Project Title (Incl

UNITED REPUBLIC OF TANZANIA

MINISTRY OF ENERGY AND MINERALS

FINAL REPORT

JOINT ENERGY SECTOR REVIEW FOR 2010

September, 2010 Dar-es-Salaam Energy Sector Review 2010 Report

Preface/Acknowledgements

This report incorporates comments and suggestions gathered from stakeholders by MEM and comments and suggestions provided by the Energy Development Partners delivered through SIDA (Energy Development Partner Group co-lead).

The findings of this report were presented by the authors to a JESR 2010 Stakeholders Workshop which was held on 23rd September 2010, and recommendations from workshop participants were incorporated for changes to the report.

The consultancy team was led by Simon Stone (PFM expert). Team members were Cuthbert Kimambo (energy expert), Clara Picanyol (PFM expert) and Peter Robinson (energy expert). Stephen Akroyd (OPM Public Sector Finance and Management Director) and Elinisaidie Msuri (Mekonsult Managing Partner) provided guidance and support.

The team would like to express its gratitude to all the stakeholders interviewed for their time and contributions. The team would also like to thank the members of the JESWG Core Group that assisted the consultants throughout the process, in particular the MEM’s Energy Department staff through the Energy Development Section under the supervision of the Assistant Commissioner for Energy; Mr. Göran Haag (Sida), Mr. Stephen Mwakifwamba (Sida) and Mr. Robert Schlotterer (World Bank).

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Executive summary

Introduction 1. The report is revised draft of a draft prepared by consultants for the JESWG and incorporates comments from MEM, other public sector stakeholders and development partners. Its findings will be presented to a wider stakeholder group at the Joint Energy Sector Review Workshop in September 2010. The report will be revised again taking into account the workshop proceedings and will be issued as a Final JESR report by the Ministry of Energy and Minerals.

2. Inadequate provision of modern forms of energy is one of the infrastructure bottlenecks to growth in Tanzania. The energy balance is dominated by biomass (89% of total energy). As of 2007, energy consumption per capita was 0.4 tonnes of oil equivalent (TOE), two thirds of the average per capita primary energy consumption in sub-Saharan Africa, which is around 0.6 TOE. Industrialised country levels are of the order of 4.7 TOE per capita p.a. In order to attain the level of socio- economic development envisaged in Vision 2025, it will be necessary for to use much more energy overall.

3. Electricity availability is critical for attracting the private sector investment needed to maintain GDP growth. Private investors are more concerned about the reliability and security of electricity supply than its price. The price of electricity has been significantly lower than in neighbouring countries, but for Tanzania to be competitive, it needs reliable, efficiently provided grid-supplied electricity and ensuring this will require higher tariffs.

4. The objectives of MKUKUTA II and Vision 2025 will not be met if energy policy and strategy focuses on electricity. Government’s efforts to develop more efficient means of using biomass and other sources of energy for households are also of vital importance. Charcoal is particularly important because it provides a livelihood for a significant segment of the population.

5. Some of important institutional initiatives to addressing rural energy needs are in place including: the Rural Energy Agency; and Rural Energy Fund, Energy and Water Utilities Regulatory Authority’s (EWURA) standardised framework to encourage small-scale private provision of electricity, as well as the rural energy policy.

Overview of findings 6. Since the electricity crisis of 2006-2007, the situation has markedly improved. Investment in generation has made supplies more reliable, though more needs to be done as the target reserve margin of 20% is only expected to be reached in 2013.

7. TANESCO’s financial position remains precarious. Restoration of financial viability depends on higher tariffs and better operational efficiency.

8. The predominant focus on electricity continues and more attention is given to individual projects, than on the broader challenges in the sector and for national development. Greater attention needs to be paid to the coherence of the policy- strategy-planning-budgeting nexus and the accompanying legislative framework.

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9. Electricity investments should remove constraints on productive investment but not “crowd out” productive investments. Over-investment in electricity could slow economic growth.

10. The significant costs of rural electrification are only justified if the electricity is actually used and provides jobs and income from the use of electricity. The Rural Electrification Study Document needs to be updated and used as a basis for promotion and approval of investments by REA to be undertaken both by TANESCO and private sector operators. The Study Document needs also urgently to address the very high and rapidly rising costs of grid electrification.

11. The Electricity Act (2008) requirement for a position paper on electricity sector reform expected is an important means for addressing longer-term strategic issues in the electricity sector.

12. In the gas sector directions are being pursued by TDPC and proposals made by private sector companies without the benefit of reference to an overall national framework for the gas sector. Gas policy and strategy should be consolidated before the proposed Gas Act is finalised.

Electricity Policy and sector performance update 13. There were no significant policy changes. Sector achievements included: Tegeta 45 MW gas power plant commissioned; electrification of eight District Headquarters; two mines connected to the national grid; electrification of Namanga Township; Kigoma provided with capacity of 6.25MW; diesel generators for 4 District Headquarters; and adoption of SPPAs and associated tariff for small renewable energy projects.

Generation capacity, availability and outages 14. Installed generation capacity, including off grid and imports, is 980 MW is the same as projected peak demand in 2010, implying zero reserve margin.

Generation and import expansion plan to 2015 15. The capacity expansion plan shows that continuous investments will be required to keep pace with demand and maintain a reserve margin. The total addition to capacity envisaged is 1,011 MW.

16. Through the Nile Basin Initiative Regional Power Trade Project and the East African Power Pool, regional power sector integration can improve security of supply and provide electricity trade opportunities.

Growth in demand and analysis of system losses 17. The Power System Master Plan 2009 Update is based on an assumption of an average of 6.2% growth in demand each year over the period 2009 to 2033.

18. There are physical and operational limits to loss reduction in and transmission and distribution losses; the medium term objective is to reduce these from 22% of energy sent out to 14%. The monetary value of the losses is currently around 17% of billed revenues and about TZS 85 billion: 80% of this is attributable to distribution.

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Population with access to electricity 19. The aim is to reach 75% electrification by 2033. A target of 100,000 new household connections per annum has been set. The highest number of new connections achieved to date in one year has been 60,000. With population growth at 1.9% per annum and current access to electricity of 14% adding100,000 per annum would mean 21% electrification by 2030. Achieving the 2033 goal would require 485,000 connections per annum every year from 2010.

MKUKUTA PAF Indicators 20. Temporary Process Action 1: Additional power generation capacities of at least 160 MW to be operational by December 2011. The short term generation plan has 4 projects to be commissioned by the end of 2011 if at least one of the larger projects and one other project are implemented, the TPA should be achieved.

21. Outcome Indicator 2: Total electricity generation capacity and utilisation. The target set for 2010 of 1,137 MW of installed capacity and 71% availability will not be met this year without some means being found to bring the idle IPTL and/or Dowans capacity back onto the system.

22. Outcome Indicator 3: % of the population with access to electricity. The attainment of an electrification rate of 14% in 2009 is satisfactory. Increasing to 14.5% in 2010 would require 120,000 new connections in the up-coming year, double the best past performance.

Financial Review of TANESCO Financial situation 23. TANESCO’s losses increased between 2008 and 2009 and are projected to increase in 2010. Unit costs increased faster than the average tariff charged. In real terms, cost of sales declined by 18% in 2008, but rose slightly in 2009, while the real effective tariff declined by nearly 4%.

24. Projections for 2011 and 2012 assume success in the tariff application to EWURA and that the indexation formula will preserve the real value of any tariff increase. The average tariff goes up 34.6% in 2011 and a further 13.8% in 2012. TANESCO projects a return to profitability in 2011.

25. TANESCO’s consultants have reported that 12% of revenues is the desired target for repair and maintenance expenditures, while actual expenditure in 2009 was only 2%.

Subsidies to the electricity sector 26. Customers in the low voltage tariff categories receive a disproportionate share of the subsidies, but without the subsidies being as well targeted to national objectives as the Government would like. In view of the scale and complexity of electricity sector subsidies, there is need for a much clearer subsidy policy to be spelt out and used as a guide in defining tariff categories and setting tariffs.

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Financial Review of Rural Energy Fund and Rural Energy Agency Revenues and expenses of REF and REA 27. To date the main sources of funding for REF have been the Government budgetary allocation and levy from electricity sales. However, due to slow disbursements, interest on accumulated balances has also been a source of revenue .The effect of a low rate of disbursements on rural energy projects has been to make the REA appear extremely costly in overhead terms and to produce a large surplus of over TZS 10 billion in the REF.

28. In the Financial Year 2009/10 the Rural Energy Board approved TZS 100 billion of projects whilst having accumulated capital of about TZS 20 billion. The size of this gap indicates that there are many suitable rural energy projects available. Ways need to be found to speed up the implementation process, particularly in respect of TANESCO projects.

Electricity recommendations 29. While taking account of the complexities, explore option of large users purchasing power directly from the disputed IPTL and DOWANS plants. This would release up to 215 MW of capacity to the national power system, restore an adequate reserve margin, and reduce outages. If feasible, such arrangements could lead to progressive introduction of competition in electricity sector. TANESCO’s cooperation and agreement is needed, in part because of TANESCO’s legislated right of first refusal to supply large customers

30. Formulate a clear national policy on subsidies to and within the electricity sub-sector. A key benefit will be to have a systematic presentation of the existing subsidies and an assessment of their individual and combined effects that can provide evidence for policy making.

31. Formulate Rural Electrification Master Plan,(based on the previous rural electrification studies) with a focus on identifying centres with significant potential to provide new jobs and income from the use of electricity and of laying out low cost means of making grid connections. The formulated RE Master Plan would provide a basis for promotion and approval of investments by REA to be undertaken both by TANESCO and private sector operators. This should include off-grid solutions as well as conventional on-grid rural electrification. The Master Plan should provide a guiding framework leaving flexibility to the private sector promoter to suggest project (bottom- up) approaches and potentially innovative low cost solutions.

Petroleum Policy Framework and Performance assessment 32. No significant change in policy took place during the year. The year in review was one of consolidation.

33. In the upstream sector, exploration continued with oil companies indicating their willingness to undertake deep sea exploration as well as existing operations in shallow water and on-shore. Discoveries of petroleum are yet to be reported.

34. In the downstream sector, imported products amount to around 130,000 cubic metres per month. EWURA has worked hard with the oil importers to put in place the planned system of national bulk procurement. This should become operational in

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August 2010. In the medium term, it is expected that bulk procurement could reduce the cost of landed products by as much as 30 per cent.

35. EWURA has continued with efforts to protect consumers from the effects of illegal activities, particularly the adulteration of petrol and diesel by kerosene. Further significant reductions in adulteration are expected due to a steep rise in penalties combined with the introduction of more sophisticated screening equipment.

36. The usefulness of the Petroleum Product Price Setting Rules. Wholesale and retail petroleum products markets are competitive, so regulation of the product margins is no longer required.

