The World Bank

The WorldBank

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OF THE REIDENT Op TgE

Public Disclosure Authorized INTA COALDEVEIMEnT ASSOClbIMR

TO THE

EXBCUTrVEDIECtORS

PROPOSEDCREDIT

OF SDR 32.5 IMTIOICK

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Public Disclosure Authorized UNITED REULIC OF TAN7ZNIA

FOR THE

FOlUlI POWERPROjECT - ITEM NYDRODECTRIC

July 6, 1983 Public Disclosure Authorized

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CurrencyUnits - Taxzai Shilling (TSh) TSh 1.00 - US$0.082 US$1.00 - TSh 12.18 US$1.00 - SDR 0.929

(As the TanzaniaShilling is afficiallyvalued in relation to a basket of the currenciesof Tanzania's trading partners, the USDolLar/Tazau±a Shilling exchange rate is subject to chabqe Conversions in. this report were made at US$1.00 to TSh 12.2 which ms the level set in the most recent eschange rate adjustment in June, 1983. The USDollar/I5l exchange rate used in this report is that of Awril 19, 1983.

AIBREVIATIONSAND ACRONMS

BCF - bIllioncubie feet kV - 1 kilowatt or 1,000 watts mg - 1 uegawatt or 1)000 kW Gi - 1 gigawatt or 1,000,000kI kWh - 1 kilowatt hour or 1,000 watt hours Glh - 1 gigawatt hour or 1,000,000 kWh kV - 1 kilovolt or 1,000 volts TOE - Tons of oil equi4alent

CIDi - Canadisn International Development Agency KiW - Kreditanstalt fur Viederauibau Kuwait Fund - Kuwait Fuad for Arab Economic Development mm-E _ Mn.stry of Water and Energy NORAD - Norwegian Agency for Development PFO - Prime Minister's Office RIUJADA - Rufiji Basin Development Authority SIDA - Svedish International Development Authority SWECO - Swedish Consulting Group TANESCO - Tanzania Electric Supply Ccmpany United TARECo - Tanzania Rural Electrification Corporation

FISCAL YEAR

Government: July 1 - June 30 TANESCO : January 1 - December 31 TANZANIA FOROMCIAL UW ONLY

FOURTHPOWE PROJECT - MTERAHYDROELECTRIC

Credit and Project Sumary

Borrower: United Republic of Tanzania.

Beneficiary: Tanzania Flectric Supply Company, Lirmited (TAJESCO).

Amount: SDR 32.5 miliou (US$35 milLon equivalent).

Terms: Standard.

Relending Terms: US$35 million would be on:ent to TANESCDfor 20 years including 5 years of grace at an interest rate of 112 per annum. TANESCOto bear foreign exchange risk.

Co-financing: The United Republic of Tanzania is arranging co-financing as follows: loans from the Government of France (US$5 llion equivalent), the Government of Italy (US$19 million equivalent), and the Kuwait Fund (US$20 mllion equivalent), as well as grants from the Government of the Federal Republic of Germany, KfW (US$20 million equivalent), NORAD (US$30 million equivalent), and SIDA (US$30 million equivalent). These aounts currently exceed the project financing requirements by about US$10 million. The final amounts would be adjusted once contracts have been awarded.

Project Description: The proposed project vould be an integral part of the Great Ruaha River hydroelectric generation complex comprisimg both Kidatu and Mtera, whtch would be operated and regulated as a cascade system. The power plant to be constructed under the project would be located underground near the existing Etera dam, which was completed in late 1980 as part of the Kidatu Hydroelectric Project Stage II.

The main project objective is to increase the electricity generating capacity to meet the growth in local demand through 1990. The- project will develop indigenous renewable energy resources and create new job opportunities during its construction period. The project will supply power to isolated areas through the expanded interconnected system and will replace production from diesel sets and thus provide substantial foreign exchange savings. The project will also help lay the basis for improved power sector coordination, tariff policy, power system control and load dispatching

This docuent has a rmcted distributionmaM may be ud by recipientsonly in the performance of thur officialduti Ils content may not otherwisebe disclosedwithout WorldDank guthorizution. - ii -

practices. A further objective of the project is to maintain and further improve TAIESCO's operations through continuing support of its training and management programs.

The main project components are:

(a) construction of a water intake; a headrace tunnel and a vertical penstock system leading to an underground powerhouse with two 40-N hydroelectric units; a tailrace tunnel (about 10.5 kmi); a switchyard and various ancillary buildings;

(b) construction of a system control center at Dar es Salaam;

(d) a four-year management and professional training of TANESCOengineers and mid-managerial level staff; and

(e) consultancy services for construction supervision and for studies on tariffs, long range power development, power sector organization, management system of TANESCO, and rehabilitation of existing power generation and distribution facilities.

Risks: The projected future load growth is lower than the past growth and takes the existing depressed state of the Tanzanian economy into consideration and also assumes that it will continue. However, there is a slight chance that the actual grovth could be lower than the estimates due to the possibility of further economic deterioration. In that case, power generation projects following the Mtera power proje=t would be delayed. A further point for consideration is the high tariff increases that are required in order to provide adequate cash generation; however, substantial tariff increases have been implemented in the past, which suggests there is no undue risk in this respect. No major physical risks are anticipated in implementing the proposed project beyond those that are normally expected in the construction of a project of this type and size and for which provision has been made by continued use of consultants, advisors and a panel of erperts. - iiL -

Estimated Project Costs: - ~~~~LocalForeign Total

Project Components:

Civil Works 16.5 47.9 64.4 Mechanical & ElectricalWoMBs 8.4 24.2 32.6 System Control Center 0.5 2.9 3.4 Rehabilitation 1.2 15.1 16.3 Studies 0.5 1.5 2.0 Training 0.7 0.7 Engineering & Consultancy Services S.6 9.7 15.3

Base Cost (end 1982 prlces) 32.7 102.2 134.7

Contingencies: a/ Physical 1.9 14.7 16.6 Price 16.1 29.7/ 45.8

Total Project Cost b1 50.7 146.4; 197.1

Interest During Construction 37.6 - / 37.6 Total FinancingRequired 88.3 146.4 234.7 - -

Financing Plan:

-KISS Kil11on Equivalent- Z of Total Sources Local Foreign Total Financing

IDA 3.0 32.0 35.0 15 Co-financiers - 114.4 114.4 49 TANESCO 59.9 - 59.9 25 Government 25.4 _ 25.4 11

Total Project Financial RequirementS 88.3 146.4 234.7 100

a/ Total physical contingencies are about 12% of base cost; local price contingencies are about 45% and foreign price contingencies are about 25Z of the respective base costs plus physical contingencies. b/ Identifiable taxes and duties are about $25.4 aillion equivalent and the total project cost, net of taxes, ls $171.7 million equivalent. - iv -

Estimated Disbursements: Bank FY FY84 FY85 FY86 FY87 FY88 FY89

Annual 8.0 4.2 9.3 9.0 3.7 0.8 Cumulative 8.0 12.2 21.5 30.5 34.2 35.0

Economic Rate of Return: About 10.1Z.

Appraisal Report: Report No. 4050-TA, Date: June 29, 1983 XNTERNATIONALDEVELOPMENT ASSOCIATION

REPORTAND RECOMIEND&TIONOF THE PRESIDENT TO THE EXECUTIVEDIRECTORS ON A PROPOSEDCREDIT TO THE UNITED REPUBLIC (F TANZANIA FOR A FOURTHPOWER PROJECT

1. I submit the following report and recommendation on a proposed credit to the United Republic of Tanzania of SDR 32.5 million (US$35.0 million equivalent) on standard terms to help finance a hydroelectric project at Ntera. These funds would be relent to the Tanzania Electric Supply Company Lialted (TANESCO)at an interest rate of llX for 20 yeiars, including 5 years of grace. In addition, the United Republic of Tanzania is arranging co-financing from the Government of France (US$5 million equivalent), the Government of the Federal Republic of Germany, KfWi(US$20.0 million equivalent),the Go- -rrment of Italy (US$19 million equivalent), Kuwait Fund (US$20 million equivalent), NORAD(US$30 million equivalent), and SIDA (US$30.0 million equivalent).

PART I - THE ECONOMY

2. The last economic memorandum on Tanzania (Report No. 3086-TA) was distributed to the Executive Directors on January 23, 1981. A revised memorandum, based on the work of two economic missions which visited Tanzania in July and September 1982, will be i8sued in late 1983.

Background

3. At Independence in 1961, Tanzania (then Tanganyika) was one of the poorest countriesin the world. Almost solely dependent on subsistence agricultureand a few estate crops, the country had a very modest industrial base (less than 5% of GDP), and a very small number of educated and trained personnel. For the first six years after Indepentence,the Govern- ment's development objectives resembled those of many other less developed countries, stressing growth in per capita income and national self-suffi- ciency in skilled manpower, based on market forces and capital intensive agricultural projects. This approach had a number of drawbacks, such as high investment costs in the agricultural sector, and led in the Governr- ment's view to unacceptable economic and social conditions, such as widening income differentials and unequal opportunities for advancement in the rural areas. In response to this situation, the national development strategy was reassessed in 1967. The new priorities, enunciated in the Arusha Declaration and related policy statements, were directed towards establishing a socialist society, with greater emphasis on broad-based rural development, self-reliance in development efforts, and the introduction of mass education. To accomplish these ends, the State, with guid- ance from the Party, was expected to play the leading role, especially in the reform and creation of appropriate institutions. This led in the late 1960s to the nationalization of large-scale industry, commerce and finance, -2-

the creation of numerous parastatal bodies, the formation of ujamaa (cooperative) villages, the decentralization of government (1972), and the mass campaign of villagization (1974-76).

4. Despite some disruption arising from these major institutional changes during the period, Tanzania managed to show improvements both in social welfare and in macroeconomic performance. Primary school enroll- ments increased by more than 50%, life expectancy rose by almost 5 years, and access to safe water increased in both the rural and urban areas. GDP grew by 4.4% per annum from 1966 to 1973, investment averaged 24Z of GDP from 1970 to 1973, and domestic resource mobilization improved with recurrent revenues rising from 15X of GDP in 1967/68 to 19% in the mid 1970s. However, the productive sectors grew slowly and the rate of return on new investments (which was centered on the industry and transport sectors) was poor. Perhaps the principal disappointment was in agriculture, the domi- nant sector in the economy, which grew by only 2.3% per annum from 1966 to 1973. This growth was also uneven among regions and precluded any narrow- ing of rural-urban income differentials. Tanzania made rapid progress towards localizing key posts in the economy, but large gaps in manpower requirements remained. Dependence on foreign aid to finance both domestic investment and the widening balance of payments gap also increased. By 1973, the issues which were to be so important for Tanzania throughout the 1970s and early 1980s were becoming clear: How quickly could a country with limited trained personnel develop a strong and efficient centrally administered economy? The Government's emphasis on equity was often at the expense of efficiency and incentives; how long could the country afford these costs? What could be done to improve the growth rate of the moDe- tized, productive sectors?

5. The oil price increases and world recession of 1973-74 coincided with two years of below average rainfall in Tanzania. Agriceitural production also was affected by disruptive changes in the rural areas at this time (decentralization and villagization), and there was a serious shortfall in foodgrain production. The Government was forced into the world market, making large purchases of foodgrains for casb. Export crop production also fell during this period and the barter terms of trade dropped by about one-third during these two years. As a result, the current account deficit rose from US$118 million in 1973 to around US$340 million in both 1974 and 1975. Domestically, the recurrent budget fell into deficit and Government bank borrowing rose from TSh.416 million in 1973/74 to TSh.1061 million in 1975/76.

6. The Government prepared a program to deal with at least the short-term effects of the crisis and was able to receive some assistance from the IMF and a program loan from the Bank Group. Under this progr'.M, import levels were tightly restricted, wages were frozen, government development expenditures were redirected towards the productive sectors, and the Tanzanian shilling was devalued by 102 against the SDR. Producer prices for food crops were substantially increased and at the same time, the National Milling Corporation (NMC) was instructed to purchase a number of drought-resistant crops such as cassava, sorghum, and pigeon peas in addition to the usual foodgrains like maize. While these steps were taken to increase food production, they also discouraged the production of export -3-

crops, weakened the financial position of NMCand required the banking system to extend large amounts of credit to NMC. Aside from the devalua- tion, little scope was given to market forces and Tanzania made no basic changes in its system of administeredprices and governmentcontrols. The basic weaknesses of the economy persisted: declining export volumes, limited trainedmanpower, disappointinggrowth in the monetized and productive sectors, and poor maintenanceof existing capital stock and infrastructure, especiallyin agricultureand transport.

7. Nonetheless,the Government program,boosted greatly by the coffee boom of 1977, additionalforeign assistanceand reasonableweather for agriculture,was able to keep the economy in balance until 1978. During 1978, the overly stringentimport controlswere relaxed at the same time as the terms of trade began to deteriorateagain. The balance of payments went into deficit and foreign reserveswere drawn down. Then, in October 1978, the country was invaded by forces from Uganda. The resulting war, the oil price increasesof 1979 and flooding and drought in different parts of Tanzania led to a worsening balance of payments deficit and the Government built up major arrears on its import payments for the first time since Independence. The domestic budget fell heavily into deficit as expenditures (led by defense) rose by 50Z from 1977/78 to 1978/79 and revenues improved by only 10%. As a result, Government borrowing from the banking system increased from TSh. 600 million in 1977/78 to more than TSh. 3,000 million in 1978/79. Such borrowing was the major factor in money supply growth, which exceeded 53% in this period.

8. According to the official NationalAccounts statistics,GDP in constant prices has risen by 4.7% per annum since 1966, and by a slightly higher rate of 5.1% per annum over the past six years. However, this latter trend assumes an 8.6% per annum increase in subsistenceagriculture, which seems somewhat overstatedin the light of Bank Group project experience and the known marketed surpluses of food. Assuming a more realistic growth rate of 4.0% per annum for subsistence agriculture, overall GDP growth since 1973 would also be reduced to 4.0CXper annum. With population growing by around 3.3Z per annum, this implies an increase in per capita GDP of only 0.7% per annum. There also has been a change in the structure of the economy over the past seven years, away from the productivemonetary sector and towards subsistenceand service activities. Excluding public administration,commercial services and trade, the monetary sector has grown by only 2.3% per annum over the past seven years, well below the populationgrowth rate. This change in the structure of the economy has been a major factor hampering the Government'sefforts to mobilize domestic resources.

