers in participating in electricity generation. The findings highlight the apparent lack of appetite by financiers to underwrite long-term infrastructure projects. Furthermore, the capital markets are not developed sufficiently to meet the capital needs of private investors who see opportunity in the largely unserved electricity market. The results of the study help to show that the challenges of providing sufficient and affordable electricity in Tanzania cannot be addressed within the context of current macro-environmental circumstances. Specific policy guidelines are required to enhance the level of development of the financial market, facilitate private sector access to the required debt capital, and improve the tariff structure to attract investments in the electricity generation segment.

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