37. The role of petroleum in electricity generation for the TANESCO grid continued to decline with the expansion of gas-fired capacity. Diesel continues to be critical in off- grid locations, but the total capacity is quite small (about 36 MW), with the intention that this will be progressively replaced over the period to 2018 as it becomes economic to connect remote centres to the national grid. The short-term generation plan does, however, include the re-commissioning of the IPTL 100 MW plant in 2010 and the Mwanza 60 MW diesel plant in 2011. The IPTL plant is scheduled to modified to run on natural gas rather than heavy fuel oil.

Petroleum - Recommendations 38. Ensure bulk national procurement commences as soon as possible and monitor the results

39. Remove Petroleum Products Price Setting Rules and allow market forces to determine liquid fuel prices

40. Support research into the effect on engine performance, longevity and fuel use of:

– adulterated petrol and diesel;

– petrol-ethanol blends in fixed and variable proportions ;

– compressed natural gas;

– jatropha and other vegetable oils;

– biodiesel distilled from vegetable oils.

41. Support biofuel projects which studies have shown to be economically viable and environmentally sustainable (or the studies themselves, where these have not yet been conducted).

Natural Gas Policy Framework and Performance assessment 42. There have been no significant change in gas sector policy, and the year was one of consolidation. The Gas Act is expected to establish a comprehensive legal framework for the development of the gas sector and the downstream utilisation of natural gas, clarifying institutional roles and facilitating EWURA’s regulatory role.

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43. TPDC has continued to work with industries in the Dar-es-Salaam area to increase the use of gas in industrial applications. There are approximately 25 industrial customers, supplied via a 42 km low pressure gas distribution network.

44. A mother station for compressed natural gas (CNG) was inaugurated during 2009. The intention is to use CNG for large gas users who are distant from the network and to use CNG as a transport fuel. The aim is to have at least 200 CNG vehicles in the initial pilot phase, with 3-4 filling stations being made available in the Dar-es-Salaam area.

45. The operator of the southern Mnazi Bay gasfield, Artumas, has recently merged with the Australian petrochemicals developer, Wentworth Resources. An MOU has been signed with the Government to examine the feasibility of establishing a petrochemicals plant to produce ammonia, urea or methanol or other options to monetise the substantial gas resources of Mnazi Bay.

46. The role of gas in electricity generation continues to grow, with the 45 MW Tegeta gas-fired plant being commissioned during the year. The total available gas-fired capacity is now over one third of the national total (326 MW out of 907 MW). The short-term generation expansion plan to 2015 includes 340 MW firm of additional gas-fired capacity being installed at Ubungo (100 MW) and Kinyerezi (240 W).

47. Another large project being discussed with China is the proposed 300 MW gas-fired plant at Mtwara with a DC transmission line to evacuate the power to the mining areas in the north. Another feasibility that is being conducted is to construct a trunk transmission gas pipeline from Mnazi Bay to Mombassa.

48. With TPDC benefiting hence forward from 50% retention of its revenues instead of an allocation from the Ministry budget, it is expected that the pace of gas utilisation developments will be accelerated.

Natural Gas - Recommendations 49. Ensure Gas Act clarifies roles, responsibilities and accountabilities of stakeholders.

50. Formulate a National Gas Strategy, in consultation with other MDAs and gas sector stakeholders. A Strategy rather than a Master Plan is very suitable for the gas sector at this time. In a largely private sector-led sector, what is needed is a framework within which private initiative can emerge, with the public sector playing a supportive and facilitative role.

51. Within the framework of the National Gas Strategy, examine the case for developing a gas transmission and distribution grid.

52. Make contingency plans for the possibility that a number of gas discoveries are made simultaneously, requiring a very rapid scale-up of negotiation and regulatory capacity and to manage Dutch Disease effects.

Recommendations – Renewable Energy

53. Accord higher priority to renewable energy technologies in the pursuance of energy, SME development, community development and environmental policies - this should be a key element of the strategy for improving access to modern energy services in rural areas.

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54. Explore ways of harnessing private and public sector actions and resources for the continued development of renewable energy sources

55. In examining subsidy policy issues in the context of the overall strategy for renewable energy development, assess how environmental benefits of renewable energies can be reflected in energy prices and how high upfront costs of renewable energy development including feed-in tariffs and credit resources for the banking sector.

56. Introduce new laws and policy provisions for renewable energy including policy targets, subsidy programs, and feed-in tariffs.

57. As one of the key strategies, rural energy access interventions should fully utilise the existing carbon trading opportunities, including the Clean Development Mechanism (CDM).

Sector Governance Mandates and Statutory Responsibilities of Stakeholders 58. At a legislation level the mandates and statutory responsibilities should be clear. The role of legal drafters supporting Parliament is to ensure this. If they are not clear, then a legislative review would be required.

59. The JESR consultants are of the view that even if the mandates are legislatively coherent there may be a lack of clarity at the sub-legislative level particularly in the way the performance planning, monitoring and evaluation and accountability architecture is reflected in procedures.

Budget Implementation Introduction to the Budget cycle 60. Budget implementation should be assessed in the context of the whole budget cycle, i.e; the policy, strategy, planning and annual budget preparation stages of the budgeting cycle.

61. The Government has been developing a policy-strategy–planning-budgeting and performance system over many years. This system accords well with international good practice. The system has not yet achieved its full functionality.

62. The JESR consultants believe there are two remaining core challenges for the Government and by extension MEM to achieve full functionality of the system.

63. The first is to have monitoring, evaluation and reporting processes that provide actionable information on financial and service delivery performance, feeding back into and informing the continuing policy review, national and sector strategy, medium term planning and the performance budgeting and delivery processes.

64. The second challenge is a necessary but not sufficient condition for meeting the first challenge: it is to ensure that there is common knowledge among all the stakeholders in the Energy Sector of: (i) what the overall system is; (ii) the procedures that make it effective; and (iii) how its component parts inter-relate and mutually reinforce each other. Establishing common knowledge will enable the JESWG and the JESR process to fulfil their purposes and objectives.

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65. Improving budget implementation is seen as a government-wide challenge. The energy sector has the reputation of facing the greatest challenge given the low execution rates in recent years. A MoFEA assessment stressed Government’s commitment to increasing budget resources to growth promoting public investments including infrastructure development in energy. But it highlighted that budget execution rates in the energy sector have remained low, especially for the development budget stating that “the energy development budget execution rate remained at an alarming low rate of 15 percent in FY2008/09 from 9 percent in FY2007/08”, and further noted that:

“ [t]he important shortcomings in sector development budget execution are especially alarming as they are profoundly detrimental not only to the attainment of sector performance and the rapid resolution of energy problems, but also to the prospects of rapid progress in economic transformation and accelerated growth. The Government is determined to rekindle attention to the sector not only in the continued increase in sector budget, but also by taking swift measures to improve planning, execution and absorption capacities.”

66. In principle, it should be straightforward to assess budget implementation as a simple comparison of what was presented in the “budget” and what is recorded as actual expenditure in the Government accounts – a comparison of figures in one document with those in another, the recurrent and development estimates with the recurrent and development accounts. This is the approach that has been commonly used in various documents reviewing the energy budget. This approach has been misleading in assessing the extent to which budget execution is low in the energy sector.

67. The JESR consultants are of the view that the principle difficulty in apparently low budget execution rates lies in planning. The planning weaknesses are revealed in the translation of strategy and master plans into implementation actions in the form of activities to which budget funds should be assigned.

Medium Term Plan, MTEF and Budget Formulation 68. Through the Medium Term Plan (MTP) and Budget Process MEM provides the Parliament and public with information on performance achieved and planned on both expenditure and public service delivery. MEM produces much more detailed performance planning and delivery information for internal Government operational planning and management purposes. This ‘operational’ information is not published. The JESWG (and the JESR process) could benefit from developing more systematic use of this information as it develops its role over time and seeks to fulfil its objectives and deliver its outputs as well as to establish an efficient and effective monitoring, evaluation, and feedback/lesson-learning process.

69. The Guidelines for the Preparation of Medium Term Plan and Budget Framework request line ministries to prepare an Annual Cash Flow Plan and an Action Plan. In addition, MEM is required to prepare annual (and quarterly) procurement plans in conjunction with, and, to support the annual action plans. The Government and DPs providing GBS have set a new outcome indicator that relates to MEM’s compliance with annual planning requirements and the credibility of its action and procurement plans.

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Budget Releases 70. MoFEA approves releases to MEM taking into account the Quarterly Action Plans and Progress Reports. MEM receives monthly releases for Recurrent Expenditures and quarterly releases for Development Expenditures. MoFEA can exercise discretion over budget releases beyond its core mandate of protecting macro-fiscal stability and Government-wide expenditure priorities, through its performance monitoring role and cash budget operations. As a result, releases can be significantly less than budget for:

- Other Current Expenditures, but MEM has discretion on spending;

- Local Development expenditures, but MEM has discretion on spending;

- Foreign Development Expenditure (exchequer system), but only if not released by the DP, neither MoFEA nor MEM have discretion;

- Foreign development expenditure (direct to project), but only if not released by the DP; neither MoFEA nor MEM have discretion; but when the dummy voucher system is not used it is not possible to capture budget implementation performance.

71. If in any of the first three quarters of the year releases are less than the request, part of the annual plan will not be fulfilled, unless the delay in action plan is recoverable before the end of the financial year and subsequent releases compensate. If recoverability is not possible or there is not subsequent compensation in release, a quarterly request process reinforces the use of a cash budget system, which, although it may be desirable for ensuring macro-fiscal stability, undermines the predictability required for successful operation of a results-based MTEF system that underpins the NSGRP.

72. MoFEA has a strong (cash flow forecasting) incentive to know where recoverability is not possible: it can reduce the impact of below budget releases elsewhere. If recoverability is possible, MEM has a strong incentive for presenting the case by revising the annual plan. If recoverability is not possible the incentive for MEM is weaker, unless there is value in advancing progress on other development project plans.

Performance and Accountability 73. Throughout the year, at the beginning of each quarter, MEM prepares and submits to MoFEA, progress reports on financial commitments entered into and activities undertaken (progress towards target achievement) in the previous quarter together with an Action Plan for the quarter. The primary use of these from a monitoring perspective is for MEM’s use. MEM also presents these reports to MoFEA together with the next quarter Action Plan in support of its Release Requests. The JESR consultants understand that the quarterly plans are only in respect of that quarter, i.e., they do not update the annual plan for all remaining quarters of the year. If this understanding is correct, there is a short-coming in the cash flow management system.

Development Budget execution rates 74. An overview of MEM’s budget for the past few years presents an ‘alarmingly low’ rate of budget releases and budget execution with respect to Expenditure Estimates. However, a project breakdown of the figures helps explaining a significant proportion

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of these apparently low rates of execution. Nonetheless, they present a symptom of data management and reconciliation problems that affect MEM and will require attention by MEM as further budget execution and PFM reforms are implemented. Furthermore, the project level analysis highlights a significant problem of over- budgeting that undermines the credibility of the MEM budget and exaggerates the apparent execution problems.