9. Although Tanzania has sustaineda high investment ratio, this has not been matched by a similar success in the mobilizationof domestic savings or in the return on investments. Up to the mid-1970s,foreign savings had financed 20-40% of domestic investment. However, the dependenceon foreign savings rose sharply to more than 60% of domestic investmentduring the crisis years of 1974-75and again from 1978. The major shortfallsin domestic savingshave occurred in the Government sector, where they have actually been negative in some years since 1975. -4-

10. Agriculture remains the mo*;t important sector in Tanzania, accounting for 90% of total employment, 50X of GDP and BOZ of exports. The long-term trend growth rate of agricultural production has hardly kept pace with population growth and apparently has fallen In more recent years as the initial expansion of export crop production (through the mid-1960s) has been reversed. This poor performance cannot be adequately explained by the limitations of the natural environment. Although the importance of rural development has continuouslybeen highlightedIn Governmentstatements, including the Arusha Declaration and successiveplans, this has not always been reflected in the allocation of resources to the agriculturalsector or in policy forrulationand implementation. The general directionof the Government'spost-Arusha agriculture strategy has also tended to emphasize the transf-rmation of the institational structure of rural development (through the formation of villages and increasing public involvement in the sector) over measures designed to improve agricultural production directly. Many of these institutional changes were introduced too rapidly, without careful planning or sufficient recognition that by themselves they could not compensate for inadequate incentives and shortages of skilled manpower and managers. More recently there has been a greater awareness of the role of incentives, and recent price adjustmentsattest to the Govern- ment's willingnessto use them to influence the pattern of agricultural production. Available manpower,however, is still stretchedrather thinly throughoutthe sector,mainly because of the predominantrole assigned to the public sector. This has resulted in weakened capacity for policy planning and implementation, especially in the areas of research and extension. and deficient distribution of fertilizers and other on-farm supplies and equipment. Another factor underlying the poor performance of agriculture has been the deteriorationof transportservices. Road, rail and water services have declined owing to a lack of spare parts, poor maintenance and inadequateplanning and management.

The Current Balance of Payments Crisis and Medium Term Prospects

11. The slow growth in agriculturalproduction, transport bottlenecks and external shocks describedabove have all contributedto the severe deteriorationin the balance of payments over the past three years. Export volumes have fal'on to a level one-third below the peaks of the mid-1960s and early 1970s. Furthermore, the terms of trade have declined by 40% since the coffee boom of 1977, due to a sharp increase in import costs, especiallyfor petroleum,at a time when the overall level of export prices has been rising very slowly. Owing to these adverse developments, the purchasing power of Tanzania's exportsin 1982 was more than one-third lower than in 1977 and only one-half of the 1966 level. Following the oil shock in 1979, this shortfallhas been partiallyoffset by additionalexternal resources, includinga sharp increase in commodityand program aid to more than US$200 million in 1980, as well as by drawings under the IDF standby program concludedin September 1980. But Tanzania has also had to utilize large amounts of exceptional financing, including suppliers' credits and an increase in import payment arrears. Despite this, the volume of imports has had to be severely curtailed,and in 1982, was still no higher than in the mid-1970s. - 5 -

12. Given the deterioracionin internationalcommodity prices, as well as the limited scope for further exceptionalfinancing, there is little immediate prospect for an improvementin the balance of payments. This continuingbalance of payments constraintis inevitablyhaving a debilitatingeffect on the economy, with lower imports reducing production and maintenanceof existiDg assets, resultingin further falls in exports and available foreign exchange. This vicious circle will be difficult to break, unless there is a substantial injection of foreign exchange and major improvements in producer incentives, parastatal operations, import allocations,the promotion of non-traditionalexports, and overall government planning and budgeting. In March/April1981, the Governmentintro- duced a number of significant measures-such as higher producer prices for coffee, sisal and tobacco and the establishmentof a Special Agricultural Account at the Bank of Tanzania to ensure that a substantialproportion of foreign exchange earnings are returned to the agricultural sector. This Export Rehabilitation Program was supported by a US$50 million credit from IDA (Cr. No. 1133-TA).

13. During negotiations of the Export Rehabilitation Credit in March 1981, agreement was also reached on a Memorandum of Understanding on Follow-Up Measures. These included more restraint and selectiveness in the public investment program, more emphasis in the recurrent budget on the operations and maintenance needs of the economy, Improved foreign exchange budgeting, a re-examination of the roles (particularly purchasing mandates) of the State-owned crop authorities, the introduction of more payment-by- results schemes in industry and a review of subsidy and cost recovery arrangementsin the public sector. The Government also agreed that an independent Advisory Group would be establishedto assist the Governmentin preparing a comprehensive program of economic rehabilitation and recovery.

14. The Advisory Group began work in November 1981 and completed its Report in April 1982. The Government adopted a large number of its recommendations and Incorporated these in a Structural Adjustment Program which was issued in July 1982. This Program includes a series of important initiativesand proposals. The developmentbudget for 1982/83 has been substantiallycut back for the second year in a row to release resources for the operationsand maintenanceneeds of the economy. Difficultdeci- sions have been taken in the light of limitations on available foreign exchange and physical resources. The price control system has been reviewed and food marketing arrangements are to be reorganized. The Government has begun to allocate a larger, though still inadequate, share of foreign exchange resources to agriculturethrough the Special Agricul- tural Account established under the Export Rehabilitation Program. Agricultural producer prices have been adjusted to maintain them broadly constant in real terms, and the Government has announced its intentions to relax restrictionson interregionaltrade. It has also opened up the marketing of some crops (mainly minor grains such as millet) to anyone interested in conducting such trade. Special steps are being taken to control Government recurrent spending and to reduce parastatal losses. The functions of key agricultural agencies are being reduced and will be taken over by other bodies, such as cooperatives. All of these measures will serve to trim overall burdens on the public sector and give further encouragement to smallholder production. -6-

15. However, while most of the key issues of economic recoveryhave been raised in the Government'sStructural Adjustment Program, important decisions remain to be taken on matters such as the exchange rate and real adjustments to agriculturalprices. Furthermore, the Government has yet to complete the preparationof specific action programs in key sectors (e.g. transport)which would have a measurableImpact on production. In the most importanteconomic sector - agriculture- a Presidential Commissionhas recently prepared a detailed set of recommendations,and a Government policy paper on agriculturehas been issued. Measures proposed include the eliminationof most consumer food price subsidies,reduction In the field marketing responsibilities of the export crop parastatals, relax- ation of import procedures for agricultural inputs and equipment and the strengthening of research and extension services. However, follow-up work is still needed to permit implementation of some of these measures and to define appropriate policies in other key areas, especially the decentralization of input distribution and the diversificatlon of crop marketing channels. Further work is also necessary in estimatingthe resource requirementsof a medium term adjustmentprogram and indicatingprecisely how domestic and foreign exchange budgets will be administeredto support the program.

16. A Bank Group economic mission reviewed the Government's program in September/October 1982. The recommendations of the Governrent's Agricultural Commission, and an agricultural sector report pr2pared by Bank Group staff were also discussed with senior Government officials in Dar es Salaam in March 1983. Bank Group staff will assist the Government during the next few months in further strengthening its proposed agricultural rehabilitationprogram.

17. Discussionswith the IMF on a possible Standby Arrangementare continuing. Tanzania has had no access to Fund facilities since December 1980, when the Governmentfailed to meet performancetargets under a previous Standby. Following three rounds of discussionsin May, June and August 1982, the Governmentinvited a Fund mission to visit Dar es Salaam for three weeks in October 1982. No agreementwas reached during this mission, particularly on the appropriate magnitude of an exchange rate adjustment, and discussions were resumed briefly in Washington in March 1983. An IMF mission visited Tanzania again for Article IV consultations in April 1983.

18. Even with a much improved export performance, Tanzania will continue to face a very difficult balance of payments situation, especially over the next three to five years. Even to halt a decline in per capita GDP will require increasing amounts of aid in real terms and a careful review of import requirements, especially those for low-priority projects with long gestation periods and high foreign exchange costs. Otherwise the prospects would be for generally stagnant economic activity over the 1980s as a whole, with a substantial decline in per capita incomes. To avoid this, there will need to be continued emphasis on export performance and a concerted effort to improve the level of capacity utilization and efficiency in the economy. Furthermore, this must be done without jeopardizing vital food production. 19. A!though it may be possible to firance a small portion of the current account gap through commercial borrowings, the scope for this is clearly limited; in addition to the difficulties of raising co3mercial credit during a period of balance of payments problems, Tanzauia simply cannot afford the heavy burden of debt service payments. Therefore, the bulk of the financing requirements will have to be met by additional foreign assistance. Possible sources for this include further dravings from the IMF (which could add TFS$100million per annum), deferred payment arrangements and other concessional financing from oil-supplying countries, additional new commitments from traditional bilateral and multilateral sources, and a continued movement towards non-project assistance.

External Debt

20. Owing to the very concessional terms an which past aid has been given to Tanzania and the Government's previous reluctance to use higher cost commercial loans and suppliers' credits, the country's overall debt service ratios have historically been less than 1OZ. In recent years there has been somewhat greater reliance on non-concessional borrowing. This, combined with falling exports, has resulted in ar increase in the debt service ratio, which was estimated in 1982 to have been about 20%. The Bank Group is assisting the Government in carrying out a complete review of its external debt and improving its debt management system. This effort which is still underway, has revealed that the reports on publicly guaranteed debt are incomplete and projected debt service payments may rise sharply as a number of old loans begin to fall due and our coverage of the debt information improves. Unless Tanzania's poor export performance is reversed, the debt service ratio over the next several years may be significantly higher than indicated above. Based on existing data, the Bank Group held 33Z of Tanzania's external debt outstanding and disbursed in 1981 (IBRD 14M) and obligations to the Bank Group accounted for 14% of total debt service.

PART II - BANKGROUP OPERAIIONS IN TAXNIA 1/

21. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1963, 56 IDA credits and 19 Bank loans, two of these on Third Window terms, amounting to US$1071.5 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of 10 loans totalling USS246.8 million which were extended for the development of the common services and development bank operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. IFC investments in Tanzania, totalling USS4.7 million, were made to the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969, IFC 2nd other investors sold

1/ Part II of this report is substantially unchanged from Part II of the President's Report for the Coal Engineering Project (Report No. P-3547-TA of May 2, 1983). -8-

their interest in the Company to the Government. A new IFC investment of US$1.7 million in soap manufacturing in Mbeya was approved by the Executive Directors on June 8, 1978 and an investmert of US$1.5 million in metal product manufacturing was approved in May, 1979. Annex II contains sumary statements of Bank loans, IDA credits and IFC investments to Tanzania and the East African Community organizations and notes on the execution of ongoing projects.

22. Bank Group lending in Tanzania has been centered on: (i) agriculture; (ii) transport and communications; (iii) industry; and (iv) education and manpower development. Since FY81, new Bank Group lending has been focussed primarily on rehabilitation and use of existing productive facilities and the introduction of infrastructure and serviccs (such as power generation and education facilities) of long term use to the economy. Projects have been designed to minimize new demands on the Government's recurrent, developuent and foreign exchange budgets; have been centered on already experienced or financially healthy institutions; have been logisti- cally insulated, as far as possible, from general supply difficulties in the economy; and have included considerable technical assistance and training for better maintenance and use of existing capital facilities and more effective resource allocation in the economy. Recent lending along these lines has included a second petroleum exploration project, a third technical assistance credit (focussed on key manpower gaps in the agricultural sector), a rehabilitation credit for the Dar es Salaam sewerage system, and a coal engineering credit.

23. A small number of other projects may be proposed in the agriculture, energy and transport sectors during the next three years. In addition to the proposed fourth power project, a rehabilitation program for the port of Dar es Salaam and an eighth education project have been appraised. A sixth highways project, involving mainly the reconstruction of sections of the Tanzania-Zambia highway, and a sugar and cotton rehabilitation project are also under preparation. However, the design of viable projects in the prod'ctive sectors of the economy, especially agriculture and industry, will remain problematical in the absence of a wide ranging economic adjustment program.

24. In addition to financing specific projects, the Bank Group has provided non-project assistance on three occasions in support of Govern- ment efforts to deal with its balance of paymuents difficulties. The first such Credit was made in 1974, the second in 1977, and the most recent, an Export Rehabilitation Program Credit (No. 1133-TA), in April 1981.

25. Project implementation in Tanzania has been adversely affected during the last four years by the disruptions of the Uganda War and the country's extreme foreign exchange difficulties, which have resulted in shortages of fuel and building materials, even when budgetary allocations for purchasing them have been adequate. External financing agencies have been increasing the share of direct and indirect foreign exchange costs covered ty project budgets; however, it is irpossible to cushion projects completely, particularly in remote areas, from the ramifications of the economic crisis. Despite implementation difficulties, disbursements have remained remarkably steady; Bank Group disbursements grew from US$58 million in FY78 to US$114 million in FY82. A comparison with other portfolios in the Eastern Africa Region indicates that Tanzanian disbursements have been about average for the Region, ranging as a proportion of outstanding commitments from ZO.LZin FY76 to 25.52 in FY82 (compared with 20.6Z and 23.2Z in the same years for the Region as a whole,.

26. Supervision missions have been concerned with adapting project Implementation to difficult factors facing the country or individual sectors, which were not anticipated or have proved worse than expected at appraisal. A major Country Implementation Review was held in Dar es Salaam in October 1982 during which Government officials and Bank Group staff *. agreed to recommend the restructuring or discontinuation of several projects which have faced persistent Implementation problems. At the same time it was agreed that the Project Implementation Monitoring Unit at the Ministry of Planning and Economic Affairs would be strengthened as a focal point for further consolidation and improvements in the Bank Group program. Intensive supervision, and in the case of the Mufindi Pulp and Paper Project, timely assistance froa co-financiers have already had some remedial results. Even iii the agricultural sector, where constraints on implementation have been most severe, there have been important improvements in sone projects, e.g. Dairy Development. However, considerable work remains to be done in iuproving project Implementation and disbursements. The next Country Implementation Review wvil be held in October 1983.

East African Commuuity (EAC)

27. Developments affecting the East African Community (EAC) were outlined to the Exe-cutive Directors in a memurandum, dated December 29, 1977, (R77-312) and in a statement made on May 6, 1980 (Sec MSO-364). One of the positive results of the ongoing mediation effort has been the Partner States' decision, taken upon the mediator's recommendation, that the East Africa Development Bank (EADB) - one of the former Community's institutions - should cocrtinue, and a revised charter to this effect has been enacted. The three Governments commented on the mediator's proposals for the three Partner States during their meeting in Nairobi in July 1981, and decided to commence negotiations based on the mediator's proposals. The negotiations started in December 1981 in Arusha and continued in April 1982 in Jinja, September 1982 in Nairobi and December 1982 in Kampala. The discussions have passed the fact finding stage and are now focussing on details of a division formula for assets and debts. While it is generally accepted that both location of assets and the principle of equal rights of all former EAC partners should be taken into account, the weight to be given to these principles from case to case remains the major issue in the continuing negotiations.

PART III - THE ENERGYSECTOR

Energy Resources

28. Tanzania's energy resources are large and diverse but have not yet been exploited systematically. In addition to forestry resources, the country has coal deposits in the Southwest area estimated at about 300 - ir. -

million tons of proven reserves. Despite their remnoteness from the main population centers and harbours, exploitation on a sizeable scale appears feasible and a coal engineering project has been approved recently by the Association. Tanzania has gas deposits on Songo-Songo island (about 800 billion cu ft. proved) and possible additional reserves at other locations where exploration is continuing. 2 / The potential for oil is being investigated although no significant discoveries have yet been made. Tanzania also has a large hydro power potential mostly sited in the basins of various rivers which drain into the Indian Ocean. Finally, the country possibly has a geothermal and uranium potential which is unexplored. At present, Tanzania depends mostly on biomass sources (86% of total energy consumption) for its energy supply in the form of firewood for heating and cooking and some industrial processes, and depends mostly on hydro power for electric energy.

