Tanzania: Issues and Options in the Energy Sector Public Disclosure Authorized

Report No. 49b4}-1A Tanzania: Issues and Options in the Energy Sector Public Disclosure Authorized

November 1984 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report of the Joint UNDPWobrldBank EnergySector Assessment Program This :dixcunent-has a restricted distribution. Its contents mav no.t be disclosed withoutl auiberinationfrom- the Gwvernrment,thie UNDP or the WVorldBank. -V~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i

14 V

::JOINT U14DP/WORLD'BANKENERGY SECTOR-ASSESSMENT PROGRAM REPORTS ALREADYISSUED,

>. .. , ~ ~ ~~outrDate -Number,

Indonesia' November 1981 35543-IND; - Mauritius December:' 981 ; 3510-MAS Kenya - May 1982 3800-KE

Sri Lanka May 1982 3792-CE Zimbabwe june 1982 3765-ZIM ,fHaiti -June 1982 3672-HA Papua New Guinea June 1i982 3882-PNG Burundi -June 1982 3778-BU Rwanda : June I1982 3779-RW MaLawi :August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia Januarv 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-FIJ Solomon Islands June 1983 4404-SOL Senegal July 1983 4182-SE Sudan JuLy 1983 4511-SU Uganda July 1983 4453-UG Nigeria August 1983 4440-UNI Nepal August 1983 4474-NEP Gambia November 1983 4743-GM Peru anuary 1984 4677-PE Costa Rica January 1984 4655-CR Lesotho *anuarv 1984 4676-LSO SeychelLes January 1984 4693-SEY Morocco March 1984 4157-MOR Portugal April 1984 4824-PO Niger May 1984 4642-NIR Ethiopia JuLy 1984 4741-ET Cape Verde August 1984 5073-CV Guinea Bissau August 1984 5083-CUB Botswana September 1984 4998-BT St. Vincent and the Grenadines September 1984 5103-STV St. Lucia September 1984 5111-SLU Paraguay October 1984 5145-PA

? ; E FOR OFFICIAL USE ONLY

Report No. 4969-TA

TANZANIA

ISSUES ANDOPTIONS IN TEE ENERGYSECTOR

NOVEKBER1984

This is one of a series of reports of the Joint UNDP/WorldBank Energy Sector AssessmentProgram. Finance for this work has been provided, in part, by the UNDP Energy Account and the CanadianInternational Develop- ment Agency through the UNDP; and the work has been carried out by the World Bank. This report has a restricteddistribution. Its contentsmay not be disclosed without authorizationfrom the Government,the UNDP or the World Bank. ABSTRACT

Tanzania's economic crisis has led to a contraction in the monetary productive sector, reduced export earnings and a shortage of foreign exchange to purchase recurrent essential imports, including crude oil and petroleum products. One objective of the Structural Adjustment Program (launched in November 1982) was to stimulate the deveLopment of alternative indigenous energy sources while economizing on the use of imported fuel. In this context, the discovery of significant quantities of natural gas off the coast presents Tanzania with some options which could influence further macroeconomic developments through their effect on the foreign exchange situation, notably by reducing imported petroleum products.

This report reviews Tanzania's energy resources, incLuding the natural gas reserves. hydroelectricitv, biomass and coal deposits. The report then goes on to make demand projections for a fifteen-year period for each subsector (petroleum. electricity, coal, firewood and charcoal) using two macroeconomic growth scenarios. The main issues and options discussed include: optimal utilization of the natural gas reserves; least-cost system expansion and supply reliability in the power subsector; and increased fueLwood production. The report's recommendations focus particularly on investment options and strategies, technical assistance requirements, institutional strengthening and energy conservation. ABBREVIATIIGS

CAMERTEC - Center for Agricultural Mechanization and Rural Technology CIDA - Canadian International Development Agency EEC - European Economic Commumity ESKAP - Joint UNDP/IBRD Energy Sector Management Assistance Program FAO - Food and Agriculture Organization CTZ - German Agency for Technical Cooperation IMP - International Monetary Fund kfW - KreditanstaLt fur Wiederaufbau KILAMCO - Kilva Ammonia Company MNRT - Ministry of Natural Resources and Tourism MWEM - Ministry of Water, Energy and Minerals NORAD - Norwegian Agency for Development RUBADA - Rufiji Basin Development Authority SAP - Structural Adjustment Programme SIDA - Swedish International Development Agency STAMICO - State Mining Corporation TANESCO - Tanzania Electric SuppLy Corporation TARECO - Tanzania Rural Electrification Corporation TIRDO - Tanzania Industrial Research and Development Organization TIPER - Tanzanian-Italian Petroleum Refining Company TPDC - Tanzania Petroleum Development Corporation TWICO - Tanzania Wood Industries Corporation UNDP - United Nations Development Programme UNIDO - United Nations Industrial Development Organization UTAFITI - Tanzania National Scientific Research Council

This report is based on the findings of an energy assessment mission which visited Tanzania in June 1983. The mission comprised: R. Bates (Mission Leader), M. Kiwana (Report Coordinator), S. Chitale (Country Economist), E. Terrado (Renewables Specialist), H. Wagner (Forester), V. Mastilovic (Power Engineer), C. Schramm (Energy Economist), C. Poncia (Petroleum Economist), H. Burmeister (Industry and Energy Conservation Specialist), C. Das Gupta (Refinery Engineer Consultant), and C. Mortimer (Cas Specialist, Consultant). CURRENCY0QUIVALENTS

1 Tanzania Shilling = US$0.082 Tsh 12.18 = US$1.0 a/ Tsh 9.33 = USS1.0 b/

MEASUREMENTS

Bbl BarreL of Oil = 0.15899 Cubic Meter; 42 US Gallons: 35 Imperial Gallons BTU British thermaL unit = 0.252 kilocalories Btuh British thermal unit/hour CF cubic foot = 0.02832 Cubic Meter Callon = 3.7853 Litre CWh Gigawatt-hour = 1,000,000 kilowact-hours(kWh) K (k) KiLo = 1,000 km Kilometer = 0.62 miles = 1000 meters kV Kilovolt (kV) = 1,000 Volts kWh Kilowatt hours = 1,000 Watt Hours lT/hr pounds/hour m cuoic meter = 6.289 barrels MCFD thousand cubic feet per day MMCF milLion cubic feet MVA megavolt ampere = 1,000 kilovolt amperes MW Megawatt = 1,000 Kilowatts (kW) MWh megawatt hour = 1,000 kilowatt hours TOE (toe.) tonne of oiL equivalent = 39.68 million BTU tonne metric ton = 1,000 kilogram (kg); 2,204.6 Pound (lb) Tpd tonnes per day Tpy tonnes per year

TANZANIAN FISCAL YEAR

Julv i - June 30

a! As of March 1983. b/ 1982. ENERCY CONVERSION FACTORS

Fuel Million Kcal per Unit Physical Units per TOE

Liquid Fuels (tonne) Crude Oil 10.2 1.00 LPG 10.8 0.94 Kerosene 10.3 0.99 Jet Fuel 10.4 0.98 Gasoline i0.5 0.97 Gasoil 10.2 1.00 Industrial Diesel Oil 10.1 1.01 Fuel Oil 9.8 1.04

Natural Gas (mmcf) 252 0.04 Electricity (MWh) 86 x 10-2 4.0 Coal (tonne) 5.6 1.82 Fuelwood (tonne) 3.5 2.91 Charcoal (tonne) 7.0 1.46

Memo Items

1 TOE = 10.2 million kcal = 40.5 miLlion BTU = 42.7 GJ 1 kcaL = 3.968 BTU 1 kcal = 4.19 x 10 v GJ 1 MWh = 860,000 kcal = 0.248 TOE at 34% efficiency in thermal (oil) generation TAULE OF WNTBTS

Page

KEY ISSUES AND RECOMMENDATIONS...... ,i-xdi

I. ENERGY AND THE ECONOM,YOF TANZANIA...... s 1 Recent Macroeconomic Situation...... 1 Overview of the Energy Sector...... 3 Commercial Energy Sources ...... ***S6C ...... 3 Electricity...... 6 9 Noncommercial and Other Energy Resourceso...... 10

II. ENERGY RESOURCES ...... 122..... Introduction...... 12 Petroleum and Gas...... 12 ExplorationActivities ...... o . .... 12 Gas Resources and Petroleum Potential...... 14 Hydroelectric Power...o...... 0* 15 Potential ...... me...... see...... mc...... 15 Future Stutles...... is18 Hydrological Data...... 19l Coal...... 19 Resources ...... 19 ProductiLon...... e.....e...... ee.....e...e.....s 20 Development Prospects ... 20 Fuelwood...... * 22 Resources...... 22 The Deforestation ...... 23 Nonconventional Energy...... 24 Resources..* c...... c. .c 24 Surplus Softwood, Forest Residues and WoodProcessing Wastes ...... ccc... 24 Agricultural Residues...... 24 Animal Wastes .. ccmcmm...... 25 Sugar Industry Residues...... e. mc...... 26 Solar and Wind Energy.... m.ccmm.m.c.c..m.cmc.cmm.cc.... 26 Geothermal Power and Uranium Deposits ...... 27 Conclusionee...m..m..c.m.cc.c.c...... mcme...... 27

III. DEMANDFORECAST SCENARIOS ...... 99sesesese...... 28 Introduction. mc..e.m.c....c..c.ce...c.ec...... e.. 28 Total Coumercial hrergy ...... me..... c 29 Electricity ...... m.. 31

Fuelvood...... c. m.c...... mm...... in...... 34

IV. ENERGY SUPPLY AND INTER-FUEL SUBSTITUTION...... 38 Introduction ...... 38 Petroleum Products ...... 39 Refining ...... ~~~39 Page

Distribution, Transport and Storage...... 44 Allocation Policy...... 45 Natural Gs...... 46 Methodology of the Economic Evaluation...... 46 Overall Results ...... 47 Industrial Substitution Market...... 0 50 Power Generation Market...... 00*.. ... 51 Fertilizer Production...... e.ge..o 53 Methanol Production...... 55 Transportation. .*...... *... 55 MnaziBay Reserves ...... 57 Conclusions and Recommendations for Gas ...... , 57 Electric Power...... 58 The Least-CostExpansion Program...... 59 Reliabil ty of Public Power Supply ...... 63 Coalos.6...... 66 The Traditional Coal Market.... g.g. .g...... g.m.....@ 66 Electric Power Generation...... 67 The Industrial Market ...... g...... 68 The Coal Export Market.000... 0 .... eg gem...... g ... 69 Reliabilityof Coal ...... Supply g...... * ...... 69 The Delivered Cost of Cosl...... 70 Fuelwood.....o...g...... gmggggeg...... gg.. 72 Nonconventional Energy...... 76 Conclusions...... 79 Commercial Energy...... 79 Noncommercial and Nonconventional Energy...... 0... 84

V. DEMAND MANAGEMENT ...... e...... e... 86 Introduction...... 86 Energy Pricing...... m... 86 Petroleum Products ...... e.... . 86 Natural Gas...... 87 Electricdity...... 00.0.0 ...... 91 Coal and Fuelwood ... e...... 93 Energy Conservation in Industry.e.e..... e.e...... 93 Fuelwood Conservation..... Ce..U.eee.eeee.OSS e.e.c...... C 95

VI. INSTITUTIONS AND MANPOWER IN THE ENERGY SECTOR ...... 100 Introduction ...... 100 Petroleum, Power and Coal...... 100 Ministry of Water and Energy (MWEM)...... 100 Tanzania Electric Supply Company (TANESCO) ...... goes 101 Rufiji Basin Development Authority (RUBADA)...... 102 Tanzania Petroleum Development Corporation (TPDC)...... 102 Tanzania-Italian Petroleum Refining Company (TIPER).... 103 State Mining Corporation (STAMICO) ...... 104 Renewablese....g.g..eeeCgmg.gee ...mo..g.meg. 105 Forestry...... see ...... * ... 105 Nonconventional ...... 106 Page

Sector Coordination and Planning...... 108 An Institutional Framework for Cas...... 109

VII. INVESTMENT AND TECHNICALASSISTANCE IN THE ENERGYSECTOR ...... 112 Investment Requirements ...... 112 Technical Assistance ...... 116

ANNEXES

Annex 1 Energy Balance 1981 ...... 121 Annex 2 Regional Fuelwood Consumption Estimates (1981)...... 122 Annex 3 Fuelwood Availability by Region g...... 123 Annex 4 National Storage Facilities for Petroleum Proutr...... u c ts...... fo.o. 124 Annex 4(a) Petroleum Product Prices, June 15, 1984...... 4..... 125 Annex 5 Illustrative Breakdown of Potential Gas Market for Cases IV - VII 126 Annex 6 Cas Supply Systems Selected for Economic Evluton...... o . .. o. i.e 127 Annex 7 Gas Supply Cost Estimat e. 128 Annex 8 Gas Depletion and Long-run Marginal Supply Costs for Cases I through V I I 129 Annex 9 Economic Evaluation Summary of Cases Considered 130 Annex 10 Potential Industrial Gas Market 131 Annex 11 Economic Cost of Coal and Fuel Oil at Selected Bulk Delivery Points (US$)...... o 132 Annex 12 Tanzania Electric Supply Company Limited - Tariff Schedule Effective Since Jan. 1, 1983...... 133 ANNEX 13 TANESCO, Long-run Average Ineremental Costs; SAP Scenario Data Base...... e 135 Annex 14 Village Afforestation Program Organization 136 Annex 15 Urban Energy Plantation Project 137 KEY ISSUES AnD UECOIXDDfOI5S

The Energy Sector and the Economy

1. At the heart of Tanzania's present economic difficulties lies an acute shortage of "free" foreign exchange; 1/ the shortage has resulted in falling agricultural production and low industrial capacity utilization. To deal with this situation, the Covernment launched a structural adjustment program (SAP) in 1982, which aims at alleviating the scarcity of foreign exchange and consequentLy stimulating agricultural production and increasing the degree of industrial capacity utilization (paras. 1.3-1.8).

2. The petroleum subsector occupies a key position in this program. Althougb the consumption of petroLeum products represents only about 7% of total energy consumption (Table 1), it accounts for more than half of Tanzania's "free" foreign exchange, a proportion which has cisen rapidly since the Late 1970s. Hence, petroleum imports compete more and more with other imports essential for economic growth. On the other hand, the avaiLability of adequate supplies of petroleum products is essential to stimulate the monetized part of the economy. Industry and transport consume nearly 80Z of all petroleum products (Table 2). If the SAP is effective, commercial energy consumption can be expected to increase more than twofold between 1981 and 1996. These complex interrelationships between the use of petroleum products, economic growth and foreign exchange resources pose a difficult issue of choice for the Government: how to achieve an optimal balance between the import of petroleum products and the import of other inputs necessary for economic revival (paras. 1.11-1.16).

Table 1: FINAL ENERGY CONSUMPTION, 1981

Thousand Toe Percent

Fuelwood 7,950 88.1 Charcoal 350 3.9 Coal 3 0.0 Electricity 59 0.6 Petroleum 664 7.4

Total 9,026 100.0

1/ "Free" foreign exchange is defined as export earnings and foreign aid which is not tied to specific projects. - ii -

Table 2: DISTRIBUTION OF PETROLEUM PRODUCTS BY CONSUMING SECTOR

Thousand toe Percent

Industry 143 21.5 Conmerce 30 4.5 Transport 372 56.0 Households 76 11.5 Agriculture 33 5.0 Other 10 1.5

Total 664 100.0

3. At the same time, there is a growing crisis in the non-commercial energy sector. The wide gap between the current level of fuelwood consumption (39.2 million m p.a.) and sustainable fuelwood production (16.0 million m3 p.a.) is Leading to severe deforestation in practically all regions (paras. 1.23-1.24; 2.32-2.33). The potential consequences are severe, given the high population growth rate (3.3X p.a.) and the fact that fuelwood (including charcoal) constitutes over 90% of finaL energy consumption (Table 1). By the year 2000, the productive capacity of the natural forests could be reduced by as much as 25%. At that time, forced widespread use of cattle dung and agricultural residues would contribute to severe depletion of the agricultural soils and drastically reduce their productive capacity. Consequently, more land would be required to grow the same amount of food, thus increasing the competition for land.

4. The Government is welL aware of the energy supply problem and one of the main SAP strategies is the development of indigenous energy resources; this would reduce the country's present dependence on imported petroleum and decelerate the erosion of the nation's forest capital. A second element of the SAP is the setting of appropriate pricing policies to recover the economic costs of supply and to regulate consumer demand. In this context, it is encouraging to note that Tanzania has abundant hydroelectric and coal resources; and substantial natural gas reserves have recently been discovered off the coast. Tanzania also has an excellent forestry potential, although it must be carefully husbanded if it is to continue to play its important role in the energy sector. Other biomass resources, in the form of various residues and wastes, are considerable and solar and wind energy may offer some long-term potential. Finally, there is evidence of geothermal activity and uranium deposits. - 2.11 -

Immediate Priorities

5. Based on its analysis of the various supply and demand options, the mission proposes the following immediate priorities for tackling Tanzania's energy problems:

(a) increase fuelwood production through better forestry practices, more efficient use of existing resources, research, training and more planting for energy applications (paras. 4.91-4.97);

(b) secure and protect the existing Songo-Songo wells (para 2.8);

(c) carry out certain essential but modest measures to make the refinery economically viable, including overdue repairs and replacements, debottlenecking, fuel conse.-vation,a change in the type of crude oil processed and a change in product rpecifications (paras. 4.7-4.13); without these measures,it would clearly be preferable to shut down the refinery and import all refined products (para. 4.14);

(d) improve the reliability of the power system to support increases in agricultural production and the degree of industrial capacity utilization, by strengthening and rehabilitating generation, transmission and distribution facilities (paras. 4.61-4.69);

(e) continue with the extension of the main power grid which is presently under way, to utilize as fulLy as possible existing hydroelectric facilities and the new hydroelectric plant under construction, with consequent savings in gas oil and industrial diesel oil (paras. 1.20; 4.70);

(f) foster industrial energy conservation to reduce petroleum imports; and fuelwood conservation to reduce the pace of deforestation (paras. 5.20-5.35);

(g) carry out feasibility studies for developing natural gas as a substitute for the use of fuel oil, industrial diesel oil and gas oil in domestic industry and in power generation (pa-as. 2.11; 4.33-4.40; 4.52);

(h) do not commit a major part of the existing known gas reserves to a single high-risk export use, such as fertilizer production, without a contract which ensures that this use will pay a gas price which more than covers the full economic costs of supply (paras. 5.9);

(i) adhere firmly to the economic pricing of energy in the domestic market and full cost recovery to manage properly the level of energy demand; to allocate energy demand efficiently between different fuels; and to mobilize investment resources (paras. 5.1-5.19); iiv -

(j) focus efforts of non-forestry biomass usage towards increased substitution for fuelvood and imported petroleum products (paras. 4.98-4.105); and

(k) strengthen energy sector management and energy planning coordination, both at the level of overall sector planning and within the individual energy agencies (paras. 6.32-6.37).

Although not studied by the mission, the Government considers that high priority should also be attached to increasing the storage capacity for petroleum products in the region in view of the major problem with the transport network and to rehabilitating the number of vehicles and ships dedicated to petroleum products distribution. Furthermore the possibility of obtaining petroleum supplies from neighbouring countries on a short-term basis for the northern region should be investigated (paras 4.19-4.20) and attention should be given to streamlining the procedures for making foreign exchange resources available to institutions in the energy sector (paras. 4.8; 4.25; 4.65-4.69). The mission's conclusions and recommendations with regard to dealing with priorities (a)-(k) are considered under three headings: policy measures; investment options; and technical assistance requirements.

Policy Measures

6. The prices of all the main petroleum products are at least equal to their economic opportunity costs, if the international (border) prices are converted at a shadow rate of foreign exchange of US$1 = TSb. 18.5. Of course, the use of a higher shadow exchange rate would increase the economic opportunity costs expressed in local currency terms. However, at the particular shadow rate assumed here, the government is in effect levying a substantial tax on petroleum products as a whole. The main policy question, therefore, concerns the extent to which petroleum product prices should be used as a vehicle for general tax purposes. Such a question is beyond the scope of an energy assessment report and requires a careful evaluation of the effects of different taxation forms on the economy as a whole, taking into account alternative methods of raising tax revenues and their effect on resource allocation.

7. The pricing situation is less satisfactory in the electricity subsector. Tariffs are not sufficient to meet TANESCO's medium-term financial requirements for internal cash generation; and the tariff level is below the estimated average incremental cost of supply in the mediumterm. 2/ The mission considers that the full economic implications of TANESCO's present policy of a uniform national tariff should be reviewed, since it involves a substantial subsidy from users in the low-cost main grid to consumers in the high-cost isolated systems and fails to give

2/ However, it is close to the long-run cost if the relatively inexpensive gas-fired turbines become available in the early 1990s. v

appropriate signals to the latter concerning the economic costs which their consumption creates (paras. 5.11-5.13). Finally, there are inadequacies related to the internal structure of electricity tariffs. The mission therefore recommends that the Government take immediate action on the tariff level, according to financial requirements, and subsequent action to improve the structure and regional differentiation of tariffs, when the results are available from the study of long-run marginal costs which is being financed under the Fourth Power Project (paras. 5.14-5.17).

8. Subject to detailed feasibility studies, natural gas could become available in Dar-es-Salaam in the second half of the 1980s. Major decisions will face the Government in gas pricing. Natural gas is expected to enjoy a substantial cost advantage over other fuels. While some of this advantage should be passed on to local industrial and commercial users, to induce the desired substitution of gas for imported petroleum products, the Government should aim to set gas prices above the long-run economic costs of supply in order to generate tax revenues (paras. 5.6-5.8). A similar policy should be pursued with regard to the proposed fertilizer plant at Kilwa: in the mission's view, it is essential that the Government charge a gas price which covers the full economic costs of supply - i.e. the sum of the direct (physical) cost and the depletion cost -- plus a margin to capture for the Government some of the high resource value of the gas (economic rent). In this way, the Government will avoid subsidizing a large export consumer and avoid creating inequities in the treatment of local users (paras. 5.9).

9. Responsibility for energy supplies rests with a multiplicity of agencies. The Ministry of Water, Energy and Minerals (MWEM) handles hydrocarbons, hydroelectricity, coal and uranium; the Ministry of Natural Resources and Tourism (MNRT) deals with fuelwood; while the Prime Minister's Office also is involved with village woodlots and village electrification through its rural development responsibilities. Apart from being responsible for policy formulation, the Ministries supervise the activities of various parastatals. In the case of MWEM, these are: the Tanzania Petroleum Development Corporation (TPDC); the Tanzania- Italian Petroleum Refining Company (TIPER); the Tanzania Electric Supply Corporation(TANESCO); the Rufiji Basin DevelopmentAuthority (RUBADA); and the State Mining Corporation (STAMICO). Finally, there are Ministries which have an important impact on the energy sector although they are not directly responsible for energy supplies, e.g. the Ministries of Agriculture, Transport and Industry (paras. 6.1-6.28).

10. To ensure a more effective cenrral coordination between the agencies responsible for energy supply and a more integrated long-term planning of energy supplies, the mission recommends the creation of a small team of energy specialists based in MWEM and reporting to an Inter- Ministerial Energy Commission. The team would correlate and evaluate information on all proposals and projects involving large new energy demands and significant new energy supply prospects and options. The existing gap in planning and implementing work on non-conventional energy - vi -

sources could be filled by the appointment of a renewable energy expert as a member of the energy planning team. The Energy Commission would be a newly-created committee of Principal Secretaries from all the Ministries with an important involvement in the energy sector, either on the demand or the supply side. In light of the papers received from the energy team, the Commission would take decisions for implementation by the Ministry concerned or where necessary (e.g. if a major investment is involved or substantial disagreement exists within the Commission) prepare proposals for consideration at the Ministerial level (paras. 6.29-6.34).

11. The new gas agency which wiLl be necessary to proceed with the comiercial exploitation of Tanzania's gas reserves would be supervised by MWEM and could easily be integrated within this planning framework. Several organizational options are available for the new agency, ranging from a relatively autonomous corporation to a division of TPDC. The resolution of this issue, requiring a policy decision by the Government, is urgent (paras. 6.36-6.40).

12. Development of the natural gas subsector will create more competition with TIPER for scarce manpower trained in hydrocarbons; remuneration policies for refinery staff will need to be reviewed to ensure that they are competitive. Furthermore, TIPER's administrative autonomy may need to be increased (paras. 6.15).

13. Forestry policy must focus upon: (a) an acceleration of the Village Afforestation Program, by distributing more seedlings to farmers, expanding forestry extension services and introducing agro-forestry schemes; and (b) estabLishing plantations of fast-growing fueLwood species, e.g. eucalyptus, near urban centers to help alleviate the fuelwood and charcoal deficit in urban areas. The Government has already prepared programs under (a) and (b) and the mission recommends that these schemes be refined and reviewed in light of the Government's financial and managerial capabilities. Measures will also be needed to promote the proper management and utilization of the miombo forests, which provide 96X of the fuelwood supply (paras. 4.91-4.97).

14. The mission sees a less important role for non-forestry biomass resources except in certain applications which substitute these resources for petroleum products and fuelwood. Government efforts in this respect should focus on (a) expanding the use of residues as a supplementary cooking fuel; (b) concentrating the use of biomass power gasifiers in sawmills and small ruraL power appLications; and (c) continuing the emphasis on biogas digesters in institutions (paras. 4.98-4.104). While solar and wind energy are likely to have specific applications in the long run, they do not warrant any significant priority in Government policy for the time being. Similarly, although it appears that Tanzania has geothermal resources, the mission would not recommend any major expenditures at present, given the large hydroelectric potential and naturaL gas resources. Evidence also exists of uranium deposits which might eventually be exploited for export, but they are not economical for local use (paras. 4.105-4.106). - vii -

15. Government policy towards energy conservation should support efforts to impLement the recommendations of TIRDO's energy audits by providing incentives and foreign exchange to allow industry to undertake the required investments. Support should also be given to efforts to improve the end-use efficiency of fuelwood in three specific areas: (a) improved charcoal making, through the use of improved kilns; (b) improved household charcoal stoves ("jikos"); and (c) tobacco curing, where simple low-cost improvements to existing flue-curing barns could result in significant reductions in fuelwood consumption (paras. 5.21-5.25).

Investment Options 3/

16. Natural gas has been discovered at Songo Songo Island, 220 km south of Dar-es-Salaam. Proven reserves are 726 bcf, with an additional 157 bcf probable and 223 bcf possible. A more recent discovery has taken place at Mnazi Bay; further confirmation drilling is necessary but proved and probable reserves are conservatively estimated at 609 bcf (paras. 2.8-2.9). While Mnazi Bay is too remote for immediate development for the domestic market (it is close to the Mozambique border, some 460 km from Dar-es-Salaam), it could be developed for export markets (fertilizers and methanol) or at a later stage serve as a supplementary supply for Songo Songo (para. 4.50). However, the mission recommends that feasibility studies be considered urgently for the development of Songo Songo, the construction of a transmission pipeline from Songo Songo to Dar-es-Salaam, the installation of a secondary gas distribution system in Dar-es-Salaam, and the conversion of industrial plants in Dar-es- Salaam to use natural gas (paras. 4.33-4.35; 4.51-4.52; 7.3).

17. Aside from TANESCO's ongoing works reLated to extensions to its main grid (US$124 million through 1988) and under the Fourth Power Pro- ject (US$149 million) 4/, there will be a need to strengthen the transmission, sub-transmission and distribution networks in the interconnected system and to rehabilitate the Pangani River hydroelectric stations (US$169 million through 1991) (paras. 4.61-4.69; 7.2). Addi- tional generating capacity is unlikely to be required in the interconnected system before 1992. At that time subject to the outcome of proposed feasibility studies new capacity could be located in or near Dar-es-Salaam and fired with natural gas supplied by a pipeline from Songo Songo (US$30 million for 2x3OMW) (paras. 4.37-4.39; 7.2). Apart from the last item, all these investments can be expected to proceed if the financing is available, i.e. they should not be sensitive to the rate

3/ The figures for investment requirements in these paragraphs are expressed in constant 1983 US dollars and should be regarded as tentative.

41 The Fourth Power Project covers, inter alia, the Mtera hydroelectric scheme, a new system control center and rehabilitation of the Ubungo diesel power station. - viii -

of growth assumed for electricity demand. Ongoing works and works financed under the Fourth Power Project are for all practical purposes committed;the provisionsfor rehabilitationand new works are to effect cost savings, improvementsin system reliabilityand increases in the quality of electricitysupply even with the existinglevel of demand. Of course, if further adverse developments occur in Tanzania's overall economic situation, the Government and TANESCO may well face financial constraintswhich, in turn, couLd compel TANESCO to reduce its investment program. In that event, it will be necessaryto estabLishpriorities for the financing and timing of individualcomponents based upon a careful weighing of political, social, economic, technicaL and operational criteria (para.7.2).

18. To increase fuelvood production, the mission recommends a minimum energy plantationprogram for urban areas of 22,500ha in a first five-year period (US$14 million) and 51,000 ha in a second five-year period (US$32 million); the program should start immediatelyand would cost some US$32 million through 1991. Similarly,a minimum program of village afforestationfor rural areas would start with the planting of ten million seedlingsin 1984; plantingscould reach 42 million seedlings by 1991 at a total cost of US$12 million for the period (paras. 4.93- 4.97; 7.4).

19. Only modest investmentsare suggested for the refinery, to cover debottlenecking,repairs and replacementsand the reduction of internal fuel consumptionand losses. These investments(amounting to US$10 million) are needed urgently to secure the safe and continued operation of the refinery and they have a short payback period (paras. 4.7-4.14;7.5). 51

20. The investment estimates in the preceding paragraphs are sawmmarizedin Table 3; they should be regardedas tentative. They imply a level of investmentin the order of US$635 million in 1983 prices for the period through 1991, i.e., less than US$80 million p.a. This corresponds to about 2% of estimated 1983 GDP, which is reasonable comparedwith other developingcountries (para. 7.7).

TechnicalAssistance Requirements

21. BiLateral and multilateral agencies are already providing considerableamounts of foreign aid to the energy sector in Tanzania. Nevertheless,the mission identified a number of areas where further technical assistance is required to assist Tanzania in defining and analyzing the appropriateinvestment options and policy measures. Such assistance should, whenever possible, emphasizetraining and the use of Tanzaniancounterpart staff.

5/ Financing from the Italian Government is likely to be forthcoming for some of these refinery investments. - ix -

22. Feasibility studies should be initiated without delay for the construction and financing of a gas pipeline from Songo Songo to Dar-es- Salaam. While the objective would be to introduce natural gas as a substitute for fuel oil in the industrial market, the sizing of the pipeline must take into account a possible use for natural gas as a fuel in power generation. Furthermore, the possibility of using compressed or liquified natural gas (CNG or LNG) as a substitute for gas oiL and gasoline in the transport sector is worth pursuing and should be supported by a preliminary feasibility study; if the study confirms the potential for CNG or LNG, technical assistance is recommended for a pilot project and full feasibility study (paras. 4.51-4.52; 7.11).

Table 3: ESTIMATED PUBLIC INVESTMENT REQUIREMENTS FOR PRIORITYOPTIONS TO 1991 (USS milLion, 1983)

Natural Gas - securing and protecting existing Songo Songo wells 4 - field development 6 - transmission pipeline - secondary distribution 5 - plant conversion 6 Subtotal 66 Electric Power - ongoing works 139 - Power IV (ongoing) 196 - reinforcement/rehabilitationand export 169 - 60 MW gas turbines 30 Subtotal 504

Forestry - urban 32 - rural 12 Subtotal 7Z Refinery 10 Industrial Energy Conservation 3 Coal 8 Subtotal 21 Total 635

Note: Estimated investment requirements in this table are below those in Table 7.1 since the former does not include certain lower- priority investment. The projected investments in gas would depend on the outcome of the feasibility studies in paras. 16 and 22.

23. IDA resources included in the Fourth Power Project provide a good basis for tackling many of the issues faced in the power subsector: however, the study of long-range electric power development must examine carefully the natural gas option for future power generation, along with other possibilities; and in allocating the funds provided to rehabilitate TANESCO's power facilities, provision should be made to operate the Ubungo station with natural gas in the event that it becomes available in Dar-es-Salaam (paras. 4.54-4.60; 4.66). Additional technical assistance is recomended to: review the present system of gathering hydrological and other related data; hire a water management expert to investigate the operation of the Kidatu and Mtera reservoirs; rehabilitate the three small hydroelectric stations on the Pangani River; and finance diesel experts to assist in carrying out the rehabilitation of some of the larger generating stations in the isolated systems and to provide basic training in the maintenance of diesel units (paras. 4.61-4.69; 7.12).

24. While some localized surveys of Tanzania's forestry capital have been conducted -- notably in Kilimanjaro, Tanga, Kilombero and Tabora with Canadian assistance - no national forest inventory has been made to provide an accurate estimate of total forest resources: consequently there is no reliable basis for planning. As a matter of high priority, a national forest inventory should be carried out, supported by external technical assistance; it would need to be implemented on a continuing basis, in order to assess the rate of deforestation over time and the degree of success afforded by afforestation measures (paras. 2.31; 7.13).

25. Despite the lack of a comprehensive national forest inventory, the present extent of the deforestation problem and the vital role played by fuelwood in Tanzania's energy picture make it clear that urgent measures are necessary to preserve and upgrade the forest resource. Technical assistance should support further investigation of the growth dynamics, productivity and utilization of the miombo forests, plantationing methods and the introduction of new species and fast regeneration techniques (paras. 2.33; 4.91-4.97; 7.13).

26. The mission recommends two important policy measures in the institutional area: the creation of a new gas entity and a planning team of energy specialists (paras. 6.29-6.36). While a management study of TPDC was compLeted in March 1982, there is the need for a follow-up study devoted solely to resolving the issue of an institutional framework for gas and the associated manpower and training needs; technical assistance would also be necessary to help with the implementation of a training program (para. 6.39). The expatriate advisers who would initially form the core of the energy planning team -- at least for two or three years - would need to be funded by externaL donor agencies (para. 7.17).

27. The mission sees no immediate priority for domestic coal development, which will not be competitive with gas in Dar-es-Salaam; neither does it seem competitive with fuel oil at distances much beyond 300 km from the coal-producing areas (paras. 4.83-4.87). Nevertheless, technical assistance should supporc two studies: the first would determine more accurately the economic costs of delivering coal to the principal markets; the second wouLd examine in detail the coal market within the Mbeya area, where coal should be competitive with other fuels - xi -

(notably fueL oil and fuelwood) (paras. 4.88; 7.13). These studies, together with the results of the ongoing IDA Coal EngineeringCredit, would provide basic informationfor eventuallycalculating the economic cost and value of coal; and decisions on possible future development (para.5.18).

28. Outside technical assistance is required to provide further support to TIRDO to continue with its work on industrial energy conservation. Such assistancecould also help with a follow-upenergy audit program, the implementationof energy conservationmeasures which requireforeign exchangeand the provisionof advice to Governmenton the institutionalaspects involved in establishinga coordinatedenergy conservationprogram (para. 7.16).

Implementationof Options:A Scenario

29. The mission has worked through an illustrativedemand/supply scenario for the commercialenergy subsector,using 1986, 1991 and 1996 as reference years. Commercial energy demand was projected on the assumption that the SAP would be successfullycompleted, leading to additionalinflows of foreign exchange, starting in 1984. Commercial energy supply was analyzed on the assumption that the key options identifiedby the mission would be implemented. It was concluded that modest additional demands for coal could be expected -- primarily to provide for Mbeya Cement Plant -- and satisfied from existing plans; electricitydemands in the interconnectedsystem could be met entirely from hydroelectricsources and gas-firedplant throughoutthe projection period under normal hydrologicalconditions; and gas substitutionfor petroleumproducts could amount to 123,000 toe and 153,000 toe by 1991 and 1996 respectively(equivalent to US$19 million and US$33 million p.a. respectivelyat constant1981 prices). Petroleumproducts would still be requiredfor power generationin the isolatedsystems and to meet certain other demands,notably transport. The end result,with regard to product imports and exports, crude oil imports and the balance of payments is suimmiarizedin Table 4. This shows that, even with the implementationof these key options,net imports of petroleumcan be expected to increase by 72% in physicalterms between 1981 and 1996 and by 92% in value terms over the same period (paras.4.108-4.111; Tables 4.8 and 4.9). The large increasein fuel oil exportsover presentlevels (450%-600Zcompared with 1981) suggests that the economic options of maintainingthe refinery in operatingcondition or closing it down will need to be reexaminedas the facts become clearer regarding demand and prices in the international fuel oil market and the speed and extent of natural gas penetration.

30. The mission did not develop an equivalent quantified energy balancefor the futurewith regard to the non-commercialenergy subsector due to the problems of measuring the impact of pursuing the various optionswhich have been identified. Even so, it is easy to see that any plausible demand/supply scenario would demonstrate continued deforestation. The estimated excess of fuelwood cons3umptionover the sustainablesupply of fuelwoodin 1981 was 23 million m (para. 3). The - xii -

mission projects that fuelwood consumptionis likely to increaseby 70Z over the period 1981-1996; while the projected savings from fue wood conservationare unlikely to amount to more than 3.5 million m by 1996. At the same time, the mission concludedthat the resourcesof the Forestry Directorate and the- Government's funding capacity were insufficienteven to eliminatethe existingfuelwood deficit in urban and rural areas; hence the missionwas constrainedto recommenda program for establishingurban energy plantationsand extendingrural woodlotswhich is a bare minimum based on a rough judgementabout Tanzania'sforestry implementationand funding capacity. The program would at best only match the present deficit in urban areas -- and this with a lag -- with no provisionfor additionalneeds, while in rural areas even the present deiicit could not be met. The degree of overcuttingin Tanzaniawill in consequenceincrease; the only real question concernsthe speed at which this takes place. This can only be mitigated by forced additionalcon- servationmeasures throughincreases in fuelwoodprices and the distances over which fuelwoodmust be carried(paras. 4.114-4.115).

Table 4: ILLUSTRATIVEPROJECTIONS OF PETROLEUMPRODUCT IMPORTSAND EXPORTSAND CRUDE IMPORTS (thousandtoe)

1981 1986 1991 1996

PetroleumProduct Imports (Exports) Gasoline 14 (16) 25 89 Gas Oil 169 129 215 353 IndustrialDiesel Oil - 11 34 67 Fuel Oil (55) (116) (189) (150) Other petroleumproducts 94 53 101 176

Net PetroleumProduct Imports 222 61 186 535

Crude Imports 544 750 750 750

Total Net Imports - Quantity 766 811 936 1,285 - Value (US$ million) 237 194 274 450

31. The mission concludes that bold, urgent and decisivemeasures are required in the energy sector in Tanzania in the immediatefuture. These measures must cover both policy decisions and investmentprojects and entail appropriatesupport from overseastechnical assistance. I. ENERGYAND THE ECONOMOOF TANZANIA

RecentMacroeconomic Situation

1.1 Tanzaniahas a land area of 945,000km 2 of which 498,000 km2 is arable (52Z). Its 1981 population was estimated at 19.1 million and growingat 3.3Z p.a.; 89% of the populationis rural while the remaining lZ is concentratedin towns which, apart from the coastal region, are relativelyremote from each other. Sixty percentof the rural population is estimated to be living below the absolute poverty income level of US$109 per capita. Agricultureis the mainstayof the economy; its share in GDP is about 52%, while that of industryis 17Z 6/; the balance (31%) is accountedfor by the servicessector. Agriculturealso provides 80O of exportsand 90% of nationalemployment.

1.2 From independencein 1961 throughout the decade, the country managed to achieve significantimprovements in meeting the educational, health and other basic needs of the population. There was also satisfactory performancein the macroeconomicsense, with real CDP growing at 4.4Z p.a. from 1966-72and investmentby nearly 20% p.a. Unfortunately, this was accompaniedby relativelyslow growth in the productivesector, especiallyagriculture (which grew by only 2.3Z from 1966 to 1973).

1.3 Since then, Tanzania'aeconomic situationhas continuedto deteriorate. The economyhas undergonea structuralchange away from the monetary productivesector into the subsistenceand public services sectors. In 1982, per capita GDP in current terms fell by 10 7/ agriculture declinedby 8.7% and industrialoutput fell by nearly 25Z while the servicessector recorded an increase.

1.4 As a result of the contractionin the agriculturaland industrial sectors, export volumes declined. 8/ The situation was further exacerbatedby declining internationalcommodity prices for Tanzania's main exports,and rapidlyrising prices for essentialimports, especially petroleum. As a result, terms of trade suffered losses of 2-3% p.a. between 1978 and 1982 (in spite of severe cutbacks on imports) and the

6/ Industrycovers manufacturing, construction and mining.

7/ In 1982, per capita GDP fell to US$263 from US$291 in 1981. These calculations were made using market prices and with official exchangerates as the deflator.

8/ Exports of coffee, clovesand tea have stagnatedbetween 1976-1982; cotton exports felL by 60%; sisal by 45Z; cashew nuts by 90Z; and tobaccoby 47X. -2-

externalcurrent account deficit amounted to US$606million by the end of 1982.

1.5 Although Tanzania received substantial import support from foreign aid sources during the period, 9/ a high and increasingper- centage of this aid was "tied" to specific projects. This meant that Tanzaniawas overwhelminglydependent on its own reducedexport earnings to provide "free" foreign exchange i.e., funds to finance essential recurrentimports to revitalizeits agriculture,industry and transport sectors (Table 1.3). The shortage of foreign exchangehas resulted in fallingagricultural production; poor maintenanceof existinginfrastruc- ture; and low capacityutilization in industry.

1.6 To deal with the economic crisis, the Governmentsuccessfully negotiateda Stand-byCredit Agreement with the IMF in 1980 (for up to US$235 million in two years) with emphasis on restrictionof domestic credit expansion;reduction in debt paymentarrears; and eventual agreement on an appropriate exchange rate policy. The Government also launcheda structuraladjustment program (SAP) in November1982, based on a report by the independentTanzanian Advisory Group (TAG) which was financed by an IDA Technical Assistance Credit. Its main objectives are: (i) to reduce the rate of inflation through adjustment of the governmentbudget; and (ii) to achieve balance-of-paymentsadjustment to alleviate the scarcity of foreign exchange and consequentunder-utilization of domestic production capacity. The main strategies are: (a) provision of incentivesand support for exporters;(b) cutbacks in specific future government recurrent and development expenditures; (c) rationalizationof producer and consumer pricing policies; (d) increased efficiencyin transportand marketing services;(e) stimulation of developmentof alternativedomestic sources of energy while economizing on the use of importedfuel; and (f) to ensure the effective use of externalassistance.