75. JESWG should give urgent attention to the credibility of the budget. The JESR consultants recommend this joint approach as achieving credibility will require a collective effort and because it will impact on some of the GBS conditions that will be assessed in Q2 FY2010/11.

Procurement 76. The conclusions drawn from the assessment of procurement systems used in MDAs both for locally funded activities and for activities funded by Development Partners are: (i) procurement procedures are well defined (ii) national procedures set by the PPRA are consistent with practices of DPs such as the World Bank and the AfDB (iii) Procurement Management Units (PMUs) in MDAs are adequately trained; (iv) some delays in the procurement process arise because of a lack of experience among staff of PMUs; (v) lack of experience in PMUs in evaluating bids and writing evaluation reports; (vi) lack of experience can be compensated for by the provision of advisory and mentoring support from experienced procurement practitioners; and (vi) the perceived ‘procurement’ delays other than those attributable to lack of experience are not procurement problems but planning problems.

77. Most MDAs produce procurement plans each financial year, however, such plans are often prepared late in the year and their quality remains weak. Release of development funds from the Treasury are subject to preparation and submission of procurement plans to MoFEA. Delays in submission of such plans also delays disbursement of funds to MDAs. The Government is committed to strengthening MDA procurement plans in order to ensure timely and predictable release of funds, both local and foreign funds. The Government is assessing the possibility of integrating procurement plans in relevant modules of the IFMS.

78. The Government and GBS DPs have agreed on a new GBS outcome indicator that is designed to encourage compliance with rules on the preparation of action and procurement plans.

79. There is qualified staff in PMUs but not enough of them for the procurement demands. This is a planning issue. Action plans should take account not just of the standard timetable for procurement, but what the demands on PMUs are. Action planning and procurement planning should be a combined exercise.

80. Qualifications and training on procedures are not enough to ensure smooth and timely procurement processes: experience is also an issue particularly in evaluation and reporting skills. This can be compensated by provision of advisory support as energy sector project experience has shown.

81. Delays and difficulties in drawing up terms of reference have been associated with procurement delays. The responsibility for drawing up terms of reference does not lie with PMUs but with project managers. PMUs should only screen ToRs for coherence not content. DPs do provide consultancy support to MDAs for the detailed design and management of project implementation, specifically to overcome this problem. MEM

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should encourage all projects to provide such support where it considers implementing agency capacity to be stretched.

Sector Co-ordination 82. The principles for engagement and dialogue between DPs internally and with Government are organised around the structure of the national development framework for Mainland Tanzania MKUKUTA. In 2008, the Government endorsed a new Dialogue Structure that is led by the Government and guides coordination between the Government, DPs and domestic stakeholders by integrating all major national and sectoral development interventions into a single structure, whilst retaining government exclusivity on its internal dialogue. The Joint Energy Sector Working Group is one of the Working Groups set up under this arrangement.

Joint Energy Sector Working Group (JESWG) 83. The Joint Energy Sector Working Group was established in February 2009. DP participation in the JESWG is facilitated by the Energy Development Partners’ Group (EDPG). The activities of the EDPG are governed by a memorandum of understanding.

JESWG Terms of Reference 84. The JESR Consultants’ ToR required a review of the JESWG ToR. The first reaction of the JESR Consultants was that the ToR could usefully be edited to make clearer what the JESWG is required to do in practice. Whilst editing could still be useful, the JESR Consultants considered that a more practical approach would be to identify what the JESWG is required to do and at what points in the budget/PFM cycle and then propose a date for 4 regular meetings and a core agenda for each meeting, which reflect what the JESWG ToR require.

85. At first sight the JESWG Terms of Reference appear quite demanding and lead to what appears to be very heavy agendas. However, if the JESWG continues to develop as it has over the last 18 months and continues its gradual approach, the Terms of Reference are feasible. Also, the Terms of Reference permit more frequent meetings and encourage the use of ad hoc working groups. The use of ad hoc working groups could reduce the agenda burden in practice.

86. The proposed regular meetings and core agendas are presented in section 6.1.5 of the main report.

Successes of the JEWSG 87. The JESWG is perceived by the participants consulted to be developing well and has been successful as a forum for: information sharing; consultation; joint analysis and assessment of (some) energy sector issues. It has yet to consider systematically performance issues and provide advice on ‘policy, budgetary and other issues’.

88. TANESCO presentations have become a regular feature of meetings and are seen by DPs as important and useful. TANESCO is not the only agency in the sector and similar presentations from other agencies and perhaps non state-actors should be encouraged in the future. REA and TPDC have attended some meetings.

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89. Custom and practice has developed a JESWG Core Group comprising MEM as JESWG lead and the Lead and Co-Lead DPs. This has been an effective ‘working group’ of the JESWG and has facilitated the preparation for and follow up of JESWG meetings, as well as the commissioning of JESR consultants. It is also fulfilling the Secretariat role required by the ToR.

90. JESWG operation has benefitted the functioning of the EDPG. More DPs are joining and the EDPG is open to DPs who currently do not participate either because they are not yet contributing to the sector or are relatively new to Tanzania and not yet familiar with Government-DP co-operation mechanisms.

91. One concrete example of EDPG development through the operation of the JESWG, is the development of a DPs Active Project Matrix. This is a DP initiative and has now been brought into the business of the JESWG. EDPG Lead has advised JESWG that the matrix will be further developed as a tool for DP harmonisation and will be shared with the JESWG on a regular basis so that it becomes a JESWG management tool.

92. The JESR consultants found that the current process used for reporting on aid disbursements to be included in Government’s annual budget is a form requested by and provided to the Ministry of Finance. In some cases, this form (or the bits relevant to the energy sector) was not provided also to MEM, on the assumption that MoFEA would channel the information to MEM. It was also found that in a number of cases EDPs did not know how their projects were presented in the Budget Estimates. This has implications on the accuracy of information related to development projects funded by development partners in the Public Expenditure Estimates documents. The recommendations for core agendas should enable JESWG to rectify systematically and sustainably any shortcomings in this regard in the future.

Recommendations for enhancing effectiveness of JESWG 93. JESWG sets four regular meetings in each FY as follows with an established core agenda for each meeting:

Annual Reporting Meeting FY Q1 (Box 6.2)

Policy and Strategy Review Meeting FY Q2 (Box 6.3)

Medium Term Expenditure Planning Meeting FY Q3 (Box 6.4)

Annual Budgeting Meeting FY Q4 (Box 6.5)

94. JESWG Core Group reviews the agenda for each meeting in advance of the next annual meeting and identifies which items might benefit from the creation of and inputs from a JESWG Sub-Working Group.

95. EDPG develops the DP Active Projects Matrix to align it with Government planning and performance reporting structures, for example using: Chart of Accounts (CoA) codes; budget document project short names; an output/target presentation of project components and deliverables (consistent with CoA); TZS as the currency of reporting.

96. EDPG propose and discuss a structuring of DP funded projects with MEM.

97. EDPG Lead circulates JESWG ToRs to members.

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98. Current EDPG commit to briefing their replacements on the JESWG ToR

A Sector Wide Approach (SWAp) for the energy sector 99. A first stage in exploring a SWAp is to agree on whether the sector or parts of the sector are suitable for SWAp arrangements. The energy sector is not the easiest sector to define. Other sectors such as education or water are easier to define and therefore well-suited to SWAp approaches. Once there is common agreement on the suitability of the sector for SWAp arrangements, the next step is to decide what the SWAp arrangements should be.

100. Sector wide approaches can range from MDA/DP dialogue around project support; to sector budget support with a single results framework; or anything in between, including participation by non-state actors.

101. The JESR consultants found little DP appetite for more than dialogue around a project approach now. This is essentially for the following reasons: (i) lack of a common view of the compositional structure of the energy sector and hence a clear view of which parts are suitable for a SWAp arrangement; (ii) variable experience of SWAp arrangements in other sectors; and (iii) tied aid conditions of some DPs. There is, however, a willingness to explore the issue further. The Government’s aid modality preference is for generalised budget support, followed by sector budget support. So the interest in the more ‘advanced’ SWAp arrangement from Government is very strong. Thus it appears that consideration of a SWAp approach in the energy sector is at the first step of developing a SWAp.

102. The JESR consultants consider that there are already moves in the direction of a SWAp (beyond dialogue around projects). The ‘Backbone’ project is a multi-DP funded project arrangement bringing together a variety of DPs multi-lateral and bilateral with common procurement arrangements in one element of the electricity sub-sector – transmission. The project should provide the JESWG with opportunities for lesson learning and may encourage broader participation and similar co-operation among DPs in other sub-sectors. The establishment of the REF can also be seen as facilitating a SWAp type arrangement in the rural energy ‘sub-sector.’

103. The JESR consultants recommend that the JESWG: (i) continues to explore the development of ‘sub-sector’ approaches on a regular basis, through discussions at the JESWG Annual Reporting Meeting; and (ii) considers establishing an ad hoc working group to inform these discussions.

Recommendations for the Joint Energy Sector Review Process for 2011 104. If the review preparation is to be contracted out, the service provider(s) should be identified much earlier than was the case this year. Ideally the process would begin at the Annual Review Meeting of the JESWG. JESWG should consider at the same time how the review and workshop costs will be financed.

105. The JESR process should take account of the Government’s annual PFM Cycle. It should be explicitly related to the fiscal year. This implies a change of name from JESR 2011 to JESR 2010/11. The review process should begin when MEM’s annual performance reports have been drafted in August. This

xiv Energy Sector Review 2010 Report

compresses the timetable for review, commentary, workshop review and final reporting to the Cluster Working Group prior to the GBS review, but does not necessarily require reduced inputs and therefore coverage. The efficiency of the process could be improved if MEM maintained a review document library, updated each year for the review.

106. The JESR consultants consider the format of this year’s document to be appropriate for the Terms of Reference and the findings. Also they consider that the relative weight on PFM issues is appropriate given the findings. As there is a requirement to follow up on previous year’s recommendations, the format for the 2010/11 document should be consistent with the format used this year.

107. This year’s report has also only been able to sketch strategy and planning issues. Given the findings that many of the budget implementation issues reflect weakness in the strategy and planning processes, this is an area that should receive greater attention in next year’s review.

108. Similarly the coverage of coherence among performance indicators has been light. This was because of limitations of project scope. Given the findings of the report this should be an area of focus for next year’s review.

JESR 2011 Workshop 109. Last year’s workshop was strong on participation but weaker on actionable conclusions and recommendations and it may have benefited from taking place over two days. The presentation and facilitation were thought by DP participants to be good but some expressed doubts about the “voting” process. Consultative workshops with such diverse interests among participants (itself a further indication of the difficulty in defining the energy sector) rarely produce clear conclusions. But that does not diminish their role as participatory, consultative events for collecting views.