29. The total hydroelectic potential has been estimted to be about 19,000 GWh per year production capability, with about 3,800 MV capacity, of which 247 MWhas been developed. In addition to the large hydroe;ectric power potential, there are also a number of sites suitable for mini bydro stations mostly in rural areas far from the main power grid and the major population centers. About 20 mini hydro stations operate in Tanzania with a total capacity of 0.9 MW. The Federal Republic of Germany (KfW), NOAD and SIDA are financing the investigation of about 30 mini hydro sites with a total capacity of about 50 MW, and the Bank Group (under the technical assistance componeut of an industrial development finance project) is financing preliminary studies for hydrological resources. There are various geothermal areas mostly located In the north-east and south-west of the country in the Great Rift Valley. Investigations are continuing through SIDA and indications are promising. Energy Consumption

30. Total energy consumption in Tanzania during 1979 and 1980 was about 5.0 million tons of oil equivalent (TOE), or 300 kg. per capita. Of this total, only 0.93 million TOE or 19% represented commercial energy consumption. Per capita commercial energy consumption (at 52 kg. of oil equivalent) is considerably below that of other African countries such as Kenya and Angola, mainly due to the large proportion of the population living in rural areas which relies primarily on charcoal and firewood. Imported crude oil and domestically-refined and imported oil products (totaling 832,000 tons) accounted for about 90X of total commercial energy consumption in 1980, the remainder being met by coal and hydro-electricity. Between 1970-75, demand for commercial energy grew at an average rate of 4.92 per annum. This rate of growth fell to 1.4% between 1975-80, following steep increases in oil product prices and the resulting import restric- tions, higher domestic prices and conservation measures introduced by the Government.

2/ The Bank Group financed an exploration project in 1980 to assess petroleum at Songo-Songo (IDA Credit 27-TA for US$30 million, June 30, 1980) and an oil-gas exploration project for US$20 million (IDA Credit 1199-TA, January 13, 1982). A gas utilization study financed by IDA under the latter credit has been completed and is under review. - 11 -

31. The impact of crude oil and product imports on the ccuntry's balance of payments is already significant. In 1980, the petroleum bill was US$260 million or about 20% of Tanzania's merchandise imports and 52Z of exports. Furthermore, commercial energy consumption could grow to about 1.3 million TOE in 1990 in real terms (at a rate of growth of about 2Z per annum between 1980-85 and about 3.9% per annum between 1985-90). Even on the optimistic assumption that hydropower and coal resources could be substantially developed over the next decade to meet about 20% of total commercial energy demand by 1990, the petroleum import bill could exceed US$1,000 million (in 1990 prices) by that year, equal to about 30% of total projected merchandise imports. Thus, development of domestic energy resources is an economic necessity in Tanzania in the eighties.

Sector Organization and Energy Planning

32. The primary responsibility for development of energy resources in .'nzania remains with the Ministry of Water and Energy (HWE). MWE has three parastatal organizations, the Tanzania Petrolem Development Corporation - TPDC (petroleum), Tanzania Electric Supply Company Limited - TANESCO(power) and the Rufiji Basin Development Authority - RUBADA(basin development including Stiegler's Gorge, a potential hydropower development site). XWE and these organizations prepare plans for the energy sector, .-nd these are incorporated into the country's overall development plan by the Ministry of Planning and Economic Affairs. The Ministry of Finance mobilizes financing for development projects and administers taxes on oil products. Energy prices are set by the Government's Economic Committee of the Cabinet.

33. Faced with the rising cost of oil imports and its serious impact on the country'sbalance of payments,the Governmenthas initiated several activities to assess and exploit the domestic energy potential. Petroleum exploration is being undertaken with the assistance of IDA (para. 28), bilateral and multilateral donors and foreign oil companies. A coal engineering project is being implemented with IDA assistance that could lead to a coal exploitation project to generate power and to meet industrial and domestic requirements. Uranium exploration is being carried out by Uranerzbergbau, GCBHof the Federal Republic of Germany. Finally, the Government has recently prepared a national afforestation program.

34. While these efforts are underway, one general area of concern is planning. Development of domestic energy resources will require large financial commitments at a time when the resource availability is likely to r main conmtrained and a careful evaluation of energy projects and ranking of their priorities is necessary. These considerations led IDA to include financing for consultancy services (an economic advisor and an energy specialist) under the First Songo-Songo Petroleum Exploration Project (Credit S-27-TA) to initiate work on an energy plan, including a review of energy pricing and helping to develop a domestic capability to prepare and appraise energy projects and coordinate energy studies. The Government was originally to have appointed these consultants by December 30, 1980 (subse- quently extended to April 30, 1982) but has not yet done so; however, proposals are expected soon to be invited from consultants for filling these - 12 -

positions. This delay has resulted partly from the heavy demands on mWE's limited administrative resources made by the drilling under the Songo-Songo Projects, which have slowed down efforts to recruit and partly from difficulties in finding consultants able to place staff residing in Tanzania over an extended period as requested by the Government. This in turn has delayed the preparation of an energy plan which was to have been complated by March, 1983. Nevertheless, some progress has been made in energy planning. mWEstaff has recently been strengthened and the MWE has had the services of an energy advisor financed by CIDA since May 1981, who, vith the assistance of mWEstaff, has begun work on energy balance assessment. The United Nations (Department of Technical Co-operation for Development) financed in 1982 an energy planning mission consisting of two consultants whose report has been reviewed by the Government and the Association. A gas utilization study financed under the Second Songo-Songo Project is under review. The Bank Group is carrying out an energy assessment jointly with UNDP which will form the basis for future discussions with the Government about energy sector issues, particuarly pricing, development strategy and investment priorities, as well as provide the basis for agreement with the Government on a revised program for preparing an energy plan.

Energy Pricing

35. The retail petroleum product prices in Tanzania are generally higher than the international prices and reflect costs of Imported crude oLl and products, domestic refining and distribution costs as wel-l as economic and social considerations and recognition of the need for conservation.

36. While the Government has rapidly increased the prices of petroleum products following the international oil price increases in 1979 (when oil product prices were revised upwards by more than 50Z), it has not adequately increased power tariffs, although there have been some increases (para. 59). The power tariff structure and levels need to be periodically revLeved. Under the previous power project (Second stage of the Kidatu Hydroelectric Project - Loan 1306-T-TA of August 12, 1976; see para.44), a study was undertaken by TAKESCOto develop a tariff structure reflecting costs. The study was reviewed with the Bank and found to be generally satisfactory, and changes in the direction of a more cost based tariff structure were adopted in 1979; however, there have been considerable changes in the investment program since 1979, particularly in regard to the possible availability of gas resources, with the result that the present tariff level lies between 44Z and 76Z of the long-run marginal cost of electric power, depending on which of several alternative future sources of power are considered. Therefore, the proposed project includes a provision for a new tariff study, with the assistance of suitably qualified and experienced consultants, to examine and make recommendations for appropriate tariffs, taking into account the results of a proposed study of TANESCO's long range least cost development program (see para. 42). The tariff study is to be completed by July 31, 1985. TANESCOwould review the study with the Government and the Association and thereafter implement the appropriate recommendations by January 1, 1986 or such other date as shall be agreed (Project Agreement, Sections 2.02(a) and 2.08). - 13 -

Power Subsector

37. The total electrical energy consumption of the country in 1980 was about 820 GWh, which corresponds to a per capita energy use of about 44 kWh/year, and is among the low levels of electricity use in the Eastern Africa Region, reflecting the moderate level of industrial activity. Ananal electricity consumption per capita in other Eastern Africau countries is approximately as follows. Kenya 90 kWh, Mauritius 573 kWh, Madagascar 41 kWh, Ethiopia 22 kWh, Botswana 450 kWh. Most of the demand is from industrial and commercial consumers (about 802). .. The Power Supply Entities

38. The Tanzania Electricity Supply Company, Limited (TANESCO) is the country's largest power producer, producing about 98Z of the total electric energy requirement. Another public organization, the Rufiji Basin Development Authority (RUBADA)established under MWE in 1975 to harness the multi-purpose potential of the Rufiji River, also has authority to plan, construct and generate power facilities in the Basin and to sell electric energy. This situation of overlapping responsibilities creates considerable difficulties in the planning of power sector activities. The result has been costly duplication and diversification in pover sector planning by TANESCOand RUBADA,a situation which Tanzania, with its constraints in skilled manpower and finance, can ill afford and which has delayed identi- fication and preparation of the proposed project. Furthermore, the Govern- ment is planning a new organization, also accountable to MWE, to be responsible for rural electrification, the Tanzania Rural Electrification Corpor- ation (TARECO), whose prime objective would be the provision of relatively inexpensive power to rural communities throughout the country and through renewable resources of energy such as mini-hydro plants (para. 43). Ta order to clarify the responsibilities and duties of each organization in the power sector, the Government has agreed to prepare, with the assistance of consultants, a sector organization study by December 31, 1984, on the basis of terms of reference acceptable to the Association, and appropriate recommendations would be implemented within one year thereafter (Credit Agreement, Section 3.06).

Existing Facilities

39. TANESCOhas an extensive grid system in the eastern part of the country which serves the coastal strip including the Dar es Salaam, Morogoro, Tanga, Arusha, Moshi regions and, through submarine cable, Zanzibar. TANESCOalso has 15 isolated service areas scattered throughout the country, but mostly _ocated in the northwestern, southwestern and southeastern zones of Tanzania. The total installed capacity oE TANESCO's power plants is about 370 MW, of which 247 MWis hydro (interconnected system only) and 122 MWis diesel (mostly isolated systems). TANESCOhas about 4,840 km of powerlines of various voltages and cables throughout the country. While maintenance and operation of power facilities have been satisfactory, several small hydropower plants, the Ubongo diesel station and the distribution network in Dar es Salaam, require major overhauls and rehabilitation after many years of intensive utilization. Problems have - 14 -

also been experienced at times in obtaining spare parts and consummables. For this reason, a rehabilitation component has been included in the proposed project (see paras. 48 and 52).

Supply of Power

40. TANESCO's average sales growth has been rapid during the last two decades with an average annual growth of about 10% (annual average sales were 159 GWh and 732 GWh in 1962 and 1980, respectively). The growth rate was drastically reduced to about 5% per annum between 1973 and 1977 due mainly to the restraint on growth imposed by the high cost of oil, but recovered with an average annual rate of about 9Z between 1977 and 1981. Future load is estimated to grow at an average yearly rate from 1981 to 1990 at about 6.6Z for the grid, including Zanzibar but excluding NW, SW, and SE expansions. This is lower than the historical growth rate due to expectations of lower economic growth.

41. Since Tanzania's independence in 1968, TANESCOhas been expanding Its grid to service areas as far as economic constraints have permitted. Some connecting powerlines between the grid and the SW and NWzones are under construction, and are being financed by the Canadian International Development Agency (CIDA) and the Government of Italy, including an up- graded line to the proposed Mtera power station. The Mtera-Iringa line would be completed by January 1, 1987 in time to enable the full capacity of the proposed power plant project to be utilized (Project Agreement, Section 4.06). By 1988 TANESCO's total firm capacity (including the proposed project) will increase to about 335 NW, which will be sufficient to meet the expected system maximum demand of about 300 MW through 1990 with adequate system reserves.

42. The proposed project includes funds for a study to be carried out by TANESCDwith suitably qualified and experienced consultants selected on the basis of terms of reference agreed with the Association, for medium and long range power development. This study would include the preparation of a revised least cost medium to long-term generating plant and transmission line program and would be completed by December 31, 1984 (Project Agreement, Sections 2.02(a) and 2.08). The various alternative prime sources of power (hydro, natural gas, coal, geothermal, oil and bagasse) would be considered, as well as the possibility of developing inter-regional needs for the benefit of Tanzania. The results of this study are expected to be an important input into Tanzania's overall energy sector planning (para. 34).

Electrification of Rural Areas

43. The Government has given high priority to industrial and urban electrification for many years. TANESCOsupplies about 111,000 connections throughout the country, which provide electricity to about 700,000 consumers, or 4% of the total population. Only about 1.2 million (less than 7% of total population) have access to electricity. This is in the high range for East African countries. Comparative percentages of population supplied with electricity are: Kenya 6%, Lesotho 3.5Z,Malawi 2%, Sudan 8.5%. The Government's program for the electrification of rural areas - 15 -

covers the electrification of villages and snall towns. TANESCOhas so far electrified a few villages and small towns through government grants and soft loans through bilateral assistance. Since this operation is generally expected to be unprofitable, the Government has decided, on the basis of a MWEstudy, to establish a rural electrification corporation in order to accelerate development of village electrification. Where possible this will be by renewable resources - for example, small hydro schemes in the Kigoma, Rukva and Ruvuma regions. Firm proposals have not yet been prepared, but when available should be carefully reviewed to avoid overlap and fragmentation in the power sector.

Previous Bank Group Lending and Present Strategy

44. This would be the Bank Group's fourth lending operation in Tanzania's power sector. The first was Loan 518-TA for US$5.2 million to cover part of TANESCO's development program for the years 1967 through 1970; the second was Loan 715-TA for US$30 million and a supplementary loan for US$5 million to cover part of construction of the First Stage of the Kidatu Hydroelectric Schem which was completed in 1975 (Project Perfor- mance Audit Report, December 19, 1979); and the third was for the Second Stage of the Kidatu Hydroelectric Project with Loan 1306-T-TA for US$30 million and a supplementary Special Action Credit of US$7.0 million, which was completed in 1981 and for which a project completion report has been prepared.

45. The most important lesson related to previous Bank Group operations in Tanzania is related to project cost overrun. In order to prepare realistic cost estimates and a corresponding financing plan, cost estimates should be reviewed by an independent cost consultant as early as possible in the preparation of the project, preferably before the appraisal of the project. This is now a standard recommendation for any project with substantial civil works. The Bank Group requirement of a panel of experts in darm construction has been particularly valued by TANESCO. Retention of full-time advisors for construction supervision has also been a positive feature of previous projects. The Bank Group's concern for the environment has resulted in detailed studies on various aspects, and TANESCOhas satisfactorily implemented recommendations directly related to the project, though implementation of certain recommendations will be long term. The Bank Group has systematically guided and encouraged TANESCO's strong training program, and the program's successful achievement of objectives shows the effects of close cooperation between the implementating agency and the Bank Group (para. 50). The Bank Group has played and continues to play an important role in the preparation of projects and in the coordinationof co-financing.

PART IV - THE PROJECT

46. The project was proposed to the Associationin mid 1980 on the basis of a feasibilitystudy carried out by the Swedish ConsultingGroup (SWECO). The proposed project was appraisedin December 1981. Negotiations were held in April, 1983 in Washington. The Tanzanian delegationwas led by Mr. Al Noor Kassum, Minister of Energy and Water. A Credit and Project Summary is given at the beginning of this report, - 16 -

and a Staff Appraisal Report entitled "Tanzania - Fourth Power Project" (No. 4050-TA of June 29, 1983) Is being distributed separately. A Supplementary Project Data Sheet is attached as Annex III.

Project Objectivesand Description

47. The main project objectiveis to increase the electricitygenera- ting capacity to meet the growth in local demand through 1990. The project would develop indigenous renewable energy resources and create new job opportunitiesduring its constructionperiod. The project would also help lay the basis for Improved power sector coordination,tariff policy, power . system control and load dispatching practices. A further objective of the project is to maintain and further improve TANESCO's operations through continuing support of its training and management programs.