1.7 However, important decisions still remain to be taken on matters such as the exchange rate and real adjustmentof agricultural prices as well as preparationof specificaction programsin key sectors (e.g. transport)which would have a measurable impact on production. Discussionswith the IMF on a possible second standby arrangementhave not yet been concluded.

1.8 Tanzaniawill continueto face a very difficultsituation -- on both the domestic and external fronts - over the next three to five years. To avoid further stagnationof economic activity and declining per capitaGDP, it will be necessaryto continueemphasis on export per- formance,improved capacity utilization and import substitutionwherever possible. In this context, the discoveryof significantquantities of naturalgas off the coast presentsTanzania with some optionswhich could

9/ 60% of total importsin 1982. -3-

materially influence future macroeconomic developments through their effect on the foreign exchange situation. Investmentsin natural gas could lead directly to increasedexport revenues through fertilizerex- ports (para. 4.41) or a reductionin import expendituresthrough substitution for petroleumproducts imports (paras 4.35; 4.38; 4.112). It will be necessaryto ensurethat these investmentsare made in a way that will lead to the optimalutilization of the nation'sgas resources.

Overview of the Energy Sector

1.9 In 1981, Tanzania'sfinal energy consumptiontotalled about 9.0 milLion toe of which 92% was in the form of fuelwoodand charcoalIO/ and the balance of 8Z was providedby hydroelectricity,coal and importedpe- troleumproducts (Table1.1). The largestconsuming subsector was households (85%); followedby industry (10X) and transport(4%). The overall per capita consumptionwas estimatedto be about 470 kgoe, comparableto other developingcountries at similarlevels of per capita income.ill

1.10 The gross supply of primary energy in 1981 amounted to about 10.4 million toe, made up as follows (in thousandsof toe): fuelwood, 9,400 (90.4%); hydroelectricity,180 (1.7%); crude oil 521 (5Z); and importedpetroleum products, 277 (2.7%). A major part of the difference between gross supply and final consumptionwas caused by the substantial conversionlosses involvedin charcoalproduction (4 toe of dry fuelwood to produce 1 toe of charcoal). Losses at the petroleum refinery were also significant:7-8Z as compared to worldwide refinery industryaver- ages of 3.5-4%. The energy balance in Annex 1 gives the gross supply, stock changes,conversion losses and net domestic consumptionof energy in 1981.

CommercialEnergy Sources 12/

Ceneral

1.11 In 1981, total consumptionof comercial energy (8% of total energy consumption)was about 0.7 million toe or 38 kgoe per capita. The

10/ Fuelwood and charcoal are classified as non-commercial energy sources.

11/ For example, Sudan 324 kgoe; Uganda, 350 kgoe (1980); Kenya, 430 kgoe (1979);Zimbabwe, 720 kgoe (1980).

12/ The definitionof commercialenergy may be misleading,in that large quantitiesof fuelwood and charcoal are traded coimercially,but it is retained in accordancewith conventionand to facilitateinter- countrycomparisons. -4-

per capita consumptionis low, even by African standardse.g., the comr parable figures for Kenya (1980) and Sudan are 120 kgoe and 58 kgoe respectively. Imported petroleumaccounted for 91.6Z of 1981 commercial energy consumptionwhile hydroeLectricitycontributed only 8Z and indigenous coal only 0.4%. This demonstratesa high degree of reliance on imported commercial energy. The largest consumer of commercial energy was transport (51X); followed by industry (25Z); households (122); commerce (62); agriculture(52) and others (1X). The minor share of consumptionby householdsis a reflectionof limited access to electricity (Para. 1.18) and a suppresseddemand for cooking kerosene (Para. 1.14). Agricultureis also a minor consumer due to the relativelylow level of mechanization.

Table 1.1: FINAL ENERGY CONSUMPTION,1981 (103 toe)

Electri- Petroleum Share Fuelvood Charcoal Coal city Products TotaL (2)

Industry 600 150 2 34 143 929 10 Commerce - - - 12 30 42 0.5 Ttansport - - - - 372 372 4 Households 7350 200 - 13 76 7,639 85 Agriculture - - - 33 33 0.5 Other - - - 10 10 0.5

Total 7,950 350 2 59 664 9,025 100 Share (Z) 88.1 3.9 0.0 0.6 7.4 100

1.12 Petroleum. Between 1975-82, total consumption of petroLeum productsgrew at an average rate of only 0.62 p.a. (Table 1.2) compared to CDP growth of 3.0O per annum in real terms over the same period. In fact, total consumption has actualLy fallen in the last two years.

1.13 The stagnationwas due primarilyto a lack of foreign exchange to purchase crude oil and petroleum products (para. 1.5); reduced economic activity; and underutilizationof available capacity in transport and industry, which are the main consumers of petroleum products. In 1981, the transport sector accounted for 562 of petroleum consumption; industry (222); commercial (5x); domestic (11%); agriculture (5x); and power generation (12). Although the energy assessmentmission did not quantify the scope for energy conservationin the transport sector, the possibilitiesare obviously large in view of the high proportion of petroleum products consumed by transport, especially of gasoil by trucks. The mission strongly recommends further study of energy -5-

conservation in transport using the assistance of the Energy Sector Management Assistance Program.

Table 1.2: CONSUMPTION OF PETROLEUM PRODUCTS, 1975-82 (103 tons)

Average Annual Product 1975 1978 1980 1981 1982 Growth (Z) LPG 5.5 5.7 5.8 5.9 5.4 - Av. Gas 3.6 3.3 1.8 1.6 1.6 -10.9 Gasoline 104.9 105.7 113.6 111.7 120.4 1.9 Kerosene 68.5 96.8 77.5 75.5 68.9 - Jet 24.0 28.0 51.6 49.7 37.7 6.8 Gas Oil . 205.1 218.0 259.3 242.6 243.7 2.5 Industrial 2. Diesel Oil 56.2 53.0 56.6 54.0 51.2 -1.3 FueL Oil 143.8 115.1 119.2 122.3 109.1 3.9

Total a/ 611.8 625.6 685.6 663.2 638.0 0.6

a/ May not be exact with column totals due to rounding. 5/ A mixture of gas oil and fuel oiL in a ratio of 97:3.

1.14 Although the average annual growth in gasoline consumption (1.9X) exceeds the growth of petroleum products as a whole, it is believed that there is a supressed demand due to Government fiscal measures and rationing policy (para. 1.15). Similarily, gas oil is believed to be in short supply in the transport sector, even though it registered the highest annual growth (2.5%). Kerosene consumption in 1982 was actually lower than in any year since 1975. This gives a clear indication of an acute shortage of kerosene, especially given the annual population growth (3.3%). 131 Availability of jet fuel dropped during 1982 forcing some foreign airlines to cut back on flights to Tanzania while Air Tanzania reduced its frequency of domestic flights. Consump- tion of industrial diesel oil and fuel oil declined over the period - indicating reduced activity in the industrial sector. In so far as there is suppressed demand for petroleum products, it is difficult to determine what part is due to (a) the general stagnation in economic activity and (b) the lack of foreign exchange to purchase crude and refined products. 14/

13/ Kerosene is virtually unobtainable outside Dar-es-Salaam.

14/ Kerosene is a notable exception in that the lack of consumption growth is due almost entirely to restricted supply. 1.15 At present, Tanzania has no indigenous supply of petroleum and imports all its oil requirements. Although petroleum is only 7Z of total energy consumed in 1981, it accounted for 91% of commercial energy and thus has a big impact on the monetary sector of the economy. In response to the oil crisis of 1973/74 and 1979, the Government introduced controls such as restricted weekend driving and gas oil rationing which helped to suppress the growth of petroleum imports (Chapter IV). However, the relative share of petroleum (crude and refined products) in totaL imports has been growing since 1978 (Table 1.3). At the same time Tanzania is facing an increasing shortage of "free" foreign exchange to finance recurrent imports of which petroleum is a major constituent (para. 1.5).

1.16 Already petroleum accounts for 50% of "free" foreign exchange; any increase in petroleum imports would mean a reduction of other vital inputs for the agricultural and industrial sector (e.g. spare parts) with obvious implications for economic activity. At the same time, there is a shortage of petroleum products for transport purposes compounded by distribution problems. The question is how to achieve an optimal balance between importation of petroleum products and other inputs necessary for economic revival, given the anticipated short-term continuation of foreign exchange shortage (para. 1.8).

Electricity

1.17 Electric power consumption in 1982 amounted to 706 GWh (or 8% of total commercial energy) as shown in Table 1.4. The per capita consumption was about 36 kWh, which is rather Low. 15/ This reflects the depressed sta=e of the industrial sector and the limited access to electricity (about 3% of the population). 161 Industry is the largest user of electricity, accounting for about 55Z of sales in 1982; domestic sales were 25Z, commercial (19%); and public lighting less than 1%.

Table 1.3: PETROLEUM IMPORTS COMPARED TO TOTAL IMPORTS, 1976-82

1976 1978 1980 1981 1982

1. Petroleum imports (TSh million) 935 991 2,148 2,100 2,701 2. Imports from "free" foreign exchange (TSh million) 4,441 5,956 5,881 5,256 5,313 3. Total imports (TSh million) 5,841 9,349 10,874 9,573 9,246 4. (1) as a Z of (2) 21 17 36 40 51 5. (1) as a Z of (3) 16 11 20 22 30

15/ Comparable figures: 90 KWh (Kenya in 1980); 60 (Sudan in 1981); and 22 KWh (Ethiopia).

16/ The Government plans to establish a new organization to accelerate rural electrification through development of renewable energy resources, such as mini hydropower plants. -7-

Table 1.4: TANESCOELECTRICITY GENERATION AND SALES, 1977-82

Average Annual Growth Rates 1977 1980 1981 1982 1977-80 1980-82

Generation(Gwh) InterconnectedSystem 540 686 715 720 8.3 2.4 IsolatedStations 82 110 107 108 10.2 -0.9 Total 622 794 823 828 8.5 2.1

Sales (Gwh) InterconnectedSystem 442 627 630 604 12.3 -1.9 IsolatedStations 74 101 120 102 10.9 0.5 Total 516 728 750 706 12.2 -1.5

MaximumDemand (NW) InterconnectedSystem 91 118 124 118

ApparentLosses (Grid Only) (Z) 22.2 9.4 13.5 19.2

Note: The apparent losses for 1980 and 1981 are almost certainly in- correct,probably due to an over-reportingof consumption. Ac- tual losses are likely to be in the order of 15%. The energy balance in Annex I has adjustedtotal 1981 electricityconsumption accordinglyand reduced each consumercategory "pro rata."

1.18 Between 1977 and 1980, consumptiongrew rapidly at about 12.8% p.a. (Table 1.4). Since then, despite an increase in the number of connectionsand growing domesticsales, total consumptionfell by 1.5Z as a result of the deepening economic crisis. This was caused by, among other things, Lower capacity utilization,and project completiondelays and cancellationsin the industrial sector -- the main consumer of electricity.17/ As a result, total peak demand in 1981 was only 150 MW as compared to availablecapacity of 296 MW (Table 1.5). These developments have importantimpLications for existing power demand projections and future systemsexpansion plans (paras.4.54-4.60).

17/ Industrialload factors fell from 1977 average of 44Z to 38% in 1981. Only 22% of new industrialpower consumptionprojected for 1982 was actually achieved, due to project completion delays and cancellations. 1.19 At present,the power supply system of TANESCO (vhich provides about 98Z of total power generated) 18/ consistsmainly of an extensive interconnected grid in the east and northeast of the country serving the principal load centers, including Dar-es-Salaam, Morogoro, Arusha, Zanzi- bar, Moshi and Tanga. This system derives its power from 5 hydropower plants and 2 diesel stationsin a 80:20 ratio. About 77% of the present installedcapacity is at Kidatu Dam, which suppliesDar-es-Salaam through a 22OkV single-circuittransmission line passing through difficult terrain. Any failure of this line would lead to a severe breakdown on the system, whose vulnerabilityis a cause for concern (paras. 4.61- 4.63). TANESCO also covers 15 isolated service areas throughout the country,but mostly located in the northwest (includingDodoma, Iringa, Tabora, Bukoba, Kigomaand Mwanza) 19/); the southwest(Mbeya, Songea and Tukuyu); and the southeast(Mtwara, Lindi and Nachingwen). TANESCO 's total installedcapacity of about 370 MW comprises247 MW hydro and 133 MW diesel and gas turbines(Table 1.5).

Table 1.5: TANESCOBASiC DATA, 1981

Length of Power lines (kwi) Numberof Peak Installed Available and Voltages(kV) Connections Demand I) (M) (11)

InterconnectedSystem 313.0 260.4 3,961 (220,132, 81,556 122 66, 33, 11-kV)

IsolatedSystems: Northwest 44.1 28.0 551 (33, 11-kV) 19,261 20 Southwest 7.1 6.0 163 (33, 11-kV) 6,634 5.7 Southeast 5.5 2.0 165 (33, 11-kV) 3,472 2.0 Total 369.7 296.4 8 4,840 110,923 149.7

a/ The differencebetween Installedand available capacity is mainly due to derating dieselstatFons. Source: Staff AppraisalReport 4050-TA, Fourth Power Project,Tanzania.

1.20 The isolatedstations depend mostly on diesel-poweredgenerat- ing plants; many of these plants are in a dilapidatedcondition due to lack of spare parts and they operate at a limited load factor due to lack of fuel oil (para. 4.69). It is TANESCO's policy to extend the grid

181 The remaining 2% is produced by captive power plants owned by private companiesand parastatalsunder license from TANESCO.

19/ Over 50% of total isolatedsystem capacityis locatedat Mwanza. -9-

system to replace most of the isolated stations in the northwest and southwest regions by the end of 1988. The policy is expected to: lower TANESCO's own operating costs; promote diesel fuel import savings (estimated at about 50,000 toe in 1988); and encourage more industries to locate in the interior in line with Government policy. In addition, TANESCO hopes to replace some existing capacity at Bukoba by hydropower supplies imported from Uganda (para. 4.72). At present, the grid system has been extended as far as Nufindi; and further extension to Mbeya is expected by 1985 (para. 4.54). The connection for the proposed Mtera power station to the grid is also under construction. 20/

Coal

1.21 Sales of coal in 1982 amounted to about 7,700 tonnes -- less than 0.5X of total comnercial energy consumption. 211 This emphasizes the relatively minor role played by coaL in Tanzania to date as shown in Table 1.6 below. Due to supply constraints and limited distribution facilities, current consumption is confined to the Mbeya region where the coal deposits are situated. 22/

Table 1.6: COAL CONSUMPTION, 1977-82 (tons)

1977 1979 1981 1982

Tea estates 360 4890 3470 6450 Tobacco 15 680 120 - Others al 305 340 530 690 !beyaCeoent Plant - - - 580 Total 680 5910 4120 7720

a/ Local hotels, hospitals and rural industries. Source: STAMIOD

1.22 Up to the present, the local tea estates have accounted for 801 of sales. However, Kbeya Cement Plant is expected to require up to 60,000 tpa at full capacity. This has implications for future production (para. 4.108).

201 Financed by CIDA and the Italian Government.

21/ Per capita cansumption of coal in Tanzania in 1982 was 0.4 kg as compared to 9.3 kg in Malawi in 1981.

22/ For example, the tobacco growers in the Iringa region no longer use coal because of difficult logistics and high transport costs. - 10 -

Noncommercialand Other Energy Resources

1.23 As elsewhere in Sub-SaharanAfrica, forestry resources supply most of total energy consumption(92Z in 1981). Fuelwood accounted for 96Z of noncommercialenergy, while the balance (4O) was provided by charcoal. Total fuelwooduse 23/ of 39.2 million mj in 1981 was equivalent to a per capita consump%ionof 40 kgoe (2.03 m ), which was average compared to Sudan (3.7 m ) and Malawi (1.7 m3 ). The breakdown of the total for Tanzania by main consumer category and by region is in Annez 2. The household sector accounted for 91% of nonco.mercial energy while rural industries consumed the remaining 9Z.

1.24 The rural areas (89% of total population) depend almost exclusively on wood fuel for cooking and heating. The average household uses about 1.71 per capita exclusivelyfor cooking. Continuedovercutting and depletionof forest resourcesclose to populationconcentrations has dramaticaLlyincreased the distance travelledand time spent in collecting fuelwood (averagehauling distanceis about 3km; and average time per household spent is more than 75 man-days). The urban populationinclud- i3g small scale industriesand service facilitiesuse about 6.4 million a: of wood mostly converted into charcoal. Supply of charcoal to urban areas is unreliableand expensive due to transport bottlenecksand the increasing remoteness of charcoal-producingforest areas from urban centers. This has resulted in charcoal prices beyond the reach of many low-income urban dwellers while substitutesfor charcoal (electricity, kerosene,LPG) are either not availableor even more expensive.

1.25 Cqnversionlosses involvedin charcoal productionfrom wood are high - 12mJ of solid wood are required for 1 ton of charcoal - because of the low efficiencyof the earth kilns us d in the process. Industrial use of fuelwoodis also inefficient-- 50m of wood or more required t cure 450 Kg of tobacco. This figure is far higher than in Malawi (20mJ of solid wood per 500 Kg of sobacco) which is also wasteful. A more satisfactoryratio would be 15m of wood for 450 Kg of tobacco. Further, most household stoves in Tanzania are inefficientin the combustion of wood or charcoal. It is felt that improvementin these three specific end-uses could produce a significantreduction in current fuelwood consumption,thus deceleratingthe rapid depletionof forest resources.

1.26 Tanzania also has considerable biomass resources (e.g. wood processingwastes, agricultural residues, animal wastes, molasses and bagasse)as well as solar and wind energy resources,which are consumed almost entirelywithin isolated agro-industrialenterprises. Therefore, these resources make a negligible contribution to national energy

23/ Includeswood used directlyand in form of charcoal. - 11 -

consumption.24/ To a varying extent, possibilities exist for the economicutilization of some of these energy resourcesfor householdand industrialpurposes, which would help to reduce the demand for fuelvood (para.4.98-4.107).

241 Consequently,they are not included in the 1981 energy balance. - 12 -

II. ENRGY RESOURCES

Introduction

2.1 Tanzania's indigenous energy resources are large and diverse, but have not yet been explored and exploited systematically. Commercial energy resources include abundant hydroelectricity potential, substantial coal deposits and the recently discovered natural gas resources off the coast. All these can play a useful role in the Government's strategy to develop domestic energy resources with the objective of reducing the country's present dependence on imported petroleum products. Tanzania also has an excellent forestry potential which must be carefully husbanded if it is to continue its important roLe in the noncommercial energy sector. Other nonconventional energy resources, such as agricultural residues, could be exploited to make a bigger contribution to energy consumption and there is evidence of both uranium and geothermal potential.

Petroleum and Gas

Exploration Activities

2.2 Exploration activities have taken place in Tanzania for several decades although the volume of completed work is quite low. Sedimentary basins with hydrocarbon potential are concentrated in two areas: (i) the inland Rift Valley basins to the west, in which the geology and petroleum potential are relatively unknown; and (ii) the eastern coastal basins, where most exploration to date has been done.

2.3 The only completed exploration work in the Rift Valley area has been a reconnaissance aeromagnetic survey carried out by the Tanzanian Petroleum Development Corporation (TPDC). This has confirmed the exis- tence of a sedimentary basin whose geology, however, remains almost unknown, and petroleum potential speculative. Further exploration in various parts of the Rift Valley system (such as the projected regional aeromagnetic survey on Burundi, Rwanda, Tanzania and Uganda, being financed by the World Bank and the seismic study of Lake Victoria by Duke University) is therefore required before any assessment of prospects for indigenous petroleum resources can be made.

2.4 First exploration of the coastal sedimentary basins was by Shell and BP from 1950 to 1961. Four exploratory wells were drilled, one each on Zanzibar, Mafia and Pemba Islands and one on the mainland south of the Rufiji River. None of these wells encountered oil or gas presence sufficient to justify further drilling and both Shell and BP surrendered their exploration licenses by 1964. TPDC was estabLished in 1969 with exclusive control of all petroleum rights in the country (para. 6.11) and - 13 -

in the same year the Government granted AGIP an explorationlicense coveringessentially the same areas relinquishedby Shell and BP. Later, AMOCO joined the venture on a 50:50 basis. Four deep test wells were drilled, including Songo Songo I which struck gas in 1974; but its reserves were then considereduncommercial. ALl four wells were later abandoned and AGIP/AMOCO relinquishedthe area surroundingSongo Songo Island to TPDC in 1976, though retaining a considerableportion of the coastal basin (see Map). Offshore, Oceanic and other consortium made up of Phillips,Getty, AGIP and HispanicOil carried out seismicsurveys in 1975-77.

2.5 After 1978, exploration reached higher levels of activity followinga Governmentdecision to accelerateexploration and to encourage privateparticipation. TPDC carried out inland seismicsurveys north of Dar-es-Salaam,and the Mafia Channel in 1980; on Mafia Island and ZanzibarChannel in 1981 and 1983. 25/ TPDC's main drillingeffort was appraisal of the Songo Songo gas field in which significantgas reserves were proved up (para 2.8): Wells SS 2, 3 and 4 in 1978/79,with cooperation from ONGC of India; Wells SS 5 and 6 in 1980/81,followed by Wells SS 7, 8 and 9 in 1982/83 under two IDA Credits cofinancedwith the European Investment Bank and the OPEC Fund for InternationalDevelop- ment. 261 Other TPDC wells were in the Kimbiji area (40 km south-eastof Dar-es-Salaam)following a gas discovery at a well drilled in 1982 at Kimbiji East with the assistance of the Government of Algeria. Two confirmationwells were drilled: Kimbiji Main I with the assistance of the OPEC Fund, and Tancan I offshore with Petrocanada International Assistance Corporation as financier/operator. Although much valuable geologicalinformation was obtained, no sizeable gas reserves have been confirmedin the Kimbiji area.

2.6 ACIP/AMOCO drilled the Kizimbani weLl south of Songs Songo in 1979. The well was dry and AGIP/Amoco relinquished9,250 k in 1980. They carried out a 1,500 km marine reflection seismic survey on their remaining 13,950 km2 coastal/shelfarea and struck gas in Mnazi Bay Well I in 1982 (para.2.9). Amoco has now withdrawn from the partnershipbut negotiations are underway concerning future exploration/development activity, since AGIP's present license is scheduled to expire in September1985 unless another well is drilled.

2.7 Following enactment of the Petroleum Act (Expl ration and Production)Shell was awarded in 1981 a total of 71,793 km along the Ruvu Valley Basin, an inland extension of the main coasta'lsedimertary

25/ Mostly financed by the Governmentof Tanzania with some assistance from Norway.

26/ The First Songo Songo PetroleumExploration Project IDA Credit S-27- TA, and the Second Songo Songo Petroleum ExplorationProject IDA Credit 1199-TA. - 14 -

basin, extending south from Dar-es-Salaamacross the Rufiji River. Esso "farmed in" with a 40% interest in 1983. An on-goingprogram of seismic acquisitionwas started in April 1982. Under its work commitments, Shell/Essois to drill two wells by September1985. InternationalEnergy Developmentiorporation (IEDC) was awarded,in 1981, an explorationblock of 12,750 km coveringthe northeastcoast, the Zanzibarchannel and part of the island; seismic coverage started in July 1982. SocieteNationale Elf Aquitaine (SNEA)was awardeda seismicoption in 1983 on a shelf area eztendingfrom the TPDC Songo-Songoblock up to and including the Mafia channel and island and negotiationsregarding further explorationare scheduledto begin shortly.

Gas Resourcesand PetroleumPotential

2.8 At present, proven gas reserves at Songo Songo are 726 bcf (about 20 million toe). 27/ To obtain an idea of the relativemagnitude of these reserves, it can be noted that Tanzania's total couuercial energy consumptionin 1981 was 0.7 million toe; assuming deliverability at 70 umcfd, Songo Songo proven reserves alone are equivalent to Tan- zania's total domestic comercial energy needs for the next 30 years at 1981 consumptionlevels (para. 1.11). Additional probable reserves at Songo Songo are estimated at 157 bcf and possible reserves at 223 bcf (Table2.1). Further, a number of structureshave been identified in areas surrounding Songo Songo by utilization of acquisition and processing techniques including true amplitude processing; as yet undrilled, these structures may each contain an additional 50-80 bef recoverable gas reserves, according to recent estimates. Additional investment,on a priority basis, is required by several of the Soogo- Songo wells (para2.5) to safeguardexisting reserves. Offshore,wells 3 and 4 require approximately US$1.8 million to implement protection measures against corrosion and marine collisionharards. Onshore, wells 5, 7 and 9 are leakinggas; repairsare estimatedat U14$2.0million (para 7.3 (a)).

2.9 The most recent significantgas discoverywas by AGIP/AMOCOat Mnazi Bay. Only one well has been drilled;the data thereforeare uncertain and and confirmationdrilling is necessary. Any prediction of gas reserves beyond the current conservativeestimate of 609 bcf proved and probablereserves remains speculative.

271 Songo Songo reserves certified by Exploration Consultants Ltd. (ECL);TPDC's explorationadvisers, August 1983. - 15 -

Table 2.1: NATURAL GAS RESERVES (bcf)

Songo-Songo Mnazi Bay Total Proved 726 23 7495 Probable 157 586 743 Possible 223 - 223 Total 1,106 609 1,715

2.10 No oil discoverieshave been made to date perhaps due to the low level of explorationactivity. However, as the accumulationand interpretationof existingand new seismicdata procedes,a number of new structureshave been determined (and certain of the earlier wells found to have been off structure). This, plus the fact that several oil companies are continuingexploration activities,indicates significant prospects for further gas and possibly oil discoveries in the coastallshelf/off-shorebasins.

2.11 Although the natural gas supply situation is favorable in volume terms, the geographic distribution of identified gas reserves presents problems in planning development for utilization in already establishedindustries. Proven gas reserves at Songo Songo are 220 km south of the main ccwmercial energy consumingmarket of Dar-es-Salsam. Nnazi Bay reserves are even further south (460 km from Dar-es-Salaam). On the other hand, uncertaintyremains about the outcome of exploration activitiesat Kimbiji (40 km from Dar-es-Salaam)or whether oil/gas will be confirmed to exist in the exploration blocks adjacent to Dar-es- Salaam. 28/ Therefore, plans for gas utilizationin both domestic and export projects must be discussed not only in terms of availabilitybut also with regard to a gas transmissioninfrastructure which should be planned with the flexibilityto accomodateeventual changes in flows of gas from sources to utilization(paras. 4.51-4.52).

HydroelectricPower

Potential

2.12 Although a detailed inventory of all Tanzania's hydropower resources is not available, a number of studies have been prepared by foreign consultants covering the major river basins and possible large hydropowerprojects (para 2.14). The total hydropowerpotential has been estimated to be about 20,000 GWh per year, with about 4,000 Ki of

281 Shell/Essoand IEDC are conmitted to conduct test drilLing in this area by 1985. - 16 -

installedcapacity, of which 247 NW has been developedand 80 MW is under constructionat Mtera on the Great Ruaha River (see Map). This project is being partly financed by IDA Credit 4050-TA as the Fourth Power Proj- ect. 29/ Its main objective is to increase the electricitygenerating capacityof TANESCO to meet growth in power demand through 1990, by supplying power to the expanded interconnectedsystem (paras.1.21; 4.54).

2.13 The harnessedhydropower potential in Tanzania is concentrated on the Great Ruala River at the 200 MW Kidatu Hydropowerstation (para. 1.20). The other existing hydropower plants are at Nyumba Ya Mungu (8 MW); Pangani Falls (17.5 MO); KikuLetwa (1.2 MW)e and Hale (21 KW). In addition, there are about 20 mini-hydropowerstations with a total capacityof around 1 MW. The notable features of Tanzania'shydropower potentialare great concentrationof the resources(66Z in two projects); limited number of medium size (100-300NW) projects; and many potential sites for mini hydropowerdevelopment.

2.14 The river basins with major sites suitable for hydropower plants are shown in Table 2.2 below. So far, more than 100 sites for hydropowerdevelopment have been identified. In addition to potential major hydropowersites, Tanzania has a number of sites suitablefor mini- hydropowerplants. Internationalaid agencies are actively investigating about 30 sites with a total capacity of 50 MS for possible development. 30/ It would be appropriate to compare such developmentagainst the provision of diesel-poweredstations (paras. 4.55-4.60). Finally, there are many possibilitiesfor the developmentof micro hydro schemes but no organizedaction to this effect.

2.15 Hydropower Development Studies. Studies of hydropower resources have been carried out to varying levels of detail; in general, for all major hydropowerprojects, feasibility studies have been prepared and for some of them project design memoranda are available. Three studies are of particular interest, covering the Rufiji River, the Kilomberoand Luwegu Rivers and the Kagera River. Studiesof mini-hydropower plants need to be completed, particularly those in remote and isolatedareas.

29/ Other agencies involved in financing the project include France, Germany (KfW), Italy, Kuwait Fund, Norway (NORAD), and Sweden (SIDA).

30/ Norwegian Agency for Development(NORAD); Swedish InternationalDe- velopmentAuthority (SIDA);and KreditanstaLtfur Wiederaufbau(KfW) of West Germany. - 17 -

Table 2.2: RIVER BASIN SITES FOR HYDROPOWERPLANTS

Potential Firm River Project Capacity Energy Status (NW) (Cwh) Rufiji Stiegler'sGorge 2,100 5,920 Feasibility Upper and Lower Kihansi - 285 1,024 Prefeasibility Upper Rubin ji - 55 160 MaddleRuhind- 500 1,472 Lower RuhindJ. - 130 392 " Ikondo - 340 1,165 Taveta - 145 547 Tosomaganga - 10 40 Ibosa Hill - 35 134 Nginayo Hill - 42 163 Lukose - 130 477 Kagera Rusomo Falls 60 Feasibility Kishanda Valley 180 Prefeasibility Mara - 90 Reconnaissance Wami - 120 Nkive - 160 Rumbila - Rumakali - Songve - 50 Ntembe - 60 Kalambo - Malagarasi - 100

2.16 Rufiji River. The largesthydropower potential in Tanzaniaex- ists where the Rufiji River passes throughStiegler's Gorge. Development of this site is has been studied in detail by Norconsult,Norway. 311 The Stiegler'sGorge site can be developed in stages to provide hydropower and flood control for irrigationpurposes. In vi;'.wof the very high capital costs for the dam and power facilities(first phase about US$900 million; whole developmentUS$2,000 million in base 1983 prices) and present expectationthat electricitydemand will grow slowly, it is not likely that this project could be economicallyjustified for power generationfor internal consumptionin the period up to the year 2000 (para.4.56). The Covernment has established the Rufiji River Basin Authority (RUBADA)which is responsiblefor implementationand management of the project (para. 6.10). The designingof the power project is now substantiallycomplete and some tender documentshave been prepared. In addition RUBADA has completeda number of studies to determinethe costs and benefitsof the non-powermulti-purpose aspects of the project,such as flood control, tourism,fishing and irrigation.

31/ The project had previouslybeen studied by F&O and Coyne & Bellier, France. - 18 -

2.17 Kilomberoand Luwegu Rivers. The Kilomberoriver is the Rufiji River's main tributary in the South-Westand accounts for about 602 of the Bufiji river'sdischarge at Stiegler'sGorge. Two apparentLyexcel- lent potentiaL hydropowersites exist at Kihansi. Their combined capacity is 285 MW generatingan average of 1,024 GWh p.a., but requiring back-up capacity in the system because of limited storage and large seasonal flow variations. These projectsrepresent important hydropower potential in Tanzania and have been investigatedto a pre-feasibility study level. They might be suitable for phased developmentafter the Mtera hydropower project subject to their comparison with gas-fired plants (para. 4.57). These projects deserve further attention and justify initiationof their feasibility studies and projects designs. The projects could eventuallycontribute to covering intermediatepower needs before the large Stiegler'sGorge project becomes manageable. The feasibilititystudy for the power projects on KilomberolLuwegurivers would represent an important input in the analysis of the Long-range developmentprogram of the power subsector(para. 4.54).

2.18 Kagera River. The hydropower potential of this river, which fords part of the borders with Burundi, Rwanda, and Uganda, can be developed at three sites: Rusumo Falls, Kishanda Valley and Kakano. Rusuno Falls, for which feasibilitystudies have been carried out would be the initial developmentto give river flow control and water storage. Developmentof the river would involvevarious internationalagreements. An agreement between Tanzania, Burundi and Rwanda for joint development at Rusumo Falls was signed in 1977. This river is in the remote northwest of Tanzania, far from main load centers and the developmentof its potentialdepends on the neighboringcountries.

Future Studies

2.19 Present accumulated knowledge about hydropower resources in Tanzania is adequate for long-range power development planning. However, more detailed and updated project designs are required, especiallyfor hydropowerplants to be built in the 1990s; rhus MWEM and TANESCO should secure preparationof detailed design and introducea mechanism for updating of costs. Despite the numerous studies of Tanzania'shydropower potential, the planning of additional new hydro generation has been carried out with insufficientlead time to ensure its optimal development. A complete inventoryshould be establibed with individualhydro- power schemes ranked by merit taking full account of transmissioncosts to load centres, in such a way so that the in-entory can be rapidly verified and/or modified when new informationfrom subsequentstudies becomesavailable (paras. 4.54; 7.12).

2.20 As to subsequentinvestigations, the Governmentneeds to define a program of required studies up to feasibilityand project design stages,together with cost estimates for the studies. The programshould rank the studies a: to priority and timing of execution, taking into account financial, institutional and other relevant constraints as well as the findings of the proposed least-cost power expansion programs (para.4.54). - 19 -

Sydrological Data

2.21 The status of gathering hydrologicaL, meteorological, climatic and topographical data requires an independent expert's review in order to verify the appropriateness of the available data and to propose necessary improvements. Therefore, it would be advisable to hire a hydrological expert to review the present system of collecting hydrological and other data as well as the quality of river flow measurements in order to outline a course of action to be taken by MWEM to ameliorate the system of gathering, processing and utilizing hydrological data (paras. 4.70; 7.12).

Coal

Resources

2.22 The occurrence of coal in Tanzania was first reported around 1880. However, little systematic work was undertaken until about 1930. At that time, some reconnaissance geological mapping took place, principally in the southwestern part of the country (see Map). No additional work took place until 1949, at which time the Colonial Development Corporation (CDC) was invited by the then Government of Tanganyika to evaluate coal deposits of the country with a view to their economic development. This program extended from 1949 to 1957 and extensive geological investigations were conducted. These investigations which included diamond drilling in the Ngaka, Mchuchuma and Songwe-Kiwira coalfields, established the presence of coal in significant quantities but no development was attempted because of the limited market prospects. Tanzanian coal resources are estimated at about 1,900 million tons of which 304 million tons are considered proven.

Table 2.3: COAL RESOURCES (million tons)

Field Measured Inferred Total

Ketewaka-Mchuchuma 186.6 495 681.6 Songwe-Kiwira 35.0 595 615 Galula - 53 53 Njuga 126 126 Liweta - 34 34 Ngaka 97.7 152 249.7 Nbamba Bay - 29 29 I4hukuku 19 19 Ufipa 17-57 17-57 Lunecha -_ _

319.3 1,520 -1,560 1,824.3-1,864.3

Source: STAMICO, June 1983. - 20 -

2.23 Since 1966, geological effort has concentrated on two of these coalfields: Songwe-Kiwira, where the coal is classified as bituminous weakly coking, low in sulphur and phosphorous, ash content of 25-30% and with calorific value of about 5,500 kcal/kg; and Ketewaka-Mchuchuma.where the coal is of higher calorific value (about 7,000 kcal/kg). However, attention has been focused on Songwe-Kiwira, because of its relative proximity to transport infrastructure and potential markets, when compared to Ketewaka-Mchuchuma. 32/

2.24 Two exploration projects have been undertaken in the past six years: a geological investigation of the Songwe-Kiwira coal field by a team from the People's Republic of China and a study into the feasibility of developing the Nchuchuma coalfield by a consortium of Dr. Otto Gold GubH, Rodeco CmbH and Saarberg-Interplan GmbH. The latter work was financed by the Federal Republic of Germany (GTZ). The primary objectives were the development of these coals for use in conjunction with the nearby iron ore deposits. Both these exploration projects have recently been completed. At the time, the iron ore projects were found to be uneconomic.

Production

2.25 Present coal production is limited to one small underground mine, the Ilima colliery (in Songwe-Kiwira), which has been worked since 1953. Production has been about 10,000 tons per year but is constrained by lack of diesel fuel and spare parts. It appears unlikely that the production will be exceeded this year despite the fact that pillar ex- traction is underway. The block is nearing the end of its life and will cease production by early 1984 if the present production rate is main- tained. Exploration is about to commence so as to define another block of reserves adjacent to the existing block for early development. If the exploration proceeds on schedule a new production unit could possibly start in late 1984 increasing to about 50,000 tpy by 1988 (para. 2.29).

Development Prospects

2.26 As part of its strategy of developing domestic energy resources to substitute for imported petroleum products and to reduce deforestation, the Government is looking to the coal sector to substitute for fuel oil in industry and power generation and for fuelwood and charcoal in domestic uses. Several development options are being considered to increase coal production.

2.27 Apart from the proposed new mine at Ilima (para. 2.25), there are two other potential sites for future coal production. Both sites are located in the Songwe-Kiwira coalfield which, out of the recognized

32/ Songwe-Kivira is 87 Km from TAZARA railway on an already existing road, while Mchuchuma is about 260 km from TAZARA with no road link. - 21 -

coalfields in southwest Tanzania, appears to have most potential for commercial development in the foreseeable future (para. 2.23). Detailed exploration of the Ivogo Ridge area of the Songwe-Kiwira coalfield (implemented and financed by the Chinese Government) has been completed and the results have been presented to Tanzania. This underground coal mining project is reportedly scheduled to commence production in 1986 reaching full production of 150,000 tons per year in 1988. There is at present no reason to doubt this schedule.

2.28 An IDA Coal Engineer_ang Credit is presently financing the exploration of another site in Songwe ICiwira,Kabulo Ridge, which appears to be an excellent prospect for development of an open-pit coal mine producing low grade coal suitable for industrial consumers and for power generation at lower costs than would be involved in an underground mine. The project's objectives are to provide the government with updated geological data on Kabulo Ridge; and to complete a feasibiLity study for a mine development if exploration results so warrant. It is too early to postulate a firm production schedule, should an open-pit mine materialize; however, earliest production would probably be in 1990 with an ultimate capacity of up to 300,000-500,000tpy depending on demand.

2.29 Table 2.4 sulmmarizes the production capacity which could be developed in Tanzania up to 1990. Production costs for the proposed new Ilima mine and the potential open-cast mine at Kabulo Ridge are expected to range between US$25-30 per tonne of coal. 331 No information is available about expected production costs At the underground Ivogo Ridge (Kiwira) mine. However, it is reasonable to assume that these costs will be in a higher range than those in Ilima or Rabulo, since mechanized underground mines are usually more expensive than open-cast mines.

2.30 Full production, however, will depend on the identification of reliable buyers for the coal. The coal fields are relatively remote from the main energy-consuming centres - Mbeya is the only sizeable town within a 300 km radius -- and transport costs in Tanzania are high. Also, coal has not been available in sufficient quantities to make an impact on the general energy scene -- there is little awareness of coal usage tecbniques, apart from existing consumers of coal (para. 4.82- 4.88). It will take a high level of coordination between the Government, coal-producing bodies, the transport sector and the industrial sector to achieve optimal use of Tanzania's domestic coal resource.

33/ 1982 prices. - 22 -

Table 2.4: POTENTIALPRODUCTION CAPACITY ('000 tonnes)

1983 1984 1985 1986 1987 1988 1989 1990

Ilima 10 5 10 20 30 50 50 50 Ivogo -il nil nil 10 80 150 150 150 Kabulo nil nil nil nil nil nil nil 50 Total 10 5 10 30 110 200 200 250

Fuelwood

Resources

2.31 Tanzania has approximately440,000 km2 of forestry resources (40Z of its land area). They are composedof 43.2 million hectares of natural miombo forest; nearly 950,000 ha of closed tropicaL forests; about 29,000 ha of planted trees in individualor communal woodlots and in schooLs;and about 60,000 ha of softwoodand 6,000 ha of hardwood on industrialplantions. The figures for the natural forest resource are based on inventories in a few areas and have therefore a limited accuracy.34/ Since no nationalforest inventoryhas been made to verify estimates,there is no reliabledata base for forestryplanning purposes. A national forestry inventory should therefore have a high priority (para.7.13).

2.32 Theoreticallythe potentialannual fuelwoodproduction of these forestry resources is in the order of 20 million m3; in 3practice, the actual fuelwoodsupply is much lower at abou= 16 million m (Table 2.5). There are three principalreasons. First,many of the forests are relatively remote from populatedareas (para. 1.26). Thus, it is estimated that only 80% of the miombo forests are accessiblefor fuetwood coLlec- tion while the tropical closed forests (major producers of high value sawn timber) are so remote from habitationthat they are consideredof little significancefor fuelwood supply. Secondly, industrial plantations were habituallyestablished in thinly-populatedareas, where there was less demand for agriculturalland. Therefore the wood residues produced are of little use as domestic fuelwood,due to the long distances from the plantationsto potential consumers. However, the wood

341 Between 1971 and 1973, CIDA financed inventoriesin Kilimanjaro, Mtmara, Tanga, Kilombero and Tabora covering 2.8 million ha in reserved forest areas and 4.2 million ha in harvested forest areas. Jaakko Poyry carried out an inventory on 500,000 ha in Amani, Morojora,Handan and Kilombero. - 23 -

processing industries on the plantationscould meet all their energy requirements by using these residues if appropriate equipment were installed (paras. 4.98-4.100). Thirdly, the Village Afforestation Programme 35/ made a slow start. Communal woodlots were particularly unsuccessfuldue to lack of interest. Individualwoodlots and school plantationsfared much better in that more interestwas displayedby the individual farmers and school children in planting and maintaining trees. However, since most of these trees require seven years to reach maturity, their impact on the rural fuelwood supply is still fairly small.