Energy Sector Performance Indicators and Information Systems Energy Sector Performance Indicators 110. The MKUKUTA 2 process has yet to develop indicators for energy sector intervention packages of the sort developed for MKUKUTA 1. The Draft has thus far only identified ‘operational targets’, cluster strategies and intervention packages and the actors responsible for implementing them. MEM’s responsibilities for intervention packages have been identified.

111. The key operational target is generation of energy (electricity, etc), utilization of capacity and coverage increase. This is currently set in broad terms: it is not specific and not immediately measureable. It is achievable and relevant but not specifically timed other than by the end date of MKUKUTA 2. The Cluster Strategy supporting this target is “expand access to energy coverage”. This is also vague.

 The proposed intervention packages are: (i) Adequate financing of selective components of the Power System Master Plan; (ii) Emergency Power Generation; (iii) Natural Gas Development; (iv) Supporting Rural Electrification

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projects through Rural Energy Agency (REA); (v) Strengthening, Upgrading and Expanding the National grid; (vi) Harnessing of more potential sources of energy such as wind, solar, small hydro, biogas; (vii) Efficient use of energy by applying energy saving technologies; (viii) Use of environmentally friendly alternative and indigenous energy resources.

112. The level of detail provided at this stage is not sufficient to propose specific indicators. The JESR Consultants are of the view that the loose terminology and a lack of linkage between the hierarchy of performance measures – goal to operational target – cluster strategy – intervention package, does not give an adequate basis for developing a results logic. This was also the case for NSGRP I.

Recommendations for indicators 113. MEM has already gone beyond MKUKUTA 1 in setting indicators and targets for its operations. These currently run up to June 2013, the end of the third year of MKUKUTA 2. These are reflected in MEM’s MTPFB document for 2010/11 – 2012/13 (MEM, 2010d). This has been achieved by rolling forward existing indicators through the Strategic Plan and MTEF process. The GBS PAF 2010 has also set indicators up to 2012 for electricity generation and utilization and for rural energy access. To some extent the SP, MTP and GBS have put the ‘cart before the MKUKUTA horse’, but as there is a mix of fixed time and rolling medium term strategy and planning frameworks, this is bound to happen and so the response is pragmatic.

114. Section 8.1 in the main report provides a suggested approach to validating the applicability of MKUKUTA 1 performance measures against the requirements of MKUKUTA 2.

115. The JESR consultants recommend that MEM validate its MTP targets against the new broad MKUKUTA goals and then set MKUKUTA indicators. This should be done in the policy and strategy review in FYQ2, guided by the JESWG. Thereafter MEM can revise its MTPFB in Q3 2010/11 in the usual way. A similar approach to that of Table 8.1 could be used, substituting the SP and MTP indicators for the NSGRP indicators.

PAF Matrix performance measures

116. The Underlying Process Action for the energy sector was the Energy Sector Review. This was considered satisfactory by the Government and unsatisfactory by DPs. There is a difference of opinion about this underlying dialogue process and multi-stakeholder review. This appears to have stemmed from different views of what was being measured – the dialogue and review process or the performance of the sector.

117. There were split decisions on other underlying process actions. The GBS Review report notes: “[t]hese disagreements provide significant pointers on the importance of both the Government and development partners developing SMART assessment criteria and simple and clear performance indicators.” (GBS Review 2009:2). The JESWG has begun preparation of a joint performance assessment framework for the energy sector. A combination of financial physical and co-ordination indicators are being examined.

xvi Energy Sector Review 2010 Report

118. PAF Matrix items for the Energy Sector and their assessment are shown in Table 8.2 for 2009 and Table 8.3 for 2010.

119. For the 2010 PAF, the responsibility for electricity generation, utilisation and access has moved from TANESCO to MEM. This is appropriate as TANESCO was being held for responsibility for targets that it could not completely influence: an example of responsibility without power.

120. With the advent of MKUKUTA 2, the target for percentage of the population with access to electricity has been moved out from 20 per cent in 2010 to a more gradual performance of increasing access by 0.5 percentage points per year.

121. Table 8.3 includes two outcome indicators under Cluster 4 which are shown in the PAF as responsibilities for MoFEA. For cash flow plans (should be action plans) and procurement plans, responsibility for the credibility must lie with MEM. MoFEA is only responsible for agreeing that they are credible. MEM has to convince MoFEA. That its plans are credible and but how is to be done has not been adequately addressed in the indicators and supporting notes. MEM should seek clarification on how this should be assessed. This outcome indicator is requiring MoFEA to assess the veracity of MEM monitoring reports by including copies of contractors’ certificates. This is micro-management by the centre of Government. The initial responsibility for monitoring lies within MEM, with the Permanent Secretary. As Accounting Officer the PS is accountable to Parliament both for expenditure (financial management control) and performance. For expenditure outturns, MoFEA is responsible at the release level, but is not responsible for the expenditure outturn after release, that is the responsibility of MEM.

122. The “cash plan” outcome indicator is not SMART as it is not specific enough and is not measureable as is evidenced by the lack of a target in the PAF. It would be better set as a Temporary Process Action (TPA). As a TPA it would be subject to DP assessment, i.e., EDPs would be making an assessment of the credibility of the action plans and procurement plans. As those action plans and procurement plans include EDP funded projects there would be a strengthening of mutual accountability, since the quality of the plans would depend on the quality of the underlying project plans.

123. For the expenditure outturn indicator there is also joint responsibility between MoFEA and MEM. MoFEA decides the releases and MEM executes the expenditure. If the recurrent releases were less than 12.9 per cent of the 2009/10 budget (appropriations or ‘originally approved estimates’) then MoFEA is responsible at least in part. If releases were higher than 12.9 per cent then MEM is solely responsible.

Energy Sector Information Systems

Assessment of the information systems

124. The JESR consultants reviewed the financial and physical performance reports, provided by MEM, as a means of assessing what information flows to the management of MEM from within MEM, from the co-ordinating teams for DP

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funded project within MEM, and from implementing agencies such as TANESCO and REA. The original aim was to see the extent to which these outputs from the information system delivered actionable management information. This review highlighted that there were problems in the hierarchical coherence of performance information and in the timeliness of completeness of compliance with information system requirements, with the latter problem being a consequence of the former. As a result a thorough assessment could not be produced.

125. Performance measures are generally developed starting with a top-down approach – broader macro-level measures of (impact/outcome) through more specific meso-level measures (objectives) to more operational and micro level measures (outputs or “targets”). From this generic three-level hierarchy activities are identified for internal process management purposes and the input needs of these activities are identified and costed to develop expenditure plans and budgets. Experience shows that a principal difficulty in producing SMART performance measures is a lack of coherence between the measures at different levels. This is lack of coherence is a continuing challenge for both the setting of targets in MKUKUTA and in the MTEF. This is principally because the performance hierarchy emanating from a top-down approach needs to be tested bottom-up.

126. The Government is aware that it has completed this first top-down stage and has indeed had difficulties in developing SMART measures and coherence between them to produce actionable management information for MDA managers and higher level decision-makers in central Government and ultimately the Cabinet.

127. MoFEA and PMO have plans to improve the monitoring and evaluation systems. The JESR consultants recommend that MEM and DPs take early and co- ordinated action to improve their own information systems (without waiting for official guidance from the centre of Government).

128. This action should begin with a systematic review by MEM of its objectives, targets and activities for SMART-ness and coherence. This review can be conducted on the basis of the Medium Term Strategy Planning and Budgeting Manual (URT, 2005a). The review should then consider the coherence of performance measures in DP funded projects with the MEM system and the guidance of for coherence with the existing MTEF and the Manual.

Strategic Plan and MTP performance information

129. The JESR consultants recommend that JESWG recognize that the Strategic Plan with its fixed 3 year horizon does not serve as a practical guide for the MTPFB after the first year of the SP period. MTSPBP 2005 does give guidance for “off-year” objectives and targets. However, this guidance does not appear to have been used systematically in the MEM MTEF for 2010/11 – 2012/13. This linkage issue weakens MEMs information systems.

130. JESWG should take this timing mismatch into account during the proposed Policy and Strategy Review Meeting recommended in this report.

131. The Draft MKUKUTA 2 notes that use of monitoring and MTP procedures needs to be actively developed. In order to achieve this, it proposes that a guiding

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framework for MKUKUTA implementation is prepared which will ensure a common understanding on MKUKUTA implementation and show the linkage of core reforms, development programmes and projects are linked to goals and targets.

132. As part of this development, MKUKUTA 2 stresses the importance of the Medium Term Planning and Budgeting Manual in improving: (i) preparation on Strategic Plans (ii) coordination of planning and budgeting; and (iii) monitoring and reporting. It recognizes the need to improve implementation of directives of the Plan and Budget Guidelines. MoFEA is tasked with implementing specific measures aimed at enhancing capacity building on the use of the Manual, including: (i) training of MDAs staff responsible for planning, budgeting, monitoring and reporting; (ii) enforcing standards and principles established in the manual through strengthening of MDAs budget committees, Budget Guideline Committee and Cluster Working Groups; and (iii) tasking the Policy and Planning Departments in each MDA to drive the implementation of the contents of the manual and report to MOFEA. These actions will be supported by budgetary resource incentives and disincentive measures, including resource contestability to enforce compliance and reward good performance.

133. The JESR consultants recognize the key role of the Policy and Planning Department, but recommend that improvements in planning and budget be led by section and division managers in MEM, supported by the Policy and Planning Department. MEM should also ensure that its implementing agencies respect the planning and budget processes.

134. MoFEA (2009a) reports that for 2010/11 'a framework for monitoring implementation of some specific areas or milestones that are of national interest will be prepared. The aim of proposed framework is to ensure that Government budget produces expected results and its implementation will be on pilot basis.’ If MEM is involved in this pilot, it will be important to ensure that this information is produced from its core systems and does not result in additional monitoring work. This should be feasible as it is unlikely that what is of national interest in the energy sector is not of interest to MEM.

135. The JESR consultants recommend that MEM changes its way of reporting targets in the MTP, from showing the target at the end point to targets for each year.

Monitoring overload

136. MEM is facing a potential monitoring and reporting overload. It has to provide a raft of performance information as inputs into the many central Government reports on the implementation of the various national development frameworks. MKUKUTA 2 requires (mandatory) PER analysis and discussions at least every two years to address: (i) how priorities are identified on annual basis; (ii) resource allocation to priorities; (iii) costs of priority interventions; and (iv) implementation of priorities and associated reporting. The JESR consultants consider that this is too frequent for a full sector PER. There is value in supporting the performance hierarchy review recommended above with a full sector PER this year, but the arrangements for the PER should ensure that is led

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and managed by MEM’s Budget Committees. Consultants could be used to support MEM in the review process producing actionable management decisions. PER Consultants should not work alone to produce a report with recommendations.