48. The proposed project would be an integral part of the Great Rusha River generation complex comprising both Kidatu and Ntera, which would be opera 3d and regulated as a cascade system. The power plant would be located underground near to the existing ltera dtm, which was completed in late 1980 as part of the Kidatu Hydroelectric Project Stage UI. Major transmission construction is either in hand or about to be undertaken to enable TANESCOto utilize the power from this generation complex as well as the potential power available from indigenous coal-fired generation, which would be located in the southwest of the country. The description of the proposed project is as follows:

(a) construction of a water intake at the exIsting Mtera reservoir on the Great Ruaha River; a headrace tunnel and a -vertical penstock system leading to an underground powerhouse with two 40-MW hydroelectric units; a tailrace tunnel (about 10.5 km) to the Great Ruaha River; construction of a switchyard and administration buildings, a storehouse, a workshop and TANESCOstaff houses at Mtera;

(b) construction of a system control center at Dar es Salaam;

(d) a four-yearmanagement and professionaltraining of TANESCO's engineersand mid-managerial level staff to maintain and improve TANESCO's operations and to improve further its system controland load dispatchingpractices; and

(e) consultancyservices for constructionsupervision and for studies on tariffs, long range power development,power sector organization,management system of TANESCO, and rehabilitationof existing power generationand distribution facilities. - 17 -

Project Implementation

49. Executing Agency. The beneficiary and executing agency would be TANESCO,a parastatal limited liability company accountable to the Ministry of Water and Energy, and responsible for public power supplies throughout mainland Tanzania. It was established in 1931 as a private company and in 1964 the Government bought all the issued shares not already owned, from the East African Power and Lighting Company, Limited (EAP&L). TANESCO's board of directors is appointed by the Government and the managing director is a presidential appointee. The present incumbent is a professional power specialist who was appointed in 1980 from within the ranks of the organization.

50. The Bank Group has a long-standing involvement in TANESCO's training program and manpower development. Dating from the appraisal of the first power project in 1967, TANESCO's progress in manpower development gives cause for satisfaction. TANESCOestablished a training school and training program in the mid-sixties and later with the help of the Swedish International Development Authority (SIDA) and the Bank, IANESCOdeveloped a long-term and sound training program with appropriate objectives for manpower development. Through comprehensive management training programs, which were components of previous Bank-financed power projects, since 1975 TANESCOhas reduced expatriate staff at headquarters and major power plants from 50 to 6, out of a total staff of 6,269. At present, all managerial positions are capably held by Tanzanians and this is a remarkable achievement. The project includes provision for a continuation of the management training program included under Loan 1306-T-TA to upgrade middle and top management staff, particularly for planning, construction and system control activities. The project includes a management study to further improve TANESCO's organization and management practices to upgrade the quality of services and the company's efficiency. TANESCOwould employ consultants with qualifications and terms of reference satisfactory to IDA to prepare the management study by June 30, 1985 and implement appropriate recommendations of the study by January 1, 1986 (Project Agreement, Sections 2.02(a) and 2.08).

51. Implementation. TANESCOwould ba responsible for implementation, assisted by engineering consultants (SWECOof Sweden) who were responsible for preparing the feasibility study and bid documents, and in addition TANESCowould retain two full-time advisors employed under the Kidatu Project. TANESCOwould also continue to employ the part-time advisory panel, already in place from the preceding project, for the construction supervision consisting of an engineering geologist and three civil engi- neers specializing in dam construction and underground excavation. The cost of engineering consultants' services is estimated at about US$19 million. The average manmonth cost (including about 1,600 manmonths of salary, international travel and subsistence) is estimated at about US$11,000. Consultants' services for the studies are estimated to cost about US$2.5 million. The estimated average man-month cost for these additional services is about US$10,000. - 18 -

52. The bid documents have already been prepared by SWECOand bids for the main civil works to be included in the project have been received. Construction is expected to begin in late 1983 and to be completed in mid-1988. TANESCOand its consultant have the necessary knowledge and experience of the site and surrounding area regarding the availability and properties of local materials, such as rock, sand, etc., which would enable a quick start to the project. It is Also expected that the construction of the control center would start in April 1984 and be completed by August 1985. In connection with the rehabilitation component, TANESCO would employ suitably qualified and experienced consultants to prepare a rehabilitation study of TANESCO's existing power facilities by June 30, 1984 (Project Agreement, Sections 2.02(a) and 2.08).

53. The tariff, power sector organization and long-range power development studies are discussed in paragraphs 36, 38 and 42, respectively.

Project Cost Estimates and Financing Plan

54. The estimated total project cost, including physical and price contingenciesbut excluding interestduring construction,is US$197.1 million with an estimated foreign exchange componentof $146.4 million. The cost estimates include import duties and taxes estimated to be about US$25.4 million. Total physical contiDgencies of about 12Z of the base cost have been provided and average local price contingencies of about 13X per annum and average foreign price contingencies of about 72 per annum of the respective base costs plus physical contingencies, have been included to meet expected inflation in local and foreign costs during the project implementation period of 5 years. Interest and other charges during construction on the credits and grants to be provided by IDA and the co-financiers (para. 55) to be on-lent by the Government to TANESCOwould add an additional US$37.6 million to the financial requirements of the project. Details of the cost estimates are shown in the Credit and Project Summary.

55. The proposed IDA credit of SDR 32.5 million (about US$35 million equivalent) would finance 20% of the estimated net project cost (US$171.7 million), equivalent to about 24% of the estimated foreign exchange component of the project (US$146.4 million) in both cases excluding interest during construction. Loans from the Government of France (US$5 million equivalent), the Government of Italy (US$19 million equivalent), and the Kuwait Fund (US$20 million equivalent),as well as grants from the Govern- ment of the Federal Republic of Germany-KfW (US$20 million equivalent), NORAD(US$30 million equivalent), and SIDA (US$30.0 million equivalent) would finance the remaining foreign costs. External financing could amount to about US$159 million or about 68% of TANESCO's total financial requirements (including interest during construction) for the project. The final amounts of foreign financing would be adjusted once contracts have been awarded. The IDA credit would be on standard terms, with the Government on-lending the credit and entering into a subsidiary loan agreement with TANESCOat an interest rate of 11% per annum with an amortization period of 20 years, including a grace period of 5 years. It is expected that most of the co-financing would be on-lent to TANESCOon similar terms. TANESCOwould bear the foreign exchange risk on the IDA credit.

56. The remainingfinancial reqfirements of the project (US$85.3 million) would be financed through TANESCO'sinternal cash generation (US$59.9million) and Governmentcontributions (US$25.4 million). The - 19 -

co-financing arraigements are well advanced. Two meetings (in 1982 and 1983) have been held among the co-financiers to review project preparation and to coordiuate the financial arrangements. The main civll works are being jointly financed by IDA and four of the six co-financiers (Germany (KfW), Kuwait Fund, NORAD and SIDA). Conditions of effectiveness related to the co-financing are as follows: (i) notificationby Germany (KfW) and SIDA that all conditions precedent to initial disbursement of their grants have been fulfilled; (ii) signing of the NORAD grant; and (iII) evidence satisfactoryto IDA showing that the French and Italian loans (which are financingon a parallel basis the rehabilitationof the Ubungo diesel station, and minor civil works and equipment,respectively) have been made availablefor the project. (CreditAgreement, Section 5.01 (b),(c)and (d). As a condition of disbursement,no withdrawalswould be made after Harch 31, 1984 or six months after the date of the effectiveness of the IDA credit, whichever is earlier, in respect of payment for the main civil works unless the Kuwait Fund loan and NORADgrant were effective (Credit Agreement, Schedule 1, para. 4(b)).

Financial Structure and Performance

57. Over the period 1976-81, TANESCO's sales revenues increased by an annual average of 21X as a result of average annual increases of 10% in GWh sales and a 42% tariff increase in December 1979, whereas operating expenditures increased at an annual rate of only 19%, despite fuel cost increases of nearly 23% per annum. However, due to a slow down in economic activity during 1981, sales increased only 7% for the year. The 1981 debt:equity ratio of 53:47 was conservative, with 78Z of debt relating to loans for Kidatu I and Kidatu II. Bank Group lending comprised 46% of TANESCO'lsdebt, followed by SIDA 17Z, and KfW 20X. Borrowing terms were generally concessional over about 25 years (including 5 years grace) at interest rates ranging from 3-1/4 to 9%. In line with the requirements of Loan No. 1306-T-IA for the Kidatu Project, no long-term indebtedness would be incurred by TANESCOwithout prior Bank Group approval, unless cash earnings before provision of depreciation are at least 1.5 times the maximum debt service for any succeeding year, on all debt including the debt to be incurred (Project Agreement, Section 4.03). TANESCOhas met this provision in the past. Debt service for 1980 was covered 2.7 times and 1981 was covered about 3.1 times by net cash generation.

58. Arrears. On December 31, 1981 TANESCOhad a bank overdraft of TSh25 million, mainly attributable to difficulties with the collection of customer accounts; accounts receivable totailed TSh298 million (an average of 213 days of sales). The major problem in the past has been that about 60% of accounts receivable are owned by government and parastatal organizations which have not been subjected to regular "disconnection for non-payment- practices. Computer breakdownshave limited TANESCO'sability to apply the disconnection practice to the other 40Z normally subject to these practices. TANESCOand the Government have recently instituted several measures which have resulted in a reduction of receivables to a level of about 90 days sales. Governmentand TANESCO have agreed that by December 31, 1983 TANESCO would maintain its accounts receivable at a level which would not exceed 60 days of sales (ProjectAgreement, Section 3.07). As in the past, TANESCO maintains a short-termlending arrangementwith the - 20 -

Tanzania National Bank of Commerce in order to provide adequte wOrking funds to cover TANESCO's extas1 g and estimated futurs bank ovardraft conditions.

59. Tariff Levels and Rate of Recurn. Under Loan lo 13 06 T-TA and the Supplementary EEC Specil AtiOCredt 55-TA to TAIIsCO. both for the Kidatu Hydroelectric Project, TANESC0agreed to revalue assets everY two years and to maintain tariffg t level sufficient to arhieve an rate of return of not less tha 71 on average net fixed assets in 0 peration so revalued. TANESCO's asset. were to be revalued for thl purpose using the average of the Dar es Salaam Retail Price Index for wage Earners and the Cost of Living Index for tiddle Grade Civil Servants, The applicstlon of this formula has produced revaluations of 55% in 1976, 26X in 1978 and 33Z in 1980. TANESCObelie,t, that these revaluations have been escessive and unrealistic and they have esperienced difficulty JuStifyingtheE to the Government when submitting tariff increase proposals. TAtSO,s tariffs were increasedby about 502 ln 1976, bY 42X in December 1979, and by 501 as of january 1, 1983 to the present average of 97.5 T centa/kWh (8 US cents/kWh at the offlcial rate Of exchsnge)about 44Z to 76X of the long run marginal cost (para. 36). This was not sufficient to meet the loan covenant,except in 1980 (6.8%) and With the inclusion of the recently completedKidatu II in the asset base, only about 21 was achieved fOr 1981.

60. Since Loan No. 13 06-.A and credit 55-TA were uade both TANESCO and the Bank Group have becoie aware of the shortcomings of this revaluation formula for the Purpose of Increasing tariffs. TherefOre, it has been agreed that TANESODwld switch to a cash generation requirement; namely, average tariff levelsw ould be get so that TANESCowsInternal sources contribute to capital expenditure at a level of nOt less than 251 for the years 1985 and 1986 and 40Z in each year thereafter. For this purpose, capital expenditure Kll be computed on a 3 -year uoving average (the precedingyear, currentyear, and followingyear). TANES0 has agreed to increase its average tariff level by 202 to 117 T cents/kWh effective January 1, 1984 (Credit Agreewett Section 3.02(b); ProJect Agreement, Section 4.04). Additional Increases of 4 T cents in 1987 and 1988 have been assumed raising average tariffs tO 125 T cents/kWh. The above tariff increaseswould result in rates of return on average revalued (revaluedon the basis of the Associationi, projectioUn of inflation) net fixed assets in operation from 1985 through 1988 which are below the 72 rate of return required under Loan 13 06 -TA (5.71, 5.6%, 4-4Z and 3.7Z - 1985 through 1988; 1.1Z, 5.5Z and 7-7X - 1982 through 1984)- As the revenue, produced by the proposed tariffs are adequat, to meet A significant portion of the construction costs while maintaining a relatlvely strong cash oltion' it would appear that concern about the revaluation formula Uhgjt oe valid. As a result ,the Government and TAbESCo have undertaken to seek agreement on a realistic asset revaluation formula by December 31, 19 8 4 for review by the Associationand thereafterrevalue its assets every two Years (project Agreement, Se ion 4.05). Assurances were given by the Government and TANESCOto thNeffect that if uch a fOrnulas when utilized in a rate of return measure similar to that originallY agreed to under Loan No. 1306-TA and Credit 55-TA, results in flnancial results consistent with the casb generation requirement, then TA4ESCOand the Government cOuld, with the agreement of the Association, return to a rate of return measure. - 21 -

61. Future Operations and Financial Performance. During the project period of 1984-1988 TANESCO's construction program envisages expenditure of about US$491 million, (including interest during construction of about US$73 million), of which about 48:, is in respect of the proposed project. In addition to the proposed project borrowing of about US$149 million, the financing plan for this period includes major foreign borrowing of about another US$93 million from existing, potential or unidentified lenders to finance some 42Z of the ongoing and other future construction, including the completion of major grid extensions. From 1984 through 1988, including the proposed project, TANESCOintends to borrow for-its construction program about US$242 million, of which the proposed IDA credit is 14Z. TANESCO's financing plan for 1984 through 1988 includes gover=nent contri- butions (mostly bilateral assistance grants transferred to TANESCOin the form of equity) of TShlO73 million (US$88 mdllion).

62. Future operations and financial performance projections indicate that TANESCO's financial performance and condition would be generally satisfactory throughout the period 1983-1990. During this period electricity sales are forecast to increase about 7Z per year while revenues, reflecting both tariff and demand increases will increase an average of about 192 per year. Expenses, including depreciation based on the revalued asset basis, are expected to increase an average of about 15% per year. The debt/equity ratio over this period ranges from 38/62 in 1983 to 35/65 in 1988, the debt service coverage from 2.5 in 1983 to 4.2 in 1988, and net internal cash generation from 28Z in 1983 to 54Z in 1988.

63. Accounts and Audit. TANESCO's accounting staff are competent and procedures are good, so that information has been readily available and financial control reasonably effective. The government-owned Tanzania Audit Corporation (TAC) has been auditing TANESCO'saccounts since 1971. The audit covenant under Loan 1306-IA which would be repeated under the proposed credit and which requires TANESCOto have its financial statements audited by independent auditors acceptable to the Bank Group and to submit its audited financial statements to the Bank Group within five months after the close of the fiscal year, has been substantially met, except in FY80 and FY81 when computer problems substantially delayed the audit. The performance of the auditors has been satisfactory.

Procurement and Disbursements

64. Procurement for the main civil works (headrace and tailrace tunnels, underground powerhouse), totalling about US$90 million including contingencies and which is being jointly financed by IDA and four of the six co-financiers (Germany-KfW, Kuwait Fund, NORLDand SIDA), is on the basis of international competitive bidding procedures acceptable to the joint financiers which are consistent with the Bank/IDA Guidelines for Procurement. Domestic bidders are not qualified for these principal works. TANESCOhas invited bids and offers have been received for these jointly financed civil works. The remaining and minor civil construction works would be financed by Italy and TANESCO. Contracts for civil works and goods, estimated to cost less than US$100,000 and not likely to interest foreign bidders, vould be awarded on the basis of the local competitive bidding procedures which were found to be satisfactory to MDA, and in which foreign bidders also have the opportunity to participate. - 22 -

TANESC0has invited bids for the mechanical and electrical equipment totalling about US$49 million including contingencies. This equipment has been grouped in appropriate bidding packages and procurement is in accordance with the procedures of the particular financing agency which is financing the component.