The DeforestationProblem

2.33 Annex 3 shows the annual sustainableamount of woodfuel supply compared to actual consumptionin 1981 on a regionalbasis. A summaryis in Table 2.5, which shows the wide gap between the currentlevel of fuelwood consumptionand the sustainablefuelwood production. The country is cutting two and a half times more fuelwoodthan the forestscan supply on a sustainableyield basis. More than 23 miLlion m3 are taken every year from the nation's forest stock depletingthe equivalentof 0.5 million ha of forest with severe consequencesfor further fuelwood supply and for the ecological balance of the country. The Governmentis aware of the problem and has already introducedsome measures to counter the problem (para. 2.32). However,given the high populationgrowth rate (3.3% p.a.) and the fact that over 90% of the populationrelies almostexclusively on fuelwood as a domestic energy source, further steps rust be taken imme- diately to slow down and ultimatelyhalt deforestation(paras 4.91-4.95).

Table 2.5: ANNUALSUSTAINABLE FUELWOOO SUPPLY, CONSUMPTIONAND DEFICIT

MiomboForest Woodlots Total Supply Consumption Deficit

(103ha) (103m3/year)bl (103 ha) (10m-/year) S/ (103m3/year) (103m3/year) (103 3*year)

34,549 15,064 29,069 524 15,593 39,103 23,510 a/ Does not include wood productionof closed tropical forests and industrialplantations; miombo forestproduction is based on 80% accessibility. b/ MAI (MeanAnnual Increment)for NaturalForests = 0.5 m /ha. c/ MAI for Eucalyptuswoodlots = 19 m3/ha.

35/ This program was launchedby the Governmentin 1975 to help arrest the rapid deforestation. Seedlings were provided by the Forestry Division to villages and institutions to establish their own fuelwood supply. - 24 -

NonconventionalEnergy

Resources

2.34 Aside from fuelwood, Tanzania has considerablebiomass re- iources in the form of forest residues, wood processingwastes, surplus softwood,agricultural residues, animal wastes and sugar industryresidues. To a varying extent, possibilitiesexist for the economicconver- sion of these resources to energy for domestic and industrialpurposes. Solar and wind energy may also offer some long-termpotential but in the near-to-mediumterm their applicationsare much more limited than biomass. While there is evidence of geothermal potential and uranium deposits,the mission sees no economic case for their developmentin the foreseeablefuture.There is also evidenceof peat deposits in the Kagera regionwhich are being investigated.

SurplusSoftwood, Forest Residuesand Wood ProcessingWastes

2.35 While most regions suffer supply deficits of fuelwood 36/ from hardwood forests, utilizationof softwoods for timber and pulp is well beLow the annual allGwable cut. The proportionof this softwood potential that could be economicallyutilized for energy requirementsamounts to some 200,000 m3 solid wood equivalentper year or about 23,000 toe 371 per year after 1986 (Table 2.6). While this would make only a minor contribution to overall supply (less than 0.3Z of estimated total woodfuel use in 1981), locally the utilizationof such wastewood would have a significant impact on overcutting. The major constraint to utilizationof softwoodsfor fuel is the relative remotenessof softwood plantationsfrom populationcenters (para.4.98).

AgriculturalResidues

2.36 Coconut residues are probablythe most significantagricultural residue in terms of potential energy. It is estimated that there are about 120,000 hectares of coconut plantationsalong the coast and on Zanzibar, Pemba and Mafia, which produced 175 million coconuts in 1980. This indicates an immediate potential for coconut shells and husks of over 100,000 tons per year (28,500 toe), even after making allowance for copra drying requirements. If improvedtechniques are applied to present hectarageand the plannednew hybrid plantationsare establishedover the next 15 years, the potential residues would roughly double to 200,000

361 "Fuelwood" in this context refers to wood from miombo forests and hardwood plantations,which constitute almost all wood burned in householdsor converted into charcoal.

37/ Assuming on the average,2,670 kcal/kgand 0.6 tons/m3 for softwoods with 40Z MC wet basis. - 25 -

tons (56,000 toe) per year. The stemwood from unproductive coconut trees is another potential fuel source estimated at 2.5 million tons (42,000 toe) over a 20-year exploitation period (para. 4.104).

2.37 Cashewnuts yield large quantities of shells and husks which are potential fuels. The projected capacity for 1984 is 113,60C tons of raw nuts, which could generate some 74,000 tons of residues per year. A factory for producing 7,200 tons per year of briquetted charcoal in Dar- es-Salaam for export is expected to become operational soon (para. 4M106).

Table 2.6: TOTAL WOOD RESIDUES AVAILABILITY

Annual Assumed Potential Utilization 1986-90 Factor Availability

(,3) (Z) (toe)

Surplus Softwood a/ 500,000 20 16,000 Logging Residues 70,000 40 4,500 Processing Wastes 30,000 50 Z,400

Total 22,900

a/ From a SIDA study in 1982.

2.38 Maize residues are a waste disposal problem in the corn growing regions of Arusha, Tanga, Dodoma, Iringa and Mbeya. They are normally not used for household cooking as they burn fast, are bulky and smoky. A SIDO/Twente University (Dutch) project was carried out to determine the feasibility of using the cobs as fuel for small power gasifiers to run village grinding mills. The technical problems were considered manageable but increasing capital costs and low utilization rates have combined to make the systems uneconomic (para. 4.106).

Animal Wastes

2.39 Dung from animals could be converted to biogas fuel by anaero- bic digestion to supply an extra fuel resource for Tanzania. There is evidence of increased use of dried dung directly for fuel in wood-defi- cient rural areas but due to nitrogen loss this mode of utilization is obviously not to be encouraged. The theoretical potential is large: SIDO figures for 1980 indicate a cattle population of 14.8 million, 5.5 million goats, 3.6 million sheep, 25 million chickens and about 10,000 pigs. About 60Z of the cattle populaticn is concentrated in the regions of Arusha, Mwanza, Mara, Dodoma and Tabora, most parts of which have serious current or projected fuelwood deficits. Considering cattle alone, animal dung production would be about 50 million tons, if an - 26 -

average of 10 kg dung per head per day is assumed. However,the amwunt of dung that could be available for biodigestionis likely to be much less if usage pattern,age of animals, ownershippattern, etc. are considered. A conservativeestimate of the potentialindicates around 2.5 million tons of collectibledung per year. Converted to biogas, the energy productionfrom this resourcewould be about 46,000 toe or roughly 0.5Z of total fuelwooddemand in 1981. Except for a few units in priv"ce farms, almost all of the existing 300 biogas installationsin Tanzania are in institutionsand communitycenters (para.4.105).

Sugar IndustryResidues

2.40 Bagasse produced from Tanzania's five sugar mills 38/ during the grinding season provides the main fuel for the mill boilers. How- ever, the present productionrate of bagasse is not sufficientfor the needs of the mills and their associatedplantations. Thereforethere is no excess bagasse to generateadditional electricity, e.g. for irrigation purposes.39/ Although a number of milL improvementscould result in excess bagasse, the grindingrates of the mills (even at full capacity) may be too low to justify the substantialcapital investmentneeded to improveplant efficiency.

2.41 Molasses is another by-productof sugar mills. Present production is about 70,000 tpy, of which 34Z ends up as waste. The Government had intended to use this waste in an anhydrousethanol plant to produce gasohol. However, this project has been postponed,primarily because of its narginal viabilityand lack of foreignexchangc for the large capital investment(about TSh 160 million).

Solar and Wind Energy

2.42 Limited solar insolationand wind regime data indicategood potential for direct solar radiation. Aside from a few photovoltaicpanels used in repeater stations of the Tanzania Posts and Telecommunications Corporationand small-scaleirrigation water pumping,there is no significant commercialuse of solar energy at present. A number of experi- ments are being conductedby MWE and the Universityof Dar-es-Salaamin the areas of water heating, pumping,distillation and cooking. There is probablya more practicaluse for wind energy than solar energy through some 100 small water-pumpingwindmills currently installed throughout the country.

38/ Kilombero I and II, TPC, Mtibwa and Kagera.

39/ Tanesco is planningto supply electricpower to KilomberoI and II. - 27 -

GeothermalPower and UraniumDeposits

2.43 There is evidence that Tanzania has geothermal resources. Typically, such resources can be expensive to deve'lop,they discharge steam and hot water with a high mineraL content and they can become a serious source of pollution. In view of Tanzania'slarge hydroelectric potential.and natural gas resources,the mission would not recommendany major expendituresto investigateor developgeothermal resources in the foreseeablefuture. Evidencealso exists of uranium deposits. Eventu- ally, uraniummight be exploitedfor export but it will not be economical for local use. 40/

Conclusion

2.44 In the medium term, the fuelwoodresource will continueto be the most importantdomestic resource for Tanzania'soverall energyneeds and more managerial effort and a higher budgetary allocationshould be devoted to its preservation. The natural gas reserves proved to date present an opportunity for Tanzania to become more self-reliant in comr mercial energy, should further exploration justify that a pipeline be constructed to carry the gas to Dar-es-Salaam for use in industry and transport. Additional hydroelectriccapacity is not an immediate priority in view of the ongoing Fourth Power Project; however some of the existing capacity and the transmission and distribution network urgently need major overhaul and rehabilitation. Coal and noncommercial energy resources (apart from fuelwood) can make only a minor contribution at present,although their respectiveroles can be expectedto expand. Lack of long-termcomprehensive data on solar insolationand wind regimes in various parts of the country;the unavailabilityof proven and affordable technologiesthat could be disseminated;and the diffused intermittent nature of the resources themselves severely limit opportunitiesto displacemore easily handled conventionalfuels.

40/ See "Energy Policy in Tanzania", Commonwealth Secretariat (CommonvealthFund for TechnicalCooperation), August 1980. - 28 -

III. DENAUD FORECASTSCUIARIOS

Introduction

3.1 A set of energy forecasts, covering the period 1981-1996 at five-year intervals,has been produced, proceedingfrom the 1981 energy balance discussed in Chapter I. Total commercial energy demand was projectedas a functionof total real GDP (i.e. in constant1978 prices), using a macroeconomicmodel; the share of electricitydemand within that total was then estimated separately. The difference between the two figures representsthe demand which would have to be met from non-electricity sources, i.e. from petroleum products, from coal and -- in the future -- from natural gas. However, as noted in Chapter I, the future recoveryof the economy of Tanzaniaand its subsequentgrowth will depend cruciallyon the outcome of the Government'sstructural adjustment program, which was launched in 1982, and on the availabilityof foreign exchange. Economic recovery will also entail improved management of domestic resources and a revitalizationof exports. In view of these uncertainties,the forecasts of comnercial energy demand employ two alternativescenarios related to the underlyinggrowth of the economy. The "SAP" scenario implies an average growth rate in GDP of 3.9Z p.a. over the decade 1981-91 and 6-7Z p.a. thereafter. The "Delayed SAP" scenario impliesno growth in CDP until 1986, an average growth rate of 1.8Z p.a. from 1986 to 1991 and 6Z p.a. thereafter. Noncomuercialenergy demand currently consists almost entirely of fuelwood or charcoal. As explained in Chapter I, agriculturalwastes and residues have not been effectivelyutilized by the populationat large and in consequencewere not incorporatedin the 1981 energy balance. Given the preponderanceof householdconsumption in the total, it was postulatedthat the demand for fuelwood is mainly a function of population;the principal component of noncoumercialenergy demand was then obtained from estimates of population growth, assuminga continuationof the present levels of per capita consumption. The relatively minor component associated with tobacco curing was extrapolatedfrom past trends, employing linear regression techniques.

3.2 Issues and options related to the supply of energy -- for example, the extent to which natural gas and coal can be used to substitute for petroleum products in meeting forecast commercial energy demands, the possible role of fuelwoodplantations and the potentialfor increasingthe contributionof agriculturalwastes and residues -- will be considered in Chapter IV. The options available for influencing energy demand - notably through interfuel substitution,appropriate pricing policies, industrial energy conservationand improved firewood and charcoalstoves - are discussedin ChapterV. - 29 -

Total ConmercialEnerBZ

3.3 Projectionsof total commercial energy demand have been made from a macroeconomicmodel which assumes a 'SAP" scenario in which Tanzania undertakes a series of economic reforms which in turn are supported by additionalinflows of foreign exchange in 1984 (the first year of adjustment). The macroeconomicmodel then links CDP growth to the free foreign exchange which is available for the purchase of recurrent imports, it makes the level of investmenta functionof the amount of project-tiedaid inflows and it defines consumption as a residual expenditureafter deductinginvestment and net exportsfrom GDP.

3.4 Aggregate GDP and investmentprojections are then estimatedby applying elasticitiescalculated from historicaldata to the free foreign exchange and tied aid respectivelyand considering1984 as the first year of adjustment. The resultsare in Table 3.1, which shows that aggregate CDP can be expected to grow rapidlyin 1984, due to the fact that GDP has fallen consistentlyfor the last three years and the initialrecovery can thus be expected to be fast. During 1985 and 1986, the growth rate of CDP is 2X and 3X respectively;these are years in which rehabilitationof the export crops is carried out and output respondswith a delay. The real recovery starts only in 1987, when exports reach about US$700 million in constant (1978)prices. By the end of the decade,CDP settlesat a steadygrowth rate of 6Z to 7Z p.a.

3.5 Table 3.1 also breaks aggregate GDP into its sectoral components, by using historicallyobserved shares and by exogenouslyspecify- ing changes for future years reflectingthe impact of the adjustment program. The share of agricultureand industry increaseswhile that of the social servicesdeclines.

3.6 Finally, Table 3.1 sets out projectionsof total commercial energy demand by working from aggregateGDP through the followingsimple linear relationship:

(ComuercialEnergy Demand in toe) = (A) x (CDP in constant 1966 prices)

The coefficient A is estimated from historicalvalues at 0.066; the relationshipimplies an energy/CDPelasticity of one. Table 3.1: PROJECTIONS OF NATIONAL ACCOUNTS AND COMMERCIALENERGY CONSUMPTION, 1984-1991 a/ (TSh BILLIONS IN 1978 PRICES UNLESS OTHERWISE SHOWN)

1981 1984 1985 1986 1987 1988 1989 1990 1991

GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.2 41.3 43.7 46.9 Indirecttaxes 3.3 4.3 4.4 4.6 4,8 5.1 5.4 5.7 6.1 GDP at market prices 35.3 37.7 38.5 39.6 41.9 44.4 46,7 49,3 53.0

Imports 7.9 7.1 7.3 7.4 8.0 8.5 9.2 9.8 10.6 Exports 5.4 4.4 4.8 5.2 5.6 6,2 6.9 7.7 8.3

Investment 8.1 9.1 9.3 8.8 7.9 7.6 6.7 7.1 7.6 Consumption 29.7 31.1 31.6 33.0 36.5 39.0 42.3 44.3 47.6

Growth rate of GOP (5) (7.0) - a/ 2,1 2.9 6.0 5,7 5.4 5.8 7.3

GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.3 41.3 43.7 46.9 °

Monetary GOP 25.0 26.6 27.6 28.7 30.8 33.0 34.7 37.1 39,9

Monetary GOP In agriculture - 6.5 6.8 7.4 8.5 9.4 9.9 10.5 11.3 Monetary GOP In Industry - 2.0 2.4 2.8 3.3 3.9 4.5 5.2 5.6 Monetary GDP In transport - 3.7 3.7 4.2 4.8 5.1 5.4 5.7 6.1 Monetary GOP In Elec, & W. Supp, - 0,6 0.7 0.8 1.0 1.2 1.2 1.3 1.4 Monetary GOP In construction - 1.5 1.5 1.8 1.9 2.0 2.1 2.2 2.3 Monetary GOP In services - 12.2 12.4 11.7 11.2 11.4 11.6 12.2 13.1

SubsistenceGOP 7.1 6.7 6.5 6.3 6.3 6.3 6.6 6.5 7.0

Commercial energy consumption (toe thousands) 725 812 830 855 906 958 1,008 1,065 1,145 g/ Aggregate GOP figures for 1983 are not available; therefore It Is dificult to compute GOP growth rate for 1984. - 31 -

3.7 It can be seen from Table 3.1 that the demand for commercial energy increases from the current level of 725 thousand toe to 1,145 thousand toe by 1991. Since -- under the adjustment scenario - the economy is expected to be in a steady state growth after 1990, energy demand is projectedto grow at 6% to 7% p.a. from 1991. In the absence of the adjustmentwhich the "SAP" scenario assumes will occur from 1984 - i.e. without the policy changes and without the supportingforeign exchange inflows- a "delayed SAP" scenariocan be postulatedin which CDP remains stagnant at the present level and the total demand for commercialenergy also fails to grow for as long as the adjustment is postponed. For the purposesof the demand forecasts,the "delayed SAP" scenario is taken as a situation in which the adjustment process is delayed for five years and the projectionsof total commercial energy consumptionare, correspondingly,also lagged by five years. The resulting projectionsof total commercialenergy demand for the "SAP" and "delayed SAP" scenariosat five-yearintervals to 1996 are summarizedas follows:

(Actual) -- (Projected)- 1981 1986 1991 1996

"SAP scenario - demnd (103 toe) 725 855 1,145 l,569 - average annual growth rate (Z) for each five-year period - 3.4 6.0 6.5 "DelayedSAP" scenario - demnd (10 toe) 725 725 855 1,145 - averageannual growth rate (X) for each five-year period - - 3.4 6.0

Electricity

3.8 An electricitydemand forecast for the interconnectedsystem (ICS) was prepared in 1982 at the time of the appraisal of the Fourth Power Project. This forecastresulted in an average growth rate for the ICS - includinganticipated extensions to the north-westand south-west areas of the country - of 9.9Z p.a. over the decade 1981-91 and 52 thereafter.

3.9 However,due to the continuingeconomic crisis in Tanzania,the actual demand figures for the ICS in 1981 and 1982 fell short of the forecast's expectations by 5X and 7% respectively. Therefore, the mission has prepared an updated version of the Fourth Power Project forecast,as shown in Table 3.2, by using actual power demand in the ICS for 1981 and 1982 as a basis and an anticipatedgrowth of 2Z during - 32 -

1983. 41/ After 1983, as the "SAP" scenario takes effect (para. 3.1), power demand in Zanzibar,the existingICS and the anticipatedextensions of the ICS to the north-west and south-west areas of the country is assumed to grow at the rate of growth projected in the Fourth Power Project forecastbetween 1984-93. Thereafter,the mission assumed total ICS demand to grow at 62 p.a.. This results in an averageannual growth rate for the extendedICS of 7.4Z p.a.between1981 and 1991 and 6.7Z p.a. thereafter.42/ To obtainan electricity demand forecast for Tanzania as a whole, the mission has added a forecastof electricitydemand in those systems which will remain isolated, also shown in Table 3.3. The basis for estimatingfuture demands in these isolatedsystems is not teliable; however, they accountedfor only about 13X of total consumptionin 1981 and this proportionwill decline significantlyin the next three or four years, to perhaps onLy 3% in 1986. Such systems were therefore assumed to grow by the same rate as the existinggrid (2Z p.a. in 1983; 6.7% p.a. in the decade between 1984 and 1993 and 62 p.a. thereafter). From Table 3.3 the implied growth rates in electricitydemand for Tanzania as a whoLe are 6.3% p.a. between 1981-91 and 6.7% from 1991-96. Although the forecasts were not derived explicitly from a set of macroeconomicpro- jections, it may be of interest to note that Table 3.3 leads to an elasticityof 1.6 between growth in electricityconsumption and GDP over the period 1981-91;thereafter, the figure falls to a little below unity.

3.10 The above-mentionedforecasts are primarily dependent on the successfuloutcome of Tanzania'sstructural adjustment program and specifically on ezpansion of the industrial sector - the main consumer of electricity- by completionof new industrialprojects and revitaliza- tion of existing industries tbrough increased availabilityof foreign exchange to purchase material inputS and spare parts. Should implementation of the SAP be delayed, the industrial sector will continue to experience low capacity utilization and deLays (and/or cancellations) in completionof new projects; and implied low growth of demand for electricity (para. 1.19).

41/ Actual interconnectedsystem generation grew by 2.1% p.a. between 1980 and 1982.

42/ The updated forecastuses a lower base (1981 actual demand was lower than had been expected) than in the Fourth Power Project forecast and does not assume significantgrowth until 1984. - 33 -

Table 3.2: PROJECTION OF ELECTRICITY GENERATION AND CONSUMPTION, 1981-86 (GCh)

Generation Consumption Interconnected Isolated Year System Systems Total Total

1981 715 107 822 700 1982 720 108 828 704 1983 742 102 844 717 1984 816 93 911 774 1985 884 90 974 828 1986 1,015 31 1,046 889 1987 1,092 33 1,125 956 1988 1,175 35 1,210 1,029 1989 1,264 37 1,301 1,106 1990 1,362 40 1,402 1,192 1991 1,467 42 1,509 1,283 199-s 1,581 45 1,626 1,382 1993 1,705 48 1,753 1,490 1994 1,807 51 1,858 1,579 1995 1,916 54 1,970 1,674 1996 2,031 57 2,088 1,775

Crowth Rates 1981-1991 7.5% p.a. 6.3% p.a. 1991-1996 6.7% p.a. 6.7% p.a.

Notes: (1iFInterconnection is assumed to take place as follows: Iringa, Dodoma and Mbeya - 1984; Shinyanga and Tabora - 1985; and Nwanza and Musama - 1986. However, more recent reports by TANESCO indicate the following schedule: Iringa - 1984; Dodoma and Nbeya - 1985; Shinyanga - 1985; Mwanza - 1987; and Tabora and Musoma - 1987. The change in schedule will affect the distribution of load between the interconnected and isolated systems. (2) Total generation is assumed to grow by 22 during 1983. (3) Consumption is derived from generation by assuming 15% losses in transmission and distribution. (4) Recent information provided by TAJESCO shows that actual sales in 1983 were only 695 GWh. TANESCO's revised projections are 730 Glh - 1984; 780 GWh - 1985; 852 GWh - 1986; 934 GWh - 1987; and 1,031 GWh - 1988. - 34 -

3.11 Therefore, the electricity demand forecasts in Table 3.2 are adopted as the "SAP" scenario; and a "delayed SAPn scenario is obtained by lagging the "SAP" scenario for five years in accordance with the macroeconomic scenarios (see para. 3.1). The resulting projections are summarized as follows at five-year intervals:

(Actual) 1981 1986 1991 1996

SAP Scenario -- demand (GWh) 750 889 1283 1775 -- average annual growth rate (X) - 4.9 7.6 6.7 for each five-year period Delayed SAP Scenario demand (CUh) 700 762 983 1419 -- average annual.growth rate (Z) - 1.7 5.2 7.6 for each five-year period

Fuelwood 3.12 Total fuelwood consumption for Tanzania in 1981 was 39.2 million m3 of roundwood equivalent; Table 3.3 shows this consumption by main use and also distinguishes between firewood and charcoal consumption. It cnn be seen that out of the total of 39.2 million m3, some 33.2 million m was used directly as firewood and the remainder represented fuelwood used to meet charcoal requirements, including fuelwood lost in the char- coaL conversion process. It can be seen further that the household sector accounted for nearly 90X of total fuelwood use. For this reason, the demand for firewood and charcoal has been projected to the year 1996 mainly on the basis of anticipated population growth, assuming a continuation of the present levels of per capita consumption; however, the forecast for the tobacco curing subsector was made by extrapolating a linear regression of the time-series data from the period 1976-80. The results are in Table 3.3.

Table 3.3: ACTUAL A4PJFROJECTED CONSUMPTIONOF FUELWOOD (10 m of roundwoood equivalent)

(Actual) - - - Projected- - - 1981 1986 1991 1996 Firewood Households 30.6 36.0 42.7 50.9 Tobacco curing 0.8 1.0 1.3 1.5 Others 1.8 2.1 2.5 3.0 Subtotal (firewood) 335 Charcoal Households 3.5 4.1 4.9 5.8 Tobacco curing - - - - Others 2.5 2.9 3.5 4.2 Subtotal (charcoal) Z84 77U 9.7 MT Total Fuelwood Firewood plus charcoal 39.2 46.1 54.9 65.4 - 35 -

Conclusions

3.13 The demand forecastsfor total commercialenergy, electricity, firewoodand charcoalare brought togetherin Table 3.4, in terms of oil equivalents,along with the underlyingprojections for GDP and population. The item "other coomercialenergy" is defined as total commercial energy minus electricity. The same informationis presentedin Table 3.5 in terms of the implicit annual growth rates by five-yearperiods. It must be emphasizedthat Tables 3.4 and 3.5 do not include demands from any major new export consumers,such as fertilizersor methanol, which asLeconsidered separately in ChapterIV.

3.14 According to Tables 3.4 and 3.5, per capita energy consumption can be expected to grow only slightlyfrom the present level of 472 kgoe to 486 kgoe by 1996, under the "SAP" scenario; virtually no growth in per capita consumptionwould occur under the "delayed SAP" scenario. Per capita commercial energy consumption can be expected to increase somewhat more rapidly - from 38 kgoe to 49 kgoe in 1996 -- under the "SAP" scenario,but it would actuallyfall if the "delayedSAP" scenarioshould materialize.

3.15 The implicationsof Tables 3.4 and 3.5 for Tanzania's balance of paymentsand foreignexchange resources are more striking. Most significant is undoubtedlythe componentof commercialenergy demand other than electricity,which at present is met almost entirely by imports, either in the form of crude oil or as petroleumproducts. Tanzaniafaces the prospect that this componentwill more than double between 1981 and 1996; even under the "delayed SAP" scenario, commercialenergy demand other than electricitycould increase by more than 60%. Unless major efforts are made to extend the use of indigenousenergy sources,in place of imported oil, such increases will involve ever greater calls on Tanzania'sscarce foreignexchange resources. The future role of natural gas in particularis clearly central to the formulationof a commercial energy policy and the discussionof the uses of natural gas in domestic industries and transport, presented in Chapter IV, takes on special significance.

3.16 While currentlyTanzania satisfies only a small proportionof its electricitydemand from importedpetroleum sources, 431 the component of commercial energy demand related to electricity also needs to be addressed from the point of view of the balance of payments and foreign exchange. Tables 3.4 and 3.5 suggest that electricity demand will increasemore than twofoldby 1996 under both scenarios. Further inter- connectionof isolatedsystems to the main grid will permit fuller use of indigenous hydroelectric resources and Tanzania should look towards natural gas as a possible feedstock in its power plants to minimize

43/ About 87% of generationwas hydro-basedin 1981. - 36 -

overall generating costs and fuel imports. These issues and options are analyzed in Chapter IV.

3.17 Finally, the likely growth in both the electricity and non- electricity components of commercial energy demand means that it will be more important than ever to ensure that consumers pay the full economic costs of their increased consumption. The discussion of issues and options related to energy pricing policy and conservation in Chapter V must be viewed in that context.

3.18 The demand for noncommercial energy is assumed to depend mainly on population growth, so that Tables 3.4 and 3.5 project the same overall increase in noncommercial energy demand by 1996 -- in the order of 70Z - under both macroeconomic scenarios. Of course, demand will exhibit some sensitivity to the macroeconomic environment and the lower per capita incomes implied by the "delayed SAP" scenario would have an impact on noncomercial energy demand. However, the potential impact on demand of improved cooking staves -is judged to be more significant, as is the extent to which an imbalance between supply and demand will force consumers to travel greater distances to collect firewood. For these reasons, the forecasts of noncommercial energy demand in TabLe 3.4 are considered a satisfactory basis for the analysis of the issues and options in the noncommercial energy sector conducted in Chapters IV and V. - 37 -

Table 3.4: FINAL ENERGYCONSUWTION, GOP AND POPULATION 1981-96 (Actual and Forecast)

8ase "SPA"I Delayed SAP" Year Scenario Scenario 1981 1986 1991 199 1986 1991 1996

Demand(lO3 toe) Electricity 59 76 09 51 65 84 121 Other commercial energy 666 779 1,036 1,418 660 771 1,024 Total (commercialenergy) 725 855 1,145 1,569 725 855 1,145

Firewood 7,950 11,200 13,300 9,400 11,20013,300 Charcoal 350 500 600 410 500 600 Total (noncomoercialenergy) 8,300 9,810 11,70013,900 9,810 11,700 13,900

Total (all energy) 9,025 1.665 12,845 15,469 10,53512,555 15,045

Per CapitaConsumption (kgmo) Electricity 3 3 4 5 3 3 4 Othercommercial energy 35 35 39 44 29 29 32

Total (commercial energy) 38 38 43 49 32 32 36

Firewood 416 417 419 418 417 419 418 Charcoal 8 18 19 19 18 19 19 Total (noncoamercial energy) 434 435 438 437 435 438 437

Total (all energy) 472 473 481 486 467 470 473

GDPat Factor Cost (1978 prices)

Total (1O6TSh) 32.060 35,023 46,908 64,268 32,060 35,023 46,908 Per capita (TSh) 1,675 1,555 1,756 2,021 1,424 1,311 1,475

Population(103) 19,137 22,51926,712 31,804 22,51926,712 31,804

Table 3.5: GROWTHRATES IN FINAL ENERGYCONSUMPTION, GDP AND POPULATION, 1981-1996(Actual and Forecast) (% p.a. for each five-yearperiod)

"SAP" "Delayed SAP" Scenario Scenario 1981-86 1991-91 1996-96 1981-86 1986-91 1991-96 Demand Electricity 4.9 7.6 6.7 1.7 5.2 7.6 Other commercialenergy 3.1 5.8 6.5 -0.2 3.2 5.8 Total (commercialenergy) 3.4 6.0 6.5 0.0 3,4 6.0 Firewood 3.4 3.6 3.5 3.4 3.6 3.5 Charcoal 3.2 4.0 3.7 3.2 4.0 3.7 Total (noncormercialenergy) 3.4 3.6 3.5 3.4 3.6 3.5 Total (allenergy) 3.4 3.8 3.8 3.1 3.6 3.7 GDP at FactorCost (1978prices) Total 1.8 6,0 6.5 0.0 1.8 6.0 Per capita -1.5 2.5 2.9 -3.2 -1,o 2.4 Population 3.3 3.5 3.6 3.3 3.5 3.6 - 38 -

IV. ENHICYSUPPLY AND IT ,ER-PUELSUBSTITUTION

Introduction

4.1 At the heart of Tanzania'spresent economicdifficulties lies an acute shortage of "free" foreign exchange; the shortage has contri- buted to falling agriculturalproduction and low industrial capacity utilization(para. 1.5). For this reason, the availabilityof "free" foreign exchange played a central role in the macroeconomicmodel in Chapter III and the projections of commercial energy demand which resulted from it. Viewed in this light, the commercial energy sector as a whole and petroleum imports in particular are pivotal to Tanzania's growth prospects. Petroleum imports represent 90Z of commercial energy consumption and account for over 50% of "free" foreign exchange (paras. 1.15-1.16). On the other hand, commercialenergy has a major impact on the monetized part of the economy and on future growth. True, there appears to be no strong evidence that energy supplies have seriously constrained growth during the decadewhich has passed since the first oil price shock, although queues for petroleum products and other signs of petroleum product shortages have become apparent in recent months (para. 4.22). Nevertheless, given the fact that industry and transport consume nearly 802 of all petroleumproducts, adequate future supplies of commercial energy will be necessaryfor Tanzania's economic recovery. At the same time, there is a growing crisis in the noncomnercialenergy sector. The wide gap between the current level of fuelvood consumption and sustainable fuelwood production is leading to deforestation (para.2.33). The consequenceswill be severe, as forestry resources supplyover 90X of total energyneeds (para. 1.25).

4.2 Certain essential ingredientsof a nationalenergy policy flow from these considerations. On the supply side, Tanzania has abundant coomercialenergy resources,including hydroelectric potential, coal and natural gas. Subject to economicconsiderations and least-costcompari- sons, these should be used where possible to substitute for imported petroleum. In that part of the energy market which will continue to be suppliedby liquid fuels, there should be an appropriatebalance between importedproducts and products refined locally;and future operation of the local refinery should allow for improvementsin its basic efficiency and economics. Fuelwood productionmust be increased through better forestry practicesand more planting. Biomass resourcesin the form of various residuesand wastes are considerable,but effortsmust be sharply focussed on activities that address immediateenergy problems: to substitute for fuelwoodor for importedpetroleum products. On the demand side, the conservationof fuelvoodand commercialenergy must be empha- sized and pricing policies shouldbe pursued which relate the prices of different energy supplies to their economic costs of supply. Energy supply and the inter-fuelsubstitution issues and options are discussed in the followingparagraphs. The demand side is taken up in Chapter V. - 39 -

PetroleumProducts

Refining

4.3 Present Situation. The Tanzanian-ItalianPetroleum Refining Company Ltd. (TIPER) is the country's only petroleum refinery; it is located on the outskirts of Dar-es-Salaam. Its principal facilities consist of the main toppingand desalterunits (with capacitiesof 16,700 bpsd), a catalytic reformer (3,500 bpsd), a naphtha and kero treater (5,000 bpsd), and a light naphtha merox unit (1,500 bpsd). In addition there are steam gener ting units, diesel generators:tankage with a gross capacityof 211,000m (with an additional45,000 l tank under construction), and an offshoresingle buoy mooring system to receive crude shipments of up to 100,000tons, which is also used for supplyingthe TAZAMA crude oil pipeline. Although the TIPER facilitiesare in fairly good condition,lack of foreignexchange during recent years for spare parts, maintenance materials, etc. has caused the facilities to deteriorate seriously.

4.4 The refinery was designed for a throughputof 750,000 tpy of Iranian and/or Iraqi crude, yielding some 700,000 tpy of refined products. While this capacityis adequate for current petroleum products' demand, the yield pattern of the refinery is not in baLance with the demand profile, thus creatingdeficits in the lighter processingcapabi- lities of the existingunits in the refinery. The units' capabilities are limitedto simple fractionationof the crude into their normal yield cuts, with no possibilityof convertingthe surplus fuel oil to offset the deficits in the lighterproducts. In recentyears, in order to minimize the surplusesof fuel oil which have to be sold at depressedprices, the refineryhas switchedto the lighter crudes -- e.g. [urban and Qatar -- which have higher yields of lighter products per barrel and a lower proportion of fuel oil compared to the design-basisIranian and Iraqi crudes;however, the refinery'smaximum output of refined productsis now limited to 600,000 tpy when processingthese lightercrudes. In spite of the change in crude processed,the imbalanceshave persisted. Further- more, due to stoppages and temporary lack of crude, the actual output during recent years was further reduced to some 520,000 tpy. With this level of output, TIPER satisfiesabout 60% of the domestic demand, com- pelling the country to import large quantitiesof light refined products to meet the deficitswhile exportingfuel oil at depressedprices.

4.5 Table 4.1 compares Tanzania's consumption of petroleum products in 1982 with TIPER'S productionand the resulting deficit or surplus. It shows that imports of kerosene and gas oil are substantial, correspondingin 1982 to 48% and 54%, respectively,of consumption. On the other hand, 40% of the refinery'sproduction of fuel oil and residue cannot be absorbed domesticallyand needs to be exported. Since crude oil available to TIPER is currently further restricteddue to foreign exchange shortages,the refinery'scontribution to the Tanzanian demand in 1983 will be substantiallyreduced. - 40 -

Table 4.1: PETROLEUMPRODUCT CONSUMPTION, PRODUCTION AND DEFICIT,1982 (103 tons)

TIPER Deficit Products Consumption Production (Surplus)

LiquidPetroleum Gas 5.4 4.8 0.6 Gasoline 122.0 87.7 34.3 Kerosene(including Jet) 106.6 55.8 50.8 Cas Oil/IndustrialDiesel Oil 294.9 136.0 158.9 Fuel Oil, Residue,etc. 109.1 180.5 (71.4)

Totals 638.0 464.8 173.2

4.6 In addition to the imbalancebetween the refinery'sproduction pattern and the country'sdemand profile, the TIPER refinery, like most refineriesbuilt prior to the 1973174 oil crisis, was designed to minimize capital costs at the expense of high energy consumptionsince the latterat the time did not representa significantportion of the operating costs. TIPER's internalfuel consumptionand losses range between 7Z and 8%, which is high comparedto the prevailingindustry norm of 3.5%-4Z for refineriesof similarconfiguration.

4.7 PrincipalOptions. The mission has identifieda number of high priorityoptions to address the above issues arising out of the refinery's present operations. The three principal options, which are describedin paras. 4.8-4.13,may be summarizedas follows: (a) incur relativelyminor expendituresto improveoperating efficiency, in particular by reducing plant shutdowns and internal fueL consumption and losses; (b) change certainproduct specifications;and (c) simple debottlenecking to increase the output of middle distillates,which are in highest demand. If implemented,these options could improve the basic operationaleconomics of the refinerywithin its present configurationat fairlylow cost.

4.8 Operating Efficiency. The refinery's operations are being increasinglyjeopardized by the lack of spare parts and maintenance materials, which cannot be obtained due to lack of foreign exchange. According to the mission's preliminaryestimates, some US$4-5 million will be requiredto make the repairs and purchaseequipment replacements identifiedby TIPER so far, includinga boiler, shell and tube bundles, colimn trays, tank roofs, an instrumentair compressor,and other items. These repairs and replacementsshould be made without delay to prevent the refinery from becoming inoperable,causing the need for potentially costly shut-downs. - 41 -

4.9 To improve the efficiency of furnaces, obsolete types of burners need to be replaced, excess air controlled,high flare losses reduced by repairinga compressorfor gas recovery,steam traps replaced to reduce steam losses, and insulationreplaced which has fallen into disrepair. Minimum modifications such as these would cost some US$500,000and could result in net savingsof as much as 1Z of the total crude intake, or about US$1.5 million per year. Additionalsavings of 1X-2Z of crude intake (US$1.5-3.0million) could be achievedby installation of air preheatersand modificationof heat-exchangesystems at an estimated additionalcost of about US$1.5 million. Engineeringstudies for such measuresshould be undertaken.

4.10 The refinery consumes 12,000 to 14,000 tpy of liquid fuel at its current outputof 600,000tpy. If output were raised to 750,000 tpy, as recommendedin para. 4.15, internalliquid fuel consumptionwould rise to between 14,000and 16,000 tpy. Of this, 12,000-14,000tons of liquid fuel (in addition to the savings referred to in para. 4.10) could be eliminatedby supplyingthe refinery with natural gas piped from Songo Songo or elsewhere,alLowing for one pilot burner on liquid fuel in each furnace to be kept in operationfor. safety. 44/ Such a conversionwould require burners in the refineryto be changed to suit natural gas under the energy conservationscheme as referred to above, plus the installation of a surge vessel and control system costing around US$500,000. Refinery demand for natural gas is there'ore included in Annex 10. Furthermore,by connectingthe refinerywith t^hepublic electricitygrid, the internalconsumption of gas oil for power generationcould be reduced by about 1,700 tpy, with an annual foreign exchange saving of some US$500,000.Such a connectionwould require laying a short-distancepower line across the Dar-es-Salaamharbor, estimatedto cost about US$350,000.

4.11 Even though there is sufficientpotential domestic demand, the full utilizationof LPG availablefrom the refineryhas been impeded due to a shortage of cylinders, valves, regulators and other accessories needed to market this product. Also, filling stationsare not function- ing properlydue to shortagesof spare parts. As a result, large quantities of LPG have had to be flared at the refinery. Procurementof the necessaryequipment and spares should be given priority to eliminatethis unnecessarywaste. The mission recommendsthat a Tanzanianofficial from TIPER, preferablysupported by local staff from one of the marketing companies,carry out a survey of the LPG market (existingand potential) as well as the present shortcomingsof the system for producing,distributing and storing LPG, in order to identify the bottlenecksand constraints, list and cost the equipment and spare parts which are needed and draw up a proposal for improving the LPG supply situation; the proposal should be sufficientlydetailed and feasible for early implementation.

441 Accordingto recent information,liquid fuel consumptionwithin the refineryhas been replacedby internallyproduced light gases. - 42 -

4.12 Changes in Product Specifications. In order to increase the refinery's yield of middle distillates, two changes in the specifications of products are suggested. First, increase the minimum recovery temperature and cloud point of gas oil. Although this would increase somewhat the pour point of industrial diesel oil, it could be remedied by addition of a chemical depressant. Secondly, increase the viscosity of fuel oil, thereby reducing by 50% the need for blending with gas oil or kerosene. The resulting increase in cloud point does not present a problem in a tropical country except under low temperature conditions in the moun- tainous areas where any problem could be overcome by blending in small quantities of kerosene with fuel oil when needed.

4.13 Debottlenecking. The mission made a high priority recommen- dation to increase TIPER's processing capacity of the lighter crudes by simple debottlenecking. Installation of a pre-flash column could enable the refinery to process 750,000 tpy, allowing a substantial increase in the production of light and middle distillates. Such an installation, estimated to cost some US$3 million, could result in annual net foreign exchange savings of about US$6 million by increasing the production of gas oil by 45,000 tpy, of gasoline by 39,000 tpy, and of kerosene by 9,300 tpy, with only a slight increase in the production of residual fuel oil.

4.14 Refinery Economics. The above options can be implme'nted at fairly low cost within the refinery's present configuration to improve the economics of TIPER's operations and save significant amounts of foreign exchange relative to the cost of imported products. On the other hand, should the refinery continue to operate under existing conditions, as envisaged in TIPER's plan for 1983 (i.e., throughput of 642,800 tpy of Murban and Qatar crudes), the cost of operations of the refinery would result in a loss to Tanzania of about US$1.7 million over the cost of refined product imports. In the absence of Murban and Qatar crudes and when having to process the Libyan Es-Sider crude currently being processed or Angolan Cabinda crude which was being considered at the time of the mission's visit, annual Losses could reach US$14-17 million. Under such unfavorable circumstances, it would clearly be preferable to shut down the refinery and to import all refined products. 45/

4.15 However, the mission concluded that the operation of TIPER within the current configuration of the refinery could be beneficial to Tanzania by saving foreign exchange of some US$5 million per year over the cost of importing refined products, provided certain measures are implemented . These measures require: (a) processing 750,000 tpy of crude of a type optimal for the TIPER facilities; (b) undertaking overdue

45/ These estimates of refinery profitability are based on projections of international crude oil and international product prices (c.i.f. and at constant 1982 prices) and the actual fixed and variable refining costs in 1982 (including fixed remuneration to TIPER). - 43 -

repairs (estimatedto cost about US$4-5 million) as described in para. 4.8; and (c) implementingenergy conservation,process efficiencyand debottleneckingmeasures (estimated to cost about US$5.4 million), as describedin paras. 4.9-4.13.