137. JESWG should see the biennial PER requirement as a guide. MEM can use the MTEF preparation process to effect PER-style work, but should consider doing in depth expenditure review for one sub-sector in Q2 of each FY year, and as and when expenditure programmes are introduced for one expenditure programme.

138. In order to address the potential overload, MEM needs to ensure that the micro- level of its performance information system, i.e., its quarterly financial and physical planning, performance, monitoring and reporting systems are fully functioning. These are the foundation of all monitoring and reporting. They also provide the some of the key material to inform a PER.

139. The JESR consultants recommend that MEM gives attention to the following issues (i) timely and full preparation of annual action, financial and procurement plans at each relevant stage of the planning and budgeting processes; (ii) capture of DP funds in planning and release – from AMC and dummy voucher systems; (iii) timely and full compliance by departments and executing agencies – TANESCO, REA, TPDC, etc. in the provision of quarterly financial and physical performance; and (iv) quarterly revisions to annual action, financial and procurement plans from all sources.

Sector structure considerations for PFM information systems 140. Currently the budget presents development projects in a chronological order, under the Energy and Petroleum Division Sub-Vote, determined by the date that a new development project appears in the Government accounts and is given a project code in FMIS. For presentational purposes, this is not the easiest way of presenting progress on performance in sub-sectors of the energy sector. The Government does not yet operate a programme approach to budget presentation. MoFEA (2009a) indicates that this will come in the future. A programme approach will improve the way the sector is presented and facilitate the delivery of the required monitoring information. The EPD is sub-divided into 4 Sections – Energy Development; Electricity; Petroleum and Gas; and Renewable. The EPD’s sections provide a potential programme structure for the Energy sub-vote.

xx Energy Sector Review 2010 Report

Table of contents

Preface/Acknowledgements 1 Executive summary ii List of tables, figures, and boxes 2 Abbreviations 4 1 Introduction 9 2 Overall performance update 11 2.1 Context 11 2.2 Overview of findings 13 2.3 Electricity 14 2.4 Petroleum 31 2.5 Natural Gas 34 2.6 Renewable Energy 37 3 Sector Governance 44 3.1 Governance Issues from previous JESR Reviews 44 4 Budget Implementation 45 4.1 Introduction to the Budget cycle 45 4.2 Medium Term Plan, MTEF and Budget Formulation 47 4.3 Budget Releases 49 4.4 Performance and Accountability 51 4.5 Development Budget execution rates 52 4.6 Review of selected projects 59 5 Procurement 70 6 Sector Co-ordination 73 6.1 Joint Energy Sector Working Group (JESWG) 73 6.2 Active Projects Matrix 80 6.3 A Sector Wide Approach (SWAp) for the energy sector 83 7 Joint Energy Sector Review Process for 2011 87 7.1 JESR 2010/11 Process 87 7.2 JESR 2010/11 Document 87 7.3 JESR 2011 Workshop 88 8 Energy Sector Performance Indicators and Information Systems 89 8.1 Energy Sector Performance Indicators 89 8.2 Energy Sector Information Systems 101 References/Bibliography 113 List of people consulted 122

1 Energy Sector Review 2010 Report

List of tables, figures, and boxes

Table 2.1 Existing Generation and Import Capacity 15 Table 2.2 Number of outages in the grid system (number of incidents in the year) 17 Table 2.3 Distribution network outages (hours per annum) 17 Table 2.4 Short term generation and import expansion plan 17 Table 2.5 Growth in power and energy demand and analysis of system losses 18 Table 2.6 Households with access to electricity 19 Table 2.7 Financial analysis of TANESCO - nominal 21 Table 2.8 Financial analysis of TANESCO - real 22 Table 2.9 Audited financial position of the Rural Energy Fund 24 Table 4.1 MEM’s budget formulation process 48 Table 4.2 FY2007/08 Expenditure Estimates and Released Funds 56 Table 4.3 FY2008/09 Approved Estimates and Released Funds 57 Table 4.4 FY2008/09 Released Funds and Actual Expenditure 58 Table 8.1 Issues in carrying forward NSGRP Performance Measures 92 Table 8.2 PAF Matrix measures for the Energy Sector 2009 98 Table 8.3 PAF Matrix measures for the Energy Sector 2010 99 Table 8.4 Energy Sector Performance Indicators - NSGRP 1 105 Table 8.5 MEM’s Key Actor Responsibilities in NSGRP 2 108

Figure 2.1 Human development index and energy consumption 11 Figure 2.2 GDP (USD PPP) and electricity consumption (kWh) per capita (2005) 12 Figure 4.1 MEM Development Budget FY2006/07 to FY2009/10 by funding source (TZS) 54 Figure 4.2 Petroleum Sub-Sector Development Project: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2006/07 to FY2010/2011 60 Figure 4.3 Emergency Power Plants: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2009/10 to FY2010/2011 61 Figure 4.4 Electricity V: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2008/09 to FY2010/11 63 Figure 4.5 TEDAP: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2007/08 to FY2010/11 65 Figure 4.6 Development Projects in MEM funded by Sweden from FY2006/07 to FY2009/10 66 Figure 4.7 REA and REF: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2006/07 to FY2009/10 67 Figure 4.8 REA Capacity Development: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2009/10 to FY2009/10 68 Figure 4.9 Rural PV Market Development: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2006/07 to FY2009/10 69

Box 4.1 MEM’s Budget Committees 48 Box 4.2 Cash Budget in an MTEF system 51 Box 4.3 Working definitions of budget terms 53 Box 6.1 Organisations in JESWG 74 Box 6.2 Annual Reporting Meeting in the Q1 of FY (July-Sept) 78 Box 6.3 Policy and Strategy Review Meeting in the Q2 of FY (Oct-Dec) 79 Box 6.4 Medium Term Expenditure Planning Meeting in Q3 of FY (Jan-March) 79 Box 6.5 Annual Budgeting Meeting in Q4 of FY (April-June) 80 Box 6.6 Steps for developing a sector-wide approach 84

Abbreviations

AC Assistant Commissioner

AfDB African Development Bank

AMP Aid Management Platform

BBMTF Budget Background and Medium Term Framework

BEST Business Environment Strengthening Program

CDM Clean Development Mechanism

CMC Cash Management Committee

CMU Cash Management Unit

CNG Compressed Natural Gas

CoA Chart of Accounts

CTI Confederation of Tanzania Industries

DAC Development Assistance Committee

DFID Department for International Development, UK

DP Development Partners

DPTG Development Partners Group Tanzania

EBFs Extra Budgetary Funds

EC European Commission

EDPG Energy Development Partners Group

EDCF Economic Development Co-operation Fund

EMIS Energy Management Information System

EMSB Energy and Mining Sector Board

EPD Energy and Petroleum Department

ESRF Economic and Social Research Foundation

EWURA Energy and Water Utilities Regulatory Authority

FDI Foreign Direct Investment

FY Fiscal Year

GBS General Budget Support

GDP Gross Domestic Product

GoT Government of Tanzania

GVEP Global Village Energy Partnership

IEA International Energy Agency

IFMS Information Financial Management System

IPTL Independent Power Tanzania Ltd

IPP Independent Power Producers

JAST Joint Assistance Strategy for Tanzania

JESR Joint Energy Sector Review

JESWG Joint Energy Sector Working Group

JICA Japanese International Cooperation Agency kWh Kilowatt hour

LGAs Local Government Authorities

LGCDG Local Government Capital Development Grant

LGRP Local Government Reform Programme

LPG Liquidified Petroleum Gas

LSRP Legal Sector Reform Programme

MAFS Ministry of Agriculture and Food Security

MCC Millennium Challenge Corporation

MCA Millennium Challenge Account Tanzania

MDAs Ministries, Departments and Agencies

MEM Ministry of Energy and Minerals

MKUKUTA Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania

MITM Ministry of Industry, Trade and Marketing

MMMP MKUKUTA Monitoring Master Plan

MNRT Ministry of Natural Resources and Tourism

MFEA Ministry of Finance and Economic Affairs

MHSW Ministry of Health and Social Welfare

MID Ministry of Infrastructure Development

MTEF Medium Term Expenditure Framework

MTP Medium Term Plan

M&E Monitoring and Evaluation

NSGRP National Strategy for Growth and Reduction of Poverty

NSGRP II National Strategy for Growth and Reduction of Poverty II

OC Other Charges (Non-salary recurrent expenditure)

OECD Organisation for Economic Cooperation and Development

OGAT Oil and Gas Association of Tanzania

OPM Oxford Policy Management

PAF Performance Assessment Framework

PBG09 2009 Planning and Budgeting Guidelines

PEFA Public Expenditure and Financial Accountability

PEFAR Public Expenditure and Financial Accountability Review

PFM Public Financial Management

PFMRP Public Financial Management Reform Program

PIU Project Implementation Unit

PMG Pay Master General

PMO Prime Minister’s Office

PMU Procurement Management Unit

PPA Power Purchase Agreement

PPP Purchasing Power Parity

PRET Promotion of Renewable Energy in Tanzania

PS Permanent Secretary

PSMP Power System Master Plan

PSRS Poverty Reduction Strategy Paper

PSA Production Sharing Agreement

PV Photovoltaic

REA Rural Energy Agency

REF Rural Energy Fund

SBAS Strategic Budget Allocation System

SMART Specific Measurable Achievable Realistic and Timed-bound

SACCOS Savings and Credits Cooperative Societies

SADC Southern Africa Development Community

Sida Swedish International Development Agency

SP Strategic Plan

SPGDs Small Power Generation and Distribution Projects

SSMP Sustainable Solar Marketing Package

SWAp Sector Wide Approach

SWOC Strengths Weaknesses Opportunities and Challenges

TANESCO Tanzania Electric Supply Company Ltd

TASEA Tanzania Solar Energy Association

TaTEDO Tanzania Traditional Energy Development Organisation

TEDAP Tanzania Energy Development and Access Expansion Project

TBS Tanzanian Bureau of Standards

TIC Tanzania Investment Centre

TPA Temporary Process Action

TPDC Tanzania Petroleum Development Corporation

TPSF Tanzania Private Sector Foundation

TOE Tonnes of oil equivalent

TZS Tanzanian Shillings

UNDP United Nations Development Program

URT United Republic of Tanzania

USc United States cents

USD United States Dollars

VETA Vocational Education and Training Authority

1 Introduction

This revised draft report is part of the annual Joint Energy Sector Review Process, which brings together key stakeholders in the energy sector to review progress in the preceding year, discuss issues in the sector and to develop initiatives to promote the development of the sector in the future.