65. The proceeds of the credit would be disbursed over about 5 years on the following basis: 37Z of foreign expenditures and 20X of local expenditures for the main civil works (the remaining balance to be financed by Germany (KfW), Kuwait Fund, NORAD, SIDA and TANESCO); and 1OOZ of the foreign cost of the studies, training, expert services and equipment and materials for rehabilitation of power system facilities. No withdravals would be made in respect of payments for the rehabilitation component until the rehabilitation study (para. 52) has been completed (Credit Agreement, Schedule 1, para. 4Cc)). No withdrawals would be made after March 31, 1984 or six months after the date of the effectiveness of the IDA credit, whichever is the earlier, in respect of payments for the main civil works if the Kuwait Fund and NORADfinancing have not become effective (see para. 56; Credit Agreement, Schedule 1, para. 4(b)). An estimated disbursement schedule is given in the Credit and Project Summary.

Environmental Considerations

66. Construction of the proposed project will have no significant impact on the environment. There are no permanent settlements on the stretch of the river between the dam and the taiLrace tunnel. The existing Mtera dam was constructed on the Great Ruaha River (completed 1981, financed under Loan 1306-T-IA) as part of the Kidatu Second Stage Hydro- electric Project. A general ecological review of the Mtera site and the reservoir had been completed in L970, financed by SIDA. A detailed series of studies of all environmental aspects was carried out between 1972 and 1978, including the expected environmental changes below the Mtera reservoir during the construction of the Kidatu dam (Loan 715-TA, completed 1971). These studies did not indicate negative effects sufficient to jeopardize the feasibility of the construction of the dam. The studies' recommendations were discussed by the Government, the Bank, SIDA, and KfW and implemented as agreed between 1978 and 1981. They included the successful relocation of about 2,000 persons to the new ujama village established by the Government and TANESCO, the establishment of health programs and a nature reserve, and a governonent program for tapping the potential minimum yield of 3,000 tons per year of fish from the Mtera reservoir. Implementation of the recommendations has been reviewed in the forthcoring completion report on Loan 1306-T-TA. No adverse effects of the damming have been observed so far.

Justification and Risks

67. The proposed project constitutes the least-cost alternative (at discount rates of lOX and 15X) when compared to feasible alternatives for providing the power and energy required by 1988. The evaluation of the most economic option for new power facilities in 1988 has to be set in the context of long term power development. There are two related issues involved in determining the least-cost long term development power program. The first issue concerns the selection of the next uimt of power - 23 -

generation capacity which is required by 1988. The second issue concerns the type of power plant selected for additionalgeneration capacity subsequent to 1988.

68. The only existing technicallyfeasible alternativeto the Mtera project in 1988 is the construction of an oil-fired steam power plant at Dar es Salaam, although this would result in an increase in oil imports and therefore greater expenditure of scarce foreign exchange. While a number of potential sites for hydroelectric generation have been identified in Tanzania, none of these are possible alternatives to the Mtera project in 1988, since none could be developed and constructed in time. The potential exists for the use of coal-fired power plants, given Tanzania's large estimated proven reserves (300 million tons) and estimated inferred deposits (1.3 billion tons); however, progress on developing coal mines has not been sufficiently advanced for a coal-fired thermal station to be completed by 1988. Tanzania may also have the option of using natural gas from offshore fields for the generation of power. Proven offshore reserves of about 800 BCF (para. 28) have been confirmed at the Songo-Songo field. Exploration activity is in progress at other offshore locations, although reliable estimates of reserves are not yet available. The main uncertainties with this alternative are (a) whether there will be any gas available for power production after other committed uses of gas have been met, (b) the date by vhich the gas field could be brought into operation and thus gas become available for power generation, (c) the cost of collecting and transporting it from the offshore wells to an onshore power plant. In addition, for gas power plants a new institution would need to be created for the operation ,ifthe gas field, there are substantial risks of mechanical breakdown and to date there is no Tanzanian organization that has experience in the operation of gas-fired power generation and gas field delivery systems. Nevertheless, if some of the reserves could be dedicated to power generation, then gas generation capacity could be commissioned to complement the ,tera project. Because of the uncertainties referred to above, TANESCOhas not included gas plants in its 1983-88 investment program. Gas-fired generation, as well as gas field development and transportation infrastructure, is being analyzed by consultants under an engineering study which TANESCOhas recently initiated (financed under the technical assistance component of a Bank industrial development finance project), the results of which would be an input for evaluating the use of gas for power generation in the proposed long range power development study. This study would also evaluate the potential for the use of coal-fired power plants and hydroelectric schemes for additional generation capacity subsequent to 1988.

69. The economic rate of return on the project is estimated to be about 10.IZ based on quantifiable costs and benefits (assuming the average electricity tariff remains at the January 1, 1983 level in constant price terms). This estimate understates the economic rate of return if one con- siders the additional unquantifiable benefits which are excluded from the calculations (such as maintenance of agricultural, industrial and commercial output made possible by avoiding power supply shortages).

70. Although the projected future load growth is lower than the past growth and takes the existing depressed state of the Tanzania economy into consideration and also assumes that it will continue, there is a slight - 24 -

chance that the actual growth could be lower than the estimates due to possible further economic deterioration. In that case, power generation projects following the Mtera power project would be rescheduled. A further point of consideration is that of high tariff increases that are required in order to provide adequate cash generation; however, substantial tariff increases have been achieved in the past, which suggests there is no undue risk in this respect. No major physical risks are anticipated in implementirg the proposed project beyond those that are normally expected in the construction of a project of this type and size and for which provision has been made by continued use of consultants, advisors and a panel of experts (para. 51).

PART V - LEG&LINSTRUMENTS AND AUTRORITY

71. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the draft Project Agreement between the Association and TANES0Oand the Recommendation of the Committee provided for in Article V, Section l(d), of the Articles of Agreement are being distributed to the Executive Directors separately.

72. Provisions in the Credit and Project Agreements of pa_ticular importance are noted in paras. 36 through 60 of this Report and those of a special nature are also listed in Section III of Annex III. Special conditions of effectiveness for this proposed credit (Credit Agreement, Section 5.01 and referred to in para. 56 of this Report) are: ti) notification by Germany (KfW) and SIDA that all conditions precedent to initial disbursement of their grants have been fulfilled; (ii) signing of the NORADgrant; (iii) evidence satisfactory to IDA shoving tbat the French and Italian loans have been made available for the project; and (iv) that the subsidiary loan agreement has been executed between the Government and TANESCO.

73. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.

PART VI - RECONMENDATION

74. I recommend that the Executive Directors approve the proposed credit.

A. W. Clausen President

Attachments

July 6, 1983 Washington,D.C. - 25 - ANNEXI Page 1 of 6 TAMUE36OIA DW MD TAuAiM DAT C99WEVEDAAB AM crnous sq- TS - nm acmw nns=

ACRICULTIR 401.4 1960 lb 370 /b ZSTht lb AMCA, soom tw BANARA m mSm or sAA

OIl PER CAPITA (USS) 70.0 130.0 210 250.3 1053.2 EIE COIUrII PEN CAPITA crILIBANus oF mAL EWIVALiEr) 1_1 63.0 50.5 66.5 610.1

PoULTION -NDVITAL STAXISCS POFULTIONS. Mm-YE"EAR(TasA) 10201.0 13300.0 11650.0 URBA POPULATION(lERCr OF TOTAL) 4.8 6.9 IL.$ 17.3 28.3

POPULAION PROIECTION POPMATIONIN WACR2000 CllMOS) 36.2 STATIONARYPOPULATION C UlLIO) 110.5 YEARSATIONARY POPULTON IR5 2100

POPULATIO OTNSUT PER SQ. DI- 10.3 14.1 19.1 27-7 56.7 P£E SQ. Rt. AGRIfLTIRAL UWD 26.6 33.4 44.9 86.7 129.9

POPULATIMACE SUOCTRE CPERCENT) 0-14 YS. .42.7 ".4 46.0 4. *6.0 15-6 IRs. 54.3 52.5 50.9 52.3 51.1 65 IS. ANDAj 3.0 3.1 3.0 2_9 2.S

POPULAIONGROWM RATE (PERCENT) TOrAL 2.2 2.7 3.4 2.7 2.S URBAN 5.0 6.3 8.7 6.2 5.2

CRUDE RUM RAIE (PM MNXIAID) 46.6 46.8 6.3 47.3 47.2 COmC WAR RATE C(P 7HOUSAD) 22.4 18.6 15.1 19.5 15.7 GOsS EPRODUCTIONtRAE 3.0 1.1 3.2 3.2 3.2 FAMILYPLANNIEC ACCErrPTS. ANNMAL7THOIMA) 93.6/c USERS (PERCET OlF MARRIED ) .. ... FOODAND NeTRON iNDEK OF FOOD PRO W PER WITA (1969-n-100) 95.0 104.0 S9.0 38.7 90.7

PER CAPITASUPPLY OF 'BRS (PERCENrOF RE_UIRDEN ) 90.0 9L.0 66.51d 90.2 93.9 PROTEINS(CRAMS PEM RAT) 46.3 48.8 47.67; 53.1 56.8 OF WICK ANIMALAND PULSE 17.8 Zl.Z 20.5U 18.4 17.0

CHILD (AGES 1-4) UMRTALITYRE 33.1 25.6 19.4 26.7 23.9

LIFE E ECTACY AT BIRTH (CEA) 41.7 46.7 51.6 45.6 51.0 DWANT WAUL1TT RAE CPU THsAUm) 15l.5 125.3 102.9 12.9 118.5 ACCESSTO SAFE HAZR (PERCER OP POPULATION) TorAL .. 13.0 39.0/. 23.9 uau .. 6.0 ss..7; 4.9 RURAL .. 9.0 36.o7TS 13.5 ACCESSTO ZIRRT DISPOSALCPERCENT OF POPULATION) TOrAL .. .. 17.0 25.8 URs .. .. 68.d7 63.1 RUAL .. .. 14.07; 20.2

POPULATIONPEM UPISICIJN 13216.1 22240.8 175S3.1/d 32097.3 16135.2 POPULATIONWE RRING PERSON 1186.9Yfa 7162.1 2387.SM 3264.6 2213.2 POPULATIONPE& HspiTAL BE 9 TOTAL 5 5.Stg 717.8 499.8/d 1225.0 1036.4 URBAN 55.3 58.6 8.37; 249.S 430.8 RIRAL 1532.9ur .. 11.17; 1712.1 3678.6

AHIISSIONS IER HOSPIrAL MED .. .. HOUSING AVENACESIZE OF ROUSOLD TOrAL .. 411 .. URBAN 3.111 3.27 ... RIRAL

AVERACEN lRUEOF PERSONS PER RO TOTAL .. .. utRAN L.8t .. . RURtAL ......

ACCESSTo ELECTrICrTy (PERCENT OF HLLIRU) TOTAL ' '' UMRAL .. .. IWRAL ...... - 26 - ANIEX I Page 2 of 6 TALU 3A ?AI1A TDICATO DAMASN3

TASZANIWA= IZRKEKM cn (IRTSU AVflMI w RE"CENten~~~ Q0a-wn--md ncr t rwcc C 1960 lb 1970 /b ZSTDA lb AMCA WM or uasn AFRC 30T 0F 3A41

EDUCATIOs X!flKomo.waT nArms PSRIARY: TOTAL 25.0 33.0 104.0 63.2 U3.3 MALE 33.0 47.0 113.0 72.7 96.1 YENALE 16.0 31.0 94.0 50.3 80.4

SECOIWAR: T1OTL 2.0 3.0 4.0 10.2 15.3 mLuE 2.0 4.0 5.0 13.2 19.4 P0*E10 1.0 2.0 2.0 6.6 11.3

VOCATIOsALESOL. (Z OF SECSDY) 22.6 .. 1.6 7.9 4.7

PUPL-mACHER RATIO iR2NARY 45.3 45.9 41.4 47.4 38.6 SECONA 19.6 16.4 19.0 26.2 23.4

ADCIT LEElCEtEX=f tPERcar) 9.5,g, 2.1/i 66.0/c 3e.0 33.6

COSUCP'OX PASSEN CARSFM TOAND POPULATION 2.4 2.5 2.616 3.0 31.9 solo REIVER naR THOUSAN0 POPUtOS 2.0 11.3 27.7 34.0 71.1 TV RECEIVERS:l IIOUSAND POPULA1O .. 0.3 0.3 1.7 17.9 SEWSPAPER('AIY GENERL INTEEST-) CRCUATIOK PR THOUSANDPOPLATION 2.5 .. 10.1 2.9 16-1 CINMA ASNNALATTENDANCE PER CAPITA 0.5 .. 0.216 1.1 0.6 UL FORCE Tore ot racz CTROCSANDU) 4734.7 5841.7 7650.5 PENILE (PERCENT) 37.2 36.7 36.0 34.1 36.5 AGRICULTURE(PERCENT) 89.0 86.0 83.0 78.4 56.5 ISESTY (YPERCEST) 4.0 5.0 6.0 9.2 17.7

PARrICIPATIOS RATE(PERCENT) TOA.L 46.4 43.9 41.1 41.4 37.0 MAXLE 59.1 56.3 53.1 53.9 46.9 maUC 34.0 31.6 29.2 29.1 27.2

EW2S11!tCDEPENKDECY RATIO 1.0 1.1 1.2 1.2 1.3 DiCONKDISTRUSUON PERCENTOF PRYIVAElScQI RECEIVE 1SY taGST S QNc Or NSENLOS .. 24.7 HICHEST20 PERCE F KSEOLDS .. 50.4 LOIEST 20 PECN or ROUSEOD .. 5.1 LOWEST40 PERCM Or EOSEUOLIS .. 16.0 POVERTYTARCE? CROUPS ESTLIMATEDABSOLUE POVEY ISCOME LEVEL(USS PER CAPITA) URSZ .. .. 167.0 134.3 507.0 RURAL .. .. 109.0 82.9 200.6

ESTIMATEDRELATIVE POVERTY INCOME LEVEL(U55 PER CAPITA) CR5S .. .. 125.0 96.4 523.9 RURAL .. .. 74.0 60.4 203.6

ESTIMAED POPCLATID BELOWABSOLUrE PVERTY sINCOMELEVEL (PERCENT) URS .. . 10.0 39.3 RURAL .. .. 60.0 69.0

Not available NXt applicable. mES

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I XH1MN -ZI- - 28 -

Popeletit :t17.5 mllion Cmtd-1979) ANNEXI CNP Per Capit.: V5$270 (1979) Paae 4 of 6

TAW Uh - lOOWIC IUIIDbj

Amat (miLlion S at A a Crowth 8u-r redtceOar curen pet'_) 4ctu l Prcol ct d _ 1979 1976 1977 1975 1979 190 1U61 1982 1983 I 1985

UATIONALACUXOWTS

Gross d_omstc produ.ctd */ 4,564.3 6.7 4.? 5.4 3.9 -. 5 3,2 3.6 3.6 3.6 3.6 Artcultur-l 2.210,2 9.o 5 7.4 S.0 -6.1 4.2 3.6 3.6 3.6 3.6 Industry 549.0 0.9 3.1 -2.2 3.1 - 3.0 4.0 4. t 4.0 4.0 Services 1,374.8 3.4 5.5 6.5 3.4 4.0 3.4 3.4 3.4 3.4 3..