4.16 Other InvestmentOptions. The addition of a bitumen plant would permit transformationof excess residual fuel -- which is now exported -- into a product demanded locally. A feasibilitystudy for such a projectwas completedby consultantsin 1978 and in 1980 TPDC set up a wholly-ownedsubsidiary, Bitumen (Tanzania)Ltd, to promote the productionof bitumen in a plant adjacent to the TIPER refinery. The project was later postponedsince financingcould not be obtained. Due to its potential economic attractiveness,the viabiLityof this project should be studiedagain, particularlyin view of the increasein residual fuel excess which would follow the penetrationof natural gas (para. 4.110). According to the mission'spreliminary evaluation, a 40,000 tpy plant might cost some US$12-15 million and could result in annual net foreignexchange savingsof some US$6 million.461

4.17 In the longer term or. if demand for middle distillates increases above expectations,consideration could be given to studying the viability of installingsimple secondaryconversion facilities, such as a thermal cracker with hydrogenationof distillate products; this would increaseTIPER's capabilityto processa greater variety of crudes and increase the output of distillateswhile reducing the surplus residual fuel production. Such facilitiescould require investmentsof some US$30-35 million, and could increase the refinery'syield by some US$19 millionper year at a crude throughputof 750,000tpy.

4.18 The recommendationmade by consultantsin 1979 to expand the refinery's capacity to 1.6 million tpy along with installation of secondary processingfacilities (at a total cost at that time of US$337 million) is not economicallyviable at this stage. The mission concluded that before an investment of such magnitude would be justified, the domestic demand for middle distillateswould have to grow at an annual rate of some 3% from present levels for at least 15 years. If domestic crude oil should be found and refined locally or if domestic demand conditions for refined products should change dramaticallyfrom the current- essentiallyno-growth -- situation,the viabilityof expanding the refinery'scapacity should be reexamined.

46/ According to the most recent informationavailable to the mission, the Italian government has expressed its willingness to provide about US$4 million towards the investmentsdescribed in paras 4.9 and 4.13 and some US$20 million towards studiesand constructionof the bitumen plant. - 44 -

Distribution, Transport and Storage

4.19 There are five companies which market petroleum product. in Tanzania. The companies (with their market shares in 1981) are: BP (48%), ACIP (26Z), ESSO (11%), CALTEX (9X) and TOTAL (62). 47/ The government owns a 50% share of BP and ACIP through the Tanzania Petroleum Development Corporation (TPDC), while the other companies are entirely under foreign ownership. Since 1976, TPDC has been responsible for importing all crude oil supplies; more recently, TPDC has also assumed responsibility for importing petroleum products to make up any shortage of products refined by TIPER. Products are then supplied by TPDC and TIPER to the terminals, of the marketing companies in Dar-es-Salaam. From the Dar-es-Salaam terminals the marketing companies transport the products by road (73%), rail (18%) and sea (9Z) to their retail outlets, depots and stores throughout the country. 48/ Major transport problems have been encountered with all forms of transport; the basic difficulties are not peculiar to the transport of petroleum products but are part of the broader transport problem in Tanzania. Among other things, low-cost movement by rail has been hampered by inadequate facilities, in particular a high proportion of tank wagons out of service; roads are in generally poor condition and the road vehicle fleet suffers from a shortage of spare parts. Consideration shouLd be given to the possibility of delivering fuel to the northern region of Tanzania from neighboring countries.

4.20 The storage facilities of the marketing companies appear to be generally adequate for a developing country such as Tanzania, although transportation problems frequently lead to temporary shortages. The distribution of these facilities by region and by product is in Annex 4. National storage capacity for all products is equivalent to 70 days of 1982 consumption. While 70% of this capacity is concentrated in the Dar- es-Salaam area, it is reported that most distributors have a storage capacity of at least 25-30 days consumption in each region.

4.21 An eight inch oil pipeline was commissioned in 1968 to supply petroleum products to Zambia and was later converted to transport crude oil to the new Zambian refinery at Ndola. The Covernment of Tanzania owns one-third of the shares of the company which operates the pipeline (TAZAMA). All crude oil passing through the pipeline is owned by Zambia. Insofar as the pipeline has been operating below its design capacity, the option of using it in part to supply crude oil to Tanzanian consumers in Morogoro, Iringa and Mbeya should be evaluated. These

47/ Mobil also markets a very small amount of products as well as lubricants.

48/ In an effort to improve distribution efficiency TPDC plans to build and supply three bulk terminals at Mwanza, Tanga and Makambako with final distribution to be undertaken by the private companies. - 45-

consumers may be able to use such supplies to substitute in part for some of the refinedproducts which must be sent by road and rail from Dar-es- Salaam - a costly and unreliabledistribution method. There would be technical,legal and commercialproblems to resolve but they should not be insurmountable;a study is recommendedto resolve these problems. The potentialbenefits could be significant. The study shouldbe carriedout by local experts in conjunctionwith TAZAMA, which has succeeded in substituting crude oil for IDO in its pumping stations along the pipeline.

AllocationPolicy

4.22 Until recently,there was no seriousgeneral shortage of petroleum products in Tanzania, although shortagesof specificproducts were Likely to occur from time-to-timein particularareas. Since about the second half of 1982, these shortageshave become more comon, especially outside Dar-es-Salaamand especiallyfor kerosene and gas oil. At the time of the mission's visit, shortageshad become fairly general in the country and affectedmost products;queues were noticeable,even in Dar- es-Salaam,and in some areas gasoline and gas oil were virtuallyunob- tainable,at least for short periods. The basic problem is the shortage of foreign exchange, although it is aggravatedby the poor transpor.; system and occasionallysome very localizedstorage problems.

4.23 Even prior to :hese generaland often acute shortages,Tanzania had put in place an allocationpolicy for petroleum products. Alloca- tions are made by marketingcompany, by region and by end use. To determine the potentialdemand, the five marketingcompanies provide TPDC with estimates of their product requirementsfor the next six months. TPDC reviews the forecasts,determines with TIPER how much can be satisfiedby the refineryand submitsa requestfor foreignexchange to purchasecrude and products to the National Fuel Allocation Cosmittee in the Prime Minister'soffice. The Bank of Tanzania, the Treasury, the Ministry of Trade, the Ministry of Water, Energy and Minerals and TPDC are represented on the Committee. Foreign exchange will then be allocated as available. Preferenceis usually given to crude with cuts pro-rat-' against products.Within the lump-sum foreign exchange allocation,TPDC has the right to select the product mix which it then notifies to the companies concerned.Each distributorreceives product allocationsbased on its historicalsales of each product. For importsnot made by TPDC, further applicationis again made by the companyconcerned to the Bank of Tanzania for the actual foreign exchangerequired to pay for an arriving shipment. Usually the shipment is for the sole use of the importing company,but recentlya sharingscheme has been established.

4.24 Allocationsof productsamong regionsare based upon historical trends, taking into account seasonal factors such as crop havestingre- quirements. Allocation of products within the regions is handled by regional allocation comhittees, on which the marketing companies are represented. Guidelines for allocationamong customers have been laid down by the government;highest priority is given to the transportation - 46 -

of goods for export, to agricultureand to essential services. In Dar- es-Salaam,gasoline is subjectto rationingwith variousallowances being given dependingupon the type of vehicle. In addition, each passenger vehicle has a certainretail outlet from which it is supposedto purchase gasoline. The use of private vehicles is banned on Sundays throughout the country. Vehicles owned by foreignersand certain other categories of local operatorsare not subjectto these constraints. Service station hours are restrictedto 6 a.m. to 9 p.m., four days per week. These restrictionson driving, coupled with the rationingprogram and Limited servicestation hours, reduceoverall consumption.

4.25 The allocationsystem appears to work reasonably well within its limits. However, it is inevitablysubject to increasingrigidities over time, inequitiesbetween marketing companies (who have differing proportionsof "priority"consumers) and abuse. The mission strongly recommendsthat greateremphasis be given to pricingpolicy in allocating the scarce supplies of petroleum products (paras 5.2-5.6). Further attentioncould also be given to streamliningthe procedures for making availableforeign exchange for crude and product imports. For kerosene, which has a particularsocial significance,a carefully formulatedand controlledphysical allocation system could be warranted.

NaturalGas

Methodologyof the EconomicEvaluation

4.26 The review of petroleum and gas ezploration activities in Chapter II concludedthat no oil discoverieshave been made to date but the natural gas resourcesdiscovered at Songo Songo and Mnazi Bay (paras. 2.8 - 2.9) presentan opportunityfor Tanzaniato become more self-sufficient in comerciaL energy should a gas pipeline be constructedto Dar- es-Salaa.. 49/ The mission therefore examined the various domestic options for supplyingpotential consumers in Dar-es-Salaam with natural gas, includingutilization as a substitute'or fuel oil in the industrial market; as a feedstock for electric power generation in the interconnected system;and as a substitutefor gas oil end gasoline in the transport sector. The analysis takes into account the ICDC study on natural gas usage in Tanzania,although that reportwas preparedwhen substantial gas reserveswere thought to be present at Kimbiji and before the Mnazi Bay discovery(paras. 2.5; 2.9). 50/ Explicitallowance is made for the Government'sintention to allocate a major part of the available Songo

49/ About half of Tanzania'stotal commercialenergy is consumed in Dar-es-Salaam.

50/ "Opportunities for Natural Gas Utilization", International Gas DevelopmentCorporation (IcDC), April 1983. - 47 -

Songo reserves to a fertilizerplant at Kilva, which would earn direct foreign exchange by producingfertilizers for export (para. 4.41); and some observationsare made on the possibilitiesfor methanol production, either alone or in conjunctionwith fertilizerproduction (para. 4.44). The implicationsof using Mnazi Bay gas to supplementSongo Songo gas at some future date were also considered.51/ Given the uncertainties surroundingthe future recoveryof the Tanzanianeconomy (para. 3.1), the domestic options were evaluated under two different macroeconomic scenarios:the "SAP" scenario from Chapter III 52/ and a "low growth" scenario which is intentionallymore conservativethan the alternative ("delayedSAP") scenario of Chapter III in order to test the economic feasibilityof gas supplyto Dar-es-Salaameven under adverse conditions.

4.27 In principle,a large number of combinationsof gas demand and gas supply options could be considered,each associatedwith certain gas delivery and gas reserve requirements,a specific layout of pipeline deliveryfacilities and a particularcost. To reduce the number of cases to manageable proportions,it was decided to approach the problem by concentratingon the most interestingcombinations of industryand power demand,with and without fertilizerproduction and also with and without supplementary gaq supplies from Mnazi Bay. Even so, seven cases were evaluatedin terms of their gas demands and required supplies (Annex 6). The correspondingbenefits and costs of gas delivered to the Dar-es- Salaam market could then be caLculated;finally - since the seven cases in effect are a set of mutually exclusive projects for gas delivery to Dar-es-Salaam- the mission derived net present values for each case. Fertilizerproduction and Hnazi Bay gas Pre includedin the case studies only in order to evaluatetheir possible impact on gas supply facilities and investmentcosts, the availabilityof gas and depletion costs. 53/ Since the mission regarded the methanol and t nsport sector options as especiallyuncertain in the Tanzaniancontext, they are considered sepa- ratelyrather than as part of any specificcases.

OverallResults

4.28 Gas Demand and Required Supplies. Case I involves the constructionof a pipelinefrom Songo Songo to Dar-es-Salaamto re-lace only

51/ An option that may not be necessary in view of the geological potential for further gas discovery in locations of the coastal basin less distant from Dar-es-Salaamthan Mnazi Bay (see Chapter II).

52/ In which the GDP growth rate rises to 6% in 1984, slackens in 1985 and 1986 and then settlesat 6% p.a. from 1987 onwards.

53/ In assessing the costs applicable to the developmentof Mnazi Bay gas, the mission did not take past developmentexpenditures into account. - 48 -

existing industrial fuel oil consumption, assuming zero growth in gas consumption over the lifetime of the project. Case II adds electricity generation as projected under a "low growth" scenario. Case III evaluates the impact of using Songo Songo gas for fertilizer production as well as industry and power, with demands for the latter two as under Case I1, subject to overall gas availability of 725 bcf (with a daiLy deliver- abiLity of up to 100 mncfd). Cases I, 1I and III all assume zero industrial growth and "low growth" electricity demand. In contrast, Cases IV, V, VI and VII assume higher growth rates, reflecting the potential response of the economy to a program of structural adjustment. Case IV posits high industrial and power demands with no fertilizer plant. Case V adds in demand from the fertilizer plant, which reduces gas availabi- liry, so that power demand is treated as a residual. Cases VI and VII have the same demand scenarios as cases IV and V, but assume the availability of additional gas from Mnazi Bay. Specifically, it is assumed that proven and probable reserves of 609 bcf are available and supplied through a future 10" pipeline from Mnazi Bay to the Songo Songo system. These last two cases can also be considered as being representative for situations involving new gas discoveries. An illustrative breakdown of the industrial/power/fertilizermarket is shown in Annex 5 for Cases IV- VII, along with a possible supply schedule for Songo Songo and Mnazi Bay.

4.29 Each case considered involves an increasing rate of gas consumption and required gas supplies. Hence, Cases I and VII form the envelope of the set and merit particular attention. Case I is the minimum gas utilization case considered, with total gas consumption held constant throughout the time period at 8.4 mmcfd; no supplement would be required for Songo Songo gas until well into the 21st century and depletion costs can therefore be ignored. Case VII represents the maximum gas utilization case, in which industrial and power gas consumption amount to 29 mcfd by 1995 in addition to possible fertilizer consumption of up to 66 mmcfd; by the year 2000, industrial and power gas consumption reach 100 mnkufdand Mnazi Bay gas is introduced. 54/

4.30 Benefits. To estimate the benefits corresponding to each of the seven cases, the value of gas used by industry is taken to be the f.o.b. export price of the substituted fuel oil and the import price of other products. Gas used for power generation is valued at the differential between the costs of gas turbine generation and the costs of generation by the next best available alternative, i.e. hydroelectric power (paras. 4.55-4.57 and Table 4.4). As stated in para. 4.27, fertilizer benefits are not evaiuated in the case studies; fertilizer production is included only in order to evaluate its impact on gas supply facilities, the availability of gas and depletion values.

54/ Case I to VII are designed to fall within the overall productive capacity of Songo Songo and Mnazi Bay Fields. However, detailed production and deliverability studies will be required before actual production begins. - 49 -

4.31 Costs. The estimates of pipeline capital costs for the seven cases are detailed in Annexes 6 and 7; the costs of common facilities are allocated between the Dar-es-Salaam market and the fertilizer plant in Kilva in proportion to total gas consumption. However, in addition to these direct costs of gas suppLy under the various options, the evaluation must take into account the depletion costs, namely the potential net value of the gas used under any of the options if that gas were instead retained for some future use. This potential net value is determined by the difference in the future marginal supply cost of the gas and the next best alternative fuel that would have to be utilized in the absence of gas, discounted back to present value terms. The depletion and long run marginal supply costs calculated for the seven cases selected for evaluation are detailed in Annex 8.

4.32 Net Present Values. The results of the anatyses are summarized in Annex 9, which shows the net present values of gas delivered to the Dar-es-Salaam market at a 12Z discount rate for each of the seven cases considered, before and after allowing for depletion costs. For complete- ness, Annex 9 also shows the corresponding benefit-cost ratios and estimated netbacks to gas in the industrial substitution and the power generation markets. 55/ In all the cases anaLyzed, the net present values of the pipeline investments are positive, ranging from US$42 million to US$299 million; similarly, the benefit-cost ratios exceed unity -- lying between 1.73:1 and 4.37:1 - while the netbacks to gas in industry and power (over and above the cost of gas supply) are positive, ranging between US$1.63 per mcf (Case I) and US$3.27 per mcf (Case VII). Con- sequently, the economic justification for a gas pipeline to Dar-es-Salaam is extremely robust for a wide range of assumptions concerning the degree of gas utilization which can be envisaged. Even under the "zero growth" assumption for industry, with no gas-based power generation (Case I), the economic justification for a pipeline of at least 6" remains firm. As gas utilization increases (through to Case VII), the argument strengthens for increasing the delivery capacity of the pipeline system, by selecting a large diameter from the outset, or adding compression or building a second pipeline eventually. The following paragraphs discuss these results in greater detail.

551 The netback value of the gas is defined here as the residual net economic value of the gas at the wellhead, after all costs of future gas development, gas transmission and distribution have been deducted from the opportunity value of the gas. The opportunity value is determined by the economic costs of alternative energy resources that would have to be used instead of gas. Netbacks are expressed in le-velizedUS$ per mcf of gas, calculated with a 12% rate of discount. - 50 -

Industrial Substitution Market

4.33 Industrial consumers account for about 90X of the non-transport demand for petroleum products in the Dar-es-Salaam area. The mission's survey of these consumers established that their gas usage would be limited essentially to the replacement of fuel oil in boiler and furnace applications; the present consumption of fuel oil for such applications is estimated at 79.4 million liters p.a 56/ Individual demands, broken down by location, are in Annex 10. Projections of future fuel consumption are a function of industrial production rates, after adjustment for conservation. Fuel consumption rates have been projected under the "SAP" scenario, assuming that production by the industries surveyed would increase at the same rate as the sectoral GDP rate for each industry (e.g. the projected construction sector GDP was used for the Wazo Hill cement factory) (See Table 3.1). Energy consumption was then estimated for each industry, using sectoral elasticities, adjusted by potential conservation measures and by proposed plant expansions. The results are shown in Annex 10. They indicate potential industrial gas demand in the Dar-es-Salaam area of 11.6 mmcfd by 1987 rising to 21.5 mmcfd by 2,002. An alternative scenario has also been analyzed, in which industrial consumption is assumed to remain constant at its 1982 level of 79.4 million Liters, equivalent to 8.4 mmcfd. As stated in para. 4.26, this scenario is intentionally more conservative than the "delayed SAP" scenario in Chapter III in order to test the economic feasibility of constructing a pipeline to Dar-es-Salaam even under adverse conditions.

4.34 The mission reviewed the design and costs of the facilities which would be needed to supply gas from Songo Songo to Dar-es-Salaam, including alternative marine and land transmission pipelines and the distribution network to industrial sites. Cost estimates include provisions for crossing the Rufiji River and the adjacent fLood plain. It was found that the clustering of industries around the city perimeter would reduce spurline construction costs by limiting their number and simplifying easement acquisition. As detailed in Annexes 6 and 7 for Case I, the projected capital costs of a pipeline designed exclusively to serve industrial demand under the "zero growth" scenario is about US$49 million. 57/ If the supply system is expanded to accommodate both the industrial and power gas demand under the "SAP" scenario, i.e. Case VI,

561 Equivalent to 75,225 tons or US$10.5 million valued at US$140 per ton f.o.b. In addition, these industries consumed 3.3 cillion liters of gas oil and 0.4 million liters of kerosene.

5a7 Based on a 12" marine pipeline and a 6" land pipeline; the figure includes distribution lines and connection and conversion of industrial consumers. - 51 -

the estimated costs of the supply system to Dar-es-Salaamrise to US$82 million. 58/

4.35 As stated in para 4.32, the net present value of Case I is positive; it follows that the constructionof a gas pipelinewith a diameter of at least 6" from Songo Songo to Dar-es-Salaamis economically justifiedto supply gas as a substitutefor industrialfuel oil consumption even with a zero industrialgrowth rate. Under the "SAP" scenario, a pipeline system of higher throughputcapacity for increasedindustrial substitutionand for power generation would be even more advantageous (Cases IV and VI). A further benefit of gas substitution- which has .not been included in the quantified results of Annex 9 - is improved reliabilityof supply and reduced maintenanceresulting from a cleaner fuel.

Power GenerationMarket

4.36 As in the case of industrialfuel oil consumption,the future demand for electricityin the interconnectedsystem has been projected for the "SAP" scenario and a "low growth" scenario. The former is taken from Table 3.3 while the latter has again been derived under more conservative assumptions than the "delayed SAP" scenario in order to test the economic feasibilityof supplyinggas for power generation even under relativelyadverse conditions;specifically, it is assumed that electricity demand in the interconnectedsystem grows only in line with a growth in electricitydemand for Tanzania as a whole of: 2Z p.a. in the period 1982-88;5% p.a. in the period 1988-92;and 6Z p.a. thereafter. Further- more, it is assumed that the isolatedsystems are interconnectedwith the main grid only in accordancewith known plans.

4.37 Table 4.2 summarizesthese two demand scenariosfor the period 1988-2000and shows the point at which electricitygeneration from existing facilities(including the scheduledMtera expansion)should be sup- plemented. Additionalgeneration capacity would be requiredby 1992 and 1958 under the "SAP" and "low growth" scenariosrespectively. 59/ Pro- jections under both demand scenariosare tentativeonly and will be reviewed in detail by the study of the least-costdevelopment of Tanzania's power system provided under the Fourth Power Project (para. 4.53); the study will also analyze further the relativeroles of hydro, gas and coal in meeting the projected demand. However, it is already possible to compare the economic costs of gas turbine generation with alternative

58/ Includingthe costs of an expandeddistribution network in the Dar- es-Salaam area; and connections and conversions of industrial consumers. See also Annexes 6 and 7.

59/ Assuming that the relatively substantialdiesel capacity would be relegated to standby use only, given its high costs relativeto the gas-firedalternatives. - 52 -

hydro or coal, given present information. The economiccosts of suppLy- ing gas for power generation,including depletion costs, are estimatedto be in a range betweenUS$0.95 and US$2.21 per mcf, dependingon the pro- jecteddemand level (Annex8). Paras. 4.55 - 4.60 and Table 4.4 compare these costs with the long-run average incrementalgenerating costs of several alternativetypes of generationplant: gas oil, fuel oil, hydro and coal. Even at the highest projected gas supply cost, gas-fired turbinescouLd provide electricityat an average cost of USc4.8 per kWh, i.e. substantiallybelow the estimatedcost of the next-bestalternative (USc7.4). While there are some preliminary indications that the deliveredcost at load centers of hydropowerfrom some of the potential sites in the Upper Rufiji Basin may be moderately lower, they still appearto be significantlyhigher than those of gas-firedplants. At the lower gas costs average electricityexpenses of gas turbines may be as low as USC3.3/KWh. The true long-runmarginal costs of gas-fired plans would be even lower if only the marginal gas pipeline capacity costs needed to accomodate incrementalgas supplies for power were counted. This is becausea gas pipelinecan be economicallyjustified even without gas suppliesto power plants (para. 4.32; and Annex 9, Case I). As the other gas scenarios(Cases II to VII) indicate the benefitsof providing gas for power generation in Dar-es-Salaamare sufficientlygreat to justify the constructionof a pipeline to Dar-es-Salaamunder both the "SAP" and "low growth" scenariosfor power.

Table 4.2: PTROJECTEDELECTRICITY DEMAND AND SUPPLY IN THE INTERCONNECTEDSYSTEM, 1988 2000 (GMh)

"SAP" Scenario "Low Growth" Scenario Supplyfrom Supplyfrom Projected Existing Energy Projected Existing Energy Demand FacilitiesShortfall Demand Facilities Shortfall

1988 1,175 1,175 0 907 907 0 1989 1,264 1,264 0 952 952 0 1990 1,362 1,362 0 1,000 1,000 0 1991 1,467 1,467 0 1,050 1,050 0 1992 1,581 1,510 71 1,102 1,102 0 1993 1,705 1,510 195 1,169 1,169 0 1994 1,807 1,510 297 1,239 1,239 0 1995 1,916 1,510 406 1,313 1,313 0 1996 2,031 1,510 521 1,392 1,392 0 1997 2,153 1,510 643 1,475 1,475 0 1998 2,282 1,510 772 1,564 1,510 54 1999 2,419 1,510 909 1,658 1,510 148 2000 2,564 1,510 1,054 1,757 1,510 247

Note: Doemand,supplyand shortfallunder the "SAP" scenarioare from Table 4.3; the "low growth"scenario is describedin pare. 4.36. - 53 -

4.38 The gas supply costs used in the calculationof gas turbine generationcosts (Annez 8) are derived by sizing pipelines according to the combinedindustrial and power demandsand by allocatingcosts according to consumption. It should be noted, however, that even under the electricitydemand correspondingto the "SAP" scenario, gas for power generation would not be required until 1992. 60/ It is therefore possible that gas supply costs could be reduced below those used to calculate gas turbine electricitygeneration costs by limiting initial pipeline size and subsequentlyadding capacity. While adding compressors, or locating generatingfacilities at the coastal terminal of the marine pipeline and building a transmissionline to Dar-es-Salaam,or building a second pipeline to Dar-es-Salaamwould all be more expensive in current dollar terms than oversizingthe initial pipeline (see Annex 7), the savingsinvolved in deferring the investmentmight outweigh that additionalexpense, depending on the time lag. A detailed least-cost systems analysis will be needed to define the optimal initial layout (para.4.52).

4.39 An added advantage of using gas for power generation in the Dar-es-Salaam region would be to provide support for the interconnected system in case of transmissionline failuresfrom Kidatu and !tera (para. 4.61) or in case of a series of dry years, which could reduce the system's hydroelectricenergy capabilities. In fact, a substantialthermal capacitywould allow the applicationof more liberal reservoir operating rules (by reducing over-year minimum storage requirements)and thereby increaseaverage hydroelectricenergy productionbecause of lower reservoir evaporationlosses. No attempt has been made to include these benefitsin the quantifiedresults of Annex 9.

4.40 The economic analysis of gas supply for power generation assumes exclusivelydomestic demand under both electricitydemand scenarios. Should Tanzania choose to pursue the possibility of exporting electricity to Kenya (paragraph 4.72), additional studies would be necessary to evaluatethe relative costs of hydroelectricand gas-fired generation,together with an anslysisof transmissioncosts to the point of interconnection;an assessmentof the comparativecosts of electricity supply from Uganda would also be required. The mission suggests that the proposedleast-cost development study provided for under the Fourth Power Project should include at least a preliminary review of this option (para.4.54).

FertilizerProduction

4.41 As describedin para. 6.38, preparationshave been in hand for the past two or three years for the constructionof a plant (KILAMCO)to

60/ Small quantities could be used in operating Ubungo as a thermal standby although it would not be required under normal conditions (para.4.66). - 54 -

produce1,350 tpd of ammonia and 1,725 tpd of urea at Kilwa, located on the coast about 25 miles south-westof Songo Songo Island,using gas from the Songo Songo field as a feedstock. For this purpose,the Government enteredinto an agreementwith AGRICO for the installationand management of the plant and for productmarketing. The ParticipatiorAgreement is already effective,and negotiationsfor obtaining the financing of the projectare reportedby the Governmentto be nearingcompletion.

4.42 Supply of gas for fertilizerproduction at Kilva, if conceived on a "stand-alone"basis, would require the constructionof a 10" marine pipelinefrom Songo Songo to a coastal point and a 10" land pipeline to Kilva to carry up to 66 mmcfd of gas. The costs of the 10" marine pipeline are estimatedat US$10.4 million and of the 10" Land pipeline to Kilwa at US$9.8 million, while costs of field equipment and gathering lines are estimatedat about US$5.0 million (Annex 7). This is equivalent to US$0.32 per mcf. 61/ If the cost of comnon facilitiesis shared with domestic consumers Tpower and industry) according to relative demands,these costs could fall to US$0.26 per mcf (Annex8).

4.43 The direct costs of supplyinggas for fertilizerproduction are likely to be outweighedby the depletioncosts appropriateto the pro- jectedconsumption for this use of up to 515 bcf, i.e., over 70Z of total Songo Songo proved reserves. The potentialnet value of this volume of gas if it were to be retained for some future use (para. 4.31) can be determinedby the differencebetween the future marginal supply cost of the gas compared to the supply cost of the next-best alternativefuel, discountedback to presentvalue terms. In the Tanzaniancase, Mnazi Bay gas currentlyrepresents the lowest-costreplacement fuel for depleted gas from Songo Songo although the prospects for proving future gas reservesin the structuresin the vicinityof Songo Songo are believed to be good. In the absenceof an alternativeuse for the Mnazi Bay gas, the supplycosts are determinedby the Mnazi Bay gas long-runmarginal supply costs, plus gas depletion costs when, in turn, Mnazi Bay gas is exhausted, 62/ plus any payments made in respect of past Mnazi Bay explorationexpenditures. Use of Songo Songo reserves for fertilizer productionwould acceleratethe point at which an alternativefuel source is required for other uses and, correspondingly,increase the present value of Mnazi Bay gas supply costs. Assuminga zero value for payments made in respectof past Mnazi Bay explorationexpenditures, the depletion

61/ However, the economic cases consideredin paras. 4.28-4.32 are for combinedgas delivery systems, where the costs of field equipment, gathering lines and the 12" marine pipeline are prorated between Dar-es-Salaamand Kilwa consumption.

62/ The mission assumed that replacementfor Mnazi Bay gas would be hydro and/or fuel oil. However, it recognizes that there is a likelihoodof futuregas discoveriesthat would be economicallymore attractive. - 55 -

value attributableto fertilizerproduction could amount to US$0.45 per mcf. If Mnazi Bay can not be reserved for future use, depletioncosts could rise to $1.07 per mcf (Annex8). Discoveriesof additionalgas in the vicinityof Songo Songo would lead to Lower depLetioncosts.

MethanolProduction

4.44 The potentialmethanol market is subject to many uncertainties, in view of current overcapacityof productionand various technological problems,such as the feasibilityof high-levelblending of methanolwith gasoline and the extent of its corrosiveeffect on internal combustion engines. The mission understandsthat these matters are being addressed in a technicaland marketing study which is now being carried out on behalf of the Government; the study will analyze the feasibilityof methanol productionin Tanzania on a "stand alone" basis and in conjunction with the proposedfertilizer plant at Kilwa. Pending completionof the study, the mission did not feel that it would be appropriate to evaluatethe costs of gas supplyfor methanol productionin Tanzania.

Transportation

4.45 Use of gas to replace gasolineor gas oil in vehicles offers the prospectof substantialforeign exchange savings. The economiccost of natural gas delivered to Dar-es-Salaamof up to US$2.21 per mcf (Annex8) is less than one-third the cost of imported gasoline and gas oil (equivalentto USS 7.90 and US$7.40 per mcf respectively). Even after allowing for the costs of vehicle conversion and gas refilling stations, 63/ estimated to range between US$2.00 and US$2.20 per mcf (para 4.4757 CNG or LNG use in the Dar-es-Salaamarea could be econo- micallyattractive.

4.46 The technologyfor convertinggasoline or diesel vehicles to CNG or LCG use is relativelystraightforward, in that commercialexperi- ences are found in Italy since the 1950. and in New Zealand, Canada and the U.S. more recently;however, such experiencesare limited to gasoline motor cars converted to CNC and a lesser number of diesel trucks and buses convertedto CNG and LNG. So far, no car maker is marketing"shelf designed"CNC or LNG vehicles,so that existing engines have to be converted and a specificon-board tank added. In gasoline vehicles,actual gas substitutionis total but immediate switch-back to gasoline mode remainspossible. In gas-converteddiesel engines, injectionof some gas oil is maintainedunder the dual-fuelmode, which aLso permits immediate switch-backto full gas oil consumption. As regards vehicular gas storage, gas fuel taLks have to be fitted to the vehicle, in the case of CNG in high pressure(up to 3,000 psi) cylindricalbottles (like oxyacetylene bottles)or in the case of LEG low temperature(-245 F) insulatedcryo- genic tanks. The high strength CNG tanks and lesser compressioncost

63/ Includingspurlines and either compressionor liquefaction. - 56 -

than liquefactiongive CNG an advantage over LNG, but the higher weight of CNC tanks gives other merits to LNG, particularlyin long-distance transport, so that both conversion modes have preferred applications which would only be determinedby investigationunder local conditions. As regardsgas distribution,a spurlinefrom main gas lines would be run to the gas refillingstations, where the gas would, in the CNC case, be repressurizedas required and stored in large cylinders pending the refuellingof vehicles. In the LNG case, small liquifierswould be used in place of compressors.

4.47 Based on Italian,New Zealand,Canadian and US experience,car, bus and truck CNC conversion costs range between US$600-70o per vehicle and CNG refuellingstation capital costs between US$130,000(compression/dispensingstation serving250 vehicles)and US$1,000,000(a central compression/dispensingstation serving 500 vehicles and supplyingCNG by trucks to five satellitedispensing stations of 200 vehicleseach). This would be equal to US$450-800per vehicle served. Dependingon the number and mileage of participatingvehicles, field experienceto date suggests a total conversion,compression and distributioncost of US$2.00-2.20per mc f.

4.48 The mission undertook an illustrativeeconomic analysis of a particulargas applicationin transport,namely CNG use in the UDA public bus service in Dar-es-Salaam. UDA operates 140 buses (to be increasedto 390 by 1984) from a limited number of storage,refuelling and maintenance depots, thus permittingan enclave-typesystem control. The results of the analysis confirm, in the limited case examined, the expectations arising from the differentialin Tanzania between the economic costs of natural gas comparedto importedgas oil. Specifically,an investmentof US$1.4 million is calculatedto yield an economic internalrate of return of 41Z or a netback per mcf of gas consumed of US$3.42/mcf. In terms of available gas reserves and deliverability,the UDA project would absorb 0.5 mcfd comparedto "zero growth" industrialdemand of 8.4 mmcfd.

4.49 If a satisfactoryCNG operation is establishedat UDA, conversion of other potential users would logically follow. Fleet operations 64/ and the two railways would be prime candidates. Public CNG stationscould be establishedin and around-Dar-es-Salaam.Potential CNG use could reach 4 mmscfd by 1991, with correspondingbenefits in the form of reduced gasoline and gas oil imports and correspondingsavings in foreign exchange. Some orders of magnitudeare shown in para. 4.112 and TabLe 4.10.. The mission therefore proposes a feasibilitystudy of CNG/LNG use in transportation;if recommendedby the feasibilitystudy, a pilot scheme could follow to investigatethis applicationof natural gas under local conditions(paras. 7.3; 7.11).

64/ Involving, for example, governmentvehicles (gasolineand diesel), trucks and privatebuses. - 57 -

Nnazi Bay Reserves

4.50 The preceedinganalysis consideredone possibleapplication of the Mnazi Bay gas reserves, namely as a supplementarysource of supply for Songo Songo in the event that the combineddemands on the Songo Songo field surpass available reserves. A further option, which should not conflict with this role, would be the small-scaleproduction of CNG/LNC at Mnazi Bay to supply the larger townships in reasonableproximity to the gas field. 65/ Most obviously,gas could be transportedin compressed or liquifiedform by road to Mtwara (25 km), Lindi (100 km) and possibly Nachingwea (200 km); the gas would mainly be used for power generation but there could be other small industrial and commercial applications. While the capital costs of such a scheme might be fairly high -- in the order of US$3-5 million - the schemecould be economicin view of the high cost of supplyingpetroleum products by sea from Dar-es- Salaam. The scheme could be put into effect quickly, utilizing the existing discoverywell and would have the added advantageof helping to evaluate the Mnazi Bay field reservesand deliverability,without imped- ing its furtherappraisal or development.661

Conclusionsand Recoimendationsfor Gas

4.51 The mission'sanalysis establishes that:

(a) a pipeline with a diameter of at least 6",to supply gas to existing industry in Dar-es-SalAAmas a substitutefor petroleum fuels, appears to be economicallyjustified, assuming the level of industrialproduction does not decline further (para. 4.32) and that future exploratoryefforts do not yield additional gas resources with lower delivery costs to Dar-es- Salaam;

(b) the next incrementof power generation capacityafter completion of the Mtera hydroelectricproject is likely to be gas- fired (para.4.37);

(c) when economic growth in Tanzania resumes,there will be opportunities to increase the use of gas in industry and power

65/ Another option for Mnazi Bay gas is methanolproduction, which would conflict with its use as a supplement to Songo Songo gas (para. 4.43).

66/ A similar project could be envisaged for Songo Songo, to ship CNG/LNG to such isolated markets as Zanzibar and Mafia Islands. Supplying these islands with petroleumproducts is also a high-cost operation. The project could be subsumed under the more ambitious project for CNG/LNC use in transport in Dar-es-Salaamif the latter proves to be justified. - 58 -

generation and correspondinglya larger initial pipeline diameterof 10" might be justified;

(d) the potential industrialand power demandsfor gas, even without fertilizer production,may be large enough to justify utilizing gas from Mnazi Bay (should this field prove commerciallyviable) following full utilizationof gas from Songo Songo, unless new discoveriesare made in the meantime;

(e) savings in foreign exchange due to reduced petroleum imports could be substantialunder any scenario(para. 4.112); and

(f) the illustrativeeconomic analysis of CNC use in pubLic bus services supports the expectation that the differential in supply costs between natural gas and imported liquid fuels could make CNG use in transport an economicallyjustified option (para.4.45).

4.52 In view of these conclusions, the mission recommends that feasibilitystudies for a pipelinefrom Songo Songo to Dar-es-Salaambe initiatedwithout delay, includingmarine and land surveys, design and engineeringstudies and financingarrangements. These studies should be phased in such a way that they can incorporatethe resultsof the least- cost power development study (para 4.54); any further informationon likely growth rates in the Tanzanian economy; and the findings of any additionalhydrocarbon exploratory efforts. For example, in this last connection,the mission was informed by the Governmentthat there are prospects for encounteringhydrocarbon deposits in the vicinityof Dar- es-Salaum. The mission further recommends undertakinga feasibility study of gas use for transportationfollowed by a pilot scheme if the results so warrant. Finally, it can be noticed that the mission's conclusionson the natural gas subsectorrepresent a logicaldevelopment of those in the IGDC study with regard to the domestic uses for gas, bearing in mind an important change which has taken place in the gas supply situation since IGDC completed its work: while the Kimbijireserve (which played a role in IGDC's analysis) can no longer be regarded as commercial,a new discoveryhas been made at Mnazi Bay (para.4.26).

ElectricPower

4.53 The mission focussed on two key issues in the electricity supply subsector. First, the least-costexpansion program for TANESCO's interconnectedsystem has to be reexamined to take into account the likely availabilityof natural gas for use in power generation. Such a reexaminationis taking place as part of the long-rangeelectric power development study which is being carried out under the Fourth Power Project (para. 4.54-4.60). Secondly, the reliabilityof public power supply must be addressed in all the main areas of TANESCO'soperations: transmission,generation and distribution. Again, IDA resourcesincluded - 59 -

in the Fourth Power Project provide an initial basis for tacklingthis issue; apart from about US$1 million allocatedfor the purchaseof equipment and materialsto rehabilitatethe Ubungo diesel station,the credit sets aside funds to finance consultingservices to carry out studies of TANESCO's existing power generation and distribution facilities by June 30, 1984 (paras.4.61-4.70). Finally,the missionhas providedsoe comments on a third issue - internationalinterconnections - which ultimatelyinvolves considerationswhich extend well beyond the confines of the energy sector (paras.4.71-4.73).

The L stC stExionProgm

4.54 With the construction of the Mtera hydroelectric project scheduledfor completionin 1988, there is no need for additionalgener- ating capacity in the main grid until 1992 at the earliest,as shown in Table 4.3. Nevertheless,detailed planning of the system beyond that date should proceed without delay, if sufficient lead time is to be allowed to develop the generation sourceswhich are shown to constitute the least-costsolution. As a broad indicationof a long-runstrategy for the developmentof the interconnectedsystem, the missionmade some preliminaryrough comparisonsbetween the main generationalternatives: gas turbines operating on natural gas; hydroelectricplant; coal-fired steam plant; and oil-fired diesels. The results - summarized in Table 4.4 - suggest that the most economic way of expandingthe main grid in the coming decade is to build a series of gas-firedplants in or around Dar-es-Salaau.

4.55 Gas turbinesusing naturalgas aS a fuel could produce electricity at a long-runaverage incrementalcost of USC3.3 to USC4.8 per kvh, with unit sizes ranging between 20 NW and 30 MW. These estimatedcosts are based on gas costs of US$0.95 or US$2.2 per mcf (para. 4.37). 67/ including depletionallowance. 68/ Gas turbinesappear to be the most appropriatetypes of generatingunits to use, at least initially,given the low cost of the gas and its relativeabundance. At a later stage, combined cycle plants could be installedto increasethe physicaleffi- ciency of the plants. However, to justifythe additionalinvestment, the economic value of gas would have to increase substantiallyover current levels.

67/ Delivered to Dar-es-Salaam.

68/ It should be noted that the financial costs of gas to TANESCOcould be higher because of the legitimate interestof the Covernmentto recover the initial exploration and developmentexpenses of the Songo Songo developmentas quickly as possible. Also, the very low cost of the gas gives rise to substantialresource rents which should be captured by the Government, rather than TAMESCO's customersonly. The issue of gas pricingto power and other markets is discussedin Chapter V. - 60 -

4.56 Potential hydroelectricplants - as representedby various sites (Table 2.2) are likely to have incrementalgenerating (plus transmission) costs of betweenUSc7 and USdlO per KWh, mare than double those from gas turbine plant., even if load growth followsthe "SAP" scenario. With lower growth, costs would be higher. Taking into account the lower costs of future expansion at Stigler's Gorge, averagegenerating costs are estimated to be about USC7.4/kWh,i.e. still some 55% higher than the most expensivegas option. Civen the very high initialcapital requirements of the Stigler'sCorge project or any of the other potentialsites in the Rufiji Basin, compared to gas turbine plants-- which could be convenientlystaged to fit demand growth (e.g. severalhundred million US dollars as against US$9 million) - their utilizationas the next addition to the system is unLikelyto be economicallyjustified.

4.57 Prefeasibilitystudies by consultantshave identifiedseveral hydroelectricplants in the 'JpperRufiji Basin (para 2.14). Their long- run average incrementalgenerating costs may well be lower than those of Stigler's Corge although the preliminarydata availablemake it impos- sible to arrive at firm estimates at this time. However, they involve long distances to the major load centers and they would require additional transmissionlines. The forthcomingpower sectormaster plan will help to firm up these cost estimatesand to rank these projectsrelative to otber alternatives.