The first draft of the report and this revised draft report (incorporating comments and suggestions from members of the Joint Energy Sector Working Group are followed by a stakeholders workshop (scheduled for 23rd September 2010) which validates the report’s findings, considers its recommendations and develops recommendations for follow up by the Ministry of Energy and Minerals in its contributions to the MKUKUTA and General Budget Support progress assessments later in the year.

The report is structured as follows:

Section 2 provides an overall performance update on the energy sector since the last review in 2009. It reviews the current context and gives an overview of the findings in the sub- sectors: electricity; petroleum, gas and renewable energy. For the electricity, gas and petroleum sub-sectors the report provides: a policy framework and sub-sector performance update; an assessment of follow up on issues raised in the last JESR; and a SWOC analysis. For the electricity sub-sector there are in addition financial reviews of TANESCO and the REF and REA. For renewable energy there is a SWOC analysis and an assessment of the follow up on issues raised in the last JESR.

Section 3 deals briefly with sector governance issues, principally following up on issues raised in the 2009 JESR.

Section 4 deals with budget implementation issues. The rate of budget execution in the sector has been of concern in recent years. The section provides information to show that these are signs of an underlying set of problems in planning and budget preparation. It puts the budget implementation issues in the context of the whole budget cycle and highlights the importance of MEM’s Medium Term Plan, Medium Term Expenditure Framework and budget formulation processes in setting the basis for budget implementation. It then considers how the budget release mechanisms operate and how the current “cash budgeting” system undermines the planning and budget formulation processes and exacerbates the budget implementation difficulties rooted in planning processes. This is followed by a presentation of the linkages between some of the planning and cash budget arrangements for performance monitoring and accountability systems. The section is competed by an investigation of execution rates using information beyond a simple comparison of “budget and actuals” and by probing further into the major development projects shows that when “over-budgeting” and planning issues are taken into account implementation rates are less dramatic than have been generally perceived.

Section 5 deals with procurement processes and shows again that the perceived problems in procurement process are as much problems of project design and implementation planning as of procurement capacity and that those capacity issues that continue are in the process of being resolved.

Section 6 deals with sector coordination issues and examines the operation of the Joint Energy Sector Working Group and the current and potential uses of the Development Partners’ Active Project Matrix as a co-ordination tool. It also looks at the current views of

stakeholders on and the prospects for the development of a Sector Wide Approach in the energy sector.

Section 7 provides some recommendations for the next Joint Energy Sector Review Process drawing on the experience of both last year’s process and the process so far this year.

Section 8, the final section of the report, deals with Energy Sector Performance Indicators and Information Systems and seeks to point to practical ways of addressing the over-riding requirement for energy sector to have appropriate indicators and supporting information systems that ensure coherence in the policy-strategy-planning-budgeting-service delivery process.

2 Overall performance update

2.1 Context

Inadequate provision of modern forms of energy, particularly electricity, has long been recognized as one of the infrastructure bottlenecks to growth in Tanzania. The energy balance is dominated by biomass (89% of total energy). As of 2007, energy consumption per capita was 0.4 tonnes of oil equivalent (TOE), two thirds of the average per capita primary energy consumption in sub-Saharan Africa, which is around 0.6 TOE. Industrialised country levels are of the order of 4.7 TOE per capita pa (IEA, 2007).

In order to attain the level of socio-economic development envisaged in Vision 2025, it will be necessary for Tanzania’s people not just to switch to more modern forms of energy but to use much more energy overall. As is shown in Figure 2.1, there is a strong correlation between energy usage per capita and overall development, captured here in the UNDP’s ‘human development index’, which is a composite of educational, health and economic indicators of well-being.

Figure 2.1 Human development index and energy consumption

Mauritius

South Africa Namibia Botswana

Tanzania

Angola Zambia DRC

Source: SADC Regional Energy Access Strategy and Action Plan, 2010 (report is from 2010, but diagram shows latest available data, which is for 2005)

As is shown in Figure 2.2, there is also a strong correlation between electricity consumption and GDP per capita (GDP is measured in the graph in terms of purchasing power parity). Amongst SADC countries in 2005, only Madagascar was lower than Tanzania in electricity consumption per capita.

Figure 2.2 GDP (USD PPP) and electricity consumption (kWh) per capita (2005)

35000 12,000 High income reference level

30000 10,000

) 25000 m P u P 8,000 n P

S r e U

( 20000 p

a a t t i i p 6,000 p a a c c

r r e 15000 e p p

P h D W G 4,000 k 10000

Developing countries Sub-Saharan 2,000 5000 Africa

0 0 High S.A. Sey Mau Na Bots Dev C Zim Swa Za Moz SSA An Le Mal DRC Tan M'car inc

GDP per capita (PPP) kWh per capita per annum

Electricity availability is especially important when considering attracting both local and foreign private sector investment in the productive and service sectors of the economy. Tanzania needs such investment to maintain the high level of GDP growth (over 7% per annum) which has been evident in recent years. Private investors are often heard to complain about the price of electricity, but research invariably reveals that they are much more concerned about the reliability and security of electricity supply than its price. In any event, in Tanzania the price of electricity has been significantly lower than in neighbouring countries – of the order of 10 USc/kWh as compared with 22 USc/kWh in Rwanda for example or 20 USc/kWh in Kenya. The problem has been that this low price has been matched by poor quality and unreliable supplies, forcing many enterprises to purchase and operate stand-by generation equipment at very high cost, thereby raising the price of products and services. For Tanzania to be competitive, it needs reliable, efficiently provided grid-supplied electricity, even though this will in turn require much higher tariffs than TANESCO is currently permitted to charge.

Despite the obvious importance of electricity for overall economic growth and social development, the objectives of MKUKUTA and Vision 2025 are not going to be met if the sole focus of energy policy and strategy were to be on electricity. Government’s efforts to develop more efficient means of using biomass as well as developing other sources of energy for households, including natural gas, solar and other renewable energy, are also of vital importance. Charcoal is particularly important because it provides a livelihood for a significant segment of the population and has a turnover that is of the same order of magnitude as the revenue of TANESCO, which in 2009 was TZS 414 billion (USD 275 million)1.

In addition to the important institutional initiative of setting up the Rural Energy Agency, some promising specific approaches to addressing rural energy needs have been developed, including the multi-function platforms of Tanzania Traditional Energy Development 1 World Bank (2009b) records that “the contribution of Tanzania’s charcoal sector to employment, rural livelihoods, and the wider economy is estimated to be in the region of US$650 million per year, providing income to several hundred thousand people in both urban and rural areas”.

Organisation (TaTEDO) and the Energy and Water Utilities Regulatory Authority’s (EWURA) standardised framework to encourage small-scale private provision of electricity. These and other positive initiatives need to be rolled out on a national scale.

2.2 Overview of findings

As recently as 2006-2007, the electricity sector was in a state of crisis, precipitated by a severe drought crippling a generation system which at that time was 47% dependent on hydropower. This led to a programme of load shedding and expensive, emergency, procurements of power.

Since that time, the situation has markedly improved. Investment in generation has increased to a point where supplies are much more reliable, though the target level of reserve margin (approximately 20%) is only expected to be reached in 2013 and, on the current Short Term Generation Expansion Plan, will decline again to 10% in 2014 and rise to 14% in 2015. TANESCO’s financial position remains precarious, with losses increasing from TZS 21.6 billion in 2008 to TZS 47.7 billion in 2009. Only half of the requested tariff increase applied for in 2007/08 was granted by EWURA and, with rather high levels of inflation since then, the real value of the tariff has declined sharply. The restoration of financial viability depends on the award of a significant increase at the end of the current tariff review, as well as TANESCO continuing to improve operational efficiency as part of the tariff compact which will be made with the regulator.

The crisis approach to the electricity sector that was needed in 2006-2007 has left some sort of legacy in the energy sector. The predominant focus continues to be on the electricity sub- sector, and the concern in all aspects of energy is on individual projects, rather than on the broader challenges in the sector and the links to overall national development. Greater attention needs to be paid to the coherence of the policy-strategy-planning-budgeting nexus and the accompanying legislative framework. In particular:

 A closer link needs to be made between growth objectives in the productive sectors of the economy and the development of the electricity sub-sector. Electricity investments need to be large enough to remove the constraints on productive investments but should not go the other extreme of crowding out productive investments. The quantum of electricity investment is significant in macro-economic terms (of the order of 4% of GDP), with the consequence that over-investment in electricity could actually slow economic growth if it absorbs too large a share of investment resources and/or results in an excessive debt burden.

 Similar links with economic growth potential apply to the rural electrification programme. The significant costs of rural electrification are only justified if the electricity is actually used in the newly electrified centres, and this is best assured by focussing on centres with significant potential to provide new jobs and income from the use of electricity. This in turn will ensure that electricity bills can be paid and the scheme will be viable for TANESCO. In this regard, the Rural Electrification Study Document needs to be updated and used as a basis for promotion and approval of investments by REA to be undertaken both by TANESCO and private sector operators. The Study Document needs also urgently to address the very high and rapidly rising costs of grid electrification in Tanzania (for example USD 35,000/km for a 33 kV distribution line, which is roughly three times of cost in many other

developing countries (Ethiopia is reported to have brought the cost for equivalent lines down to USD 5,000 per km).

 The Electricity Act (2008) specifies that the minister responsible for energy must produce a position paper on reform of the electricity sector. This is expected to be produced and discussed at the start of the 2010/11 financial year. This will be an important means through which longer-term strategic issues in the electricity sector will be addressed.

 Another important area for strategic thinking is in the gas sector. Directions are being pursued by TDPC and proposals made by private sector companies without the benefit of reference to an overall national framework for the gas sector. There is also a lack of enabling legislation. It is recommended that gas policy and strategy be consolidated before the proposed Gas Act is finalised and put to Parliament.

The remainder of this section provides the detailed overview of performance in the electricity, petroleum and natural gas sectors since the 2009 JESR. Each section also contains an assessment of the strengths, weaknesses, opportunities and challenges in each sub-sector (SWOC). The issues raised above are further elaborated in the SWOC presentations.

2.3 Electricity

2.3.1 Policy and sector performance update

There were no significant policy changes affecting overall sector performance. During the period under review, the sector registered the following specific achievements:

(i) Tegeta 45 MW gas power plant commissioned;

(ii) Electrification of eight District Headquarters (Mbinga, Mkinga, Ludewa, Kilolo Simanjiro, Kilindi , Bahi and Uyui);

(iii) Buzwagi and North Mara mines connected to the national grid;

(iv) Electrification of Namanga Township from Kenya;

(v) Five units of ABB engines have been installed in Kigoma each with a capacity of 1.25MW, hence totalling 6.25MW, to improve reliability of power supply;

(vi) Payment effected for diesel powered generators for District Headquarters of Kasulu, Kibondo, Sumbawanga, and Ngorongoro;

(vii) Adoption of SPPAs and associated tariff for small renewable energy projects.