Consumption 4,115.8 1.6 12.3 14.6 -3.4 t.7 4.6 1.9 3.2 3.1 3.2 Gross invetmat 958.6 11.5 2.1 3.8 10.9 -6.2 3.6 3.6 3.6 3.6 3., Exports of GUNS 647.9 16.8 -22.8 -2.4 -2.6 -9.6 1.7 7.9 5.2 5.1 5.3 toports of ;XFS 1.t58.0 0.5 4.4 34.9 -19.2 1.5 -2.9 -1.1 2.9 2.6 3.-1

Grow national sovitgs 468.0 64.S -6.8 -58.0 99.4 -16.9 -23.9 19.0 Y.8 9.7 4.i.

PRitCES

CDP deflator (1978 - 100) 77.2 92.4 100.0 108.5 124.8 140.4 154.4 168.3 131.8 194.5 Exchange rate (T.Sb. per US1) 8.4 8.3 7.7 8.3 8.2 8.2 8.2 8.2 8.2 8.2 ~~~~~~~~~~~~~~rss.iof COP at NsaPrit$ (2.) AWveragEAnual Increase (2.) (at currat o_Lonst.t t978 prtceal 1970 1975 1980 1985 990 1970-75 1975-10 1980-85 I1) -4

Gross dosatic peoduct'/ 100.0 LaM0 100.3 100.0 100.0 4. 4.1 3.6 3.6 Agcrtculclrsi 36.9 36.9 57.5 47.8 47.9 2.t S . 3.7 3.; Iadustar 'S.5 14.5 11.9 12.1 12.3 3.7 0.7 3.9 4.) Serviceq 37.2 37.3 31.1 30.4 30.6 6.5 4 6 3.4 3,4

Consumptt..n 81.9 91.7 90.3 88.2 86.4 5.9 6 0 3.2 3.t Gross tmrnstmsnt 22.5 21.1 20.0 18.0 18.0 0.' 4.6 2.t 3.1 Export. ::tF5 -24.0 -28.2 -12.1 -13. -1S.! -5.3 -S.' 5.3 5.4 lports GMNF 2S.4 31.0 22.5 20.2 19.7 -3.8 4.2 1.1 3.0 Gross tstional savings 18.3 7.8 9.9 11.6 13.5 -2.4 -3.6 5.7 7.0 As 2 of CDP PIMLIC FMUSX 1970 1975 1979

C%rr*a.c *Z -Tw 17.5 20.2 t3.5 Curr-nt ecpendt-Eres 16.2 20.' 23.9 Surplus (4) or defi:tt (-) 1.3 - -5.4 Capital expendic.re 8.3 11.6 12.7 For*iL. f t cEn 2.0 5.4 6.7

t970_5 1975-110 19110-85 1985-90 0TRM DNDICATORS

GNP grovth rats (e. 4.7 4.2 3.6 3.6 GIX per capita growth rate (2 1.3 0.8 0.2 0.2

ICOR 5.0 5.5 5.1 5.1 Marginal savings rate 40.1 -0.1 0.1 0.2 Import elasticity -0.8 1.0 0.3 0.8 a/ Estimate bl Apart Erm trad. projecthno . which Includ small but offustt iog aunte of Zsnibar trade. all data in ti is table are for Mainland Tanzania only. el Projected ears at constant Prices. d! At market price; componentsare epressed at factor cost an, vill not add due to exc1usion of n indire t taxes and subsidies. !/ Histortical trrw from 1973 to 1979 is based on official astLat" . which include subsistence production S oth rate of 8.6. per aumm, We asti ate that a zrt rteaisticgrowth rate for u.wistence productima ovar this period uld b- nearer 42.per anam. reducing agricu tural growth to 3.42 pe anue and CDP grout.,to 3.62 per anmm. ANNEX I - 29 - Page 5 of 6

.Ipuinti.a : 17.5 willIon (mid-1979) s,.rper CapJta; USS27U (1I919j

TAW"zNIA - EXTERNAL TRADE-

Amount Ama-l Growtlh Rates (.) Indicator (millien USS at (at constant 1q78 prtees) currenit prices) Actual tProected ______1979 1976 1977 1978 1979 198- 981 1987 1983 1984 9985

LErERNALTRADt

'orchandise exports 543.6 7.8 -:9.4 -6.5 6.1 -7.8 2.1 U.S 5.3 5.3 5.3 Major primary products 339.5 9.5 -20.1 -9.7 -0.1 -4.8 3.0 8.8 4.1 4.1 4.1 Others 204.1 3.3 -18.1 2.7 21.5 -14.9 - 8.0 8.0 8.0 8.0

Merchandise imports 1.099.6 -16.4 7.7 36.8 -1B.8 1.0 -3.4 -1.5 2.8 2.3 2.9 Foodgralcs 19.3 -65.2 23.3 -14.7 -42.4 334.0 -3.0 -47.5 _ - - Petroleum 171.7 11.0 -11.3 12.8 -5.9 2.1 -7.9 5.0 3.1 3.3 3.4 machinery and equipment 515.0 -15.2 25.1 55.1 -10.; -7.6 -5.4 2.9 2.9 2.9 2.9 Others 393.6 -13.9 0.7 33.9 -28.9 -7.6 0.7 3.0 3.0 3.0 3.0

Export price index 77.4 106.9 100.0 106.9 122.1 116.6 123.8 136.2 149.4 163.4 Import price index 81.1 89.5 100.0 118.2 138.2 155.7 173.3 188.5 204.4 220.9 rerms of trade index 95.4 119.4 100.0 90.4 88.3 74.9 71.4 72.2 73.1 74.0

CrMposItion of Merchandise Trade (Z) Average Anumal Incre&se(j) (at current pricer) (at constant 1978 prices) 1970 1975 1980 1985 i990 1970-75 1975-S0 1980-85 1985-90

Exports 100.0 100.0 100.0. 1-30.0 100.O -4.5 -5.2 5.6 5.5 Major primary products 59.2 66.3 69.2 67.6 63.5 O.Z -6.9 5.0 4.1 Others 40.8 33.7 30.8 32.4 36.5 -12.9 *1.0 6.8 8.0

-aports 100.0 100.0 100.0 100.0 100.0 1.8 2.6 0.9 3.0 Fcodgrains 2.5 15.3 9.2 4.5 3.9 44.8 -5.8 -14.1 - Petroleum 8.5 11.9 12.7 13.1 13.7 4.8 - 2.0 3.9 fachinery and equipment 35.2 30.8 61.2 35.8 36.9 0.7 11.1 1.7 2.9 Others 53.8 42.0 36.9 43.6 45.5 -1.7 -3.3 2.7 3.1

Share of Trade vith 3-hre of Trade vith Share of Trade vith Industrial Countries CZ) Devetopint Countries C) Capital Surplus Oil Exporters (Z) 1970 1975 t1978 1970 1975 198 1970 1975 1978 b!VECrIO OF TRADE

Exports 54.0 48.2 68.0 60.0 43.3 23.2 0.6 0.4 0.7 Imports 57.9 59.7 76.2 27.3 25.1 17.9 1.2 3.2 0.6 aI Estimate El Data are for alL Tanzania (Nait1and and Zanzibar) ANNEXI Pp tlt : i. fiSl30- Page 6 of 6 c.r ':at napi. I.S all mIll-in 339-1z Aof ,- cap, I 11 lieatsla I lo" I -ll'

(Mtl ISobS at cutreat pricevi

todlteter nyr leril91 11 I"h 1-i79 1961 3990 !.a$ ag90 uslaa or alLAWUNtS

Import of oIs eq1 services 350.4 1U7.2 601 all.; aasJ 7o0.. 741.a *51.1 97.2 31.:. I.. 1.21".9 rf dit1ch, Nrrchemdli f.o.b. 259.]3 42.4 S47.7 471.2 31.S 572.7 S.2 111.2 "44.3 oub.; sql.6 ;.b.) lorto:.s gope awn sereLe. 377.9 129.9 33.4 2.275. 15,234.1 1.452.7 5.39.5 1716.3 1.963.2 2.lu.9 2*:1.7 I.955.? of hteh 2% ilee c.c.f. 3111.4 01 71'.3.1.5 3.14.5 1.0". l .2S.1 1.412.9 3.S:.1 :.fl2.a I.J27t :.n9.1..2 i..l rat 5.a -I1.4 I3.3 19.2 l2 I 20.0 21.4 23.3 25.2 27712 2S ;: GOrroe account blaanc 21.0 -93.6 -1.71. -620.7 -S70.4 -*92.1 -913.1 -152.9 -41,.2 .1.011.9 -. 103.2 -3.567.,

orricial irant receipts 6.2 t11.0 125.0 Z14.1 321.4 3810.9 410.9 11.2 471.7 3I?.9 ¶53.1 Ul'.4 NM LT 1jn inet) 37.1 vii 142.3 151.1 255.6 321.3 S92.7 406.7 453.0 44.9 34.8 712.7 oflfcialS' 41.2 107.1 14.0 138.1 142.4 1.O 341. 377.5 439.6 476.4 5377 71S.V Ptiv.CL -3.3 -1.0 -5.7 -. 0 93.4 131.1 s0.9 31.2 11.1 3.3 -. 1' .3.4 heue capital -29.3 -67.7 30.5 -1.4 -1.7 2.9 52.0 I.D 50.0 -39.0 eamWin reserves' (-.iecreia) _ 7. -9.* -135.9 270.1 .31.9 -20.0 -20.0 -20.0 .20.2 -20 .0 -29.0 -n.o

Inoernatleonal reserveq 107.3 16.4 - 3l.3 30.2 112.1 112.1 152.1 372.1 192.2 212.1 237.l 117.1 Resere- a- tnstle swprta 3.4 f7l 4.2 0.3 1.1 1.1 !: 1.2 1.2 1.2 ':

ZncA CPITrAL MWaE

.rs ii-burennts 40.5 238.2 32.3 332.S 59.9 761.8 3IIicit.l greans 6.2 113.0 131.0 214.1 321.4 30.0 Co5cebl;Eoel loans 40.4 93L4 149.5 112.4 123.3 179.7 DAc- 20.1 513j 73.7r 4.3 33.2 33.2 OEC - 1.0 4.5 1.2 1.2 35.5 IDA S. 29.0 39.3 24.S 39.0 s9.4 Other 1.9 5.4- 30.0 72.9 30.4 41.6 1s-coacesaiomal lman 13.9 25.G 11.8 11 271.7 204.1 Offictal aspect credite - 7.1 * 21.7 52.1 6.3 TIRW 4.3 17.1 30.1 31.3 16.4 31.8 Other ulCttletrl - - 3.t 7.4 3.3 14.4 PrivCate .1 1.2 .3 2.8 97.7 1351

ExIra,i1 Debt Debt atotAdind erd dsbnmrsed 322.7 1t246.3 1.21386 1,260.1 1.422.0 1,152.3 Of tctal 193.4 965.7 1.15385 1.20.1. 1.246.G 1.W4.7 Private 129.3 40.6 42.1 58.7 155.4 218.5 otisbaurnd debt 435.4 334.4 340.3 417.3 149.4 179.7

Debt service Total aertce pimento -24.3 -41.? -51.2 -49. 49.7 93.2 Interest -10.1 -19.5 -22.3 -24.7 -32.0 .41.7 Paments es t eports 7.3 6.4 7.1 7.9 7.1 13.3

Average ntortit race - w loan't) 1.6 2.4 3.1 2.4 5.3 4.5 olfietl 1. 2.3 1.5 2.4 4.0 private 7.0 3.3 9.3 3SC. Aveng. e aatucinc eo a ne.us(yeare) 33.3 38.0 37.7 35.4 21.1 27.3 Offtcal 39.7? 39. 34.7 * 35.4 27.0 Private 7.2 5.0 14.3 .- 9.7

As 7 at D"t Oncstanleg a ES of lent Recnt Year (1973)

Uatutity structure of debt outsccndtg rN trlte due wtthin 5 Jera 28.4 lAtwtttese due wthin 10 year a2.7

Intnt st *ructure Of debt outateIdn Zacarest due within rirst year 3.0

Al KEtSte_t k' greludns official srant receipts. s Includes ftnacing OF prjected gap - IDA term. - 31 - ANNEX II Page 1 of 15

THE STATUS OF BANK GROUP OPERATIONS IN TANZANIA

A. STATEMENTOF BANK LOANS AND IDA CREDITS TO TANZANIA AS OF MARCH 31, 1983

(USS million) Amount less cancellation No. Year Borrower Purpose Bank 1f TW IDA 1/ Undisbursed

Eight loans, one Third Window loan, and twenty credits fully disbursed. 121.24 29.99 184.74

454-TA 1974 Tanzania Cotton 2/ 17.50 1.60 507-TA 1974 Tanzania Highway Maintenance 10.20 1.14 580-TA 1975 Tanzania Dairy 10.00 1.86 1128-TA 1975 Tanzania ltwanzaTesttle 21 15.00 0.53 6O1-TA 1976 Tanzania Technical Assistance 2/ 6.00 0.80 606-TA 1976 Tanzania National Maize Program 2/ 18.00 3.88 607-TA 1976 Tanzania Frff 6 Education 11.00 4.55 13U7-TA 1976 Tanzania k.J&.LLy 2/ 7.00 0.74 652-TA 1976 Tanzania Fisheries 9.00 5.31 658-TA 1976 Tanzania Tobacco Processing 2/ 8.00 0.46 1354-TA 1977 Tanzania Urban Water Supply 15.00 0.26 1385T-TA 1977 Tanzania Morogoro Industrial Complex 11.50 1.12 1386-TA 1977 Tanzania Morogoro Industrial Complex 11.50 0.69 703-TA 1977 Tanzania Rural Development (Tabora) 7.20 3.73 732-TA 1977 Tanzania Second Sites and Services 12.00 4.71 743-TA 1977 Tanzania Trucking 15.00 3.54 1498-TA 1977 TIB Tanzania Investment Bank 15.00 1.40 801-TA 1978 Tanzania Second Cashewnut 27.50 6.72 802-TA 1978 Tanzania Tobacco Handling 14.00 9.54 803-TA 1978 Tanzania Rural Dev. (Mwanza/Shinyanga) 12.00 5.18 607-TA 1978 Tanzania Morogoro Textile 25.00 24.50 833-TA 1978 Tanzania Moragoro Textile 20.00 4.55 860-TA 1979 Tanzania Tourism Rehabilitation 14.00 9.62 861-TA 1979 Tanzania Sixth Education 12.00 10.11 875-TA 1979 Tanzania Mufindi Pulp and Paper 30.00 - 1650-TA 1979 Tanzania Mufindi Pulp and Paper 30.00 24.89 876-TA 1979 Tanzania Fifth Highway 20.50 13.18 1745-TA 1979 TDFL Tanganyika Dev. Fin. Co., Ltd. 11.00 3.05 1750-TA 1979 TIB Tanzania Investment Bank 25.00 13.63 5-24-TA 1979 Tanzania Dar es Salaam Port Engineering 2.50 0.09 987-TA 1980 Tanzania Tanzania Rural Dev. Bank 10.00 9.89 1007-TA 1980 Tanzania Pyrethrum 10.00 7.10 1015-TA 1980 Tanzania Grain Storage and Milling 43.00 39.36 1037-TA 1980 Tanzania Smallholder Tea 14.00 12.43 1056-TA 1981 Tanzania Seventh Education 25.00 24.57 1060-TA 1981 Tanzania Technical Assistance II 31 11.00 8.07 1070-TA 1981 Tanzania Coconut Pilot 3/ 6.60 4.91 1133-TA 1981 Tanzania Export Rehabilitation Program 3/ 47.10 5.42 1173-TA 1982 Tanzania Telecommunications I 3/ 25.30 25.30 1199-TA 1982 Tanzania Songo-Songo Petroleum II 3/ 20.30 3.46 1206-TA 1982 Tanzania Technical Assistance III 7/ 12.00 10.44 1229-TA 1982 Tanzania Sao Hill Forestry-Phase II 3/ 12.00 12.00 1271-TA 1982 Tanzania Urban Water Supply (Suppl.) 3/4/ 4.00 4.00 1312-TA 1983 Tanzania Dar es Salaam Sewerage and 22.50 22.50 Sanitation 3/41 Total 275.74 ;1'; if which has been repaid 31.66 - Total now outstanding 244.08 4s., Amount sold .09 of which has been repaid .09 Total now held by Bank and IDA 1/ 244.08 41.49 713.26 Total undisbursed 69.69 1.12 280.02 350.83