4.58 Coal-fired plants in appropriatesizes to fit projected load growth are also unattractiveeconomically, with an estimated long-run average incrementalgenerating cost of USC9O6/kWh,even at the assumed low coal price of US$25/ton (para 2.29). This cost is at least double that of gas-fired plants and in addition the locationof a mine-mouth coal-firedplant would be disadvantageous(para. 4.77).

4.59 Existing diesel plants are more expensiveto operate than gas turbines using natural gas even if their capital costs are excluded from the analysis. The units at Ubungo would have operatingcosts of about USC5.8/kWh (after rehabilitation)using fuel oil, if a specific fuel consumptionof 0.25 kg/kWh could be achieved. At the current average TANESCO system fuel consumptionrates of 0.35 kg/kWh, the cost would be USC7.8/kWh. Similarly,existing diesel plants using gas oil would have operating costs of about USC10.7/kWhor UScl4.3/kWhwith specific fuel consumptionrates of 0.25 kg/kWh and 0.35 kg/kWh respectively.

4.60 Given the relative costs in Table 4.4, there is a clear case for using gas-firedplants as the next addition to system capacity. A further advantage of gas turbineswould be their proximityto the major load centers,which minimizesthreats from transmissionline failuresand simplifiesload managementprocedures (paras. 4.61; 4.77). Construction lead times, compared to hydroelectricor coal plants, would be drastically shorter and initial capital costs would be very low, even lower than those of diesel plants. - 61 -

Table 4.3: FORECASTSOF MAXIMIMDEMAND, ENERGY DEMAND, CAPACITY AND GENERATION IN THE INTERfONNECTEDSYSTEM, 1985-2000 ("SAP" Sconalrio")

Capacity (M14) Generation (Gh) - Max. Capacity Energy Demand Gas Reserve c/ Deand Gas Year (MW) Hydra Diesel Turbines Total (%) (GWH) Hydro Diesel Turbines

1985 155 244 97 a 15 356 130 884 884 - - 1986 178 n 136 - 380 113 1,015 1,015 - -

1987 192 " " i n 98 1,092 1,092 - - 1988 206 324 n n 457 122 1,175 1,175 - -

1989 222 133 " 454 105 1,264 1,264 - -

1990 239 i " n 472 97 1,362 1,362

1991 258 " " 11 83 1,467 1,467 - - 1992 278 " 113 n 452 63 1,581 1,510 - 71

1993 299 " 45 482 61 1,705 " 195

1994 317 it i 75 512 62 1,807 - " 297

1995 336 " 93 105 522 55 1,916 n n 406 1996 357 a 120 537 50 2,031 " 521

1997 378 " 70 150 544 44 2,153 " 643 1998 401 50 180 554 38 2,282 " n 772

1999 425 25 210 559 32 2,419 n n 909 2000 450 324 - 240 564 25 2,564 1,510 1,054 a/ Assumes 40 MVIrehabilitated capacity at Ubungo, plus availablefirm and comaitted new capacitiesat Dodoma, Iringa,Mbeya, Shinyanga, Singida and Tabora. bl Includes available firm and committed capacities at Musoma and t4wanza,minus 3 MW retirements. cl Reserve capacity margins remain high becauseof the existenceof large diesel plant spare capacityand the assumptionthat turbinesfired by lower-costnatural gas would be utilized instead. d/ Assumedto grow at 6% p.a. theruafter. Table 4.4: ESTIMATEDLONG-RUN AVERAGE INCiMENTAL GENERATING COSTS OF ALTERNATIVEPOWER PLANTS AT LOADCENTER

Hydra ExistingDiesel: ExistingDlesel: Oa Turbine (Stiglir'sGorge) vf Coal-Firod Category Gas-Oil Fuel-Oil Low / Highk/ Hlgh LoadGrowth - UltimateDevelopment 9/ Steamplant hl

Unitsize, MW 0,4-4,5 0.4-4,5 4 7.5 20 20 100 100 100 BasicCapital Costs 04 SA(W n,a, nea. n.a. ne,o 450 450 1,945 1,030 1,900 Constructiontime, Years n,a, n,a, n.a. n.a. I 1 7 ne,, 3 Interestduring Construction (101)S/kW n.a. n,.e n,.e n,o, 0 0 528 n.a. 196 TotalCapital Co5ts, S/kW W n.a. n.ea n.a. n,a, 450 450 2,473 n.e, 2,096 O.M.&R/Year,S of CapitalCosts n,a, n,a, n,a. n,a, 6 6 1 n,a. 5 tHeatRate, BTU/kW 14,000 10,000 14,000 10,000 12,000 12,000 - 10,000 LoadFactor, S d/ 50 so 50 50 50 61 n.a. 50 FuelCosts, SM3TU - 8,4 8,4 3,95 3,95 0.95 2,21 - - 1.51-/ UsefulLife, Years n,a, n.a. n.a. n.a. 15 15 50 50 30 AnnualCapital Costs $/kW n,, n.oa. n.oa. n.oa. 66 66 298 1 n.,a 260 N AnnualO.M.&R, S/kr 101t O 101c/ 101 c/ 27 27 25 n.a. 95 AnnualFuel Costs - $/kW 526 368 241 153 50 117 - - 66

AverageBus Bar Costs USf/kWh 14.3 10.7 7,8 5.8 3.3 4,8 10,6 7.4 9.6 a/ Includestransmission costs to existing grld. b/ IncludesInterest during construction. c/ Informationprovided by Ministryof Waterand Energy, d/ Includesdelivery costsg o/ Informationprovided by Minisiryof Water and Energy,adjusted to 1983prices. First stage400 MW only; subsequentphases would be less expensiveon a per MWbasis. f/ "SAP"scenario; 400 MW capacity;first year of operation1993, full capacity utilization by 2009. S/ Estimatedaverage unit costs with full development given projected load growth. h/ From TanzgniaPower Sector Study, February 1981, T/ 21,dx 10 BTU/Ton; S25/Ton, 1/ Gas costscorresponding to CaseVIl (seeAnnex 8). k/ Gas costscorresponding to Case 11 (seeAnnex 8). T/ Thereare some Indicationsthat some other hydrosites In the Upper RufIji Basin may have lower bus-bar costs, varying betweenUStS and US$6 per kWh. However,because of thelrgeographical location, additional transmission faciIlties would be neededto connectthem with the major loadcenters; this would Increase thelr costs, - 63 -

Reliability of Public Power Supply

4.61 The reliability of the interconnected system depends critically on a single-circuit 220-kv transmission line which connects Dar-es-Salaam with the Kidatu hydroelectric station over a distance of 300 km (para 1.19). TANESCO's operating experience with the line has not been satisfactory. The number of major line interruptions has varied from three to eight p.a. in the period 1975-1981. Problems have been caused by difficult access, extensive right-of-way clearing requirements, occasional bush-fires and corrosion. The section between Kidatu and Morogoro skirts the Mikumi National Park and the wild game pose a danger to the maintenance crew. The access roads are bad and require frequent repairs. Proper maintenance and monitoring are not possible due to the lack of suitable maintenance vehicles and equipment.

4.62 The reliability aspects of the 220-kV line have been studied by TANESCO and its consultants and various measures have been proposed to improve the line's operational behavior. While TANESCO does not need additional external help to maintain and operate its transmission lines, it does need equipment and materials. Furthermore, the reliability problem would be alleviated with the provision of an additional connection between Kidatu and Morogoro.

4.63 The 132-kV transmission lines and related transformer sub- stations also require extensive rehabilitation. Many elements of the network - such as lightning arrestors, circuit breakers and instrument transformers -- need replacement. The scope of the rehabilitation work will be determined as part of the rehabilitation study included in the Fourth Power Project.

4.64 If there is a failure in the transmission line from Kidatu or if there is a dry year prior to the completion of the Mtera hydroelectric project, the main support for the interconnected system would have to come from the Ubungo power station in Dar-es-Salaam. The station has eight diesel generating units and one gas turbine. The gas turbine and five diesel units are out of service while the remaining three diesel units are significantly derated; the available output of the Ubungo power station is consequently only about 10 MW out of the total installed capacity of 60 MW. If the Ubungo station is to play an effective role as a standby plant for the main grid, these units will need full recondition- ing.

4.65 SWECO prepared a rehabilitation study of the Ubungo power plant in 1981; the study proposed an emergency overhaul to protect the generating,units from further deterioration and to maintain them operational during the period of the main rehabilitation which would follow. The total cost for both overhauls was estimated at TSh 80 million (US$6.6 million). The Government of France has made a grant of US$5 million for the rehabilitation of the five French-built diesel units; the rehabilitation of the other diesels and the gas turbine will be financed under the Fourth Power Project (para.7.2). - 64 -

4.66 In view of the importanceof Ubungo as a standby plant, the mission confirms that it should be rehabilitatedand properlymaintained. Moreover, the mission also recommends that provision should be made to operate the units with natural gas in the event that the gas pipeline is constructedto Dar-es-Salaamand that natural gas suppliesbecome available after 1987 (para.4.51). Assuming that the 60 MW installedcapacity at Ubungo is fully rehabilitatedand completelyconverted to gas and the plant is used as a stand-byat about 20% plant factor,the UbungoStation would generate 100 GCh p.a., consuming 1.27 bcf of gas per year or an average of 3.48 mncfd. However, the economicsof gas use for generation and the proximityof the plant to consumersmight even justifythe policy of using the Ubungo station in base load generationduring the periods when hydro generationis not available,thus substantiallyincreasing gas consumption.

4.67 Reliabilityof power supplies to the main load centers would further benefit from rehabilitationof the three hydroelectricstations on the Pangani River. 691 A preliminarystudy has been carried out by MORAD, but a more detailed assessmentis necessaryand will be financed by Canada (CIDA) which is also funding a detailed evaluation of additionalhydro on the Pangani River.

4.68 TANESCO's distributionnetwork is suffering from a pervasive lack of spare parts, materials and service vehicles. Prolongedoutages, affecting vital areas such as the greater Dar es Salaam water supply system,are becomingmore and more frequent. The losses caused by these outages in terms of loss of production and sheer human suffering are massive and urgent action is required to improve the reliabilityof the system. Studies under the Mtera loan agreement and with Japanese assistanceare getting underway to assess the magnitude of the problems and to define appropriatecourses of action. A detailed rehabilitativn program for the distributionnetworks identifyingthe relative priority of the various needs, together with possible financing arrangements, needs to be defined.

4.69 The power stations in the isolated systems alL need urgent rehabilitation. Although the total installed capacity of the diesel units in these systems is about 56 MW, only 38 MW are presently available. About 50Z of the total installedcapacity in the isolated systems is at Mwanza (27 MW), of which only 8 NW are operational. While TANESCO intends to phase out most of these isolated stations by extending the main grid, work on interconnectionis unlikelyto be finishedin the next severalyears (para 1.20). Rehabilitationof serviceablediesel units is thereforeurgently needed (para. 7.2). The mission recomends technical assistance for the task, because local professionalresources are not adequate; some basic training in the maintenanceof diesel units is also

691 Hale (2 x 10.5 MW), Nyumba (2 x 4 MW) and Pangani Falls (3 x 2.5 MW and 2 x 5 MV). - 65 -

needed. The cost of rehabilitatingthe isolateddiesel units is around TSh250 million (US$20 million). The work could proceed in two stages: the initial stage would examine a number of larger isolated power stationsand produce a detailed rehabilitationprogram and related cost data; in the second stage, the rehabilitationworks would be undertaken under a rolling program determined by the availabilityof funds and of manpower resources. In this way, the various lending and cofinancing institutionscould periodicallyreview the progressof the rehabilitation work and determine whether further investmentis justified. Initially, the rehabilitationwork should concentrateon priority diesel stations which could be reconditionedwithout undue delay, e.g. Mwanza, Dodoma, Tabora and Mbeya.

4.70 The way in which the Mtera and Kidatu water reservoirs are operated also affects the reliabilityof the power supply in the interconnected system. The water management of these reservoirs has been studied by different consultants;their recommendationsand suggested operationalrules are not mutually consistent. The optimum use of the water reservoirsin the interconnectedsystem thereforerequires further critical review and clear operationalrules need to be formulated The mission proposes that TANESCO should obtain technicalassistance to hire an experiencedwater management consultant to: (a) review the studies already completed;(b) investigatepower supply reliabilityrequirements; (c) assess local climatic and geophysical characteristics;and (d) recommend the proper operationalstrategy and rules to be adopted by TANESCO in managing its water reservoirs(para. 7.2).

4.71 A third issue in the electricpower sectorwhich merits comment is that of internationalinterconnections. Generally,these serve two main purposes:greater economyin power generationand increasedreliabi- lity in power supply. During normal operation,generation facilities are shared, power interchangestake advantage of load diversityor available lower-costcapacity and scheduledoutages for maintenanceare staggered; lower overall operating costs should result and capital investmentsfor new stations can be deferred. During emergencies,the systems share spinning reserve capacity and thereby contribute to continuity of service.

4.72 In the case of Tanzania, three main opportunitiesoffer themselves. The first is the Kagera river basin development, which has been extensively studied by consultants but may not be required for a number of years (para. 2.18). Secondly, a limited interconnection with Uganda has been envisaged, which would import up to 15 KW of low-cost energy from Uganda to Bukoba in the extreme north-western part of Tanzania; this option is currently being studied by consultants with funding from the EEC (para. 1.20). The third option - and probably the most interesting - 66 -

-- is a major interconnectionwith Kenya. 70/ Such an interconnection could materially benefit the main Kenyan system, which faces limited energy resources and rising long-runmarginal cost; while theoretically making possible the ultimate developmentof the large Stigler's Gorge site or some other hydroelectricsites in the Upper Rufiji Basin at some later stage, when the incrementalpower demand of both countrieswould be large enough to absorb their output. Possible initial power import demands by Kenya (in the early 1990s) could range around 30-50 MW with 10-15 MW annual increments for the balance of the decade. Initial Tanzanian power exports, thereforewould have to start at a relatively modest level. Furthermore,any power exports from Tanzaniawould have to competeagainst potentialincreased power exports from Uganda.

4.73 In this context, various internationalorganizations and asso- ciations have been involved in establishingand promoting power system interconnectionsand their knowledgeand experiencecould be of value to Tanzania. For example, the UN EconomicCommissions for Europe and Latin America heve been active for more than 30 years in power system interconnectionsand their studies are sell documented. The Union for the Coordination of Production and Transmission of Electricity (UCPTE) similarly has broad experience in power interchanges in Europe. The mission recommends that TANESCO contact the regional UN Economic Commissionand UCPTE regardingthe scope and contentof a possibleinter- connection study as well as other activities needed to promote the establishment of interconnectionsbetween Tanzania and neighboring countries. Furthermore, in cooperationwith the Government,TANESCO should outline a specific action program concerning the feasibility, timingand evaluationof possiblefuture power system interconnections.

Coal

4.74 The central issue in the coal subsectorconcerns the probable future demand for coal taking into account: (a) the geographicalremote- ness of the coal-producingarea from most energy-consumingcenters; and (b) competitionfrom alternativefuels (paras.2.30; 4.78).

The TraditionalCoal Market

4.75 The traditional coal market holds, at best, only limited prospectsfor expansionin terms of its absolute size. In recent years, the tea estates constitutedthe largest outlet (Table 1.7) but they are consideringswitching from coal to fuelwood grown on their own plantations, for reasons of cost and reliability. However, they should remain

70/ A small-size33-kY interconnectionwas constructedmany years ago between Tanga and Mombassa. The line is no longer operationaland its status and conditionare not known. - 67 -

a firm although relatively static market through the rest of the 1980s, because of the long gestation period associated with fuelwood plantations. Until 1979, tobacco curing was the second largest outlet for coal; since then, the tobacco estates have discontinued coal use due to high transport costs and those costs can be expected to continue to inhibit the development of the tobacco curing market in the future, even granted the overalL scarcity of fuelwood. Since 1982, the Mbeya cement plant has become an important coal consumer, capable of consuming up to 60,000 tpy of coal. Its kilns are fitted to use both coal and fuel oil although it was hoped that the plant would run exclusively on indigenous coal. However, during the next three years it may be necessary for Mbeya cement to use fuel oil or coal imported from Zambia in view of the expected short-term constraints on the supply of domestic coal (TabLe 2.4). Finally, the coal industry is unlikely to be able to look towards households and rural industries to absorb significant additional coal quantities. At least within close proximity to the coal mine, coal is competitive with charcoal in terms of price (TSh 40 per 100 kg for coal compared with TSh 130 per 100 kg for charcoal); but price is not the only factor in consumer choice. For cooking, coal has roughly the same heating value as charcoal but it is smokey and much denser; also, the types of cooking stoves and pots used by households are not suitable for coal burring. Coal distribution facilities are inadequate and there is insufficient awareness of coal usage techniques. Therefore, it is unlikely that local households and small enterprises will greatly increase their consumption of coal in the short-term without an intensive coal promotion effort and the provision of suitable cooking equipment - unless charcoal prices increase sharply due to scarcity. Granted the modest potential for an increase in household coal consumption, such efforts may not be economically justified at present and may be better applied towards improving the efficiency of the traditional charcoal "Jiko" (paras. 5.31- 5.33).

Electric Power Generation

4.76 Looking at the possibilities for finding new markets for coal, power generation would make the greatest impact. Tanzanian coal appears to be technically suitable for use in power generation and TANESCO has shown a clear interest in constructing a 100 MW mine-mouth coal-fired power station capable of consuming up to 350,000 tpy, perhaps as the next additional increment of generating capacity after the Mtera hydropower plant. Expected benefits were: (a) low anticipated production costs; (b) low construction costs for transmission lines, since the interconnected grid is expected to reach Mbeya by 1986; and (c) reduced vulner- ability of the present hydro-dominated power system in years of drought.

4.77 However, two recent developments have to be considered. First, the mission's projections for electrical Load growth indicate that no extra generating capacity will be required in Tanzania before 1992, even under the "SAP" scenario (para. 4.54). SecondLy, the recent discoveries of natural gas seriously reduce the economic attractiveness of coal for power generation. Average generating costs for gas-fired plants are - 68 -

estimatedby the mission at about USc4.l/kwh,compared to average generating cost of USC8.4kwhfor a coal-firedplant, even at a coal cost of US$25 per ton. Other comparativedisadvantages of a coal-firedplant are: (a) the Longer constructionperiod; (b) higher initial capital costs; and (c) a higher risk of transmissionline failuresand more complex load management procedures (due to the relative remoteness of a mine-mouthplant from the major load centers). Although a coal-fired plant should certainly be included among the alternativesto be considered by the long-termpower generationstudy being preparedunder the Fourth Power Project,the missionconcludes that a coal-firedpower plant is unlikely to be the next incrementof thermal generatingcapacity in Tanzania(para. 4.55; 4.58).

The IndustrialMarket

4.78 If it is confirmedthat power generationholds no prospectas a market for coal in the foreseeablefuture, the only other single large domesticmarket would be in the industrialsector. This market is clearly more uncertainthan that for power generation,given the present low utilization of industrial capacity (30Z-35Z); it is also much more dispersedgeographically, given the locationof the industrieswhich in principle are most suited for coal utilization. The Mufindi Pulp and Paper Mill has boilers which can use either coal or fuel oil but it has recently decided to modify its boilers further to consume tuelwood becauseof the anticipatedshort-term supply constraintfor domesticcoal and the di"'icultlogistics and high cost of importedcoal or oil (paras. 2.29; 4.87; 4.103). It remains to be seen whether the mill will switch to domestic coal, when the latter becomes available in sufficientquan- tities. A recent study recoamendedthat the cement plants at Wazo Hill (in Dar-es-Salaam)and at Tanga convert to coal use instead of fuel oil. 711 However, indigenouscoal in its unwashedform is not suitable for irazoHill; beneficiationwould be necessaryand there is insufficient knowledge about the coal quality characteristicsto determine whether beneficiationof indigenouscoal would be a worthwhileventure. Although the Tanga factory can accept unwashed indigenouscoal, the difficult logistics of transhipmentfrom TAZARA to TRC are a negating factor. 72/ Other identified potential users include the brick-makingindustry at Dodoma and the textileindustry around Mwanza-- in the north-eastof the country - but, here again the logisticsfactor and high transportcosts presentproblems (paras.4.82-4.86).

71/ "Conversionfrom oil -to coal firing at Wazo Hill and Tanga Cement Factories"by NORCEM engineeringCo., 1982.

72/ Therefore, NORCEM has recommended the use of imported coal from Mozambiquefor Wazo Hill and Tanga. - 69 -

The Coal Export Market

4.79 Finally, in view of the bleak prospectsfor the domestic coal market, the possibilityof coal exports needs to be considered. On a regional basis, preliminaryanalysis does not indicate a secure market for Tanzaniancoal. Malawi, the nearest neighbor to the coalfieldarea, already imports coal of similar quality through established transport channels from Mozambique,South Africa and Zimbabwe. Zambia also pro- duces its own coal. Uganda and Kenya are not significantcoal consumers at present,although the latter is preparinga study to investigateits potentialfor a major coal-conversionexercise.

4.80 On the internationalfront, established producers such as Australiaoffer better qualitycoal at more competitiveprices (currently US$46.0 per ton f.o.b.). Although some price projectionsindicate an average f.o.b. price of US$56.0 per ton by 1995, 73/ Tanzania'sability to produce competitivecoal will depend very much on its ability to minimize the costs involved in production,transport, storage and handling. 74/ Other factors to be considered include the future levels of economic activity in major coal-importingcountries -- such as Western Europe and Japan - and whetherfuture oil price increaseswill stimulate a move towardsmore coal utilizationin power generation.

4.81 Two particularfactors have been touchedupon in the preceding paragraphs in discussing the demand for coal: ti) the reliability of supply; and (ii) price competitionin the industrialmarket from alternative fuels. It is worth consideringthese two factorsin more detail.

Reliabilityof Coal Supply

4.82 The transport sector would play a major role in assuring the reliabilityof coal suppliesto potentialusers since the coalfieldsare relativelyremote from major industrialcenters, with the ezception of Mbeya. There are several constraintsto be overcome. First, shortages of foreign exchange and import restrictionshave caused a shortage of spare parts and replacementsfor both the truckingand the railway subsectors. This has resulted in low operationalefficiency and uncertain delivery schedules all over the country. Therefore any large-scale transportationof coal will require close cooperationbetween the mine officials and the transport sector - as well as capital investmentin trucking capacity, extra locomotive power and special bulk wagons. Secondly, the high cost of petroleum products is reflected in high transport costs, especiallyfor the trucking subsector. Consequently,

73/ These prices are expressedin constant1981 price levels.

741 The SouthernAfrica DevelopmentCoordination Conference (SADCC) is preparinga project in this context for its member countries as a whole. - 70 -

any shipment of coal to destinationsfurther than Mbeya would have to rely primarilyon the railwaysand on TAZARA in particular. Thirdly, the railwaynetworks are such that TAZARA serves only Mbeya and Dar-es-Salaam out of the major industrialcenters, while the other main centers are served by TRC (which has even more operatingproblems than TAZARA). The only interfacebetween the two railway systems occurs at Kidatu and Dar- es-Salaam; thus any consignmentsof coal to the northern and central regionswould imply investmentin intermediatestorage and trans-shipment handling facilitiesat either interfaceas well as a greatly increased risk of delayed deliveries. For example, coal utilizationat Dodoma brick works would requirea 600 km journeyvia TAZARA; trans-shipmentand the likelihoodof intermediatestorage at Kidatu; plus another 400-500 km by TRC.

The DeliveredCost of Coal

4.83 In assessingthe competitiveposition of coal relativeto other fueLs in the industrialmarket, four principal elements need to be examined: (a) ez-mine productioncosts; (b) bulk transport costs, i.e. from the mine to a bulk delivery point; (c) local distributioncosts, i.e. handling, storage and transport at and beyond the bulk delivery point; and (d) conversioncosts in the case of consumerswhose equipment is based on alternativefuels. The main competing fuels with domestic coal in the industrialmarket are fuel oil, importedcoal, and -- in the future in Dar-es-Salaam -- natural gas.

4.84 The precise level of ex-mine production costs which will prevail at each of the three potentialmine sites can not yet be determined but it was concludedin para. 2.29 that the lowest range is likely to be US$25-30per ton. Bulk transportcosts will in most instancesbe a much more significantcomponent of the final delivered cost; hence the mission has made a preliminaryrough estimateof bulk transportcosts and the correspondingdelivered cost for three significant destinations: Mbeya, Mufindi and Dar-es-Salaam;all lie on the TAZAkA line. Cor- respondingestimates were made of the delivered cost of fuel oil to the same three destinations. The detailedcalculations are in Annex 11 for two cases, one making more pessimisticassumptions then the other about productioncosts per ton and transportcosts per ton-km. Table 4.5 sum- marizes the resultsand expressesthe cost of coaL (per toe) delivered to a bulk delivery point in the three destinationsas a percentageof the deliveredcost of fuel oil (per toe).

Table 4.5: COAL COST AS PERCENTAGEOF OIL COST IN TOE

Destination "Pessimistic" "Optimistic" Case Case Mbeya 32 29 Mufindi 58 55 Dar-es-Salaam 97 80 - 71 -

4.85 In the absenceof new plant installationsspecifically designed for coal utilization,such as Mbeya Cement Plant or Mufindi Pulp and Paper MiLl, capital outlays with a foreign exchange component will be necessary for new coal-handlingand storage facilitiesas well as for boiler conversion. Cenerally,the capital and operatingcosts of coal- fired boilers are higher than those of oil-fired boilers and to that extent the deliveredcost of coal should be substantiallylower than that of fuel oil. Althoughonly a careful study on a plant-by-plantbasis can determine the exact relationshipsinvolved, the mission believes that coal is not likely to be competitivewith fuel oil if its deliveredcost at the bulk supply point exceeds 70Z of that of fuel oil on an oil equivalent basis. 75| If so, coal is not presentlycompetitive with fuel oil in Dar-es-Salaaam.Probably, the utilizationof coal for industrialpurposes should not be undertakenat locationsmuch further than 300 km from the coal-producingarea (Annex 11). If internationaloil prices rise at a faster rate than those of coal, Tanzanian coal would become more attractiveat destinationsfurther from the coal fields. According to current price projections,the f.o.b. price of crude oil in 1995 will be about US$39 per barrel -- expressed at 1981 price levels -- an increase of 33Z over the present price of US$28.7. 76/ Such an occurrencewould enhancethe viabilityof conversionto coal for industrialconsumers.

4.86 However, by that time natural gas is likely to have penetrated the Dar-es-Salaammarket at a cost which is even lower than the present cost of fuel oil in constant price terms. According to mission estimates,the average gas supply cost (includingfinal distributionand connection/conversioncosts) is not expected to be higher than US$90.3 per toe and may be as low as US$37.3 per toe - dependingon potential demand for gas in Dar-es-Salaamand on gas supply system chosen. 77/ This is substantiallybelow "optimistic"bulk delivery estimates for indigenouscoal in Dar-es-Salaamof US$116.0per toe, and the opportunity cost of fuel oil US$145.7 per toe (Annex 11).

4.87 Although imported coal would be competive with fuel oil for Wazo Hill cement plant in Dar-es-Salaam,it is not competitivewith natural gas (cost of Mozambique coal c.i.f. Dar-es-Salsam is about US$117.0 per toe). Inland, imported coal faces the same transportprob- lems and costs per ton-km as domestic coal. Therefore potential for imported coal is presently confined to coastal industriesthat are not situatedin Dar-es-Salaame.g. Tanga Cement Plant (para.4.78).

75t Cement plants are a notable exception in that they would incur much lower conversioncosts than other plants.

76/ World Bank projections,July 1983.

77/ Gas supply costs will vary according to anticipateddemand and type of gas supply system chosen, as discussed in paras. 4.29; 4.31 and Annexes 6 and 7. - 72 -

4.88 In view of these limitations on the potential market for coal in the foreseeable future outside the Mbeya area, the coal subsector could only be expected to play any significant role in the national energy sector in the long term. However, two studies are recomuended. Since the market prospects for coal are very sensitive to its deliverec cost, the first would examine the economic costs of delivering coal to the principal markets and consumers, in order to determine the economic limits on coal distribution beyond the Mbeya area. The second would examine carefully the market within the Mbeya area, to identify realis- tically the potential demand among industrial, commercial and household consumers, taking into account the costs of converting from other fuels (such as fuel oil and fuelwood). Furthermore, the IDA Coal Engineering Credit (para. 2.23) should proceed as there is a need to appraise further the Songwe-Kivira field to obtain a better idea of potential production costs. Following these studies, the economic potential for coal development can be further clarified.

Fuelwood

4.89 In Chapter II, it was estimated that there are about 44 million hectares of miombo forestland, village woodlots and in ustrial plantations with a potential production of perhaps 20 million m p.a. Bowever, the Forestry Department estimates that only 80% of the miombo forestland is accessible, so that the total supply of fuelvood on a sustainable basis is only about 16.0 million m . Accordifg to Table 3.4, the estimated annual demand in 1981 was 39.2 million m , i.e. nearly two and one- half times the mean annual increment (MAI). The difference between annual consumption and the MAI represents overcutting and resulted in a loss of more than 23 million m3 from the nation's forest capital in 1981 alone. In a non-project scenario,the current exploitation reduces the productivity ofthe natural forest by 1.8%. Given an annual population growth rate of 3.32, the sustainable output of the natural forest could shrink to 75Z of its current output by the end of the century. The problem is further aggravated by competing claims on the land for agriculture and livestock, since widespread use of cattle dung and agricultural residue depletes the agricultural soils and more land would be required to produce the same amount of food.

4.90 Although global figures of this kind can be misleading, in the sense that the distribution of forest resources does not coincide with the distribution of population, Table 4.6 shows that overcutting is taking place in 17 of the 20 regions of Tanzania. According to Chapter III, assuming a continuation of the present levels of per capita consumption, population growth can be expected to increase the demand for fuelwood by about 40X over the coming decade and by more than 50% through 1996; meanwhile, in the absence of vigorous new initiatives, overcutting will increase and the MAI will progressively decline, with severe consequences for future fuelwood supply and for Tanzania's ecological balance. - 73 -

Table 4.6: POPULATIONAND FUBLWOODSUPPLY, DEMAND AND DEFICIT,1981

Population Supply Demand Deficit (103) (103 m3) (103 m3) (103 m3)

Mwanza 1,585 117 3,176 3,059 Mara 782 114 1,567 1,453 Kilimanjaro 1,002 109 2,004 1,895 Mtwara 812 215 1,627 1,412 Kagera 1,167 240 2,339 2,099 Tanga 1,121 493 2,256 1,763 Shinyanga 1,504 592 3,024 2,432 Pwani 533 464 1,085 621 Arusha 1,069 606 2,141 1,535 Dodoma 1,064 718 2,132 1,414 Iringa 1,001 1,183 2,076 893 Mbeya 1,205 1,334 2,480 1,146 Kigoma 713 704 1,428 724 Morogoro 1,024 1,096 2,052 956 Tabora 973 1,768 2,340 572 Ruvuma 629 1,300 1,420 120 Rukwa 535 1,486 1,1O0 (385) Singida 670 1,403 1,348 (55) Lindi 553 1,650 1,112 (538) Dar-es-Salaam 1,195 1 2,395 2,394

Total 19,137 15,593 39,103 23,510

Note: The fuelwood figuresare in terms of roundwoodequivalent and are taken from Annex 2 (Demand)and Annex 3 (Supply). The 1981 supply is equated with the mean annual increment. Figures in parenthesis in the "deficit"column representa surplus.

4.91 Given limited funds and manpower resources, time constraints (rotationtakes five to seven years) and the high costs of estabLishing fuelwood plantations,it is unlikely that Tanzaniawould be able to meet its fulwood demand by plantationsalone. The total deficit of 23 million m (para.4.89) would requireplantations of 1.3 miLlionha in rural areas and 250,000 ha near the cities. Over a period of 20 years, this represents an annual plantationprogram of 75,000 ha. In light of the current plantation activities of only 6,200 ha p.a. for the entire country, the mission believes that Tanzania is not prepared for such a large program. Hence, the mission recommendssetting up gradually the educational,organizational and financial structurewhich is necessary before wood productioncan be increasedto the requiredlevel.

4.92 Forestry research in Tanzania - as elsewhere -- has not yet been able to deveLop appropriate Low-cost planting or reproduction - 74 -

systems, agro-forestry schemes and satisfactorymanagement of natural forests. Worldwideefforts are now underwayand it is likely that in the near future cost-efficientand ecologicallysound technicalpackages for fuelvood can be offered. The mission recommendsthat Tanzania parti- cipate in these research efforts, which should also be supported by specific training programs. Research should focus on increasingbiomass production in plantations,agro-forestry schemes and natural forests by developing: (a) faster reproduction; (b) better genetic selection; (c) cloning; (d) tissue cultivation;and (e) improvedsilvicultural management, such as optimal spacing, thinnings and timing for harvesting. Training should: (a) equip staff to carry out local adoption trials and an expedient applicationof research results; and (b) be improved to enable the technical,operational and managerialstaff to handle the new kind and the larger size of the task.

4.93 In parallelwith these efforts, the mission recommendsthat the Covernment improve the organizationand implementationof fuelwood production schemes based on the current state of the art. Two main initiatives must be stronglyencouraged:

(a) first, although overcuttingis reducingsteadily the extent of the miombo forests, it should be recognized that they will remain the chief source of fuelwood supply for many years to come and in consequencetheir productivityshould be increased. The Forestry Directorateof MNgT estimates the MUI of miombo forest to be in the range 0.5 m to 1.0 m of solid wood, which is equivalent to a growth rate of only 1X-2Z p.a. There is evidence that, with proper silviculturalmanagement, output could be doubled on a sustainedbasis. For examole,while the miombo forests represent the best balanced botanical associa- tion of tree species, some reduction in the number of tree species may be warranted to support the most productivetypes; also, enrichment plantings with fast-growingspecies and the introductionof cutting cycles would help to maximize the wood productionof certain key species.However, existing knowledge of the growth dynamics and productivityof the miombo forests is limited; more research into increasing the MAI is recommended (e.g. through improved silviculturalmanagement practices, protectionof the resourcea*d controlof cutting within the MAI). Furthermore,efforts should be made to increase the accessibilityof the miombo forestsbeyond the present level of about FtOZ(para. 7.14);

(b) secondly,the village woodlot program, in contrast to the communal woodlots, appears to have achieved some limited success in recent years although little support was provided by an inadequately staffed end underfunded extension service. 78/

781 The response to communal woodlots was disappointingand will no longer be pursuedon a national scale. - 75 -

The Governmentwas able to distributenearly 80 million seedlings over a period of 8 years concentrating on individual farmers,villagers and schools. As a result of the favorable responseof farmers, the Governmenthas recentlyestablished a Village AfforestationDivision (para.6.20) wbich will increase seedlingproduction and extensionefforts. Although the basic administrativeinfrastructure is now in place for a rural woodlot program the mission believes that the farmerswould do much better if the following support could be provided: (a) improved technicalpackages with better adapted genetical material for maximizingwood production;(b) inclusionof nitrogen fixing trees into the farming systems; (c) integratingexten- sion for fuelwoodand agro-forestryinto the agriculturalex- tension service. Forestry specialistinput should be provided by subject matter specialists for agricultural extension. Assuming that 0.5 ha would provide 8 m of wood per year on a sustainedyield basis for a family of 5, as little as TSh6O (for tools) and about 25-27 man/days (for establishmentand maintenance)would be required. However, with the current methods and productivityof speciesnow used, the rural areas would need to plant more than 100 million seedlings per year over a twenty-yearperiod. Seedling production costs alone would amount to TSh6O million.

4.94 In contrast to the rural areas, cities require large-scale plantation blocks in their close v .cinity. It is estimated that the currenturban deficitis 4 millionmi p.a. which would require 250,000ha of plantations.A 20 year programwould require an annual investment of at least TSh 94 million.

4.95 There appears to be a need for an improved strategyof revenue collection,higher fees, and an increasedinvestment in revenue collectors. The mission recommends:(a) that a study be conductedof revenue collectionpractices by both Governmentand local authoritiesto recon- mend improvements in methods and control and distribution of staff; (b) that the fees for wood be raised from the current level of about TSh6.4 per m3 for wood from natural forests and TSh2.9 per 3 for wood from plantationsto the replacementvalue of about TSh60 per m (the rate at which this can be done will depend on the rate at which better control of the resourcecan be achieved)and that during this period market wood prices in urban areas be carefully monitored; (c) that a substantial increase in budgetaryallocations by Treasury for forest guards/revenue collectorsbe voted to reduce access to free wood in Covernment Reserve areas.

4.96 As explained in paras 4.92-4.93above, a program for rural and urban plantationswould cost about TShi54 million p.a. This seems hardly realistic, given the annual budget of TSh3O million for the Village AfforestationDivision and the fact that already more than 95% of the total developmentand recurrentbudget of the ForestryDirectorate as a whole is financed by foreign assistance. Nevertheless, the mission - 76 -

believes that, given the fuelwood crisis which would indirectly affect health and nutrition, a case could be made for greatly increasing the budget of the Village Afforestation Division, if foreign aid covers at least 95Z of the rural and urban afforestationcost over the next five years.

4.97 Therefore the mission proposes a first-phaseprogram which would strengthenand increase the productionand distributionof seedlings and include research,training, studies, improved extension, price manipulation,legislation, silvicultural management of natural forests and a comparativelymodest plantationprogram. Such a program would lay the groundworkfor a comprehensivesecond-phase fuelwood program in the early 1990s and shouldbe carefullyattuned with other prioritiesin the forestrysector. Studies(covering land capability,forest inventoryand revenuecoLlection), a researchprogram (yet to be defined in detail) and trainingprograms would cost in the order of TSh200 million. Other components whose cost has not yet been quantifiedshould be (a) evaluation of potential charcoal and/or biomass briquettingin regions with under- utilized forests to supplyurban markets; (b) productionand distribution of improved charcoal stoves; and (c) associated institutionalarrangements (paras. 5.25-5.33). The afforestationprogram, while modest, is realistic, given the existing financial and manpower resource constraints. It consists of two components. First, a rural woodlot component starting with the production and distribution of 10 million seedlingsp.a. and reachinga level of 30 million seedlingsby year 5, which would have a baselinecost of TSh7O million for those years. 79/ The second component would deal with plantations for urban supply of fuelwoodand charcoal; planting could start with 1,500ha in the first year and reach 7,500 ha in year 5. The baseline cost for five years would be TSh170 million (para 7.4).

NonconventionalEnergy

4.98 The net availabilityof surplussoftwood, logging residues and wood processingwastes should amount to at least 23,000 toe annually in the coming decade,even under very conservativeassumptions (para. 2.35). In addition,coconut residues(shells, husks and stems) could contribute 50,000-60,000toe p.a (para. 2.36). While these energy resources are often remote from the main populationcenters and they could contribute only a very smaLl percentageto the gross energy supply, 80/ a program for their exploitationis worth pursuing since they would substitute directlyfor fuelwoodand importedpetroleum products -- notably gas oil.

79/ This includesfunds for research,development and improvementof the technical package for maximizing the biomass productionand for an expandedextension service.

80/ Less than 1Z of even the 1981 gross energy supply. - 77 -

4.99 In the vicinitiesaround the supply sources,e.g., in a coconut processingarea, the use of residues as a supplementalcooking fuel is already likely to be practicedto some extent;efforts should be directed towards substantiallyexpanding the quantity and modes of usage. For other areas, the main constraintto substitutionwill be transportcosts. The focus of the program should therefore be towards the conversionof residues into charcoaland the developmentof a distributionsystem for the product. The mission supportsthe recommendationswhich have already been made along these lines by SIDA to: (a) conduct energy market studies in five areas with the largest projected softwood surplus 81/; (b) identify appropriatemethods for making charcoal and briquets from residuesand for distributingthe fuels to specificmarkets; and (c) conduct a comprehensivestudy of the resources potential,conversion techniques and marketsfor coconut industryresidues (para.2.36).

4.100 Attention should also be focussed on the possibilities for utilizingwoodwastes and crop processingresidues right in the industries where they are producedas replacementsfor gas oil consumption(paras. 2.35-2.38). The second priority should be given to the exploitationof surplus softwood and logging residues which, for transportreasons, would be a more expensive fuel than mill residues. In terms of available technologies,direct combustionsystems using stean are well-provenand should generally be considered for applications above 500 kw. For applicationsbeLow 500 kW, as in small sawmills,gasifiers may be a more economical option. While gasifiers are commercially available from several sources,the technologyis not as well proven as that involved in conventionalsteam systems. Moreover,wood, wood charcoal and cc-onut- shell charcoal are the only biomass fuels that are known to work well with present equipment. Hence, any conversionprogram involving gasifiers must be precededby a demonstrationphase aimed not only at fami- liarizing end-userswith the technologybut also at developing trained manpower for maintenancework. In the initialphase, it would be prudent to limit fuel use to charcoal only. Despite energy losses in carboni- zation, charcoalis a much easier fuel to employ in gasifiers (primarily due to simpler gas cleaning requirements),thus reducing the risk of failureof any conversionproject.

4.101 in this respect, the mission supports a SIDA/TWICO project which was started in late 1982. The project is intended to demonstrate the use of biomass power gasifiers for sawmills and small rural power applications. A 10-25 kVA charcoal-fedgasifier imported from Sweden is being instalLedat Arusha FibreboardLtd. for testing. Although the main focus of the gasificationproject is the conversionof diesel engines in TWICO sawmillsto dual-fuel operation,it is planned to look as well at opportunitiesto apply the technologyto small-scaleirrigation and the electrificationof remote rural areas.

81/ Buhindi-Rubya-Rubare;Meru-Kilimanjaro-Usa; Shume-Magamba; Kwatere- Kiwira;and Ukaguru. - 78 -

4.102 Unlike stationarypower gasifiers,gasifiers for vehicles are not viewed by the mission as an applicationthat could become practical for Tanzania in the near term, except possibLy for lorries used for transportingcharcoal from forest sources to urban markets. In this instance,transport fuel availabilitycoincides with the need to haul the products.