2.3.2 Key electricity sector indicators

Generation capacity, availability and outages As shown in Table 2.1, installed generation capacity, including off grid and imports, is 980 MW.

Available capacity at close to 900 MW is the same as the projected peak demand in 2010, implying zero reserve margin. The capacity figures exclude approximately 215 MW of potentially available capacity that is currently under legal disputes (IPTL and Dowans).

Table 2.1 Existing Generation and Import Capacity

No. Station Type Installed Available Firm Average Comments Capacity Capacity Energy Energy Capability Capability

A. National Grid MW MW GWh GWh Kidatu Hydro 204 200 601 1,111 Hydrological limitation Kihansi Hydro 180 180 180 492 Hydrological limitation Mtera Hydro 80 80 195 429 Hydrological limitation New Pangani Hydro 68 66 201 341 Hydrological Falls limitation Hale Hydro 21 10.5 55 93 Hydrological limitation & 1 unit is out Nyumba ya Hydro 8 4 20 36 Hydrological Mungu limitation & 1 unit is out Uwemba Hydro 1 1

Total Hydro 562 541.5 1,252 2,502

Songas 202 185 1,212 1,232 Availability >95% TANESCO 102 100 655 666 Gas supply Ubungo/Wartsila defines availability Tegeta 45 41 289 294

Total Thermal 349 326 2,156 2,192

Total on grid 911 867.5 3,408 4,694

Others not currently available: Tegeta IPTL 103 100 This plant does have a PPA and O&M agreement Dowans 112 103

B Off Grid

No. Station Type Installed Available Firm Average Comments Capacity Capacity Energy Energy Capability Capability

TANESCO 36 16 Plants are old, Diesel Plants supply shrinking Mnazi Bay 12 4 Artumas IPP, soon Natural Gas to be increased to 18 MW Coal 6 1

Total off-grid 54 21

C Imports

Sumbawanga 5 3.5 (Zambia) Kagera 8 3.7 (Uganda) Namanga 1.8 0.8 (Kenya)

Import capacity 15 8

Grand Total 977 896.5 Source: TANESCO documents and Vernstrom (2010)

In addition to the lack of reserve margin, which ideally should be at least the size of the largest unit on the system (200 MW or 22% of current available capacity), generation remains vulnerable to drought as hydro constitutes over 60% of available capacity. The result is poor quality of service (such as voltage and frequency variations) and frequent outages. Data on outages is given below in Table 2.2 and Table 2.3, with the figures generally indicating year-on-year increases.2.

2 Authors’ note – more recent data was requested and still awaited, to be followed up in workshop period.

Table 2.2 Number of outages in the grid system (number of incidents in the year)

Year Grid Transmission lines Power Stations 220 kV 132 kV 66 kV Kidatu Mtera NPF Kihansi 2007 7 119 109 10 10 Year 12 1 2008 4 135 62 10 7 3 7 10 Source: EWURA Annual Report, 2009

Table 2.3 Distribution network outages (hours per annum)

Year 33 kV 11 kV 2007 18,906 12,951 2008 33,655 19,053 Source: EWURA Annual Report, 2009

Generation and import expansion plan to 2015 The capacity expansion plan for this and the next 5 years is given in Table 2.4. It shows that it will only be in 2013 that a reasonable reserve margin will be achieved and that continuous investments will be required thereafter to keep pace with demand and maintain a reserve margin adequate to ensure security of supply. The total addition to capacity envisaged over the period 2011-2015 is 1,011 MW, of which 200 MW is import capacity made possible by the proposed Ethiopia-Kenya-Tanzania interconnector. The main addition in 2010 is to be the recommissioning of the 100 MW IPTL plant, converted to utilise gas rather than HFO as soon as there is sufficient gas supply to make this possible.

Table 2.4 Short term generation and import expansion plan

Addition Total Supply Demand Reserve Year Plant Fuel MW GWh MW GWh MW Margin 2010 IPTL HFO 100 701 771 4,356 900 -14% 2011 Mwanza diesel HFO 60 420 Cogen Biomass 40 280 Ubuno EPP Gas 100 701 971 5,758 998 -3% 2012 Wind Wind 50 21 1,021 5,975 1,094 -7% 2013 Kinyerezi Gas 240 1,648 Kiwira Coal 200 1,289 1,461 8,913 1,210 21% 2014 1,461 8,913 1,333 10% 2015 Rusumo Hydro 21 129 Interconnector EKT Import 200 1,374 1,682 10,415 1,471 14%

Source: Power System Master Plan 2009 Update (values are firm capacity and energy)

With the leadership being provided by the Nile Basin Initiative Regional Power Trade Project and the broadening of the role of the East African Power Pool, Tanzania will in future be able to rely increasingly on regional power sector integration to improve security of supply, while also taking advantage of electricity trade opportunities. The Short-term Plan includes the commissioning in 2015 of the shared Rusumo hydropower plant and the Ethiopia-Kenya- Tanzania interconnector. Exactly what opportunities will exist after that will emerge from the two major power system development planning exercises underway in the region.

 The East African Power Pool is carrying out a Rapid Master Plan to determine priority actions for the regional grid to be integrated by 2015.

 The Nile Basin Initiative Regional Power Trade Project is commissioning a much larger and comprehensive optimised Power Development Plan for the region which will spell out in detail the long-term power trade opportunities for participating countries.

Growth in demand and analysis of system losses The Power System Master Plan 2009 Update is based on an assumption of an average of 6.2% growth in demand each year over the period 2009 to 2033. In the next few years, much higher year-to-year growth rates are projected, as shown in Table 2.5.

Table 2.5 Growth in power and energy demand and analysis of system losses

Item Units 2008 2009 2010 2011 2012 System peak MW 729 764 900 998 1,094 Gross generation GWh 4,155 4,530 5,359 5,906 6,452 Net generation GWh 4,113 4,485 5,305 5,847 6,387 Transmission losses GWh 205 206 213 205 192 Distribution losses GWh 642 741 887 902 798 Total grid sales GWh 3,266 3,539 4,205 4,740 5,397 of which to Zanzibar GWh 139 160 199 228 267

Growth in peak demand % 10 5 18 11 10 Growth in grid sales % 16 8 19 13 14

Transmission losses % 5.0 4.8 4.2 3.6 3.1 Distribution losses % 16.4 17.3 17.4 16.0 12.9 Total losses % 21.4 22.1 21.6 19.6 16.0

Total losses 847 947 1,100 1,107 990 Target losses % 14 14 14 14 14 Cost excessive losses %rev 17 17 17 17 16 Source: TANESCO documents and Vernstrom (2010)

also shows transmission and distribution losses in GWh and in percentage terms. There are physical and operational limits to loss reduction; the medium term objective being to reduce losses from the current 22% of energy sent out to 14%. The difference between this target and the current level can be considered as ‘excessive’ losses. The monetary value of the losses is currently equivalent to around 17% of billed revenues and a higher percentage of

collected revenues. In absolute terms, the amount involved as of 2010 is around TZS 85 billion, with roughly 80% of this being attributable to distribution.

Population with access to electricity It is the Government’s aim to reach 75% electrification by the end of the Power Development Master Plan period, which is the year 2033. A target of 100,000 new household connections per annum has been set. In view of the fact that the highest number of new connections achieved to date in one year has been 60,000 (a mix of household and non-residential connections), increasing to 100,000 per annum and maintaining this pace of household connections would be extremely challenging. Table 2.6, which is based on population growth data in the Power System Development Master Plan (1.9% per annum), shows that the current level of access to electricity is about 14% and that at a rate of 100,000 per annum the total would reach 21% by 2030.

Table 2.6 Households with access to electricity

2010 2020 2030 Population (no. people) 45,198,000 59,123,000 77,225,000 Households 9,224,082 12,065,918 15,760,204 Annual addition (households) 100,000 100,000 100,000 Households with electricity 1,256,000 2,256,000 3,256,000 Proportion of households 14% 19% 21% Source: Calculated from Power System Master Plan, 2009 Update, with the addition of off-grid connected households.

To achieve a 75% connection rate by 2033 would require the average number of connections to average 485,000 per annum every year from 2010. At the rate of population growth that has been assumed, the number of new households is over 450,000 per annum by 2030. This illustrates that even if the target of 100,000 connections per annum is met in the early years, the pace of connections will have to increase substantially as the overall size of the population increases.

MKUKUTA PAF Indicators The Annual National Policy Dialogue addresses the MKUKUTA PAF Indicators for each sector. For the energy sector, the following points from the March 2010 Cluster Working Group 1 are relevant:

Temporary Process Action 1: Additional power generation capacities of at least 160 MW to be operational by December 2011

The short term generation plan has 4 projects to be commissioned by the end of 2011, with a total capacity of 300 MW. These are IPTL (100 MW), Mwanza diesel (60 MW), cogeneration (40 MW) and Ubungo EPP (100 MW). Provided at least one of the larger projects is successfully implemented and one other project, the TPA should be achieved.

Outcome Indicator 2: Total electricity generation capacity and utilisation

The target set for 2010 of 1,137 MW of installed capacity and 71% availability will not be met this year without some means being found to bring the idle IPTL and/or Dowans capacity back onto the system.

Outcome Indicator 3: % of the population with access to electricity

The attainment of an electrification rate of 14% in 2009 is satisfactory. Increasing to 14.5% in 2010 would require 120,000 new connections in the up-coming year, double the best past performance.

2.3.3 Financial Review of TANESCO

Financial situation After persistent losses, a Financial Recovery Plan was launched in 2007 to: restore TANESCO’s financial integrity; improve network performance; reduce technical and non- technical losses; increase available generation capacity; enlarge its customer base; and improve billing and revenue collection.

Data for two years where audited accounts are available (2008 and 2009) and for three projected years (2010-2012) are given in Table 2.7. This shows that TANESCO’s losses actually increased between 2008 and 2009 and this situation is projected to continue into 2010. The underlying reason is that unit costs increased faster than the average tariff that was charged. This is best viewed in real terms – see Table 2.8. This shows that a significant 18% reduction in cost of sales was achieved in 2008, but that unit costs then rose slightly in 2009, while the real effective tariff declined by nearly 4%.