1/ Net of exchange adjustments. 2/ Since these projects have recently been completed, loan/credit accounts wilL soon be closed. 3/ Sixth replenishment; approximate USS equivalent of SDR's. W Not yet effective. -32 - ANNEX II Page 2 of 15

B. SUMNARY STATEHENT OF BANK LOANS FOR COMMON SERVICES GUARANTEED BY KENYA, TANZANIA AND UGANDA AS OF MARCH 31, 1983

(USS million) Loan Amount (less cancellations) No. Year Borrower Purpose Bank LI Undisbursed

Nine loans fully disbursed 196.43

914-EA 1973 EAPTC Telecommunications 32.50 0.28 1204-EA 1976 EADB Development Finance 15.00 0.95

Total 243.93 1.23

of which has been repaid 82.30

Total now outstanding 161.63

Amount sold 24.36

of which has been repaid 24.36 0.00

Total now held by Bank 161.63

Total undisbursed 1.23 1.23

1 Net of exchange adjustments. -33 -ANNEX II Page 3 of 15

C. PROJECTS IN EXECUTION 1J (As of March 31, 1983)

There are currently 40 projects under execution in Tanzania.

AGRICULTURESECTOR

Credit No. 454-TA - Geita Cotton Project: US$17.5 million Credit of January 17, 1974; Date of Effectiveness- April 5, 1974; Closing Date - December 31, 1982

The project was completedon schedule and credit account will be closed. Most of the civil works, including roads const uction have been completed and trial results have established an effective spray regime although viable packages for fertilizer use have not been identified. The project was involved in the villagization process, land use pianning and the establishment of block farming. Staff continuity and higher level staff training have been good. However, most appraisal targets have not been achieved. Cotton production is now declining. A Project Completion Report is under preparation.

Credit No. 652-TA - Fisheries Development Project: US$9.0 million Credit of July 12, 1976; Date of Effectiveness- October 12, 1976; Closing Date - December 31, 1981

The Project faced major implementationdifficulties, including a delay In the procurement of boats for the Kigoma Commercial Center, a major shortfall in the purchase of boats for the coastal centers and a postpone- ment of procurement of lake transport facilities. There were problems affectingthe quality of wooden boats constructed under the project and delivered to the coastal center. After considerablediscussion of a possible extension of the project, project activities were terminated on December 31, 1982.

Credit No. 606-TA - National Maize Project: US$18.0 million Credit of Janury 29, 1976; Date of Effectiveness - May 28, 1976; Closing Date - December 31, 1982

The project was redesignedin order to intensify project activities during a three-year extension period from July 1979 to June 1982; however, this redesign had little impact on the production of food crops because of drought conditions. Inadequate research, extensionand

1/These notes are designed to inform the Executive Directors regarding the progress of projects in execution and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this context, and with the understandingthat they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. _ 34 - ANNEX II Page 4 of 15 prices also discouraged proper crop husbandry. Construction of staff houses and village stores was delayed due to shortage of building materials. The December 1982 mission found no 'uprovement in project implementation and project activities were terminated on schedule. Credit account will soon be closed.

Credit No. 580-TA - Dairy Development Project: US$10.0 million Credit of August 15, 1975; Date of Effectiveness - November 13, 1975; Closing Date - March 31, 1983

The project has begun to show overall improvement in its implementation. Milk production, technical parameters and budgeting control have improved, and production cost has been reduced. The large price increase in July 1980 was responsible in great part for the improved financial position of the dairies. However, implementation problems remain, and the closing date has not been extended past March 31, 1983.

Loan No. 1307-TA - Sao Hill Forestry Project (Phase 1): US$7.0 million Loan of July 12, 1976; Date of Effectiveness - October 12, 1976; Closing Date - June 30, 1982

This first phase project has been completed. While the Closing Date was not formally postponed, disbursement of committed amounts continued until September 30, 1982. Credit account will be closed.

Credit No. 658-TA - Tobacco Processing Project: US$8.0 million Credit of September 16, 1976; Date of Effectiveness - February 15, 1977; Closing Date - December 31, 1981

The Closing Date of this Credit was December 31, 1981. However, the credit account was kept open to allow the project authorities to submit belated withdrawal applications for two eligible expenditures - security lighting and firefighting equipment. Credit account is now being closed.

Credit No. 703-TA and Credit No. 70^-5-TA - Tabora Rural Development Project: US$12.0 million Credit 2 / of May 11, 1977; Date of Effectiveness - November 11, 1977; Closing Date - June 30, 1983

Overall project implementarion has -nproved with the easing of cement shortages and the improved arrangement for diesel fuel supply. Specifically, the agriculture, land use, and r.ads components are making satisfactory progress and the water resource development has improved. With close supervision, disbursement of credit funds has also improved. The Government has submitted proposals for restructuring and extending the project beyond the current Closing Date. These proposals were revieved during a supervision mission in October 1982. However, the mission found some deterioration in the key crop and livestock components of the project and concluded that an extension would not be justified. Project account will be closed on schedule.

2/ Credit No. 703-5-TA (US$4.8 million) is financed under the special CIDA arrangements; Credit no. 703-TA is an IDA Credit of US$7.2 million. -35 - ANNEX II Page 5 of 15

Credit No. 801-TA - Second Cashewnut Development Project; US$27.5 million Credit of June 14, 1978; Date of Effectiveness - October 2, 1978; Closing Date - December 31, 1984

Factory construction is satisfactory. However, the project is seriously affected by technical, managerial, and financial problems. Particularly, the inadequate supply of raw nuts is worrisome. In addition, the appointment of key staff and the maintenance of up-to-date accounts at existing cashewnut factories cont-inue to pose difficulties. The prospects for operation of the new facilities at full capacity are rather poor.

Credit No. 802-TA - Tobacco Handling Project: US$14.0 million Credit of June 14, 1978; Date of Effectiveness- January 5, 1979, Closing Date - April 30, 1983

The project has faced major difficulties. Despite the low volume of tobacco handled, TAT's administrativecosts remain very high. Tobacco losses during handling remain significantand TAT's ability to organize and follow through on corrective measures has been limited. It has hence been agreed that the project should be scaled down and terminated on schedule on April 30, 1983.

Credit No. 803-TA - Mbanza/Shinyanga Rural Development Project: US$12.0 million Credit of June 14, 1978; Date of Effectiveness- March 5, 1979; Closing Date - December 31, 1984 -

Although some infrastructurecomponents are proceeding satisfactorily, and housingand vehicles have been provided, the project's agricultural components are not making significant progress. This is due not only to problems of project implementation but also to general factors affecting the entire agricultural sector such as the pricing of agricultural produce and inputs, marketing problems, input supply constraints, and deficiencies of agricultural services (e.g. research, extension and credit). The Government has submitted proposals for project redesign and a joint IDA/IFAD mission visited Tanzania in December 1982 to discuss these proposals with the Government and project staff. The redesign proposals were amplified during the mission, and it was agreed in principle that the greatly reduced investment program should be implemented.

Credit No. 987-IA - Tanzania Rural Development Bank (TRDB) Project: US$10.0 million credit of October 24, 1980; Effective- ness Date - May 18, 1981; Closing Date - December 31, 1983

TRDB is facing growing financial and managerial problems, due in part to the pervasive problems of the agricultural sector. TRDB is preparing programs to deal with the issues. -36- ANNEXII Page 6 of 15

Credit No. 1007-TA - Pyrethrum Project: US$10.0 illion Credit of October 24, 1980; Date of Effectiveness - April 20, 1981; Closing Date - December 31, 1985

The Tanganyika Pyrethrum Board's operating costs are proving much higher than expected at appraisal and it may not be possible to reduce them sufficiently in the course of the project to ensure economic production. The closure of the extraction plant at Mafinga will result in important transport savings for TPB; however, these will not be significant enough to improve prospects for the crop. Urgent steps are to be taken to reduce the operating costs of TPB and to. improve the marketing of its products. Expenditures for certain new investments (e.g. headquarters building for TPB, staff housing and possibly some road improvement) are to be eliminated.

Credit No. 1037-TA - Smallholder Tea Project: US$14.0 mllion Credit of August 20, 1980; Effectiveness Date - April 27, 1981; Closing Date - June 30, 1985

The project started slowly due to delays in appointing the General Manager and the Chief Engineer. Some start has been made in the tea =ursery and fuelwood planting. The Ukalawa factory site has been selected but the construction of this facility may be delayed, pending a significant increase in tea productlon.

Credit No. 1070-TA - Coconut Pilot Project: US$6.8 million Credit of October 24, 1980; Date of Effectiveness - April 20, 1981; Closing Date - March 31, 1986

Imp1lmentation of the project is progressing well, largely due to the quality of staff in the field. However, the Mainland Govenment has decided to allocate only TSh 3 million of the TSh 9.5 million in local currency needed for the project in 1982/83. Management is hence attempting to resolve this problem.

Credit No. 1015-TA - Grain Storage and Killing Project: US$43.0 mllion Credit of April 15, 1981; Date of Effectiveness- July 15, 1981; Closing Date - June 30, 1987

Because of the uncertainties regarding the organizational structure and future responsibilities of the National Mlling Corporation (NNC), project implementation bas been substantially delayed. Detailed proposals for the reorganization of cereals handling and distribution are still being discussed in Tanzania. The Bank will now suggest that Government provide adequate re-design proposals which will then be appraised.

Credit No. 1229-TA - Sao Hill Forestry Project (Phase II): US$12.0 million Credit of May 19, 1982; Date of Effectiveness- March 16, 1983; Closing Date - December 31, 1987

This credit, which is a follow-upto the first phase project, becuae effectiveon March 16, 1983. The afforestationprogram consisting - 37 - ANNEX II Page 7 of 15 of planting, replanting, weeding, pruning and fire break maintenanceare being implemented well; however, the ancilliary and support services are experiencing some difficulties.

EDUCATIONSECTOR

Credit No. 607-TA - Fifth Education Project: US$11.0 million Credit of January 29, 1976; Date of Effectiveness- March 23, 1976; Closing Date - June 30, 1982

Overall project completion has reached 65% and about $6.3 million have been disbrused. However, because of the domestic financial constraints, the shortage of building materials and the dispersed locations of the village staff housing program, it will not be possible to complete the project as planned. The Credit account will soon be closed.

Credit 861-TA - Sixth Education Project - US$12.0 million Credit of January 22, 1979; Date of Effectiveness - June 25, 1979; Closing Date - June 30, 1985

Civil vorks are underway at two vocational training centers and three technical secondary schools and are due to start on the Dar es Salaam School of Accounrancy. Implementation is slow with resultant cost increases. However, all components (with the possible exception of the postponed MANTEP- management training for education personnel) are expected to be completed by project closing date.

Credit 1056-TA - Seventh EducationProject: US$25.0 million Credit of September26, 1980; Date of Effectiveness- December 29, 1980; Closing Date - December 30, 1986

Implementation is proceeding slowly due to (i) staff constraints in the Project Implementation Section; (ii) delay in Government decision on location and staffing of the Coordinating Unit for Research and Education; (iii) delay in staffing and equipping of the National Exaniration Council and of the Tanzania Elimz Supplies; and (iv) shortages of materials. However, in Zanzibar, work on the nv; Teacher Training College is ahead of schedule, staff houses are now available at the Nkrumah Training College and preliminary surveys of sites have been made.

TOURISMSECTOR

Credit No. 860-TA - Tourism Rehabilitation Project: US$14.0 million Credit of January 22, 1979; Date of Effectiveness - August 24, 1979; Closing Date - June 30, 1983

Project implementation generally is progressing much slower than anti-ipated at the time of appraisal mainly due to delays in execution of building works for hotel rehabilitation. All posts for technical assistance staff have been filled. The construction site identified for the Hotel and Tourism Training Institute (ETTI) proved to be unsuitable because of size and shape, thereby delaying implementation of this component. An alternative site has been located and preparation of preliminary design is - 38 - ANNEXII Page 8 of 15 about to start. Improvements to the airport terminal were dropped because the Government was able to secure bilateral financing for a new passenger terminal building. Vehicles for anti-poaching activities have been received and allocated to TANAPA and the Ngorongoro Conservation Authority. The Closing Date will need to be postponed if IDA involvement is to continue.

TRANSPORTSECTOR

Credit No. 507-TA - Highway MaintenanceProject: US$10.2 million Credit of August 21, 1974; Date of Effectiveness- November 20, 1974; Closing Date - December 31, 1982

After a slow start, project implementationimproved and all equipment procured through ICB has been delivered. However, it became necessary to recast the project by amending its scope to address organizational problems encountered in its implementation. The previous Closing Date of December 31, 1980 has been postponed to December 31, 1982 to allow adequate time for completionof the project. However, withdrawal applications will be accepted up to June 30, 1983 to allow an orderly termination of project activities.

Credit No. 743-TA - Trucking Industry Rehabilitation and ImprovementProject: US$15 million Credit of November 3, 1977; Date of Effectiveness- April 3, 1978 Closing Date - June 30, 1983

Although implementationhas been slov due to delays in creating Regional Transport Companies and in procuring trucks, improvement has been recorded recently with the delivery of all original estimates of trucks and the Government's contribution to the National Trucking Company for equity in the transport companies has been increased. Technical assistance has been extended since 1978; currently about 15 experts are assisting in the project implementation. All five regional trucking companies were created in early 1981 and a Board of Directors was appointed, with adequate management staff to support it. They are all operational and have recorded profits between 12-25Z for the first half of the current financial year.