4.103 For direct combustion,efforts should be made to identifyother conversion opportuntiessimilar to those in the Mufindi Pulp and Paper Mill (para. 4.78). A recently approved Bank project will finance the conversionof the power boiler at the Mill, which was originallydesigned to use coal and oil, to enable it to use wood and loggingwastes. 82/ At full operyting capacity in 1988, the boiler would be utilizing some 250,000 m /yr of softwood and wood residues from the Sao Hill plantations. FinaLly, biomass resources may become economic fuel options for electrifyingsome remote rural -areasof the country. For Ukerewe Island off Mwanza, the governmentplans to determinethe feasibilityof utilizing softwood from the Rubya plantationsto generate electricity. Preli- minary estimates indicate the availabilityof enough surplus pulpwood in the area to sustain up to 3 MW. The delivered cost of diesel in the island exceeds TSh 10,000 per ton (early 1983). The remoteness of the Island from the main grid combined with the availabilityof surplus softwood in existing plantationsin the site may make the dendrothermal power option economic. In the mainland, however, the proximity of most rural areas to the main grid and the need to estabLish short-rotation fuelwood plantationsto provide sustainedwood supply to the power plant would very likely make dendrothermalelectricity a more costly alternative than natural gas or hydroelectricpower.

4.104 The German agency GTZ appears to be involved with TANESCO and Mafia Coconut Ltd. in a planned feasibilitystudy to convert the TANESCO generatingstation at Mafia Island from diesel to producergas, using the coconut residues which abound on the island. Some 10,000 tons of residues are believed to be available on an annual basis, in principle sufficientto meet the total energy demand of the island. Similar plans have been discussedfor Pemba Island and Zanzibar but these appear to be in an even earlier stage than the Mafia study. These plans, while worth pursuing, must be carefully evaluated in conjunctionwith the future development of large-scale alternative energy supply sources in the vicinity, such as natuiralgas.

4.105 Chapter II concluded that the theoreticalenergy potentialof animal wastes is considerable,i.e. in excess of 46,000 toe p.a (para. 2.39). Such wastes, if converted to biogas, could substitutefor firewood for cooking in areas with a high concentrationof cattle. Probably the major constraint on the wider use of biogas is the high capital

82/ IDA Credit No. 875-TA, Mufindi Pulp and Paper Mill - Technical Assistanceand Energy ConversionProject. - 79 -

investmentrequired. In Tanzania'scase, there is also a high foreign exchange requirementfor importing the steel needed for fabricatinggas holders. SIDO gobar gas plants ranged in cost from TSh5,400for a unit with 2 m3 capacity to TSh35,000for a unit of 20 m3 in 1980. The current pjice rangjeis TShl6,200-112,500for installationswith a capacity of 1 m to 45 m . At present prices (as shown in Tabl 4.7), the cost per thousand useful kilocaloriesof biogas from a 3 m family-sizedplant would be. around TSh4.4, excluding operating and waste disposal costs, compared with TSh3.6 for wood used in traditionalstoves, TSh2.9 for charcoal used in unimproved"Jikos" and TSh1.8for kerosene boughtat the official rate of TSh4.75 per liter. Cooking costs with biogas become competitivewith fuelwoodonly at digester sizes well above 10 m3. The present emphasis, therefore, on institutionalinstallations is well placed, although future installationsshould aim at higher capacities. More efforts should also be directed towards identifyingsuitable applications of biogas for productiverather than consumptivepurposes, e.g. running engines.

4.106 From the discussion in Chapter II, it is seen that there is limited scope for residuesgenerated from the cashewnut,maize and sugar industriesto contributeto national energy supplies. The conversionof cashewnut residues to bricquetted charcoal in a proposed factory wiLl result in a costly fuel suitableonly for export; the use of maize cobs for village grindingmills has not proved economic;capital investment in the sugar industry to generate surplus electricity from bagasse is unlikely to be justified;and a project to produce power alcohol from molasses by-producthas been shelveddue to its marginalviability (para. 2.37-2.38;2.40-2.41).

4.107 For solar and wind energy, the immediate applicationsare likely to be limited to the areas of solar water heating and wind pumping (water supply). The objective should be a substantialexpansion in the number of these modest but proven applicationsrather than expand re- sourceson highly experimentalones. Researchshould be orientedtowards defining feasibilityin specificsites and in adapting availablehardware rather than conducting broad technology studies. With regard to geothermalenergy and Tanzania's possible uranium deposits, the mission envisagesno economic case for their developmentto serve domesticenergy needs in the foreseeablefuture (para 2.42-2.43).

Conclusions

CommercialEnerg

4.108 The mission has quantified the impact of implementingthe various supply and inter-fuel substitutionoptions for the commercial energy subsectors which have been discussed in Chapter IV. The 'SAP" scenario is taken as the basis for projectionsof commercial energy demand, using the years 1986, 1991 and 1996 as referencepoints. Final - 80 -

demands for total commercialenergy and the split betweenelectricity and other commercialenergy are from Table 3.5.

4.109 Commercial energy demand other than electricitywould be met from coal, petroleum products and natural gas. Illustrativematerial balances for the petroleum subsector are set out in Table 4.8. The followingassumptions are used in constructingthe Table:

(a) given the limited role seen for coal, provisionsof 17,29 and 36 thousand toe for coal supply in 1986, 1991 and 1996 respectively would be ample to satisfy demand 83/; suppliesof that order could easily be made availablewithin the present plans for expansion at the Ilima coLliery and the proposed mine at Ivogo Ridge; hence, the final demands to be met from petroleum products and gas in 1.986,1991 and 1996 would be (in thousands of toe): 762, 1007, and 1383 respectively;

(b) these final demands can be converted to petroleum product equivalents using typical relative market shares for the differentproducts observed in the recent past 84/;

(c) the refinery processes 750,000 tpy of crude of a type optimal for the TIPER facilities and the various measures to improve efficiencyidentified in para. 4.15 are implemented;

(d) natural gas becomes availableafter 1986 but before 1991;

(e) industrial gas demand substitutesfor gas oil, IDO and fuel oil, according to the quantities identified in para. 4.33 and Annex 10; and

(f) no provisionis made for CNG/LNC use in transport.

4.110 Electricitydemands in the interconnectedsystem are assumed to be met entirely from hydroelectricsources and gas-firedplant throughout the projection period (Tables 4.2 and 4.3). Consequently,petroleum products -- in the form of gas oil and IDO -- are required only to operate the diesels in the isolated systems, according to the demand projections in Table 3.3. The correspondingconsumption of gas oil/ industrial diesel oil is added to the requirementsfor final petroleum products' consumption in Table 4.8, assuming that diesel plants in the isolated systems are rehabilitatedas proposed in para. 4.69.

83/ The increasesare primarilyto provide for the Mbaya Cement Plant.

84/ Before significantconstraints on the supply of specific products took effect. - 81 -

Table 4.7: COMPARATIVECOOKINS COSTS

Kcal End-Use Fuel Unit Cost per Unit Efficiency Cost

(TSh per unit) % (TSh per 103 kcal)

Wood kg 1 3,500 (traditionalstove) 8 3.6 (improved stove) 15 1.9

Charcoal kg 4 7,000 (traditionalstove) 20 2.9 (improvedstove) 30 1.9

Kerosene 1 8,000 30 (official price) 4.75 1.8 (black market price) 10 3.8

Biogas m3 5,400 50 (3 X ssize) 11.8 4.4 (45 *3 size) 4.4 1.6

LPG kg 5.65 10,800 50 1.1

Electricity kWh 0.75 860 70 1.25

Notes: 1. Firewood prices are the average for Dar-es-Salaam; prices are lower in village markets.

2. For biogas, the following assumptions are used: capital cost at 3 m3 capacity- TSh2O,000; at 45 mn capacity-TSh112,500;gasholder - 35% of cost, replaced every 10 years; pipelines and accessories - 30% of cost, replaced every 15 years; digester Iifetime - 30 years; 0 & M - 5% of cost/yr; discount rate - 12%; cattle dung - 45 I gas/kg fresh dung; retention time 50 days; ratio: 1:1; 360 days/yr.

3. The residential electricity tariff has been used, with consumption over 100 kWn per month. - 82 -

Table 4.8: PETROLELRMSUBSECTOR MATERIAL BALANCES: 1986, 1991, 1996 (Petroleum Product Equivalents In 103 toe)

LPG, Av, Gas, Gaso- Gas Industrial Fuel Total Product Kerosene, Jet line Oil Diesel Oil Oil Equivalent

1986 Final Consumption 152 130 282 61 137 762 Refinery Production 99 146 153 58 253 709 Deficit (Surplus) 53 (16) 129 3 (116) 53 Gas Substitution _ - - - - _

Deficit (Surplus) 53 (16) 129 3 (116) 53 Electricity Generation - - - 8 - 8 Imports (Exports) 53 (16) 129 11 (116) 61

1991 Final Consumption 201 171 373 81 181 1,007 Refinery Production 99 146 153 58 253 709 Deficit (Surplus) 102 25 220 23 (72) 298 Gas Substitution 1 - 5 - 117 123 Oeficit (Surplus) 101 25 215 23 (189) 175 Electricity Generation - - - 11 - 11 Imports (Exports) 101 25 215 34 (189) 186

1996 Final Consumption 276 235 512 111 249 1,383 Refinery Production 99 146 153 58 253 709 Deficit (Surplus) 177 89 359 53 4 674 Gas Substitution 1 - 6 - 146 153 Deficit (Surplus) 176 89 353 53 (150) 521 ElectricityGeneration - - - 14 - 14 Imports (Exports) 176 89 353 67 (150) 535

Notes: 1. The total for -Final Consumption" is "Other commercial energy" demand in Table 3.5 (from the "SAP" scenario) minus allowances for coal of: 17,000 toe (1986); 29,000 toe (1991); and 36,000 toe (1996). 2. Total final consumption is divided into product equivalents by taking typical relative market shares in the recent past, as follows: gasoline, 17%; gas oil, 37%; IDO, 8%; fuel oil, 18%; and others, 20%. 3. Refinery production assumes the improvementsdescribed in para. 4.15 which would reduce refinery losses to 5.5% (41,000 tons). 4. Gas substitution converts gas into product equivalents on the basis of heat content (1 toe = 40.5 mcf). 5. Gas substitution is assumed to be for gas oil rather than 100 although in practice it would be a mixture of the two. 6. Petroleum products in electricity generation are needed only in the isolated systems. The fuel is supposed to be 100, converted at 0.25 kg/kWh (after rehabilitation of the diesels) to meet generation requirements as follows: 31 GWh (1986); 42 GWh (1991); and 57 GWh (1996). - 83 -

4.111 Imports and exports of petroleum products are derived in the final line for each referenceyear in Table 4.8. To these must be added crude oil imports of 750,000 tpy to obtain total petroleum imports in 1986, 1991 and 1996. Table 4.9 summarizesthe results and converts them into US$ value equivalentsto illustrate,in broad terms, the implications for the balance of payments; actual US$ values for 1981 are includedfor comparison.

4.112 Gas substitution has the effect of reducing net petroleum product imports by 123,000 toe and 153,000 toe in 1991 and 1996 respectively; these reductionsare worth US$19.0 million and US$32.7 million in foreign exchange savings. Even so, net imports of petroleum in physical terms compared with 1981 climb by 8%; 25%; and 72% in 1986, 1991 and 1996 respectively;the correspondingchanges in value terms are: -17% 85/; +16%; and +92%. The implicationsfor the refinery of the illustrative calculationsin Table 4.8 are that the foreign exchange savings compared with imports are likely to be reduced below the level stated in para. 4.15. Although the output of each product from the refinery is held constant in Table 4.8, a higher volume of residual oil must be exported rather than used locally as fuel oil following gas substitution;and the f.o.b. value of residuaL exports is less than the c.i.f. value of fuel oil imports. To the extent possible, the mission recomends that bunker sales be increased to minimize the adverse affects of extra residual exports. However, even if bunker sales remain constant, the refinery's foreign exchange savings are substantialunless the world market conditions for residual exports significantlydepress the price. 86/

4.113 The conclusionsconcerning the likely trend in the future value of net petroleum product imports give a considerableadded emphasis to the potentialbenefits which could be associatedwith the utilizationof natural gas in the transport sector. Table 4.8 makes no allowance for the penetrationof CNGILNG in the market for gasoline and gas oil. As stated in para. 4.49, if a satisfactoryCNG operation is establishedin the UDA public buses, the conversion of additional buses and of other users -- notably cars, trucks and perhaps railway locomotives - could follow. An illustative scenario of the potential impact is instruc- tive. The assumed objective is to convert 7,500 cars/lightvehicles and 3,100 buses/trucks in Dar-es-Salaamby 1995. To reach the objective:

85/ The decline in 1986 is due to projecteddeclines in world prices for crude and petroleumproducts between 1981 and 1985.

86/ For example, if the price differentialbetween importedfuel oil and exported residual is as high as US$35 per ton, while bunker sales remain at the 1983 level, the refinery's foreign exchange savings would be reduced by the following amounts in 1986, 1991 and 1996 respectively;US$0.7 million; US$2.5 million; and US$1.8 million. Furthermore,local productionof bitumen could increase the value of excess residualfuel oil. - 84 -

(a) conversion kits or dual-fuel engines are imported,starting at 350 units in 1985, peaking at 1,100 units in 1990 and decreasingto 550 units between 1993 and 1995; (b) local conversion capacity increases to 500 units per year by 1993; and (c) after 1995, the number of new gas-converted vehicles increases at 5% p.a. By the late 1990s, imports of already - converted engines would become negligible. Conversion of locomotivesto gas could start on a demonstrationscale in 1989, build up to a significantlevel by 1993 and increaseat 5% p.a. after 1995. Under these conditions,natural gas usage in the transportsector and the correspondingsavings in petroleumproducts could be as shown in Table 4.10. The magnitudeof these savings-- even though they are calculatedbefore deductingthe foreignexchange costs of the conversionexercise -- demonstrate the desirabilityof pursuing seriousLyand expeditiouslya feasibility study and pilot project for gas applicationin transport.

Table 4.9: NET PETROLEUMIWORTS, 1981-96

1981 1986 1991 1996 9uan- . Quan- Quan- Quan- tityt Value - tity / Value-/ tity alw - tit 2/ Value

Net Product Imports 222 94.2 61 35.8 186 90.0 535 226.1 Crude Imports 544 142.5 750 158.2 750 183.7 750 224.2

Total 747 236.7 811 194.0 936 273.7 1,285 450.3

a/ Quantitiesgiven in 103 too. b/ Values measured by 1o6 USS. Values are calculated from the Individual product quantities in Table 4.8 using World Bank projections (in constant 1981 terms).

Noncommercialand NonconventionalEnergy

4.114 The quantitativeimpact of the various optionswhich have been presented for the noncommercialenergy subsector is difficult to ascer- tain. Potential supply sources are scattered,with individual sources being often comparativelysmall and remote; decision-takingis decen- tralized; there are long lags between inputs and outputs, notably in forestry; knowledge of the growth dynamics and productivity of the natural forests is limited; data on nonconventionalenergy is sparse and unreliable;and the logistical/managementproblems are formidable. In some cases, it is difficult to know if the options can be implementedat all; in most cases, it is hard to say when the resultsmight materialize and how large they will be. Therefore studies and technicalassistance have been recommendedto reduce the uncertainties.

4.115 The program for establishingurban energy plantations(para. 4.89) and extending rural woodlots is a bare minimum, based on a rough judgment regarding the capabilitiesof the Forestry Directorate, the - 85-

Government'sfunding capacityand the receptivityof the population. It would at best only match the present deficit in urban areas -- and this with a lag - with no provision for additionalneeds, while in rural areas even the present deficit couLd not be met. Since forests take several years to mature for cuttingand since overallfuelwood demand is projectedto increaseby 701 through1996 (Table3.4), deforestationwill continue and even escalate,mitigated only by the results of improved fuelwoodconservation (Chapter V).

Table 4.10: ILLUSTRATIVESCENARIO OF NATURALGAS USAGE IN THE TRANSPORTSECTOR

1986 1991 1996

Cas Substitution(mmcfd)

cars/lightvehicles 0.05 0.86 1.51 buses/trucks 0.14 2.47 4.46 railways - 0.67 2.43

Savingsin Gasoline

10 toe - 7 12 10 US$ - 2.5 5.0

Savingsin Gas Oil

103 toe 1 27 60 106 US$ 0.3 8.8 22.9

4.116 The estimated potential for utilizing nonconventionalenergy sources is largely theoreticaland often speculative. In some cases, it is difficult to know if the options can be implementedat all; in most cases, it is hard to say when the resultsmight accrue and how large they might be. The recommended studies and technical assistance are a necessarybasis for improvingthe situation. Nevertheless,it is evident that nonconventionalenergy sources can substitutefor conmercialenergy and fuelwoodonly to a negligibleextent during the period of projection in Chapter III -- certainlyless than 2X of total energy consumption. - 86 -

V. D3KAND NANAG3IEUT

Introduction

5.1 Three central conclusionswere reached at the end of Chapter IV. Even if the variousenergy supplyand interfuelsubstitution options which the missionanalyzed and recommendedare implemented:(a) petroleum importswill rise considerablythrough 1986 over existinglevels, both in physicaland value terms; (b) deforestationwill continue and even escalate; and (c) nonconventionalenergy sourcescan substitutefor commercial energy and fuelwood only to a negligible extent in the next 15 years. It remains to look towards demandmanagement to mitigate,as far as possible,the consequencesof these conclusions. It will be necessary to adhere firmlyto the economicpricing of energy and full cost recovery to manage properlythe level of demand; to allocateenergy demand efficiently between different fuels; and to mobilize investmentresources. Industrial energy conservation and fuelwood conservation should be fostered to reduce petroleumimports and the pace of deforestation. The scope for energy conservationin transport,while not discussed here, also warrantsfurther study (para. 1.13).

Energy Pricing

PetroleumProducts

5.2 Petroleum product prices have been revised several times in recent years; the latest revisions were announced on August 18, 1983, following price adjustment two months earlier. The latest prices, includingtheir build-upfrom the refineryor c.i.f. import level,are in Table 5.1. 87/ For comparativepurposes, they were converted into US$ per liter at both the officialand the shadow-pricedrates of exchange.

5.3 Relative product prices show significantdistortions between gas oil and gasoline,with the latter exceedingthe former by more than 100% in the case of premium gasoline. Given the deficit position of the country in middle distillates,it could be argued that this price-spread should be narrowed in order to bring about a better demand balance between these two fuels. However,the argumentwould have to assume that users have a free choice between diesel-poweredor gasoline-powered equipment and vehicles. In Tanzania, given its severe import restric- tions, relative fuel prices are unlikelyto have any significanteffect on equipment choices. The latter are determinedby the existing stock plus import licences for new vehicles or repLacementparts. Policies

87/ Following the recent devaluationof the Tranzaniashilling, petroleum product prices have been revised,effective June 15, 1984, as shos- ,n Annex 4a. - 87 -

affecting imports are likely to have a greater impact on these choices than fuel prices.

5.4 As can be seen from Table 5.2, the prices of aLl the main petroleum products are at least equal to their economic opportunity costs, deliveredin Dar-es-Salaam,i.e. the international(border) prices convertedat the shadow-exchangerate of US$1 = TSh 18.5. 88/ In fact, the Covernmentis in effect levyinga substantialtax on petroleum products as a whole and on gasolinein particular. For example,if the 1982 product mix had been sold at the prices now prevailing,the total net economic surplus would have amountedto about TSh 0.9 billion, or about 22Z of wholesaleprices includingtaxes. The only major policy question, therefore,concerns the extent to which petroleumproduct prices should be used as a vehicle for generaltax purposesand as a device for curbing further the foreign exchangeexpenditures on petroleumimports. Such a question is beyond the scope of an energy assessmentreport and requires a careful evaluationof the effects of different taxationforms on the economy as a whole, taking into account alternativemethods of raising tax revenuesand their effecton resourceallocation.

5.5 Posted product prices vary to some degree by location. For example,premium gasoline,which costs TSh 13.15/litrein major regional centers,costs TSh 13.35/literat Chalinze,TSh 13.55/literat londoa and TSh 13.95/literat Njombe. Regional gas oil prices vary between TSh 5.45/literat Dar-es-Salaamand other major regionalcenters and TSh 7.30 in Sumbawanga. Similarly,posted kerosene prices for lightingrange from TSh 5.35 in regionalcenters to as much as TSh 6.70 in Tundema. Despite these differentialcharges, transportationcosts are not fully covered, because prices are uniform at the 16 major regionaldistribution centers in the country. The freightand equalizationfunds are used to pay for actualtransport cost differentials(see Table 5.1).

NaturalGas

5.6 Natural gas may become availablein Dar-es-Salaamafter 1986. Based on the preliminarycost estimaces in Chapter IV, the average delivered cost of gas, including appropriate depletion allowances, expressedin US$ and 1983 price levels,could range from US$0.95 per mcf to US$2.23 per mcf, dependingon gas markets,pipeline sizes, the actual cost of gas at the well-headand the availabilityand cost of replacement gas from other sources (Annex 8). This range of economic cost is well below that of alternativefuels, including the equivalentcosts of hydroelectricpower. Consequently,the mission recommendsthat gas prices be set above the long-runeconomic cost of supply, in order to generate tax revenuesfor the Governmentand to reflectthe high resourcevalue of the gas (economicrent).

881 The only exceptionis LPG, a minor product. Of course, the use of a higher shadow exchange rate would increasethe economic opportunity cost expressed in local currencyterms. The recent devaluationhas caused the officialexchange rate to convert to US$1=Tsh18.5. Table5.1: THE STRUCTUREOF PETRALEUMPROOUCT PRICES AS OF 8/16/63 (TSh.per literunless shown otherwise)

Cost & Gasoline Gasoline Jet Gas Industrial Fuel Charges LPG a/ Prelum Regular Fuel Kerosene Oil DieselOil oil

Ex-TPDCCost Price 4.389 5.812 4,251 4.269 4.269 3,754 3.674 1.946 TPDC KiloacoExport Fund 0.150 0.150 0.150 0.150 - 0.150 0.150 0.150 Ex-TPDCPrice 4.539 5.962 4.401 4.419 4,269 3,904 3,824 2.096 CompanyOverheads 0.270 0.270 0.270 0.270 0,270 0.270 0.270 0.270 CompanyMargins 0.157 0.154 0.154 0.154 0.154 0.155 0.154 0.071 Oepot to Depot FrelghtFund 0.170 0,170 0,170 0.170 0.170 0.170 0.170 0.170 MSP MSR EqualizationFund b/ - 0.450 0.450 0.450 - - - - BondedWholesale Price 5,136 7.006 5,445 5.013 4.863 4.499 4.418 2.607 Sales rax 0.350 5.551 4.553 0.500 0.165 0.700 0.700 0.700 1 WholesalePrices Ex-All Depots 5.486 12,557 9,998 5,513 5.048 5.149 5S118 3.307 co n'ilvery Charges 0.650 0.050 0.0'0 0.050 0.050 0.050 - 0.050 DealersMargIn 0.264 0.543 0.492 - 0.252 0,251 - -

RetailEx-AII Depots 6.600 13.15 10.550 - 5.350 5.450 - -

USS/Liter c/ 0.540 1.080 0.860 0.460 0.440 0.450 0.420 0.280 Shadow-PricedUSS/Liter d/ 0.360 0.710 0.570 0.300 0.290 0.290 0.280 0.180

Note: Pricesore uniformat each of the maJor 16 distributionpolnts throughout the country. Added freightcharges apply for outlyingareas. a/ Priceper kg. b/ MSP * MotorSpirit PrexluH; NSR * MotorSpirit Regular. cl At officialexchange rate USS1.00* TSh 12.20, d/ At shadow-exchangerate USS1.00= TSh 18.50. Source: TPDC Table 5.2c ECONOMICCOSTS AND OFFICIALPRICES Of PETROLEUMPROOUCTS

Ex-Refinery Net Net Surplus Retall Price Plus DitterenceBetween f/ 1982 or Loss Product ------EconomicCosts a/------Price all Taxos C/ Cost and Prices Consumption 1982 Base

(US$/Ton) (USS/Liter) (TSh/Liter)b/ (TSh/Liter)c/ (TSh/Liter) (TSh/Llter) (Tons) (MillionTSh) Crude 213.44 ------LPG o/ 309.49 0.31 5.74 6,60 4,89 -0.65 5,404 -4.6 GasolinePremium 309.49 0.30 5.55 13,15 11.96 *6.41 69,700 603,8 GasolIneRegular 30W.49 0,30 5.55 10,55 9,40 t3,65 50,703 263.8 Jet fuel 208.82 0.24 4.44 5,56 4.92 #0,01 68,877 40.3 herosene 298.82 0.24 4.63 5.35 4,45 +0.01 37,706 0.5 Gas Oil 281.74 0,25 4.63 5.45 4.60 -0.03 243,681 -8.7 IndustrlalDiesel Oil 261.74 0.23 4,26 5,12 4,52 *0.26 51,220 15.i fuel Oil 140.08 0.15 2.70 3.36 2.80 *0.10 109,118 11.4 1 ~0 Net EconomicSurplus rsh 921.6 d/ Economic cost Is the Internationdior border price, i.e. c.i.f. value for all productsexcept Industrialdiesel oll and fuel oll, where f.o.b. values are taken. b/ Convertedat economicbhadow exchangerate of USS1.00 z Tsh 18.5. c/ From Table 5.1. d/ August 1983 ex-refineryprices egcludingcompany overhead and margins,plus all taxeb. e/ Unit prices per Kg. t/ Column 6 minus column 3. - 9o -

5.7 For industrialand commercialgas users, prices should be set at least equal to the economic cost of fuel oil, presently around US$3.66/mcfequivalent or TSh 68/mef (shadow-priced).The current market price of fuel oil is TSh 91/mcf equivalent (TSh 3.615/liter). A price set between these two benchmarkswould raise additionalrevenue for the Government while providing users with a cheaper, cleaner and more reliable fuel. Although the netback value of gas in the power subsectoris even higher than in industrialuses, the mission recomnends setting gas prices to TANESCO for electric power generation equal to the prices chargedto large-scaleindustrial users.

5.8 Gas prices for compressed natural gas (CNG) applied to the transportationsector would have to be set at a level below that of alternativefuels, i.e. gas oil and gasoline,since the use of CNG would impose additional costs on the users of gas-fueledvehicles - in terms of equipment costs, more frequent refueling stops and reduced carrying capacity. As stated in para. 4.49, the approximatenetback value of gas as a fuel for diesel buses is estimated at about US$3.42/mcf. In the underlyinganalysis, gas prices of US$2.40/mcfwere used, while a cost of about US$0.75/mcfwas attributed to added vehicle costs. Hence, the maxim. price that should be charged for CNG at the filling station is US$6.65/mcfor TSh123/mcf(shadow-priced), which compares to current gas oil and regular gasoline prices of TShl23/mcf and TSh300/mcf respectively. Because some positiveincentive should be created for the users of gas oil and gasolineto switch from petroleumfuels to gas, a somewhat lower price at the filLing station would appear to be more appropriate, say TSh9O-l00/mcf. A significantsource of tax income would remain for the Governmentwithout eliminatingthe financial incentive for vehicle users to convert to gas. 89/

5.9 With regard to the proposed fertiLizer plant at Iilwa, the mission's view is that the same basic principle should be followed as recomended for the domesticmarket in para. 5.6: the Kilamco fertilizer plant should pay a price for natural gas which covers the full economic costs of supply - i.e., the sum of the direct cost and the depletion cost - plus a margin to capture for the Government some of the high resourcevalue (economicrent) of the gas. In this way, the Government will avoid providing economic subsidies to fertilizer production and creating serious inequitiesin the treatment of domestic as opposed to export consumers. Followingthis principle,the price charged to fertilizers,expressed at 1983 cost levels,would have to exceed -- as a bare minimum - US$0.71 per mcf if Mnazi Bay gas can be reserved for future use or other cost-equivalentgas can be made availabLe and if at least 210 bcf of Songo Songo gas are available for domestic use. The bare minimum of US$0.71 per mcf is made up from a direct cost of US$0.26 per mcf plus a depLetion cost of US$0.45 per mcf, and assumes a zero value

89/ This does not foreclose the option for the Government to make gas use mandatoryfor certain vehiclesin gas-accessibleregions. - 91 -

for payments made in respect of past Mnazi Bay exploration expenditures. If Nnazi Bay is not availablefor future use, the price charged would have to exceed US$1.33 per mcf, i.e. a direct cost of US$0.26 per mcf plus US$1.07per mcf depletioncost (see paras. 4.42-4.43and Annexes 5 and 8). Of course, these prices and costs would have to be regularly reviewedand adjustedover time for inflation.

Electricity

5.10 Uniform pover tariffs apply throughoutthe country;a substantial subsidy is therefore paid by users in the interconnectedsystem to those served from isolatedplants. According to financialcost data for 1981, the averagecost per kWh ranged from TCl9.94 in the Arusha District to TC47.07 in the Moshi District; the average was T¢35.21 for the interconnected system as a whole. At isolatedstations, average costs varied from TC83.11 in Iringa to Tc453.78 in Mafia; the averagewas T¢150.22 for isolated systemsas a whole. The end result was that TANESCO's cost for all systems was TC50.75 per kWh, i.e. about 44Z higher than the average for the interconnected system alone. In the future,however, operating costs in many of these now-isolatedsystems will fall significantlyas the various new transmissionlines - presently under construction or scheduled - are completed.

5.11 TANESOD'stariff schedule,shown in Annex 12, has been in force since January, 1983. Energy charges,without the tax, range from a minimum of TShO.50lkWh(USC4.1) for domesticusers to a maximum of TSh2.50 (USC20.5) for small- to medium-sizedcommercial users. In addition, large industrial and commercial users with consumption in excess of 10,000 kVh/year are subject to demand charges of TSh. 75/kVa or TSh.80/kVarespectively. All tariffs,for either energy or capacity,are subject to minimum charges. Because no detailed cost, consumptionand revenue detaiLsare availablefor either 1982 or 1983, analysisof actual revenueflows by consumer class is not possible.

5.12 A uniform national tariff does not give appropriatesignals to electricityusers in high-cost areas about the costs created by their consumption. On equity grounds, it may be argued that this is a proper redistributionof burdens among power users living in different areas. However, such income-distributionalobjectives should be limited to minimum supplies,i.e. so-called"life-line" rates. From a strictlyeconomic point of view, once the minimum supply level has been provided, tariffs should reflect the actual local costs to promote an economicallyeffi- cient regionalallocation of power-usingactivities.

5.13 A second question relates to the internal structure of TANESCO's tariffs. Chargesfor domesticusers, at TC50/kWhfor the first 100 kWh/monthand TC75/kWh thereafter,are lower or as low-as those for high-voltage industrial users, who, however, have to pay additional demand charges. By comparison,tariffs to commercialusers below 10,000 kWhlmonthare far higher, amountingto TC250/kWh. The latter charges are discriminatoryrelative to the marginal costs of supply while domestic tariffsare subsidized. - 92 -

5.14 In terms of income distributionalobjectives, the subsidy to domesticusers may well be misplaced. There were only about 104,000do- mestic connectionsin 1982, consumingan average of about 140 kWh/month; in a country which has a populationof more than 19 million,electricity users are clearly relativelyaffluent. On the other hand, the high commercial power tariffs to businesseswill be passed on in the form of higher prices to all consumers;many will be among the urban poor who do not have access to electricitybut obtain their necessitiesfrom these commercial establishments. The mission consequentlyrecommends that the structure of electricitytariffs be reviewed and graduallyrevised to reflectmore appropriatelythe costs of supply.

5.15 Overall, the current level of tariffs and revenuesis insufficient to cover either the long-run incrementalcosts of supply or TANESCO'sfinancial requirements. AlthoughTANESCO increasedits tariffs by some 50%, effectiveJanuary 1, 1983, to yield an expectedaverage of TC 97.5/kwh, tariffs are still insufficientto meet the established financial target of creating enough internalcash to cover at least 25% of total capital expendituresuntil 1986 and 40X thereafter. To meet these objectives,another tariff increaseof 20% is called for by January 1, 1984; this will raise the average to TC 117/kWh. 90/ Further adjustments will be required thereafter to maintain the agreed-upon financialcash-flow targets.

5.16 The mission has estimated the long-run incrementalcosts of TANESCO's system. These estimates, shown in Annex 13, are necessarily approximate. Detailedstudies will commencesoon under the pricing study financedas part of the Fourth Power Project,the resultsof which are to be available by July 1985. The mission estimates that the long-run average incrementalcost of the TANESCO system is about TSh 0.98/kWh, taking into account the system expansion plans to the year 2000 and assuming that the high-growthdemand scenariowould prevail (Table4.2). Although this level is only slightly above the estimated 1983 average revenue per kWh, TANESCO faces severe problems in the short to medium term, due to the high level of ongoing investmentsand the low rate of growth of demand; average incrementalcosts between 1983 and 1991 are much higher and amount to TSh3.70/kWh, i.e. almost four times the expected average 1983 revenue per kWh. This is basicallya cash flow problem and results from the heavy investmentprogram on tileone hand and the projected low load growth on the other hand. Averas,erevenue flows to cover expenses during this period would be lower. but still well in excess of the estimated long-run average incremental costs of TshO.98/kWh. According to TANESCO, the average tariffs.would have to increase by 40X-70Z to cover financial costs. The mission recommends that urgent attentionbe given to cash flow projectionsand requirements

90/ This was implementedin January 1984 and the average revenue now stands at abouc TC 120/kWh. - 93 -

as part of the marginal cost pricing study under the Fourth Power Project.

Coal and Fuelvood

5.17 The mission has not pursuedthe questionsof coal and fuelwood pricingbeyond a broad statementof principles. In the former case, too little is known about productioncosts from new mines and more work is required to collect basic data. With regard to fuelwood pricing, the essentialproblem lies in finding practicalmeasures to impose stumpage fees; this requires an intimate knowledgeof field and cultural conditions which is not availableto the mission.

5.18 At the level of principle,coal prices should cover the long- run marginal costs of productionand distribution,including mine development and transportinfrastructure. Given the large resource potential relativeto demand,a depletionallowance for coal is unlikely to be justified. Wood producedin non-gazettednatural forests has no direct cost while the direct cost of wood producedon forest reserves is negligible. However,a stumpagefee is justifiedto cover the full replacementcost of wood ready for harvesting,whether that wood i produced in plantations or natural forests. The stumpagerate per m. of firewoodwould be a function of the degree of overcutting,according to the following formula:

(x-y)c

-were: x = total annual cut (in m3 ); y = annual sustainableyield (in m ); and c = replaceme3t cost per *3. At the present level of overcutting(23 million m' p.a.) and with the investmentcosts shown in Annez 15, th! stumpagerate (1983 price levels)would be in the order of TSh 60 per mi (para. 4.91).

5.19 The results of the two studies recommendedin para. 4.88 along with those expected from the IDA Coal EngineeringCredit should form a sufficient basis for STAHICO to analyze the relationship between the long-runmarginal costs of coal and coal prices. Action to adjust coal prces can be taken after that analysishas been carried v-.. While some further analysis of the replacementcost of fuelwood is desirable, the first priority is for the ForestryDirectorate to commencea study of the implementationproblems involved in levying stumpage fees; technical assistanceshould not be necessary.

EnergyConservation in Industry

5.20 Energy consumptionby the industrialsector has been depressed in recent years due to low capacity utilization. Even so, it accounts for 24% of petroleumproducts' consumption and 55% of the electric power - 94 -

used in the country as a whole. Should capacityutilization return to a more normal level and should the large projectsnow under constructionbe completed- especiallyprojects in the cement,glass and textile sectors - then the industrialsector could be expectedto increase its consumption of fuel oil, industrialdiesel oil and electricitysubstantially beyond the 1982 levelsof 102,000 tons, 46,000 tons and 388 GWh respectively. Hence, the possibilitiesfor making more efficientuse of energy suppliesin the industrialsector are worth examiningcarefully.

5.21 So far, there have been no coordinatedcomprehensive efforts towards industrialenergy conservationin Tanzania,with the exceptionof a series of energy audits undertaken in 1982-83 by the Tanzanian Industrial Research and DevelopmentOrganization (TIRDO). No other policiesor institutionalarrangements are in place to promote or provide incentives for energy conservationmeasures. TIRD0 was formed in 1979 with the assistanceof UNIDO and funded by UNDP. Its activities include researchon coffee processing,the developmentof natural dyes for industrial use, the use of tea seeds in the manufactureof vegetable oil, and the developmentof an experimentalkiln for the conversion of agricultural wastes into charcoal,combustible gases and wood tar. TIRDO has also provided engineeringadvice on the developmentof the chemical and food industries in Tanzania and is setting up instrumentation and other laboratoryfacilities.

5.22 Since 1982, TIRDO has conductedan industriaLenergy audit program - covering 12 companies in Dar-es-SaLaam - and provided recommendations for energy conservation,initially on a very basic scale. 91/ These recommendationscover matters such as insulation,the repair of leaking valves, simple heat recovery schemes and furnace efficiency improvements as well as general housekeepingpractices. Due to funding limitations,the initialaudit program has come to a close; however, it is hoped that additional audits can be carried out shortly, possibly supportedby externaltechnical assistance (para 5.24).

5.23 The results of the first 12 audits indicate that, with relatively minor investments,industries can save some 13Z of their enrcgy consumption. If this percentageis applied even to the present depressed level of industrialconsumption of petroleumproducts, the annual foreign exchange savings to be obtained from measures such as the ones recommended by TIRDO could reach some US$3.5 million. Savings might reach US$7 million per year under more normal conditionsof capacity utilization and taking into account the petroleum products'demand of the new industrial projects still under construction. Although the initial audits did not specify the cost of the identified energy savings measures, it is estimated that these would be minor and would pay for themselvesgenerally in a year or less.

91/ As of July 1984, TIRDO had carriedout audits on 30 companies. - 95 -

5.24 In view of the substantialpotential and high pay-off for the identifiedenergy conservationmeasures, the mission recommendsthat the Government implementa series of measures to be included in a comprehensive industrialenergy conservationprogram. These measures should cover the provision of appropriate incentives and legislationto encourage energy-savinginvestments as well as financialsupport to ensure that the availabilityof funds will not be a constraint in the executionof the energy-savinginvestments previously identified. The mission also recommends that the Government consider strengtheningTIRDO's activities, which should be organized as the nucleus within the country to deal with energy-savingmatters, including the creation of a team of experts in this field. The main functions of TIRDO will be: (a) to provide the Government with studies and advice in the field of energy conservation, including the establishmentand monitoringof a comprehensiveand well- coordinated energy conservation program as well as setting related polices and incentives;(b) to provide interestedenterprises with technical assistanceand specializedadvisory serviceson the more technical aspects of energy conservation,such as retrofitting,waste heat recovery and modificationsand changes in processes; (c) to execute "subsector survey"and "energy audLts" to identifythe uses and sourcesof energy at the plant level, the areas where waste occurs, the most economically attractive energy-savingopportunities, and to recommend measures and investmentprograms for typical firms in the industry,both in the short and long-term; (d) to provide courses and trainingfor engineers,energy coordinators and energy managers from enterprises carrying out energy saving programs and of technical institutions and universities; (e) to prepare energy conservation manuals and handbooks for the most important subsectors of industry; (f) to carry out research and development on energy conservation technology and execute worthwhile demonstration projects; (g) to collect, exchange and disseminatestatistical information on energy use; (h) to monitor the progress and results achieved by the country in the various aspects of energy conservation;and (i) to carry out promotionalcampaigns to elicit interest by consumers to take energy-savingactions. A vigorous campaign should start as early as possible,use all media and be sustainedfor a period of at least two to three years to be effective. The campaign should includethe publication of educational pamphlets and booklets. If the approach is followed, TIRDO will operate as a National Energy ConservationCenter. It is recommendedthat the Government obtain outside technical assistance to reorganize and implement TIRDO's activities along the lines detailed above.

FuelwoodConservation

5.25 A significantreduction in current fuelwood consumptioncould be achieved by improving the efficiency of three specific end-uses: (a) the conversion of wood to charcoal; (b) the combustion of wood or charcoal in household stoves; and (c) the use of wood in tobacco-curing barns. The options available in these three areas are discussed in the - 96 -

followingparagraphs and an estimateof the projectedsavings which could be achieved in the period through 1996 is in Table 5.3.

5.26 Charcoal is produced almost entirely in earth kilos and requires some 6 million m3 of wood (Table 3.4). The earth pit or mound method of making charcoal has an efficiency of only 8-1OZ (weight of charcoal product over weight of air-driedwood input). Brick or metal kilns, which effectivelyconserve the heat of carbonizationand improve gas circulation,can attain uF to 20-25Z efficiency. Therefore,annual savings of some 3-4 million m of wood are theoreticallypossible if all charcoal is produced in improvedkilns. While such savings in practice are unlikely to be fully attained, the magnitude of the potentialindicates that efforts to improve wood utilizationshould be accorded high priority.

5.27 A number of improved kiln designs have been employed success- fully in other countries,most notable of which are the Brazilianbeehive kiln and the TPI pgrtable metal kiln. Beehive kilns are normallybuilt to take about 50 m of wood charge each and are often installedin bat- teries of 20-40 units at strategicsites in the forest. Each unit yields about five tons of charcoal per cycle 3f about 10 days. The portable metal kiln is usually fabricatedin 6 m capacity (2 cylinder type) and requires2-3 days per cycle.

