TANESCO in Severe Difficulties after Government's Emergency Power Agreement

Corrupt Power Deal Sees Ministers Resign

Tanzania's power sector faces another crisis as a result of the fall out from a disastrous emergency electricity agreement that has seen a number of high-profile government ministers resign. Tanzania Electric Supply Co. (TANESCO), the state utility firm, which is responsible for the generation, distribution, and transmission of all electricity in the country, has been left to pay vast sums of money to a company that has been unable to honour its power-supply contract.

The Tanzanian government signed a 172.9-billion-Tanzanian shilling (US$179-million) deal with a U.S. firm, RDC, in June 2006, when the country was in the middle of an energy crisis. The Texan firm was picked at the top of a long list of international companies that applied for a tender to generate 100MW of thermal-fired electricity in Tanzania at a cost of US$140,000 a day, following what was supposed to be an open and competitive tendering process.

A subsequent parliamentary inquiry, launched in November, 2007 concluded that entire bidding process from which RDC was given the lucrative deal was marred by corruption and gross irregularities. On 7 February this year, Tanzanian President Jakaya Kikwete dissolved his cabinet after accepting the resignation of prime minister Edward Lowassa and two ministers linked to the corruption scandal: energy and minerals minister Nazir Karamagi and minister for East African co-operation Ibrahim Msabaha, who was previously in charge of the energy portfolio. The inquiry said that Lowassa had used his position to bend rules and influence the bid process in favour of the U.S. firm, in contravention of the country's procurement laws.

East African Business Week reports that Dr Harrison Mwakyembe, the chairman of the parliamentary inquiry, told Parliament that the US$179-million tender was in outright violation of the country's procurement laws and regulations. The select committee also suggested that RDC was essentially a bogus company, with no registration record in either the United States or Tanzania, and is basically a "briefcase" company, which fabricated and forged documents used during its bid. According to African Energy, RDC sold its contract to supply 100MW of emergency power to Dowans Holdingsof the United Arab Emirates for an undisclosed amount. The emergency power-purchase agreement allowed one party to reassign the contract to another.

Outlook and Implications

Another minister who is likely to come under fire is Attorney-General Johnson Mwanyika, who was part of the government negotiation team in the deal with RDC. The parliamentary select committee is calling for his dismissal for his failure to advise the government on the irregularities in granting the U.S. firm the tender. This week, President Kikwete named a new cabinet team, and William Ngeleja was appointed Minister of Energy and Minerals

This year was already expected to be a difficult one for TANESCO, which has been suffering from the burden of huge debts and will have to wait until the end of the year until new generating capacity, such as from the 200MW Kiwira coal-fired independent power plant financed by the Export-Import Bank of China due, starts up. Late last year, the Tanzania Energy and Water Utilities Regulatory Authority (EWARU) allowed TANESCO to raise tariffs by 21.7% (the current tariff is 183 Tanzanian shillings per kWh) and connection charges by over 140%. The increase in electricity tariffs will certainly be unpopular, but with the state utility in such a precarious financial situation there seems little the government can do. Tanzania's power-generating capacity of 738MW exceeds its peak demand of 610MW, although the country is heavily dependent on hydropower, which is responsible for 555MW of capacity. In the event of regional drought, Tanzania experiences massive and catastrophic load-shedding. This has led the country to become reliant on expensive rental power plants, operated by Aggreko, Alstom, and Finland’s Wärtsilä, to provide electricity. However, unlike RCD, these firms have a reliable reputation for supplying emergency energy.

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