Credit No. 876-TA - Fifth Highway Project; US$20.0million Credit of March 2, 1979; Date of Effectiveness- December 3, 1980; Closing Date - December 31, 1984

This is a follow-upto credit No. 507-TA in the maintenanceof the national trunk road system. All three key advisers and six key local staff are now in post. However, technicalassistance for the Morogoro Training School has yet to be recruited and an action program for recruitmentand training of staff has yet to be prepared. All 120 students are receiving training in various engineering colleges overseas and are making good progress. Contracts for the supply of road maintenance equipment have recently been awarded and some of the equipment have been delivered. - 39 - ANNEX I Page 9 of 15

TELECOMMUNICATIONSSECTOR

Credit No. 1173-TA - Telecommunications I Proje.:t; US$27.0 million Credit of March 4, 1982; Date of Effectiveness - November 1, 1982; Closing Date - June 30, 1986

This credit became effective on November 1, 1982. Physical implementation of the project is well underway. TPTC's financial position is also considered acceptable.

PORTS SECTOR

Credit No. S-24-TA - Dar es Salaam Port Engineering Project: US$2.5 million Credit uf February 27, 1980; Date of Effectiveness - August 13, 1980; Closing Date - June 30, 1983

Project implementation is i. gressing well. The consultants have submitted a number of reports and drawings to the Tanzania Harbours Author- ity (THA) for their review and comment. The only major problem is one of coordination concerning the commissioning of the new oil jetty which requires that the pipe work link to the refinery and the existing network be completed and ready for use at the same time as the jetty. THA has been asked to decide on who will design and carry out the actual site work, as well as finance the foreign exchange costs. The original Closing Date of September 30, 1981 was postponed a second time in order to complete project work.

URBAN SECTOR

Credit No. 732-TA - Second National Sites and Services Project: US$12.0 million Credit of Novemger 3, 1977; Date of Effective- ness - April 3, 1978; Closing Date - June 30, 1984

The project was reshaped in 1981 to accelerate progress, to trim the scope, complexity and cost to a more achievable level commensuratewith emerging experience of actual implementing capacity and to recognize newly recreated city councils, which did not exist at the time of project appraisal. Some problems are still being experienced due to shortages of trained and experienced management and manpower and equipment and spares, but overall progress is satisfactory. All civil works contracts have been let and 83% of the work has been completed. Special units have been recently established to address the continuing problem of consolidation under the first project and to initiate cost recovery. Progress is evident on both fronts. Collections are now underway in all Urban I sites and are starting up in Urban II sites as works are completed. - 40 - ANNEX II Page 10 of 15

WATER SUPPLY SECTOR

Loan No. 1354-TA - Urban Water Supply Project: US$15.0 million Loan of Janury 5, 1977; Date of Effectiveness - March 2, 1977; Closing Date - December 31, 1984

The Borrower's performanceunder the project has generally been good. Water treatment and distribution facilities have been largely completed. Establishment of a National Urban Water Authority (NUWA)which is to own and operate major urban water supply systems in the country, was approved by the Parliament in April 1981. Implementation of the project has, however, been dominated by the poor performance of the main civil works contractor for the Mindu dam. After being given several opportunities to improve his performance, the contractor was dismissed in August 1981 and a new contract was awarded to the second lowest evaluated bidder at the time of the original contract award in December 1978. In view of the major delays and problems which have affected the completion of the dam, the project's foreign exchange cost increased by about US$11.0 million over the appraisal estimate. Completion of the project is beingfinancedby a supplementarycredit from IDA (US$4 million) and a grant from CIDA (US$3.2million). US$3.8 million is being provided from Ln. 1354-TA by diverting funds intended for other project components.

Credit No. 1271-TA - Urban Water Supply Project (Supplementary): US$4.0 million Credit of December 9, 1982; Closing Date - December 31, '984

This credit became effective on June 7, 1983.

Credit No. 1312-TA - Dar es Salaam Sewerage and Sanitation Project: US$22.5 million Credit of December 21, 1982; Closing Date - December 31, 1987

This credit is not yet effective.

ENERGYSECTOR

Credit 1199-TA - Songo Songo Petroleum II: US$20.0 million Credit of January 13, 1982; Date of Effectiveness - February 23, 1982; Closing Date - December 31, 1983.

This credit became effective on February 23, 1982. Drilling and testing of all three project wells is now completed, further increasing the size of the Songo-Songo gas field. The Gas Utilization Study provided for under the first exploration project, Credit S-27-TA, has been carried out and is currently under review. -41 - ANNEX II Page 11 of 15

INDUSTRIAL SECTOR

Loan No. 1498-TA - Tanzania Investment Bank: US$15.0 million Loan of December 28, 1977; Date of Effectiveness - April 3, 1978; Closing Date - June 30, 1983

This loan is now fully committed and disbursements are proceeding satisfactorily.

Loan No. 1750-TA3 / - Tanzania Investment Bank: US$25.0 million Loan of August 2W, 1979; Date of Effectiveness - February 5, 1980; Closing Date - June 30, 1984

Commitments and disbursements are progressing satisfactorily. In the light of the difficult situation in Tanzania, particularly the severe foreign exchange shortage, TIB is revising its operational strategy to focus in the near-ternm on providing funds which would enable projects to replace, balance, or modernize their machinery and equipment, improve capacity utilization, promote exports, and otherwise assist improvement of balance of payments. TIB is also being encouraged to use a portion of the Bank's loan, on an exceptional basis, to meet part of the reqirements for imported inputs of some of its high-priority projects which are likely to face very low capacity operation, or even closure, following meagre allocation of foreign exchange.

Loan No. 1128-TA - Nwanza Textile Project: US$15.0 million Loan of June 19, 1975; Date of Effectiveness- October 6, 1975; Closing Date - December 31, 1981

Project implementation performance has been acceptable and all technical installations are now operating satisfactorily. The National Textile Corporation (TEXCO), the holding company for state-owaed textile mills, has agreed to institute an immediate action progam to improve the operating performance of existing mills. The project was technically completed in October 1978 with a savings of about US$1.7 million. In order to utilize this amount for rehabilitation of the existing facilities, which are essential parts of the project, and in order to finalize disbursements on the awarded contracts, the Closing Date was postponed by six months to December 31, 1981. The remaining balance of US$531,897.91 under the loan was cancelled on February 1, 1982.

Credit No. 601-TA - Technical Assistance Project: US$6.0 million Credit of January 9, 1976; Date of Effectiveness - September 14, 1976; Closing Date - December 31, 1982

The project was designed to assist the Government in implementing its program of economic development through financing preinvestment and feasibility studies for projects in the productive sectors, special studies for improving efficiency and capacity utilization investments, and training

3/ In addition, a US$15.0 million EEC Special Action Credit in support of this project is being administered by IDA. - 42 - ANNEX II Page 12 of 15 for Tanzanians in project preparation,implementation, evaluation and related techniques. The credit account was closed and the remaining small undisbursed balance of US$802,760.46 was cancelled effective January 3, 1983.

Loan No. 1385-T-TA/Loan No. 1386-TA - Norogoro Industrial Complex: US$11.5 million Loan on Third Window Terms and US$11.5 million Bank loan, both of April 6, 1977; Date of Effectiveness - July 6, 1977; Closing Date - December 31, 1982

Project implementationis proceeding satisfactorilyin spite of some initial delays in the appointment of consultants and start-up of procurement. Because of some delays in the start-up of individual components of the Industrial Complex, the project was not completed in July 1982 as scheduled. Revised capital cost estimates are only slightly higher than those contained in the Appraisal Report. The most recent supervision mission for this project recommended that the Closing Date be postponed to June 30, 1984 to permit construction and equipping of an effluent treatment plant to serve the Morogoro Industrial Estate as well as the Morogoro Textile Kill which is being constructed.

Credit No. 833-TA/Loan No. 1607-TA - Morogoro Textile Project: US$20.0 million Credit and US$25.0 million both of June 29, 1978; Date of Effectiveness - May 7, 1979; Closing Date - June 30, 1985

Project implementation is progressing satisfactorily in spite of some problems encountered with the awarding of the civil works contract. No further delay is anticipated in project completion.

Credit No. 875-TA/Loan No. 1650-TA - Mufindi Pulp and Paper Project: US$30.0 million credit and US$30 million Loan, both of April 6, 1979; Date of Effectiveness- April 15, 1980; Closing Date - December 31, 1983

Overall project implementation, including arrangements for project management, has improved. Project completion is now expected by mid-1984. Project cost has been significantly reduced with savings in civil works, equipment and particularly in erection. The rebidding of the mechanical, electrical and instrumentation installation contract (MEI) has resulted in savings of about US$9 million. However, supplementary foreign funds will be required to finance the conversion of the mill's boilers to burn wood fuel as well as coal and oil, to provide additional start-up technical assistance, and to provide sufficient fuel, materials and other supplies for the first three years of mill operation.

Loan No. 1745-TA - Tanganyika Development Finance Company, Ltd. (TDFL) Project: US$11.0 million Loan of July 27, 1979; Date of Effectiveness - November 1, 1979; Closing Date - December 31, 1983

The loan is fully committed and disbursement is proceeding satisfactorily. However, there has been a deterioration in the quality of TDFL's portfolio because of the foreign exchange constraints. An - 43 - ANNEXII Page 13 of 15 increasing number of TDFL assisted enterprises which mainly depend on imported input are operating at less than break-even capacity. As a result, arrears in the loan portfolio have increased in the past year.

Credit No. 1060-TA - Second Technical Assistance Project: US$11 millon Credit of October 24, 1980; Date of Effectiveness - February 10, 1981, Closing Date - June 30, 1985

As of March 31, 1983, 24Z of consultants' services allocation has been committed for 9 projects. Commitments and disbursements under the training component are proceeding satisfactorily. The Technical Assistance Unit is functioning efficiently. Scma of the previous problems of delayed submission of subprojects on training have been overcome.

Credit No. 1206-TA - Third Technical Assistance Project: US$12.0 million equivalent Credit of March 4, 1982; Closing Date - June 30, 1987

This credit became effective on April 1, 1982. The FAO/Government contract for the supply of the major portion of consulting services was signed in January 1983 and the Technical Assistance Advisory Committee was established In March 1983. However recruitment of experts is still at an early stage.

EXPORTREHABILITATION PROGRAM

Credit No. 1133-TA - Export Rehabilitation Program: US$50.0 million Credit of April 24, 1981; Date of Effectiveness - May 12, 1981; Closing Date - March 31, 1983

Performance in achieving the stated agricultural objectives of the project has been generally disappointing. In other policy areas, recent Government actions show some improvements. Important steps remain to be taken on pricing, decentralization of internal distribution and ensuring greater accountability in public sector organization.

EAST AFRICAN COMMUNITY

There are currently two projects in execution in the East African Community.4/

4/ Since October 1, 1977, the East African Community loans (excluding the East African Development Bank) have been disbursed on the basis of separate national guarantees. The agreed allocation of undisbursed balances for Loan 914-EA, as proposed in a report to the Executive Directors dated December 29, 1977 (R77-312) and approved on January 12, 1978, is given in this Annex. The Closing Date for Loan 914-EA has passed. Hiowever, since the amount allocated to and guaranteed by each Partner State is clearly identified under the terms of the Agreement signed on January 25, 1978 as proposed in the above report (R77-312), we are continuing disbursements. - 44 - ANNEX II Page 14 of 15

Loan No. 914-EA - Third Telecomunications Project: US$32.5 million Loan of June 22, 1973; Date of Effectiveness- September 19, 1973; Closing Date - December 31, 1979

The project included provision for procurementof local telephone exchange equipment, cables and subscriber apparatus,microwave and UHF/VHF systems and multiplex equipment, interurban cables and wires, automatic switching and signallingequipment, telegraph, telex and data equipment, and training. All project items have been completed; the undisbursed balance of US$264,975.20under the loan will soon be cancelledand the loan account closed. The agreed allocation of undisbursed funds as at October 1, 1977 among the countries concernedis as follows:

US$ million

Kenya 2.4 Tanzania 3.5 Uganda 0.1

Total 6.0 ---

Loan No. 1204-EA - East African Development Bank: US$15.0 million Loan of March 1, 1976; Date of Effectiveness- June 7, 1976; Closing Date - June 30, 1983

The environment within the Community has continued to have a negative impact on EADB operations. Level of operations both for appraisal and supervision has been depressed, but there has been some improvement in the state of the portfolio with the arrears affected portfoliofalling from 50% as of June 30, 1977 to 43% as of June 30, 1979. Some US$13.65 million of the loan has been disbursed to date. - 45 - ANNEXII Page 15 of 15

D. STATEMENTOF IFC INVESTMENTIN TANZANIA AS OF MARCH 31, 1983

Fiscal Amount in US$ Million Year Obligor Type of Business Loan Equity Total

1960 & Kilombero Sugar Food Processing 3.96 0.70 4.66 1964 Company

1978 Highland Soap and Soap Manufacture 1.38 0.36 1.74 Allied Products Limited

1979 Metal Products Household Utensils 1.33 0.18 1.51 Limited

Total gross commitments 6.67 1.24 7.91

Less cancellations, terminations, repayments and sales 4.17 0.69 4.86

Total commitmentsnow held by IFC 2.50 0.55 3.05

Tocal undisbursed 0.06 - 0.06 - 46 - ANNEX III Page 1 of 2

TANZANIA: FOURTHPOWER PROJECT - HTERA HYDROELECTRIC

Supplementary Project Data Sheet

Section 1: Timetable of Key Events

(a) Time taken by the country to prepare the project: 32 months.

(b) Agency which prepared project: TANESCO with assistance from external consultants.

(d) First IDA mission to review project: November, 1980.

(e) Departure of appraisalmission: December, 1981.

(f) Completion of negotiations: May, 1983.

(g) Planned date of effectiveness: November, 1983.

Section II: Special IDA ImplementationActions

None.

Section III: Special Conditions

(a) As special conditions of effectiveness: (i) notificationby Germany (KfW) and SIDA that all conditions precedent to initial disbursement of their grants have been fulfilled;(ii) siguing of the NORAD grant; (iii) evidence satisfactoryto IDA that the French and Italian loans have been made available (paras.56 and 72 of this Report);

(b) TANESCO, with the assistanceof consultants,to prepare: (i) a revised medium to long term least-cost power investmentprogram by Decomber 31, 1984 (para. 42); (ii) a tariff study by July 31, 1985 whose agreed recommendations would be implementedby January 1, 1986 (para. 36); (iii) a managementstudy by June 30, 1985 whose agreed recommendationswould be implemented by January 1, 1986 (para. 50); and (iv) a rehabilitationstudy by June 30, 1984 (para. 52). The Government to carry out a sector organizationstudy by December 31, 1984 and implement agreed recommendations within one year (para. 38);

(c) TANESCO would (i) increase its average tariff level by 20X effective January, 1984, (ii) switch from a minimum rate of return requirement under the previous Bank Group lending operations to a cash generation - 47 - ANNEX III Page 2 of 2

requirementproviding for minimum net internal cash generatlon levels of 25% in 1985 and 1986 and 40% in each year thereafter (paras.59- 60), (iii) reduce its accounts receivableto a level of 60 days by December 31, 1983 (para. 58), and (iv) Governmentand TANESCO to agree on asset revaluationformula by December 31, 1984 acceptable to IDA and thereafter revalue every two years (para. 60).

(d) As conditions of disbursement: (i) no withdrawalswould be made in respect of rehabilitationcomponent until rehabilitationstudy completed;and (ii) no withdrawalsin respect of main civil works component after March 31, 1984 (or six months after the date of IDA credit effectiveness,whichever Is earlier), if either Kuwait Fund or NORAD financing is not effective (para. 65). jU G AN D A j.,

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