Table 5.3: PROJECTEDSAVINGS FROM FUELWOODCONSERVATION (106 m3)

1986 1991 1996 ImprovedCharcoal Making 0.18 0.42 0.74 ImprovedCharcoal Stoves 0.04 0.16 0.32 ImprovedWood Stoves 0.30 0.70 1.60 ImprovedTobacco Curing 0.18 0.41 0.75 Total 0.70 1.69 3.41

Notes: 1. The proportionof 1 harcoal produced in kilns yiel3ding 1 ton of charcoal from 9 m of wood (comparedwith 12 m in 1981) is assumed to increase as follows: 102-1986; 20%-1991; and 30%- 1996. 2. The proportion of urban households using improved charcoal jikos is assumed to increaseas follows:5%-1986; 15Z-1991;and 25X-1996. The efficiency of the traditional"jiko" is 20Z, comparedwith 35Z for the improved"jiko." 3. The proportionof rural householdsusing improvedwoodstoves is assumed to increase as follows: 2%-1986; 5%-1991; lOZ-1996. The efficiencyof the traditionalwoodstove is 8% comparedwith 15% for the improvedstove. 4. Savings from improved tobacco curing methods are from Table 5.2. - 97 -

5.28, Both kilns have obvious advantages over the traditional earth kilnas, including the following: (a) average yields of 20-25% (weight basis) can be anticipated; (b) better quality charcoal is obtained (less brands and fines and minimal contamination with earth and stones); (c) more days of operation are possible during the rainy season; and (d) less supervision is needed. The net effect is the production of larger quantities of higher quality charcoal in any given time period. The portability of the TPI metal kilns is an additional advantage. After operation at one site, they can be rolled to another location by two workers. While the beehive kiln is normally used for a much longer time (sometimes years) at one location, it can also be relocated to another site without substantial loss of the original bricks. The principal disadvantage of these kilns is the capital investment required. A 6 m metal kiln would cost around US$2,000 to build in Tanzania and would require foreign exchange, since the material has to be imported. The brick kilns could be built for much less per unit of capacity; even so, they cost more than earth mounds, which have virtually no capital investment. Another disadvantage applicable to both of these improved kiln types is that the wood charge must be reduced to small pieces to fit inside the kilns. In the earth mound, the system size is simply enlarged as needed.

5.29 The Forestry Directorate is contemplating the promotion of the so-called "Casamance" kiln, which has been shown to have good results in tests in Senegal. The Casamance kiln is a modified earth mound fitted with a metal chimney that draws gas from the bottom portion (reverse draught). The capacity could be varied as needed. Discarded oil drums are used for the chimney assembly. To reduce volatiles in the charcoal product, provision is often made to draw the condensates out (from the bottom part of the chimney). Significantly higher yields (about 20X) than traditional methods have been reported with the Casamance kiln. Unlike the brick and metal kilns, there is hardly any capital cost for the Casamance kiln and it could be the primary type of kiln promoted in a charcoal production improvement program.

5.30 Wood and charcoal usage in household stoves is the second end- use area where large savings may be possible. Data from the Forestry Directorate indicate that 30 million i3 of fuelwood are burned directly in stoves and 1.2 million tons of charcoal in traditional metal "jikos." Fuelwood is used almost exclusively in rural homes, most of it in the simple three-stone type of stove. Charcoal usage for cooking, on the other hand, predominates in urban homes (80-90%).

5.31 The energy efficiency of the three-stone stove is generally regarded to be roughly 8-10% whereas the efficiency of the traditional charcoal "jiko" has been measured at around 20Z. A number of ceramic or mud stove designs, with enclosed combustion chamber and means to control airflow (e.g., the Louga Stove), have efficiencies roughly twice that of the open fire; if used instead of the three-stone stove, wood savings of up to 50X are possible in principle. Similarly, an improved version of the charcoal "jiko" -- the "Umeme" Stove, developed in Kenya - is - 98 -

reported to have an efficiency of about 35%. Used instead of the traditional "jiko", charcoal savings of up to 40% are possible.

5.32 Uhfortunately, there has been little success in past efforts anywhere to encourage the large-scale use of improved stoves in place of traditional ones. In Tanzania, major difficulties can be expected in any attempt to convert traditional wood-burning stoves in rural areas. The improved versions are physicaLly and operationally different, requiring adjustments in cooking practice. They will also entail some capital investment where there used to be none. Largely for these reasons, it may be more effective to focus initial efforts on the promotion of improved charcoal "jikos" in the urban areas. Apart from its insulated chamber, the higher efficiency "Umeme" stove looks very similar to and is operated in essentially the same manner as the traditional metal."jiko." Although the "Umemee" stove costs about twice as much, this is not expected to be a deterrent if conensurate savings in charcoal consumption could be satisfactorily demonstrated. The traditional metal "jiko" is bought by households at about TSh 100 each - about US$8- and is used for one to three years.

5.33 To give an idea of achievable savings, a modest program can be envisaged which targets 2-5% of urban households by 1986 and 15-25% by 1996; this translates to a minimum of 6,500 improved charcoal stoves dis- seminatel by 1986 and about 115,000 by 1996. T e annual savings could be 40,000 m wood equivalent by 1986 and 320,000 ma by 1996.

5 34 The third significant wood end-use is in tobacco curing. The tobacco industry consumed about 0.8 million m3 of wood in 1981, i.e. about 2% of total fuelvood consumption and 15X of non-household fuelwood demand (Table 3.4). Most of this wood was used in flue-curing barns; half of these barns were in tobacco farms in the Tabora region. Ruvuma, Iringa and Nbeya follow Tabora in terms of tobacco production and hence wood consumption for flue curing. The wood deTand for the tobacco industry is projected to reach about 1.5 million mi by 1996 (Table 3.4). Among non-household fuelwood uses, only local brewing approaches the magnitude of tobacco curing, but since much local brewing is on an individual family scale, often illegitimate, it would be extremely difficult to infLuence for fuelwood conservation purposes. Hence, the tobacco industry would be the logical focus of any program intended to improve fuelwood end-use efficiency in the industrial sector.

5.35 Official estimates indicate that 50-60 m3 of stacked wood are used in present barns to cure 450-500 kg of tobacco. The figure appears to be abnormally highA Neighboring Malawi, for example, has a consumption rate of 18-20 m of stacked wood per 500 kg of tobacco cured in existing, unimproved barns. Even so, a recent evaluation of Malawi's tobacco industry concluded that consumption could be reduced to a figure as low as 12 m3 by simple, low cost improvements to existing barns. These include rebuilding furnaces, adding grates and doors and installing controllable tOp and bottom ventilators. Other more elaborate improve- #iSksW1iit.vStgiflg flue and chimney configuration, installing forced _99 -

draft systems or adding insulation would reduce wood consumptioneven further but wouLd aLso need larger capitalinvestments. It is reasonable to conclude that by 1996 a gradual improvementin Tanzania's tobacco curing barns could reduce the wood consumptionrate to perhaps 15 m of stacked wood per 450 kg of tobacco cured, merely by making simple modificationsto the present system. Even assuming that the present efficiencyof flue curing is as high as 30 3 of stackedwood per 450 kg of tobacco cured -- rather than 50-60 m as suggested by official estimates - the savings over current practice would be roughly 0.75 million m3 solid wood equivalent per year by 1996 as shown in Table 5.4. A summary of the projected fuelwood savings which could be achieved from improvements in the three end-uses discussed above has already been presented in Table 5.3. While efforts to bring about these savings are worthwhileand firmly supportedby the mission, they must be seen in perspective,i.e. relative to the degree of overcuttingin the forestry subsector. The differencebetween annual consumptionand thI mean annual increment of forests in 1981 exceeded 23 million m (para.4.89-4.90); overcutting will increase as consumption increases with population. In contrast, even by 1996, 3rojected savings from fuelvood conservation are barely 3.5 million m?. The savings from fuelwoodconservation can thereforecontribute only a small percentageto the required reduction in the overall fuelwood deficit. It will be necessary to look to energy plantations,other biomass and fuelvood pricing to try to produce a further impacton the remainingdeficit.

Table 5.4: PROJECTEDWOOD SAVINGSIN TOBACCO CURINGTHROUGH IMPROVEMENTSIN FLUE-CURINGBARNS

1981 1986 1991 1996

Total Production (106 kg) 18.9 25.2 31.4 37.5

Normal Wood Requir ment (106 m )0.76 1.01 1.26 1.50

Reduced Wood RequirImnt (106 m ) 0.83 0.85 0.75

Notes: 1. Productivityis assumed to be: 530 kg/ha in 1981; 600 kg/ha in 1983; 700 kg/ha in 1991; and 800 kg/ha in 1996. 3 2. Wood consumptionin unimprovedbarns, expressed in m stacked wood per 450 kg tobacco, is estimated to be: 30 in 1981; 25 in 1986; 20 in 1991; and 15 in 1996. - 100 -

VI. INSTITUTIONS AND MANPOER IN TME ENERGY SECTOR

Introduction

6.1 Responsibility for energy supplies rests with several different agencies. The Ministry of Water, Energy and Minerals (MWEM) handles hydrocarbons, electricity, coal and uranium. The Ministry of Natural Resources and Tourism (MNRT) deals with fuelwood, through its Forestry Directorate, while the Prime Minister's Office is involved with the development of village woodlots and, to a lesser degree, village electrification, through its rural development responsibilities.

6.2 The Ministries are responsible for overall policy formulation in their respective subsectors, they present options to the Cabinet and they arrange financing for large projects. Also, they supervise the activities of the parastatals under their jurisdiction. As far as the commercial energy sector is concerned, MWEM supervises the Tanzania Petroleum Development Corporation (TPDC), the Tanzania-Italian Petroleum Refining Company (TIPER), the Tanzania Electric Supply Corporation (TANESCO),the Rufiji Basin Development Authority (RUBADA) and the State Mining Corporation (STAMICO). It is envisaged that MWEM will also supervise the Tanzania Rural Electrification Corporation (TARECO) and a gas corporation (CASCO) if and when they become effective.

6.3 Apart from the above agencies, which have direct responsibilities for energy supplies, the policies and actions of other Ministries have a direct or indirect influence on the energy sector. For example, the Ministries of Agriculture and Livestock Development affect forestry and hydroelectric resources through their land use policies while the Ministries of Transport and Industry deal with major energy users.

6.4 The following paragraphs review the main agencies which now exist in the energy sector, as listed above. Subsequently, two particular institutional issues are identified and addressed: (a) the need for improved coordination between these agencies, to bring about better long-term energy planning; and (b) the question of setting in place an institutional framework capable of developing rapidly and effectively Tanzania's natural gas resources along the lines proposed in Chapter IV.

Petroleum, Power and Coal

Ministry of Water, Energy and Minerals (MWEM)

6.5 Four divisions report to the Permanent Secretary in MWEM: (a) Project Preparation; (b) Construction and Maintenance; (c) Manpower Development and Administration; and (d) Planning. Of these, only the last deals with the supply and demand situation in the energy sector. - 101 -

The first two divisions are concerned exclusively with potable water supplywhile the third has a limited personnel function. However, even in the case of the PlanningDivision, the responsibilitiesinclude water as well as energy so that the energy sector itself receivesonly limited attention. At the time of the energy assessmentmission, there were four expatriateadvisors workingon energy issues. One of them had full time responsibilityfor the energy sector. Furthermore,MWEM has not developed capable local staff to oversee its responsibilitiesin the petroleum sector. The Planning Division evaluates the projects which pass through the Project PreparationDivision and it approves those projects proposed by the parastatalswhich require public money; where the para- statalsare self-financinga project,the Ministryneeds only be informed although it can suggest that the funds be applied elsewhere. The Ministeris the Chairmanof the Boards of TANESCO,TPDC and RUBADA.

TanzaniaElectric Supply Company (TANESCO)

6.6 TANESCO was foundedas a private company in 1931 and acquired by the governmentin 1964. It is a state-ownedenterprise with a total staff of about 6,300. Through comprehensivemanagement and staff development programs, supported oy SIDA and IDA, and through a "twinning" arrangementwith the ElectricitySupply Board of Ireland (ESB), TANESCO has developedits own managerialstaff and reduced expatriatestaff from about fifty to six. The remaining expatriates are specialists and advisors employed mainly in connection with the constructionof large power projects and for the overhaul of special equipment where local expertiseand knowledgehave not yet been developed.

6.7 TANESCO establisheda training system in the early 1960s and has now developeda sound long-termstaff trainingprogram. Key elements in this have been: (a) the founding by TANESCO of its own Technical TrainingInstitute in 1968, which as been assisted by SIDA; (b) training componentsin IDA-financedprojects since 1975; and (c) the "twinning'of TANESCO and ESB since 1977, whereby TANESCO staff members have been trainedin Dublin and given subsequenton-the-job training with ESB or in similarutilities in the UK and the USA. Between 1976 and 1981 TANESCO sent 50 staff overseas to obtain engineeringdegrees. The Fourth Power Project provides approximatelyUS$1.2 million for further training of engineering,financial and managerial staff. IDA should continue to support TANESCO's staff training efforts through the visits of IDA's educationand trainingspecialists.

6.8 Despite progress in developing its manpower capabilities, TANESCO depends largely on external consultants'services for its power system planning and analyses. Improvements have been made in the Planning Department but further efforts are necessary to develop TANESCO's own capabilitiesin load forecastingand the preparation of investmentprograms. At present, the power subsectorlacks an effective mechanism for the regularcollection and collationof comprehensivedata and for their presentationin a consistentand usable form. The Planning Department should bring this informationtogether as a basis for more - 102 -

effective.subsector planning. The mission recommendsthat TANESCO consider the design of a comprehensivetraining programto: (a) provide its staff with the necessary tools for formulating development plans; (b) identifypriorities in the power subsector;and tc) set policies for electricitypricing and conservation. Some of the funds provided for trainingunder the Fourth Power Project could be applied to this purpose. The mission further recomuendsthat TANESCO gradually introduce basic planning models and obtain the necessary computationalfacilities to process the requireddata input. The studies of the long-rangedevelop- nent program and of the management of the power subsectoragreed under the Fourth Power Project should produce recommendationsand a proposed course of action to developand improveTANESCO's planning capabilities.

6.9 TANESCO's organizationalso needs to be examined to find ways of improving its quality of service and operationaLefficiency. It is for this reason that the management study mentioned in para. 6.8 was included in the Fourth Power Project. TANESCO has agreed to employ consultantsto complete the study by June 30, 1985 and to implement the agreed recomwendationsof the study by January 1, 1986 after taking into account IDA's comments.The mission envisages no further need for technical assistancerelated to TANESCO'sinstitutional arrangements.

Rufii Basin DeveloupmentAuthority (RU=ADA)

6.10 RUBADA was createdunder the Rufiji Basin DevelopmentAuthority Act of 1975 to develop the catchment area covered by the Rufiji River. An importantreason for its creation was that it would adopt a multi- purposeapproach to planning, with an emphasis on regional development, especially agriculture. In fact, much of RUBADA's effort has been con- centratedon hydroelectricdevelopment, in particularthe Stigler'sGorge project,with financial support from NORAD. Insofar as RUBADA has the statutoryright to construct,maintain and operate hydroelectricplants within the area of its jurisdiction,there is clearly the potential for future overlap with TANES0O,although up to now RUBADA has employed only a small staff to work on power; its activities have been confined to studies and it has relied mainly on consultants. However, before any future actions are taken to develop hydroelectric schemes presently coming under RUBADA's jurisdiction,the relationshipbetween RUBADA and TINESCO should be resolvedand the potential for inefficientduplication of scarce technical and managerial resources should be avoided. The organizationstudy agreed under the Fourth Power Project should resolve this issue and also ezamine the relationshipbetween TANESCO and the proposednew institutionfor rural electrification(TARECO). The study is to be prepared by December 31, 1984 and the recomendations imple- mnted by December 31, 1985, after taking into account the comments of IDA.

TanzaniaPetroleum Development Corporation (TPDC)

6.11 TPDC was established in 1969 under the Public Corporation Act. Its objectives: (a) are to develop an adequate industrialbase for - 103 -

the oil industry; (b) to explore for and develop petroleumresources, includingnatural gas; (c) to carry out the standard activitiesof an oil company, including procurement of supplies, refining, distribution and storage facilities; (d) to acquire interests in projects or enterprises associated with the exploration and production of petroleum; (e) to hold explorationand productionrights; (f) to contract for, hold equity in or participatein oil concessions,franchises and licenses;and (g) to manage parastatalsor other legal entities transferred to the Corporation.

6.12 In conformitywith the above objectives,TPDC: (a) carries out explorationfor oil and gas under production sharing or joint venture agreements(e.g. with AGIP, Shell and IEDC) and as an operator (e.g. at Songo Songo and Kimbiji) (see Chapter II); (b) acts as the Government's representativein the managementof TIPER (para. 6.14), BP (Tanzania)and AGIP (Tanzania),in which the Governmentholds a 50Z interest,and also in the management of TAZAMA,in which the Government owns one-third of the shares; Cc) is the sole importer cf crude oil in Tanzania, while leaving the distributionof petroleumproducts to the f.v, marketing comr panies (para. 4.19); and (d) the petroleum sector, notably the KILANCO fertilizer project (para. 4.41 and 6.38), a bitumen plant (para.4.16) and a lube blendingplant.

6.13 TPDC has seven directorates: Exploration and Production; Research, Developmentand Planning; Marketing and Operations;Manpower Development and Administration;Secretary; Finance; and Auditor. The first of these monitors exploration activities under the production sharing agreements and has direct responsibilityfor exploration activities where TPDC is the operstor. The experiencegained by TPDC as an operator at Songo Songo has been valuable in building its capacity to carry out its monitoringresponsibilities, although it may need strengthening in the financialarea. However, the mission would not in general recoamned extending TPDC's activities as an operator; rather, it should rely more on the joint venture type of activity with internationaloil companies. On the gas marketing side, the mission concurs with the findings of the recent consultants' study 92/ that TPDC is not properly staffed to take over a major project for producing and distributing natural gas; considerableinstitution-building efforts will thereforebe required in that direction and the mission has elaborateda number of ideas and options in paras. 6.38-6.43below.

Tanzania-ItalianPetroleum Refining Company (TIPER)

6.14 In 1961, the Italiancompany AGIP reachedan agreementwith the Government to constructa refinery across the harbour in Dar-es-Salaam. TIPER was incorporatedin 1963 and the refinerywas commissionedin 1966,

92/ "The Financial and Management Structure of TPDC", Commonwealth Secretariat (Technical Assistance Group), March 1982. - 104 -

with a capacityof 600,000 tpy; foLlowingdebottlenecking, the capacity was increasedto 750,000tpy in 1970. The Governmentacquired 50Z of the shares from ACIP in 1967. Under a contractbetween TPDC and TIPER, the latter processescrude oil for a fee based on actual cost plus remuneration. This remuneration is supposed to be paid to ACIP as a dividend (after payment of corporate taxes) but in fact no dividends have been remitted since 1977. The petroleumproducts produced in the refinery on behalf of TPDC are then sold to the five marketingcompanies.

6.15 When the refinery started operations, there were 69 expatriates; training programs were initiated,through TIPER's own training center and by sending some techniciansto Italy for specializedtrain- ing. As a result of these efforts, there are now only six expatriate staff - including the Managing Director - out of a total staff of 442. However, limitationsimposed on TIPER's staff remunerationhave contributedto the loss of well-trainedand motivatedstaff and management and limited the company'sability to attract suitablereplacements; this has affectedTIPER's operatingefficiency. The problemis likely to be aggravated further as Tanzania's natural gas subsector expands and creates further competitionfor scarce manpower (see paras. 6.38-6.43). Policies with regard to remuneratingrefinery staff need to be reviewed and action is necessary to correct the staffingproblem. Lack of autonomy has restrictedTIPER's ability to obtain adequate technical assistance from its foreign shareholder,ACIP, with which there is currently no formal agreement on the provision of services. The problem in aggravated by the failure to remit dividendsto ACIP. It is recommendedthat the Government increase TIPER's administrative autonomy and reactivate the technical assistance arrangement between TIPER and AGIP to enable the refineryto continueto functionon a sustainedand efficientbasis.

StateMining Corporation(STAhICO)

6.16 STAMICO.was created in 1972 to take over the mining companies which had recently been nationalized. STAMICO is responsiblefor the developmentand explorationof the country'smineral resources, including coal; it directlyoversees mine projectwork, up to the point of comercial production;and it trades in mineral markets on behalf of its six operating subsidiaries. Hence, STAMICOhas wide responsibilitiesin the mineral sectorand coal representsonly a small part of its activities.

6.17 STAMICO has a total staff of 335. There is a staff training program but the numbers involvedare small:only 17 persons were sent on courses in 1982 (10 abroad and 7 Locally). The proposed IDA Coal Engineering credit (para. 2.28) bas identified training needs for STAMICO's technical staff and - even more critically - for its financial and accountingofficials. The mission has no specificproposals for further technicalassistance to STAMICO in view of the trainingcomponent of the IDA credit and the limited expansionof the coal subsectorwhich is envisaged. - 105 -

Renevables

Forestry

6.18 The Forestry Directorate within MKRT has overall responsibility for the development, protection and conservation of forests. All forest reserve plantations are owned by the State through the Forestry Director- ate. Management of forest resources on non-gazetted public land is carried out by Regional Development Directorates (in the Prime Minister's Office) through the Regional Natural Resources Officer, who is responsible for all technicaL matters concerning forestry and other natural resources at the regional level. Technical and development matters relating to forestry and other natural resources at district level are handled by a District Natural Resources Officer, who is responsible to the District Development Director.

6.19 Five divisions report to the Director of Forestry, who heads the Forestory Directorate: (a) Forest Industries; (b) Village Afforesta- tion; (c) Management and Development; (d) Research and Training; and Ce) Survey and Inventory. The first of these is mainly responsible for the development of industrial plantations, logging and transportation, and mobile sawmills. The second was recently separated from the Manage- ment and Development division and can be expected to play a prominent role in the supply of fuelwood to the rural and urban areas. While the local community has the main responsibility for afforestation and conservation programs, it is supported by the Government with free inputs such as seedlings and advice. Annex 14 shows how the village afforestation program is organized. Experience with the program so far indicates that only individual farmers and schools responded favorably and success- fully; community plantations were a failure.

6.20 The Village Afforestation division has a staff of 85 technical and other professional people; the budget in 1983 was about TSh 30 million. This level of funding and staffing is judged to be inadequate to deal with the fuelwood crisis. The division needs short-term external technical assistance to strengthen its planning, evaluation and implementation capacities.

6.21 The Management and Development Division is principally concerned with the management of gazetted forests, water catchment and soil conservation. However, it will have to pLay a more active role in the future in the provision of technical assistance for non-gazetted forest areas. As explained in Chapter IV, there is a critical need to increase the productivity of the natural miombo forests. The Management and Development Division should take a firm initiative to protect the resource, to control cutting and to increase productivity by improved silvicultural management; it should act in close cooperation with the Research and Training division, which has formal responsibility for forestry research. - 106 -

6.22 The Research and Training Division includes two units which deal with silviculture and wood utilization (based at Lushoto and Moshi respectively). A Forestry Research Institute is now being formed; it is intended to be an autonomous body with a board of directors and seven centers specializing in: forest management (Lushoto); timber and forest engineering (Moshi); low-land afforestation (Kibaha); plantation silviculture (Sao Hill); miombo woodland (Tabora); arid zone forestry (Dodoma); and southern zone silviculture and management (Rondo). The division is also responsible for coordinating training activities. Formal non-professional training takes place at the Olmotony Forest Training Institute, which offers a two-year certificate course for candidates for Forest Assistant positions and a two year diploma course for Assistant Forest Officer positions. The Forest Industries Training Institute (FITI) at Moshi offers short courses (six weeks) to workers in the Forestry Directorate. The University of Dar-es-Salaam's Faculty of Agriculture, Forestry and Veterinary Science at Morogoro offers a three year program leading to a Bachelor's degree and higher degrees in Forestry.

6.23 Finally, the Survey and Inventory division is responsible for all surveys, mapping, and inventory work of the Forestry Directorate. This section will need to be strengthened to improve its planning and technical skills and its equipment will have to be improved to assist with a large-scale wood-based energy program (para. 2.31).

Nonconventional Energy

6.24 The research and development (R&D) and technology dissemination activities on renewables which are now being carried out in Tanzania are largely uncoordinated and do not appear to be linked to any long-term program with set goals and priorities. Two types of activity are being conducted: (i) research and technology adaptation work; and (ii) field tests and dissemination. Little of the work on nonconventional energy can be classified as "commercialization" activities. R&D and technology adaptation work are mainly carried out in the University of Dar-es-Salaam - including the autonomous Institute for Production Innovation (IPI) - and at the Centre for Agricultural Mechanization and Rural Technology (CAMERTEC) in Arusha, a parastatal which was formed by a merger of the former Arusha Appropriate Technology Project (AATP) and Tanzania Agricul- tural Machinery Testing Unit (TAMTU) Pilot projects and dissemination work are mainly conducted by agencies in the line ministries. Tanzania National Scientific Research Council (UTAFITI) is essentially an advisory body, but it has involved itself in the actual implementation of pilot activities, through the Dodoma Rural Energy Project. Some pilot activities are externally financed (e.g., the SIDA/Tanzania Wood Industries Corportion (TWICO) gasification project) and assisted by resident experts.

6.25 The University of Dar-es-Salaam conducts several "hardware" and "software" research projects in nonconventional energy (windmill design, solar stills, selective coating Eor solar collectors, photovoltaic pumps - 107 -

etc.). They are mostly gearedto the thesisrequirements of studentsand carried out on individualbasis; the pace is consequentlyslow and their relation to specific governmentprograms is undefined. The choice of researchfields is understandablynot often based on nationalconsidera- tions. For instance, selective coating research carried out by the Physics Departmentis unarguablyuseful for academicpurposes but may not be a priority researcharea in the context of Tanzania. Nevertheless, given its existing facilities and highly qualified faculty of various disciplines,the Universityhas the strongestpotential to fill the major role for R&D on nonconventionalenergy, including not only technoLogy developmentbut also the conductof economicstudies and market surveys.

6.26 CAMERTEC's intended role is more on technology adaptation, initial disseminationand extension. Biogas digesters,windmills, solar water heaters and improvedcooking stovesare among the renewableenergy technologieswith which the Center has concerned itself. There is, however, little recent evidence of work on hardware being conducted. CAMERTECin the past (as AATP) has installedseveral biogas digestersand windmills. It does not seem to have looked as much at the important areas of improvedcharcoal making and householdstoves. A Lorena stove may be seen at the Center but there are no available performancedata. Much of CAMERTEC'spresent lethargy is due to the inadequacyof financial and staff resourcesneeded to sustain an effective level of operation; there is also a real need for a more coherentprogram direction and more expert advice on the specifictechnologies.

6.27 UTAFITI's role is closer to that of a coordinativebody for renewable energy research and developmentthan any other agency in Tanzania.. Membership is drawn from the University,the various line Ministriesand the private sector. The Council'srole is to coordinate all types of scientificresearch and to advise the Governmenton research and developmentpriorities and fund allocationsfor that purpose. For various reasons,this role has not been pursued as well as it should,at least as far as renewables are concerned. Most. research and pilot activities being implementedtoday do not appear to have emerged from UTAFITI-definedpriorities, but rather from the special interests of external aid agencies or, in the case of the University,the academic inclinationsof its faculties. There is littleregular monitoring of the progress of such work by UTAFITI. However, a research co-ordinating committee has recently been formed with membershipdrawn from various governmentagencies.

6.28 Apart from the obvious need to infuse more resourcesinto work on nonconventionalenergy, there is a crucialneed to developa long-term plan for research, demonstrationand technologydissemination; the plan should: (a) set realistic goals; (b) identify a sequence of specific activities and projects; and (c) delineate implementationresponsibi- litiesamong the few relevantagencies in the country. - 108 -

SectorCoordination and Planning

6.29 The preceding paragraphs have identified a multiplicity of organizationsoperating in the energy sectorwith a lack of any effective central coordination. In the future, it will be essentialto anticipate additionaldemands from existingand from major new energy users and to ensure that the long-termplanning of energy supply is carried out on a more integratedbasis.

6.30 Considerationshould therefore be given to the creation of a small team of energy specialists, with access to information and appropriate computer support. The energy team would comprise an economist,a financial analyst and possibly an engineer with a broad experiencein the energy field and would: (a) prepare and regularly update an overall energy plan (includingthe maintenanceand circulation of updated energy data and supply-demandbalances); (b) receive information - as a matter of right - on all proposals and projects involving large new energy demands and significant new supply prospects and options; (c) evaluate these proposals, projects and options in their energy aspects on strictlyeconomic, technical and financialgrounds; and (d) prepare papers summarizingits evaLuationsand concLusionsand submit these papers to an Inter-MinisterialEnergy Commission.

6.31 The Energy Commission could be a newly-createdcommittee of PrincipalSecretaries from all the Ministrieswith an important involvement in the energy sector, either on the demand or the supply side - notably NWEM, MNRT and the Ministries of Transport,Works, Industry, Agricultureand Planning which would meet on a regular basis. In light of the papers received from the energy team, the Commissionwould either take decisions for implementationby the Ministry concerned or where necessary (e.g. if a major investment is involved or substantialdis- agreement exists within the Commission) prepare proposals for consi- derationat the Ministeriallevel.

6.32 The team of energy specialistswould in effect serve as the Commission's Secretariat and for conveniencewould be located within MWEM; access to or by the Principal Secretary of each of the concerned ministries to the Secretariat would, however, be direct and as of right. The Secretariat could be attached to the existing Planning Division, but that Divisionwould need to be reorganizedand its respon- sibilitiesredefined since its present mandate is too wide, encompassing water as well as energy (see para. 6.5).

6.33 A major problem in establishingthe energy team is expected to be staffing. Initially,the mission envisages the core team members to be expatriatesbut it is essentialthat they work directlywith Tanzanian counterpartstaff as soon as possible. A search to find these counter- parts would, therefore,be a matter of high priority. As a start, a consultant should be employed for, say, three months to: (a) draw up detailed terms of referencefor the energy team and the Energy Commission; - 109 -

(b) specify the working methods, supporting documentation and computing programs and equipment necessary for the energy team; and (c) define the formal administrative procedures for the energy team, the Energy Commission, and the relationships between the Energy Comuission, the energy team, individual ministries and Cabinet. The consultant could also help to find the individual expatriates, their Tanzanian coun- terparts and the sources to finance them. 93/

6.34 The serious gap in planning and implementing work on nonconventional energy sources could also be filled by appointing an adviser in MIEM with particular expertise in renewables. He would work closely with UTAFITI and could be an integral part of the energy planning team proposed in para 6.33. He would draw up a long-term program of work along with implementation strategies. The program would be institutionally oriented and it would define the links between the different agencies and delineate their specific roles. The implementation strategies must recomiend measures to strengthen the coordinating role of UTAFITI and the implementation roles of CAMERTEC, the University and other relevant agencies. There are reasonable prospects for obtaining the services of such an adviser through bilateral agency grants.

An Institutional Framework for Gas

6.35 In light of TPDC's responsibility for developing Tanzania's natural gas resources and promoting industrial projects which are based on the petroleum sector, the Government and TPDC in May, 1981, signed an agreement with a U.S. company (AMRICO) to form a jointly-owned company, the Kilwa Anmnonia Company (KILAMCO). The company would use the Songo Songo gas reserves to produce ammonia and urea for fertilizers in a plant located at Kilwa Masoko, 25 miles from the Songo Songo gas field (para. 4.34). The agreement envisaged that TPDC would create a wholly-owned subsidiary (GASCO) to produce and deliver the gas to KILAMCO. CASCO is not yet operational and in any case the agreement is conditional on success in raising finances for the fertilizer project. So far, the financing package has not been put together.

6.36 However, whether or not the fertilizer project goes ahead, it will be necessary to take effective steps in the near future to set up an appropriate gas irstitution if the mission's recommendations to proceed with commercial production of the Songo Songo field and the construction of a gas pipeline to Dar-es-Salaam are to be implemented; there would

93/ The essential features of the proposals in paras. 6.33-6.36 are similar to those proposed in the U.N. study "Energy Planning in Tanzania" (Department of Technical Cooperation for Development), September, 1982. - 110 -

also be merit in having a gas entity establishedat an e:rly stage if the suggesteddemonstration program for the use of gas in vehiclesis carried out.

6.37 From experienceelsewhere, there are severaloptions concerning the role and the precise responsibilitieswhich can be given to a national gas utility. At one extreme,GASCO could act on behalf of TPDC and fund, build, own and operate the field production and pipeline facilities;it could also purchase gas at the well head for resale to final consumers. At the other extreme,GASCO might simply be a division of TPDC, which would retain full ownership of and responsibilityfor field production and pipeline facilitiesand for the gas in transit. While the latter type of organizationwould minimize the risk of diluting scarce manpower, and save bureaucraticduplication, this may not be a significant factor to the extent that GASCO's activities would be completelydifferent from those of the existingTPDC and would therefore require different peopLe. Basically,GASCO would be an operatingutility as opposed to a petroleumexploration and developmentcompany.

6.38 In setting up an institutionalframework to develop Tanzania's natural gas resources, consideration should be given to a "twinning" arrangement,whereby a similar institutionin a developedor developing country would enter into a negotiated long-termagreement for: (a) the establishment of a stable professional relationship in matters of technology transfer; (b) the training of managers, operators and other staff; (c) the review of studies given to third parties or completed internally;and (d) advice on developmentplans, investments,accounting, gas purchase and sale contracts, price structure, market penetration, assistance to consumers for gas conversion, and other operatLonal questions. Gas consultantsare usually in a less favorableposition to render such services than utilities themselves,since the latter have actual experience in operating a system. Obviously, "twinning"agreements require from the counterpartagency in a developed country some concern for the needs of developing countries and not simply the quest for financial benefits. The "twinning"arrangements between TANESCO and ESB (paras. 6.6-6.7) demonstratethat such a form of cooperationcan be highly successful.

6.39 Similaritybetween institutionsmeans that the size and com- plexity of their gas operations should not differ widely. Preference would therefore be given to a counterpartgas utility from eithera small or medium countryor from a large country if the utility'sactivity is at a regional or communitylevel. There would also be lessonsarising out of the ways in which the counterpartutility has organized the proper representationof generally conflicting interests (e.g., between gas suppliers and consumersand the gas utility itself) through appropriate consultingbodies, gas promotion programs, contractualarrangements and pricingpolicies.

6.40 The management study completed in March 1982 (para. 6.13) provides sound advice on a number of aspects related to the financial and - ill -

managementstructure of TPDC. In the mission'sview, there is a need for a follow-up study devoted specificallyto resolving the issue of an appropriateinstitutional framework for gas production,distribution and marketing in Tanzania. The study should consider the whole range of available options, including a "twinning"arrangement, and make clear recommendationson: the type of institutionalframework to be adopted; how the entity shouldbe createdand staffed;and how it should take over the Songo Songo production facilities,construct the gas pipelines and market the gas (includingpricing arrangements). Therefore,there would be an urgent need for the Government to take a decisionon these recommendations. Technicalassistance is recommendedto financethe study and the training of personnelwhich would be necessary to staff the entity. If the Government is already attracted to the "twinning"approach, an appropriatelyselected "twin" might carry out the study or, alterna- tively, the "twin" should be involvedas soon as possiblein implementing the Government'sdecisions. Preparationof terms of reference for the study could be financed under the UNDP/IBRD Energy Sector Management Program. - 112 -

VII.*IVESTMENT AND TECHNICALASSISTANCE IN THE ENERCY SECTOR

InvestmentRequirements

7.1 The mission has examined the likely future investmentrequirements for the energy sectorup to 1991, in light of the demand forecasts prepared for the "SAP" scenario in Table 3.5 and the energy supply and interfuelsubstitution options analyzed in Chapter IV. The conclusions are discussed below and the results (in 1983 prices) are in Table 7.1. The principal investmentsidentified by the mission to be carried out through the public sector are in the electricity,gas and forestry subsectors. Some investmentsare also recommendedfor the refinerybut they are modest and prbmise a rapid payback period. In the coal subsector, STANICO appears to be proceedingwith additional investmentsbut they also should be modest in the period under review. Finally,some support from the Government'sinvestment budget may be required in the nonconventional energy subsector;the amounts should not be large in relative terms - since most of the funding would logically come from private resources- and they are thereforenot taken into account in Table 7.1.

7.2 In the electric power subsector, works related to the Fourth Power Project are expected to cost US$196 million, including:(a) the civil, mechanicaland electricalworks for she Mtera hydroelectricscheme (para.4.54); (b) a new system control center; and (c) rehabilitationof the Ubungo power station (para.4.65) and other systemscomponents (para. 4.69). Other ongoing works (mainlyextensions to the main grid and other distributionfaccilities) could amount to US$139 million. Financing for the Fourth Power Project and most of the componentsof the ongoing works has been arranged. In addition,a provision of US$169 million has been made in this report for rehabilitationand other works comprising: (a) transmission,including a second 220-kV link from the Kidatu to Norogoro (para. 4.62), transmission interconnectionswith Kenya and Uganda (para. 4.72) the 132-kV system (para. 4.63); (b) the Pangani River hydroelectricstations (para. 4.67); and (c) TANESCO'sdistribution network (para. 4.68). Finally, investment in new gas turbine generating capacity, to be commissionedin 1992, is likely to cost US$30 million (correspondingto 2 x 30 MW). These turbinesmay not be needed until the latter part of the 1990s however, if the 'SAP' program does not materialize soon. Most of these investmentscan be regardedas independentof the actual growth rate of future power demand, in the sense that they should go ahead -- whether electricitydemand grows according to the 'SAP' scenario or at some slower rate -- subject only to financialconstraints. In the mission'sview, ongoing works and those financed under the Fourth Power Project are for all practical purposes committed;the US$169 million provided for rehabilitationand new works are to effect cost savings, improvementsin system reliabilityand increases in the quality of electricitysupply even with the existing level of demand. Hence, out of the total investmentof US$504 million for the electric power subsector in Table 7.1, only the US$147 million for the Mtera - 113 -

hydroelectricplant and the US$30 million provided for new gas-based generatingplant are directly dependent for their economic viabilityon the growth rate assumed for electricitydemand. Of course, it is crucial to emphasize that -- if Tanzania'soverall economic situationdoes not improve -- the Governmentwill face severe financialconstraints which, in turn, could compel TANESCO to reduce its desirable investmentprogram. For this reason, the mission considersit extremelyimportant for the Governmentand TANESCO to establishdetailed prioritiesfor individual projects' financing and timing; these prioritiesshould be based upon a careful weighing of financial economic, technical social and operationalcriteria. An important input in this process -- as far as the economic, technicaland operationalaspects are concerned-- will be the long-rangepower developmentstudy and the power system rehabilitation study currently being carried out under the Fourth Power Project (para.4.53). It is clear, for example,that certainaspects of rehabilitation are vital to maintain reliable power supply and avoid the dis- ruption of productive activity and human well-beingthat results from power outages. Ultimately,of course, the Governmentand TANESCO jointly must decide on priority rankings and the specific componentsthat may have to be delayed or deLeted from the program to keep within obtainable financialresources.

1.3 In the gas subsector, the major investmentswill be devoted to: (a) securing and protectingthe existing Songo Songo wells (US$4 million); (b) the final developmentof the Songo Songo gas field (US$6 million, includingnecessary associateddesign and simuLationstudies); (c) the constructionof a transmissionpipeline from Songo Songo to Dar- es-Salaam (US$45 million, including preparatorywork leading to a decision on the pipeline's diameter and engineering);94/ (d) the installation of the secondary distributionsystem in Dar-es-Salaam(US$5 million); and (e) conversionof industrialplants in Dar-es-Salaamto use gas (US$6 million, including spurlines and tertiary works). 95/ In- vestment costs for CNG supply in transportationand possibly to isolated markets (such as Zanzibar and Mafia Island) are more difficult to estimate. Equipmentto ship CNG from Songo Songo to Dar-es-Salaammight cost US$4 million; conversionof the UDA bus fleet under a pilot scheme could add a further US$4 million (includingrelated technical assistanceand studies). If the pilot scheme is successful,further vehicle conversion and the building of filling stations could amount to US$20 million from 1986-1991 (including more technical assistance and necessary vehicle surveys) (paras. 4.51-4.52). Finally, the mission includes a notional US$3 million to set up a small CNG or LNG shippingproject at Mnazi Bay.

94/ The figure excludes transmissionto Kilwa, which is assumed to be part of the investmentfor the KILAMCOproject.

95/ Item (d) might be financed privatelyor under short-termgovernment loans. - 114 -

Table 7.1: ESTIMATED PUBLIC INVESTMENT REQUIREMENTS FOR THE ENERGY SECTOR TO 1991 (US$ million at 1983 prices)

US$ million Power a/ Ntera hydroplant, Control Center and Rehabilitation 147 (Ubungo and other facilities) 26 Engineering and Consultancy Services 20 Studies and Training 3

Committed Expansion Program: - Transmission 124 - Distribution and Isolated Systems - (Newola/Masesi, Kilimanjaro, Mini-Hydro) 43 - Rehabilitation and Miscellanous 72 TN Rehabilitation of isolated power Stations 20 New, gas-based generating plant 30 Transmission network reinforcement and expansion (Kidatu-Morojoro; Northwest) 30 International Interconnections 45 Rehabilitation and Miscellaneous 44

Total Power Sector 504 Gas e-curingand protecting existing Songo Songo wells 4 Final development of Songo Songo 6 Transmission pipeline to Dar-es-Salaam 45 Secondary distribution in Dar-es-Salaam 5 Plant conversion in Dar-es-Salaam 6 CNG supply from Songo Songo 4 Conversion of UDA bus fleet (pilot scheme) 4 Further vehicle conversion 20 CNG supply from Knazi Bay 3 Subtotal 97 Forestry Urban plantations 32 Rural woodlot program 12 Subtotal 44 Other Refinery 10 IndustrialEnergy Conservation 3 Coal 8 Subtotal 21 Total required investment for the energy sector to 1991 666 a/ With the exception of the-new gas-based generation facilities, power sector investments are composed of already committed projects or essential rehabilitation needs that will be minimally affected -- whether or not the "SAP" scenario materializes. - 115 -

7.4 It is difficult to project physical targets and associated investment requirements in the forestry subsector, but para. 4.96 proposed a minimum plantationprogram for urban areas which would start at 1,500 ha in year one and reach 7,500 ha p.a. by year five. The program implies plantinga total of 22,500 ha and 51,000 ha in the first and second five-year periods respectively. A detailed breakdown of plantationcosts for a one-hectaremodel is in Annex 15, resultingin a cost of about TSh 7,500 (US$615) per ha. 96/ Total investmentin the first and second five-year periods of the programwould correspondingly come to TSh 170 million (US$14.0million) and TSh 384 million (US$31.5 million) respectively. Assuming that the program of urban energy plantations could be underway in 1984, investmentsof US$32 million are provided as a minimum requirementin Table 7.1. Similarly,in para. 4.97, the mission proposeda minimum program for rural areas which startedwith ten million seedlingsand reacheda level of 30 millionseedlings by year five. The program impliestotal investmentof TSh 70 million and TSh 130 million in the first and second five-yearperiods respectively. Again assuming that the program would start in 1984, the mission includesan investmentof US$12 million in Table 7.1. It should be clear, however, that these suggestedprograms represent only a first step in dealingwith the pervasive and growing seriousnessof the fuelvood/household-fuel problem. Added studies and regional resource inventoriesare urgently required to identifythe seriousnessof the situationon a region-specific basis and to define additionalprograms (e.g. increasedand improved charcoal operationsin more remote areas, utilizationof wastevood,con- servationprograms in crop drying activities,etc.) that could be developed. The mission expects that far greater efforts than those outlined here will be necessary within a few years in order to deal with the problem.

7.5 Modest investmentswere proposed for the refinery in Chapter IV, to cover debottlenecking,equipment for repairsand replacementsand the reduction of internal fuel consumptionand losses (see para. 4.15). The mission attachesa very high priority to these investments,totalling roughlyUS$10 million,as they are urgentlyneeded to secure the safe and continuedoperation of the refineryand they are expectedto have a short payback period. If external sources of financingcannot be found quickly, the Covernmentshould make those investmentsas an additionalequity contributionto TIPER. The mission also suggested in Chapter IV that studies be carried out on the viability of installing small secondary conversionfacilities and on the additionof a bitumen plant adjacent to TIPER. Investment in the projects themselves would have to await the

961 Some studies in the U.S. indicatethat the figure could be as low as US$400 per ha. See "Production of Woody Bifuels from Mesquite" (Caeser Kleberg Wildlife Research Institute). A figure of US$615 per ha for Tanzanianconditions is not unreasonablein comparison. - 116 -

outcome of those studies and would be considerablylarger (US$42-50 million);they are not includedin Table 7.1. 971 7.6 The mission has adopted a very cautious approach to the coal subsectorand is not proposingany substantialinvestments, certainly not prior to the outcome of the Coal EngineeringCredit and the studiesout- lined in para. 4.88. Consequently,possible future investmentsin Ivogo Ridge and Kabulo Ridge are excluded from Table 7.1. However,anticipated expendituresunder the Coal Engineering Credit (US$7 million) and an estimate of STAMICO'sinvestment in the expansionof Ilima (US$1 million) are includedin Table 7.1.

7.7 The investmentsin gas developmentand forestry projects are particularlytentative and would depend on the outcome of feasibility studies proposed separately. The estimated investmentrequirements for the energy sector as a whole in the eight-year period to 1991 total US$666 million in 1983 prices or nearly US$85 million per year. This corresponds to about 2Z of estimated 1983 CDP, which is reasonable compared with other developing countries. About 752 of total energy sector investmentwould be for electricitysupply.

7.8 The discussionsof industrialenergy conservation(paras. 5.20- 5.24) shows that significantenergy savingsmay be availableat relative- Ly lov investment costs. It is recommendedthat a fund of about US$3 million be established to finance the foreign exchange costs of such energy conservationmeasures.

TechnicalAssistance

7.9 Bilateral and multilateralagencies are already providingcon- siderableamounts of foreign aid to the energy sector in Tanzania. From discussions in the field and informationobtained by the UNDP resident mission in Dar-es-Salaam,the m-..sionput together a listing of current technicalassistance activity. For example:

(a) CIDA has so far approved C$2 million for a pre-engineering study for the Dodoma-Mwanzaportion of TANESCO'sinterconnected system extension plan. An additionalC$0.4 million has been approved to finance the updating of the 1981 Power Sector

97/ According to the most recent informationavailable to the mission, the Italian government expressed its wilLingnessto provide about US$4 million to finance investmentsfor debottleneckingand improvements in energy efficiency,and US$20 million to update the studies of the bitumen plant and its actual construction. - 117 -

Study. 98f CIDA was also responsiblefor the funding of the expatriate advisor responsiblefor the energy sector in SWE (para. 6.5) and has agreed to fund a replacement. CIDA is also financinga small study of sc e of TANESCO'sdistribution lines (para. 4.68). Finally, CIDA has providedC$0.05 million for a hydrologystudy for the Great Ruaha River system;

(b) The United States Agency for InternationalDeveLopment (USAID) has so far committedUS$0.4 million over the last two years for the training of 6 Tanzanian students in conventionalenergy, energy managementand alternativeenergy technology;

(c) The European Economic Community (EEC) has provided,under the first Songo Songo Petroleum ExplorationProject (para. 6.1), funding for the petroleum exploration economist seconded to MWEM and for severalstudies. EEC is also financinga study of electric power interconnectionbetween Tanzania and Uganda (para. 4.72);

(d) The Technical, Industrial and Economic Cooperation Agency (ACTIM) is sponsozing the training in France of TANESCO engineers;

(e) The Finnish International Development Agency (FINNIDA) has provided US$1.7 million to fund four experts for the Zanzibar AfforestationProgramme;

if) SIDA is involved in studies concerning alternativeuses for softwood for energy purposes on plantations(para. 4.100) and is investigating Tanzania's rivers as to minibydro power potentialtogether with NORAD and KFW (para.2.14);

(g) The IDA Coal Engineering Credit (para. 6.17) includes a provision for training assistance for STAMICO's technical, financialand accountingstaff; and

(h) Through the Fourth Power Project,IDA, togetherwith the other cofinanciers(France, KFW, Italy, Kuwait Fund, NORAD and SIDA) has provided about US$2.7 million equivalent for training of TANESCO's engineers and managerialstaff; and for consultancy services for supervisionand carrying out of studies (paras. 4.54, 6.8-6.9).

(i) NORAD has provided 44 million Kroners a four period to fund a petroleum sector program which includes petrolem exploration and operationalsupport to TPDC.

98/ Carried out by Acres International. - 118 -

7.10 Even though there is already substantialteclnical assistance activity in the energy sector as described above, the discussion in Chapters II, IV, and V identifieda number of areas where further external assistance is required. Among these, the mission has selected the items described in the following paragraphsas having the highest priority.

7.11 In the petroleumsubsector:

(a) Engineeringstudies shouldbe undertakento investigateways of improvingTIPER's operating efficiency (paras 4.8-4.11). 99/

(b) Immediate assistanceis requiredto evaluatethe possibilityof increasing TIPER's capacity by simple debottlenecking(para. 4.13); 99/

(c) The 1978 study to constructa bitumen plant to utilize excess fuel oil from TIPER should be reexamined(para. 4.16) 99/; and

(d) on a longer-term basis, consideration should be given to studying the viability of installing simple secondary conversionfacilities at TIPER (para.4.17);

Ce) The possibilityof using present excess capacityin the TAZAMA pipeline to supply crude oil to inland towns as a partial substitute for refined products should be evaluated (para. 4.21).

7.12 In the natural gas subector:

Ca) Preparatorywork on a gas transmissionpipeline and distribution system should be undertaken and will require external financing(para. 4.52 and 7.3 (b));

(b) Evaluation of the possibilitiesof CNG/LNG supply from Songo- Songo to Dar-es-Salaamand from Mnazi Bay to Mtwara-Lindiis required (paras.4.50-4.51; 7.3); and

7.13 In the electricpower subsector:

(a) The studies of hydroelectricfacilities carried out so far need to be updated extended to the feasibilitylevel for those components likely to form part of the least-costpower expansion

99/ Italian financing is likely to be availableto financeat least part of these items. - 119 -

program and ranked by merit in a complete inventory (para. 2.20);

(b) An independentstudy is necessaryto review the present system of gatheringhydrological and other data (para.2.21);

(d) Rehabilitationof serviceablediesel units and basic training in maintenance of dieseL units is urgently required (para. 4.69);

(e) The optimum use of the water reservoirsin the interconnected system merits further criticalreview (para.4.70); and

(f) The possibilityof power export to Kenya should be carefully evaluated(para. 4.72).

7.14 In the coal subsector,studies should determine the economic limits on coaL distributionand the effects of conversioncosts, etc. on the attractivenessof coal as a fuel input (para.4.88).

7.15 In the fuelwoodsubsector:

(a) The Energy Sector ManagementAssessment Program (ESMAP) should be used to help the Governmentin definingthe componentsof an appropriate first phase progzam (including proposals for institutional arrangements such as that described in para. 4.96).

(b) A national forestry inventory is urgently required (para. 2.31).

(c) Existing knowledge of the growth dynamics and productivityof the miombo forests (Tanzania'smain fuelwood source)needs to be extended (paras.4.91-4.92);

(d) Training programs are required to equip local staff to implement effectively the research results and handle the Larger planting programs which will be required in the future (para. 4.91).

7.16 Concerningnon conventionalenergy sources, there is a need to investigatefurther the possibilitiesof convertingindustrial plantation residues into charcoal (para.4.99); and solar and wind energy in specific areas (para.4.107).

7.17 ESMAP assistanceis recommendedto help with demand management by financing: - 120 -

(a) Further support to enable TIRDO to operate as the nucleus of industrialenergy conservationactivities (para. 5.24).

(b) A continuationof the existing energy audit program (para. 5.22); and

7.18 Various forms of technical assistanceare urgently needed to foster institutionaland manpowerdevelopment, notably:

(a) A framework for an energy planning team in MWEMmust be created (paras. 6.33-6.35) and its initial staff must be funded, includingan expert in renewables,(paras. 6.36-6.37);

(b) A detailed study is required to determine the appropriate institutionalframework for gas production,distribution and marketing (para. 6.43), the term of referencefor which could be preparedunder ESMAP; and

ENERGYBALA4CE 1961 (1000 tonnos of oil egulvalent) .

Frimar Enwrgy Sacondary Enercy Petroleum Products Crude Aviation b ollneInw Fueluood c/ Coal Hydro Oil CharcoaI d/ Electrlclty / LPO Gas FDphts Kerosene GO 100 FO Other Total Total

Gross Supply Productlon 9,400 3 180 9t5o lmporte 544 5$ 16 39 173 21 284 624 Stock Chargsy ((3 (23) (73 5 3 (73 (33 2 (17 (3(1 Total Available 9,400 2 180 521 28 21 42 166 (3S 2 21 277 10,30

onverslon Petrolew Rflnlng (4771 6 29 99 35 74 62 172 477 0 Charcoel Production (350) 350 0 ElectrlcitY ~naratlon (ISO) 208 (1) (16) (1111 (I 02 ConversionLosses 11*1001 (443 ((393 (1,283) Tranmlssion and DIstrIbutlon Losses tlO) (10) Not Supply Avallablo 7,950 2 350 s9 6 57 120 77 239 43 163 21 726 9,007

Exports Ci) (23 (43 333) (403 (401 Bunker SOles (223 (223 (223 Nrt DomestIc COnsuotlon ,7950 2 350 59 6 36 II 77 235 43 (08 21 664 9.025

ConMutlon bv Sector Industry 600 2 10 34 1 5 16 27 91 3 (43 929 o_nsrct 12 17 13 30 42 Trsnsport 52 1(3 1 iB5 2 is 2 372 372 HDuseholds 7,350 200 13 5 71 76 7,639 Agriculture 25 0 2 35 55

Discrepancyand ROundIngError 4 3 (63 6 2 I Ia 10

/ I toe a 10.2 mlillon kllocalorles. / Incr"se shown as neative. d fuelvood Is converted at 5,500 Koal/kg at 25%moisture content and 700 kg/c. harcoal Is convorted at 7,000 Keal/kg. It Is assumodthat 12 o) of wood yields one ton of charcoal In the traditlonal earth kliln. / Electrlc poer losses are believed to be higher than reported, probably due to ovwr-raporting of consupt1on. Therefore, totai electrlclty consumPtion hus been adjusted and *ach coniuwr category has been reduced 'pro-ratae. - 122 -

Annex 2

REGIONAL FUgLWQOD CONSUMPTION ESTIMATES (1981) (10 m solid wood equivalent)

…------…--- Consumption------… -- PopuLgtion Tobacco Other Rural Region (10 ) Household a/ Curing b/ Industries c/ Total

Nwanza 1.585 2.821 - 0.355 3.176 Mara .782 1.392 - 0.175 1.567 Kilimanjaro 1.00 1.780 - 0.224 2.004 Mtwara .812 1.445 - 0.182 1.627 Kagera 1.167 2.077 - 0.262 2.339 Tanga 1.121 1.995 0.010 0.251 2.256 Shinyanga 1.504 2.677 0.010 0.337 3.024 Fwani .533 0.949 0.017 0.119 1.085 Arusha 1.069 1.903 - 0.239 2.142 Dodoma 1.064 1.894 - 0.238 2.132 Iringa 1.001 1.782 0.070 0.224 2.076 Mbeya 1.205 2.145 0.065 0.270 2.480 Kiguma .713 1.269 - 0.159 1.428 Morongoro 1.024 1.822 - 0.230 0.052 Tabora .973 1.732 0.390 0.218 2.340 Ruvuma .629 1.119 0.160 0.141 1.420 Rukwa .535 .952 0.029 0.120 1.101 Singida .670 1.193 0.005 0.150 1.348 Lindi .553 .984 0.004 0.124 1.112 Dar-es-Salaam 1.195 2.127 - 0.268 2.395

TotaLs 19.137 34.1 0.760 4.29 39.1 a/ Includes wood used directly and in form of charcoaL. b/ Only tobacco curing and tea drying have regional data available. However, tea drying toiaL is relativeLy small (.037). Tobacco curing needs estimated at 30 m stacked wood/450 kg tobacco cured. c/ Includes wood used directly for pottery (0.264), brickmaking (0.10), fish smoking (0.17) and tea drying (.037), as well as wood equivalent of charcoal used for blacksmiching, rural industries and the service sector (2.5). Source: Kaale (1982), Nkonoki (1983), Openshaw (1983) and mission estimates. - 123 -

Annex3

FUELWOODAVAILABILITY BY REGION

Region MiomboForest a/ Woodlots Total

MAI MAI ('000ha) ('000m 3/year) ha b/ ('000m3/year) c/ ('000m 3/year)

Mwanza 142 87 1660 30 117 Mara 126 75 2147 39 114 KilimanJaro 88 80 1003 29 109 Mtwara 434 28 379 7 215 Kagera 458 222 1022 18 240 Tanga 846 479 802 14 493 Shinyanga 1326 533 3289 59 592 Pwani 889 458 304 6 465 Arusha 979 579 1551 28 606 Dodoma 1168 672 2547 46 718 iringa 2474 1130 2914 53 1183 Mbeya 3158 1294 2206 40 1334 Kigoma 1815 687 927 18 1096 Morogora 2494 1078 979 18 1096 Tabora 4514 1748 1120 20 1768 Ruvuma 3314 1265 1989 35 1300 Rukwa 3774 1447 2182 39 1486 Singide 2844 1382 1146 21 1403 Lindi 3706 1646 232 4 1650 Dar - - 65 1 1

Total 34,549 15,069 29,064 524 15,593 a/ Does not includeclosed tropicalforests and industrialplantations and area is based on 80% accessibility. b1 Sixty percentsurvival rate estimatedby FD. c/ 18/u /yeer/ha- MAI (MoanAnnual Increment). - 124 -

Annex 4

NATIONAL STORAGE FACILITIES FOR PETROLEUM PRODUCTS (Kiloliters)

Industrial Kerosene/ Gas Diesel Fuel Location Gasoline Gasoline Jet Oil Oil Oil

Dar-es-Salaam 11,627 7,436 9,904 56,435 4,319 8,891 Mtwara 1,637 1,636 8,791 8,742 242 - Zanzibar 223 357 233 470 - - Tanga 524 323 514 1,749 - 13 Moshi 284 383 319 504 162 153 Arusha 471 - - 497 92 125 Musoma - 2,651 67 350 134 - Nvanza 346 693 467 1,438 362 440 Bukoba 171 213 215 215 52 - Kigoma 1,493 730 - 1,658 - 326 Tabora 149 357 137 546 51 - Dodoma 83 255 76 254 83 - Kimamba - 43 43 54 54 - Mikuni 97 271 95 740 196 - Morogoro 297 54 116 286 - -

Total 17,402 13,016 20,976 73,938 5,747 9,948 ANNEX4(a)

PRICEBUILD-UP OF PETROLEUMPRODuCTS (TSHPER LITREUNLESS SHOWN OTHERWISE) EffectiveJune 15, 1984

LPGa/ MSPb/ MSR3/ JET-Al IK GO IDO FO

1. Ex-TPOCCost Price 6,389 . 7.8116 6,2608 5.919 5.919 5,254 5.124 3,396 2, KilamcoFund 0.150 0.150 0.150 0.150 - 0.150 0.160 0.150 3. Ex-tPDCPrice 6.539 7,9616 6.4108 6.069 5.919 5,404 5.274 3.546

4. CompanyOverheads 0.270 0.270 0.270 0.270 0.270 0,270 0,270 0.270 5, CompanyMargins 0,157 0.154 0.154 0,154 0.154 0.155 0.156 0.071 6. D/D FreightFund 0.170 0.170 0.170 0.170 0.170 0,170 0.170 0.170 7. MSP/MSR/T,E,F, - 0,450 0.450 - - - - - 8. In-BondWholesale 7,136 9.0056 7.4548 6.663 6,513 5,999 5.868 4.057

9. Sales Tax 1.00 6.5514 5.5532 1,00 0.685 1.20 0.95 0.95 10, WholesalePrice 8.136 15.557 13.008 7,663 7,198 7.199 6.818 5.007

II. Delivery Charges 0.85 0.05 0.05 - 0.05 0.05 0 - 12, Deaol.rsMargin 0,264 0,543 0,492 - 0,252 0,251 - - 13, Retail Prices 9,25 16,15 13.55 - 7.50 7,50 - - a/ Priceper kilogram. b/ MSP = MotorSpirit Premium; MSR a MotorSpirit Regular. Annex S

ILLUSTRATIVEBREAKDON OF POTENTIALUAS 1MAKET FOR CASES IV-VII a/

(1) (2) (3) (4) (5) (6) (7) (8) ('9 (10) Ind. + Power Ind. t Powe Supply for Fert. Supply for Ind. Industrlal industrlal Powr Power Ind. + Power Cumulative + Fort. (Scngo Sonqoonly) f/ and Power of Year _cf/d _cf/d beftyr bet/yr bet/yr bef/yr bef/yr bcf/yr bef/yr Son.Son. ItBoy

1987 11.6 4.23 - - 4.23 - 23.83 19.6 4.23 - (988 12.0 4.36 - - 4.38 8.61 23.98 I 4.38 - 1989 12.5 4.56 - - 4.56 13.17 24.16 I 4.56 - 1990 13.0 4.75 - - 4.75 17.92 24.35 4.75 - 1991 13.5 4.93 - - 4.93 22.85 24.53 4.95 - 1992 14.0 5.11 1.01 0.37 5.48 28.33 25.08 I 5.48 - 199M 14.6 5.33 6.73 2.46 7.79 36.12 27.39 I 7.79 - 1994 15.3 5.58 9.75 3.56 9.14 45.26 28.74 I 9.14 - 1995 16.0 5.64 135.34 4.87 10.71 55.97 30.31 I 10.71 - 1996 16.7 6.10 17.12 6.25 12.35 c/ 68.32 31.95 I 12.35 _ 1997 17.5 6.39 21.15 7.72 14.11 82.43 33.71 I 14.11 - 1998 18.2 6.64 25.36 9.26 15.90 98.33 35.5 I 15.90 - 1999 19.0 6.94 29.89 10.91 17.85 116.18 37.45 I 17.85 - 2000 19.8 7,23 34.66 12.65 19.88 136.06 39.48 I I 2.030 2001 20.6 7.52 39.73 14.50 22.02 158608 41.62 I 4.17 2002 21.5 7.65 45.07 16.45 24.30 182.38 43.9 I 6.45 2003 22.4 8.18 50.77 18.53 26,71 209.09 46.31 I I 8.6 2004 23.3 8.52 56.77 20.72 29.24 2M8.33 48.84 17.65 11.39 2005 24.3 8.68 63.15 23.05 31.93 270.26 51.53 I 4.57 27.36 2006 25.4 9.25 69.92 25.52 34.77 305.03 54.37 1- 34.77

I I I I I 1 1 54.37 19.66 - 2013 1 I I I I 34.77 _ _

2018 1 I I I I 722.27bk/d/ I _ _ 2021 25.4 9.25 69.92 25.52 34.77 826.58 34.t7 - - 34.77

Totals n.mo 266.96 nee. 559.62 626.58 826.58 1330658 510.00 210.00 616.58

Explanatory Ibtes a/ The table shows gas allocation under Case VIl, I.e.,using Songo Songo and Inaul Say ms for Industry, ower and fertilizer.VarIatlons undor Cass IV, v and VI are decorlbed In the following footnotos. The definItlon of all cases Is In Annex6. k In Case IV, Songo Songo gas Is exclusively allocated to Industry and pww reaching a maxim at 34.77 bct/yr In 2006 as shown In column 6, until 2010 whenavallable ressrves of 725 bef would be exhausted as shown In coat n 7. of In Case V, the Introduction of fertilizer ans Songo Songogas for Industry and power Is lioted to 210 bef. This allocatlon Is shown In column 6 untIl I$6 whon It reaches 12.35 bef/yr and then continues at that level until 2006, when a total of 210 bef would have been used up. The balance of 510 bet goes to fertilizer. LI Case VI Is the sameas Ca" IV. except that when Songo Songogas runs out In 2016, suoply Is continued from lVnal By et the sa" rate, 35.77 bef/yr. until Ih.aul Dy gas Is In turn exhausted by 2036. q/ Case VIl allocotes the same volme of gas to Industry and poer as Case VI, except that the addition of fertilitor means Sonqo bongt reseves ro oexhusted by 2013 and Mnaul Bay reservesby 2021. l/To prsntation assu"s that 100%of fertillier production requirements would be met from Sonqo Songo. f Mnazi Bay qas uwo Introduced, pipollne costs mIght be reduced by allocating nail by gas exclusively to fertillizr production until 50nqo 50npo resarves wre exhausted. - 127 -

Annat b

rAS SUMY S'S SEUB R eOuc eAuMM

Goth Qltm edw CAP.-4 QWt che Swurlo CG trd (umcVd) qauodtlo (f/d) ($o1

sow sawo gpti.bg Uum 12- MNarimPpelin I ODITmhI cry (8A) 6" taid piph1U* 16.8 49.3 D9t d1tbtrib (26 mf4d)

SSgmtrbhf lines Additlamil pwduhtion facltiUtu 12' 1rim Pipelim 1 LW 1i r. -stry (BA) 10- lId pipslz 59D. 73.3 mm1Pbw (50.7) d/ 1M dimtribiam (37 infd) caw. 0im.

*ditimmi pu nn fatlmS I SS lnrie iu IO1D0 16.5 12- r ltpel"lj"e ni L, M I1 nay (8A) 8" lid pipelSne Del POWr (5.5) MM Mstridbm (37 'afd) 3 34.0 40.1 xw./Im. I

KLba FPrtiier (55) 10' Lid pipsUn. to Im 66 9.8

atuma pco&ctua facutee * add.iml.tny ym. 21 & 26 12? N ptp: Uz. I 100 81.9 el

TV SAP 11I&ty(54 0 a ES IMY 05) W Lwd gia 1s DM P,W (69.9) + Md 10r PlpUamad bo tei ywr14 I

Ss gm%Nfrg1iuu AdkiLdami pcudon facif I V SAP +ad. wl inys. 21 &26 1 100 20.7 IZ matim pimlam

D In&tty94 (16.7) Er Id p4mie I 34 41.8 aMPw (17.1) M distrabuim5 (37 _:Ifd) | 0XM./rar6

Mm Fertilizer (55) 10" 11d pipeline to KU1 66 9.8

Ss I Iz Inry (25-4) hKIne I InCME TV IO0 81.9 e/ VI soP UK ?mr (69.9) ta I

? Daby go (34.8) BOuzI by facideU (field, n fo 2,018 12 lad pipiUn eM cawluI) 95 3.1 el

SS I Marim AI Scm1 tV 100 tl.9 1 f -i IAuMT (25.4) lad ] vII SAP mm1P3Mer (69.9) ]D4 alm ay. (55) 10" lad pipele to %1 66 9.A

t IIy So C348) 1-zI bty faities (feld, a frw 200 ir lid gpli d cmp=ea) 95 24.2

E to in ci tdie am tbom of ain uy._ pwto ulth Sowp Sp fadltid , -l- pipeline, ad ppln fr N byt ihr m1 to Inch _utzu pip_in ad or feilil. kelp tcmedt SI bond an 30D d dpalwy pmm to 1 aid 700 psd to Khm. Sj ct meu frm a tp aet d iIn neins10. A 1wisn czinod - a uid ebmoei7g cRn Wan= of Sup Sain oa. In ti _fieV i, acom ofaf I SyMM C mA dldM at 12 VWer.r - 128 -

Annex 7

GASSUPPLY COST ESTIMATES

IntrastructureComponents (Cost in USSOOO)

(a) Fields (1) Songo Songo Gathering lines 2,904 Additional production facilities 2,096 Booster 2,000 Additional well 15,000

(11) Mnazi Bay Field Exploration 15,000 Gathering Lines 3500

(b) Plpeline - Diameter 6" 8" 10" 12"

Songo Songo to coastal point (20 km) 8,815 9,504 10,363 11,543 Coastal point to Oar-*s-Salaam (206 km) 24,615 29,751 35,678 - Second pipeline (same route) 22,023 25,447 29.300 - Compression (40% Incroased capacity) 3.125 3,925 4,825 - Coastalpoint to Kilwa (63 ki) - - 9.777 _ Mnazi Bay to Kilua Pipeline (255 km) - - 45.873 a/ 49,572 Compression (40% increased capacity) 24.000

c) Doar-es-Salaam Distribution Network - Total capacity (MMCFD) 26 37 100

Cost 5.037 5395 1.4,396

Cd) Dar-es-Salaam Consumer's Connection and Oonversion

Area bl 1 2 3 4 5 6

Spur lines to indlvidual factories 30 90 200 300 200 100 Replacement burners and facilities 210 270 1,300 3,400 200 400

Total Cost: between 6,700 (as shown) and 5,200

(*) 220 KV Poner Transmission Line: (Coastal point to Dar-es-Salaam (206 kn) 22,700

Note: a/ The 10" design includes a 2 x 1,000 hp compressor station. b/ See Annex 10 for location. - 129 -

Annex 8

GAS DEPLETIONAND LONG RUN MARGINAL SUPPLY COSTS FOR CASES 1 THROUGHVII

Long Run Marginal Depletion Allowance Supply Costs Industry Power Fertilizer Industry Power Fertilizer ------US$ per mef ---

Case I a/ 0 n.as. n.a. 2.23 n.a. n.ea II b/ 0.10 0.10 n.a. 2.11 2.11 n.a. III cl 0.10 0.10 0.19 1.45 1.45 0.26 IV d/ 0.15 0.18 n.a. 1.04 1.04 n.ea. V e/ 1.15 1.18 1.07 0.95 0.95 0.26 VI f 00.03 0.03 n.a. 1.06 1.06 n.a. VII jI 0.03 0.03 0.45 0.92 0.92 0.26

Ex~planatoryr Notes a So go Songo lasts indefinitely -- no depletion costs. Supply costs allocate 12" marine and 6" land pipeline to industry. b/! Sogo Songo lasts to 2035 - minimnl depletion costs. Supply costs allocate 12' marine and 10" and pipeline between industry and power prorate to coosumption. c/ All added depletion costs assigned to Kilamco Fertilizer Plant. If potential domestic gas demand were to grow from a maximum of 21.7 bscflyear as assumed in Case II to 35.0 bsef(year by 2015, the depletion costs for Kilamco would Increase to $0.30/mcf. Annual average gas consumption by Kilamco assumed to be 12.75 bscf/year (75Z capacity utilization). 71% joint costs of supply allocated to Kilamco. d/ Songo Songo gas lasts until 2018 to be replaced by hydro and fuel oil in power and industry respectively. el Potential domestic demand as in Case IV but limited to a maximum of 12.35 bscf/year and exhaustion by 2006 due to Kilauco allotment. f/ With Mnazl Bay gas as back-up; no compensation payments to Mnazi Bay gas concessionnaires. g| As in Case VI but vith Kilamco consumption added. Annax9

ECONONICEVALUATION SIR4ARYOF CASESCONSIOfRED

DimO t_ Netback (USS me) e/ Project kWP Project Industry Power KilIacoeoall BbY of Dar b/ Industry Power CUSS-111) Benefit/CostRbtlo Case / Lowu High Low High Wlthout With Without With Pipeline dpin. no dpin. dpin. no dpin dpin. no dpin. dpin. no dpin.

I X 0 X X 6 1,63 1.63 n,ae n.e. 42.1 42.1 1.73 1.73 1 II X X X X 10 1.65 1.75 2.25 2.35 80.6 84.6 1.89 1.94 III / X X X X 8 2.31 2.41 2.89 2.99 107.8 IIIs. 3.0 3.07 C IV X X X X 10 + 10 2.67 2,82 3.22 3.40 291.2 298.3 3.93 4.01 v X X K S 2.76 2.91 3.01 3.19 160.7 169.7 3.99 4.16 VI X X X X 10 2.80 2.83 3.16 3.19 288.2 291.1 3.91 3.93 VI X X X X 10 2.91 2.94 3.27 3.30 299.9 301.6 4.37 4.40

E SeeAnnex 10 for gas demandprojectlons for Low Growth gas demandseonarlo (Cases 1-111). Annox5 for hlqhqrowth ocs demandscenarlos ICnseIV-Vil). / Sen Annox7 for breakdownof system costs for eah case. l SeeAnnex 8 for breakdownof economlccosts (depletion and long run marginal costs). y The Increasedcosts of deplotiondue to the additionof the KllasaoFertilizer plant have ben asslgnod to the latter (AMnex8). This leaves depletlon costs of domestie gas consumptlonunchanged with respectto (Cases11, IV and VMe. - 131 - Annex 10

POTENTIAL INDUSTRIAL GAS MARKET

"Low Growth Scenario" b/ 1792 Fuel Oil Nat Gas "SAP" Scenario Consumption Equiv, b/ 1987 1991 1997 2002-2007 (mill. ltrs.) (mmcfd) (mmcfd)

Area I - Congolamboto Area Tanganyika Dyeing S weaving 3.7 0.27 0.36 0.39 0.39 0.39 KilimanjaroTextiles 2.28 0.24 0.34 0.44 0,44 0.44 0.51 0.70 0.83 0.83 0.83

Area 2 - Ubungo Industrial Site Friendship Textiles 8.53 1.17 -1.46 1.76 1.76 1.76 New Textilb Producer - - 0,21 1.15 2.15 Other Consumers 0.08 0.01 0.02 0.03 0.05 0.07 1.18 1.48 2.00 2.96 3.98

Area 3 - Wazo Hill Tanzania Cement 34.04 2.64 3.97 4.16 4.16 4.16

Area 4 - Pugu Road Indus. Area KI00 6 1.21 1.11 1.50 2.14 3.061 Aluminum Africa 2.8 0.28 0.40 0.65 0.95 1.23 Metal Box - 0.02 0.04 0.08 0.10 0.14 Kibo Paper 1,09 0.16 0.28 0.31 0.35 0.41 Bobby Soap - 0.01 0.01 0.02 0.03 0.06 Coast Textiles 0.36 0.04 0.06 0.06 0.06 0.06 Tanzania Sheet Glass - 0.72 0.98 1,41 2.02 Light Source - 0.04 0.08 0.14 0.26 Other Consumers 2,5a 0.32 0.61 1.12 1.60 2.30 2.04 3.27 4.80 6.78 9.54

Area 5 - Central Dar es Salaam Tanzania Breweries 3.32 0.30 0.36 0.37 0.72 0.72 Commercial & Instit. Consumers 0.20 0.25 0.35 0.50 0.72 0.50 0.61 0.72 1.22 1.44

Area 6 - TIPER Refinery 14.74 1.53 1.53 1.53 1.53 1.53 Total 79.44 8.40 11.56 14.04 17.48 21.48 a/ Constant at 1982 consumption levels. b/ Conversion factors of 1 million liters/year of fuel oil = 0.1041 mmcfd. The equivalent gas figure also includes 3.31 ml of oil and 0.384 ml of kerosene. - 132 -

Annex 11

ECONOMIC COST OF COAL AND FUEL OIL AT SELECTED BULK DELIVERY POINTS (USS)

------Coai -- Road Rail --- Fuel Oil ---- Production Transport Transport Total Total (per ton) (per ton) (per ton) (per ton) (per toe) (per toe)

A. "Optimistic, Case Mbeya 25.0 6.5 - 31.5 56.7 192.5 Mufindi 25.0 4,3 25.0 54.3 97.7 176.8 Dar-es-Salaam 25.0 4.3 35.0 64.3 115,7 145.7

B. "Pessimistic"Case Mbeya 30.0 13.0 - 43.0 77.4 239.2 Mufindi 30.0 8.5 28.0 66.5 119.7 208.0 Dar-es-Salaam 30.0 8.5 40.0 78.5 141.3 145.7

Notes: 1. Conversion factors are: one toe = 10.2 million kcal; one ton of coal = 5.6 million kcal: one ton of fuel oil = 9.8 million kcal. 2. Econonmiccost of fuel oil is the f.o.b. export price ex Dar-es-SaIaiam(USS140 per ton). 3. Coal shipments are at the rate of 50,000 tpy. 4. Road transport costed at: USf5 per ton-km ("optimistic" case) and UStlO per ton-km ("pessimistic"case). 5. Coal deliveries to Mbeya require road transport only (distance of 130 km). Coal deliveries to Mufindi (300 km) and Dar-es-Salaam (900 km) require road *ransDart from m1ine to railhead followed by rail. Fuel oil is delivered by road from Dar-es-Salaam to all points: Mbeya, 900 km and Mufindi, 600 km. 6. Rail costs are based on direct estimates of the incremental economic costs of locomotives, wagons ana operations. 7. For both coal and fuel oil, the cost exclude handling, storage and transDort costs from the bulk delivery point to individual consumers. Conversion costs also are not included. - 133 - Annex 12 Page 1

TANZANIA ELECTRIC SUPPLYCOWPANY LIMITED TARIFF SCHEDULE EFFECTIVE JANUARY 1, 1983

TARIFF NO. 1 DOWESTIC

Applilcableto premises used exclusively for domestic and private residential purposes.

Step: 1 First 0-10 kWh minimum charge Shs 13 = USS1.07 2 Next 90 kWh: I 50 cents per kWh = f4.A1Ah 3 In excess of 100 kWh i 0.75 per kWh = f6.2/kWh

TARIFF NW. 2

Applicable to premises where business or trade is conducted where consumption Is less than 10,000 units.

Step: 1 First 0-15 minimum charges Shs 50 = USS4.11 2 Next 485 units 6 2.50 per kWh = "20.5AkWh 3 In excess of 500 units 1 1.75 per kWh = *14.4AkWh

TARIFF NO, 3

Applicable to premises engaged In production of any article or commodity or Industrial process where consumption Is less than 10,000 units.

Step: I-Flrst 0-100 kWh minimum charges Shs. 150/ = S12.32 2 Next 900 kWh 9 1.10 per kWh = f 9.0/kWh 3 In excess of 1000 kWh 0 1.00 per kWh = f 8.2/kWh

TARIFF ND. 4

Applicable to premises as in Tariff No. 3 but where the consumption Is more that 10,000 units per *eter reading period.

Maximum Demand Charges

For the first 0-80 KVA, minimum charge: Shs 6,000 = S492.61 In excess of 80 KVA 8 Shs. 75 per KVA = S6.16/KVA

Unit Charge All kWh 9 0.70/kWh = 15.7/kWh

TARIFF NO. 5 COMMERCIAL

Applicable to premises as in Tariff No. 2 where consumption Is more than 10,000 kWh per meter reading period. - 134 -

Annex 12 Page 2

For the first 0.120 KVA, minimum charge: is Shs. 9,600.00 = 1788.186KVA In excess of 120 KVA Shs. 80 per KVA = 6.57/KVA Unit Charge n I units e 0.75 per kWh = S6.2/kWh

TARIFF NO. 6

Applicable to Street Lighting, Religious Organization like Mosques, Churches, Temples etc. and other chartiable organizations.

All units e 0.90 per kWh $7.4/kWh Exchange Rate: US1.00 = T.Sh. 12.18

Note: A sales tax of 5Z was suDerimDosed on all tariffs in Julv, g18t. A^ne II1

TANESCO, UNJ4AVEAGE IIICERDTAL COSTS SAPSCEIIARIO DATABASE lTIh. Nilli4 n, 191))

TOTALANNIAL IIlDEIETAL TEMR -~~~~~~~~~66PROJECTEDISDt4ENTAL CAPITAL.ET'ENOIT-J- - -- INRININTAL 0PNATINO, MAINTEMACE,REPAIR A AoINIISTRAtIVTE COST,SH1)1- tOAT101N EXPENSES PRICED OWHNP

0istelbution Total fInanclal Total MIpus Gs TurbIne, Total Pre5st Value Cngolng ower IV Trenselaslap (bat Troanlers A Prleo Ofneraetlg Trhns- Olstri- bPltal CaOstsn Culvalant In es Turblsoe Traielsslon I BMWsa lorha.qf lMtora4l.k Rhabilattlon c Baesid/ Gofttloaatn sbct / PlenntS elssloft&/ butlan ShadowPrIcd I/ each year / Ri4dron O0 / Fuel .1' Dlatrlbvtlani/ Operatloasi/

19J3 446 1I 603 404 ISO 471 I 1 480 17 1904 3"I 240 550 1380 929 1240 1075 2 2 1079 id 1965 12 400 660 172 $52 II3 969' 9 971 91 1966 S6 601 251 962 645 561 715 6 9 730 1i 1967 91 625 330 1046 101 935 749 4 a to 771 299 1968 95 457 220 T75 Ila 6a1 535 9 0 It 562 342 1969 104 1 300 405 271 362 273 9 11 iS 316. 431 1990 114 350 614 Sil 415 303 9 1 17 543 329 1991 loG 400 750 445 596 412 9 Is 19 433 634 1992 21S 160 186 564 X2 9 2 13 16 21 5S9 746 1993 259 106 160 505 m33 9 22 69 is 24 4*7 912 1994 239 105 169 514 316 9 31 129 19 26 556 974 1995 121 53 I66 ffO 253 9 52 Il 21 29 464 ltS3 1996 239 lag 166 531 255 9 60 226 23 3? 605 11fl 1997 230 l1S 204 549 222 9 75 276 24 54 642 1310 199S 259 106 213 556 179 9 90 334 26 37 S75 1449 1999 239 106 2n 56? ISO 9 ¶05 394 29 40 707 1566 2000 560 160 246 766 Be 9 120 456 31 42 747 1751

MET PRESENlTYALUES 11.070 15,293 SALES(GENERATION MINUS 15t LOSSESI 11,2I9 AVERAVE If9sN1tAL COSTSPER WMA SOLD TSW 03 lET PRES1T VALUES1903-1991 CtlLY 3611 1.152 AVERAGERA 4 IN llffAL COSTSPER MRlt'OD, 19S3-I991PERIcO OILY 1h.1.69

1r/ Prat Table 7.1 0F ro. Tablo 7.1 at Vrams rable7.1 d Ieludoe tao.s, duties nd priec eontlngnclas AAverag adjustmnt tactor for taexs, duties and price cctIsaeals 331 of total mpndltures as r Fourth Pover Project SAN, Moeo 6. Baead on gratIng ewweslo progres of table 4.S IASOiAV Ifrstalled. j/ U2OOhdof IncrenRtal generwtlag copacity. ISOOAVo Iner_mantel peah d_and. !J Ieo exchanau cte UStl.00 - TSb. 18.5 appileable to 85 ol totol eapltal ax,pnditural wvlqht .rehanqe rate U511.00 * TS5. 17.74. Ausul equvlolent presant value of ensultlsed capItal expenses fran each base yer to the year 20001 life exactancl^e, Iydres 50 years, oa turbInet 15 years$ all other: 35 vaer. h/ framg Fourth Pter Project. SAR, Mnax 14. AY Pram Table4.4 f SI.95f6TU, het rate 12,000 ITUTWXH. 10 f To 199) vrrag Fourth Poer Project. Posem 1 thereeltar assid to greu at 530 of growth of sales. . Fras Frth PtowrProjact. Anaex101 thereafter assumedto grov at 335of growth of sales. 2/ from table 4.2. OSAP SceUrlo. - 136 -

Annex 14

VILLAGE AFFORESTATION ORGANIZATION

Requirement Collaborate LeveL Main Duties of staff with

Village VFR - to be selected Attend ViLLage Dev. Forestry by the village. seminars (2-3 Committee, Representative Represent the weeks) school, etc. (VFR) village in forestry and conservation work, organize and implement the work

Ward Forest Assist the VFRs in 2-3 months Ward level Attendant (FA) the wards, distri- basic course development bute supplies, give in forestry, councils advice, study the conservation areas and extension

Division Assist the FAs in 2 years formal Division level Forest the Division. training in development Assistant Distribute supplies, forestry, organizations CDFA) give advice, collect conservation info, prepare plan and extension

District Prepare plans, Diploma holder District level Forest Officer budgets, write or Degree development reports, distribute holder organizations supplies

RegionaL Compile reports and Degree and Regional level Forest Officer plans from the dis- some years development tricts. Purchase or practice organizations other equipment from FD

Forest Dept. Coordinate the Administrator Village Affo- country-wide FLCD Forestors restation Div. activities Sociologist Anthropologist - 137 -

Annex 15

URBAN ENERGY PLANTATION PROJECT One Hectare Model

Unit a/ Quantity Cost

Surveys Labor MD 2 50 Material Tsh 5 5

Transport of Seedlings Labor MD 1 25 Seven ton truck KM 5 15 Trays Tsh 9 9

Site Preparation Labor Clearing MD 20 500 Piling, burning MD 15 375

Machines and Implements 94 hp well tractor Hrs 3.9 324 Plough Hrs 2.4 7 Harrow Hrs 1.5 6

Planting Labor Stacking MD 2 50 Planting MD 8 200 Fertilizer appLication MD 1 25 Beating up MD 3 75

Materials NPK fertilizer Kg 200 600 Borate Kg 60 480

Weeding Labor Year 1 MD 2 50 Year 2 MD 2 50 Year 3 MD 1 25

Material and Implements 78 hp wheeL tractor Year I Hrs 3 204 Year 2 Hrs 3 204 3,279 Seedlings 1600 960 Overheads and Infrastructure 3,300 7,539 a/ MD = man-days. RWANDA ' / .| : ~~~Nanseg-

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