Table 2.7 Financial analysis of TANESCO - nominal

Nominal Values Units 2008 2009 2010 2011 2012 Electricity sales Sales of Electricity (physical) GWh 3,366 3,481 4,361 4,913 5,564 Sales of Electricity (revenue) TZS b 371.3 413.6 518.1 785.5 1,012.0 Cost of sales TZS b 367.0 430.5 316.0 388.8 567.9 Profit and loss account Total revenues TZS b 483.9 502.8 615.7 890.0 1,124.0 Expenses TZS b 505.5 550.4 651.8 759.0 1,031.9 Profit/loss before tax TZS b -21.6 -47.7 -36.1 131.1 92.1 Unit values – electricity sales Average tariff invoiced TZS/kWh 110 119 119 160 182 Average cost of sales TZS/kWh 109 124 72 79 102 Unit values – overall Revenue per unit sold TZS/kWh 144 144 141 181 202 Cost per unit sold TZS/kWh 150 158 149 154 185 Growth rates Sales of Electricity (physical) % 5.6 3.4 25.3 12.7 13.3 Average tariffs % 20.4 7.7 0.0 34.6 13.8 Average cost of sales % -9.6 13.4 -41.4 9.2 29.0

Source: Calculated from TANESCO Audited Accounts 2008-2009 and Tariff Review Submission for 2010-2012

Table 2.8 Financial analysis of TANESCO - real

2010 real values Units 2008 2009 2010 2011 2012 Inflation CPI inflation % 10.3 12.1 7.8 Indexation Price index Index 0.83 0.93 1.00 1.00 1.00 Real values Real av tariff TZS/kWh 133 128 119 160 182 Real av cost of sales TZS/kWh 132 133 72 79 102 Real revenue per unit sold TZS/kWh 174 156 141 181 202 Real cost per unit sold TZS/kWh 181 170 149 154 185 Change in real values Change in real tariff % 9.1 -3.9 -7.2 34.6 13.8 Change in real cost of sales % -18.0 1.2 -45.6 9.2 29.0 Source: Calculated from TANESCO Audited Accounts 2008-2009 and Tariff Review Submission for 2010-2012

Tables 2.7 and 2.8 show that dramatic changes are anticipated by TANESCO in 2010. Sales of electricity are projected to grow by 25%, while the average cost of sales declines by a substantial 45% in real terms (41% in nominal terms). ‘Cost of sales’ refers to the direct costs associated with generation, transmission and distribution. Overall unit costs are projected to decrease by a much more modest 12% in real terms (6% in nominal terms). With no increase in nominal tariffs, implying a decline in real terms (by an average of over 7%), the out-turn in 2010 is still a loss.

The figures for 2011 and 2012 assume that the tariff application that has been made is endorsed by EWURA and that the indexation formula, which is to be part of the package, will preserve the real value of any tariff increase. The average tariff goes up 34.6% in 2011 and a further 13.8% in 2012. The cost of sales and overall cost per unit sold also increase, despite the expectation that EWURA will impose demanding performance requirements on TANESCO in return for any tariff increase that is awarded. On the figures as given, TANESCO returns to profitability in 2011 (TZS 131 billion), with a smaller profit in 2012 (TZS 92 billion).

The increased unit costs are justified by the much higher levels of maintenance expenditure which are needed if the dilapidated and unreliable transmission and distribution system is to be restored to full operability. High levels of maintenance are also required in some of the hydropower stations. TANESCO’s consultants have reported that 12% of revenues is the desired target for repair and maintenance expenditures, while the utility’s actual expenditure in 2009 was only about 2% of revenues.

It is the regulator’s task to ensure that the need for higher levels of expenditure in maintenance is accompanied by continued efforts to improve efficiency in the overall management of the system and reduce overhead expenditures. Higher levels of maintenance expenditure will result in lower technical losses on the system, but higher tariffs will increase the incentives for so-called non-technical losses (theft of electricity). Renewed efforts will therefore be needed in this area.

The tariff review application makes a compelling case that efficiency improvements are not sufficient to restore TANESCO to financial viability. If there are not significant real tariff

increases, the application notes that there will be a delay in self-funded capital investment, additional deferred maintenance, resulting in further deterioration in the reliability of generation and the transmission and distribution network, and delay in major investment projects, including the 400 kV network reinforcement and expansion.

Subsidies to the electricity sector The tariff application is not just for an immediate increase in tariffs, but for a three year package of measures which includes: (i) real increases in each year (34.6% in 2011, 13.8% in 2012, and 13.9%); (ii) an indexation formula to cushion for inflation; (iii) the introduction of time of use tariffs for large customers in order to reduce peak demand and hence generation requirements in an efficient manner; and, (iv) some ‘rebalancing’ to bring the tariffs paid by different categories of customer more in line with the costs which they impose on the system.

Small customers impose the largest unit costs on the system, but on social grounds domestic customers have traditionally been charged the lowest tariffs. This situation is made possible both by cross-subsidies between consumers in different tariff categories and by the overall subsidies which have been given to the electricity sector. The long-run marginal cost (LRMC) study on which the tariff application is partly based, estimates that the financial subsidy to TANESCO customers is currently of the order of TZS 202 billion per annum (USD 135 million per annum). In economic terms, the subsidy, as measured by the difference between the current revenue yield and the LRMC, is more than three times higher (TZS 670 billion or nearly USD 450 million per annum)3. The report notes that these estimates exclude the hidden subsidy implicit in natural gas used for power generation being valued at only a fraction of its world market price. In addition to direct subsidies, the electricity sector also absorbs a high share of development partner resources, Government loan guarantees, etc., all of which have opportunity cost implications elsewhere in the economy.

Customers in the low voltage tariff categories receive a disproportionate share of the subsidies, but without the subsidies being as well targeted to national objectives as the Government would like. In view of the scale and complexity of electricity sector subsidies, there is need for a much clearer subsidy policy to be spelt out and used as a guide in defining tariff categories and setting tariffs.

2.3.4 Financial Review of Rural Energy Fund and Rural Energy Agency

Revenues and expenses of REF and REA The Rural Energy Act (2005) provides for the Rural Energy Fund to obtain funds from the following sources:

 Government annual budgetary allocations;

 Contribution from international financial organizations, multilateral and bilateral agencies and other development partners;

 Levies of up to 5% on the commercial generations of electricity from the national grid;

 Levies of up to 5% on the generation of electricity in specified isolated systems;

3 Vernstrom (2010), page 49

 Fees in respect of programmes, publications, seminars, consultancy, and other services provided by the agency; and

 Interest on investment.

To date the main sources of funding for REF have been the Government budgetary allocation and levy from electricity sales. However, due to slow disbursements, interest on accumulated balances has also been a source of revenue.

This is shown in Table 2.9, which summarises the two sets of audited accounts which cover the period since the Rural Energy Agency commenced operations in October 2007. The table shows that the effect of a low rate of disbursements on rural energy projects has been to make the REA appear extremely costly in overhead terms and to produce a large surplus of over TZS 10 billion in the REF.

Table 2.9 Audited financial position of the Rural Energy Fund

TZS millions 2007/08 2008/09 Revenue Government 10,000 12,060 Development partners 1,586 252 Interest 35 500 Total revenues 11,621 12,812 Expenditure REA expenses 1,403 3,584 Grants – Rural energy projects 7,977 1,013 REA expenses % Rural energy project grants (ratio of the last 2 items) 18% 354%

Surplus for the year 2,241 8,215

Source: REA Annual Report, 2009

During the 2008/09 financial year, the Rural Energy Board (REB) approved TZS 17.8 billion for energy projects but signed contracts constituted only TZS 1.0 billion. The slow disbursements are the result of various factors, the main one highlighted in the notes to the accounts being the fact that implementation of electricity projects owned by TANESCO was held up due to delays in the procurement of private contractors who were actually going to do the work4. Another important factor, related to the output-based subsidies available through the TEDAP for projects promoted by small scale project developers is that they have difficulty in securing the loans needed to complement their own equity and the subsidy components of the financing. Under TEDAP, the Government has secured funds to establish a credit which will provide long-term financing for small rural energy projects.

In the Financial Year 2009/10 REB approved roughly TZS 100 billion worth of projects whilst having accumulated capital of about TZS 20 billion. The size of this gap indicates that there are many suitable rural energy projects available. For the benefits of energy projects to accrue as rapidly as possible to the intended rural communities, ways need to be found to speed up the implementation process, particularly in respect of the TANESCO projects. This is discussed further in the analysis of public procurement in Section 5.

4 REA Annual Report 2009, Note 13, page 31

2.3.5 Response to electricity issues raised in the 2009 JESR

As mentioned previously, the Executive Summary of the JESR 2009 Report present the findings of the report in 17 paragraphs. The points pertaining to electricity are discussed in this sub-section, with corresponding discussions in the petroleum, gas and renewable sections below. The findings have been grouped by sub-sector and topic, but the original numbering has been maintained for cross-referencing purposes.

ES 1 TANESCO

The review indicated that the company was expected to show profits in the annual report for 2009, as a result of the implementation of the Financial Recovery Plan and the receipt of a syndicated loan. Remaining challenges for TANESCO were identified as – continuing improvements in cost effectiveness; ensuring better quality service and supply; and drawing up and respecting a responsive Customer Service Charter.

As noted in Section 2.3.3, the financial out-turn for TANESCO for the year 2009 was a loss of TZS 47.7 billion. Efforts are continuing to improve financial and operational performance. The Customer Charter, which had been subject to public hearings and approval by EWURA, was formally launched at the start of February 2010.

ES 3 Expansion of generation capacity, transmission and distribution infrastructure

It was noted that rapid expansion was needed if the MKUKUTA Targets for the energy sector were to be achieved.

In respect of generation, the major project commissioned during the years was the 45 MW Tegeta gas-fired plant. In respect of off-grid generation, payment was effected for diesel powered generators for district headquarters of Kasulu, Kibondo, Sumbawanga, and Ngorongoro. Transmission and distribution projects included electrification of five District Headquarters (Mbinga, Mkinga, Ludewa, Kilolo and Simanjiro), connection of Buzwagi and North Mara mines to the national grid and electrification of Namanga Township from Kenya.

ES 5 Tariffs and EWURA

JESR 2009 recommendations on tariffs are for them to be seen as a catalyst for investments. The review noted a trade off between setting tariffs at attractive rates for providers and affordability for consumers, especially in rural areas. The review suggested that the use of low cost technologies may resolve this trade-off.

Drawing on the recently completed Cost of Service and LRMC studies, TANESCO has now submitted a comprehensive Tariff Review application to EWURA. This includes proposals for continuation of lifeline tariffs funded by cross-subsidies to enable low income households to afford basic amounts of electricity. Using Trust Fund resources linked to TEDAP, a low cost rural electrification study is to be undertaken before the end of 2010.

ES 6 Standardised Power Purchase Agreements (SPPAs)

JESR 2009 stressed the importance of this development by EWURA in helping to attract private investors in the power sub-sector.

EWURA has published standardised PPAs for main grid connections and isolated mini-grid connections as part of the overall framework for the development of small power projects (100 kW to 10 MW)5. There has been a positive response from the private sector, with 78 projects in the pipeline. Five SPPAs have been signed so far with a maximum of 24.4 MW for sale to TANESCO main grid and isolated grids, in large measure because of the difficulty that project promoters experience in obtaining bank loans. This issue is soon to be addressed through the addition to the TEDAP which was recently approved by the World Bank Board. A new credit line is to be established in the Tanzanian Investment Bank with refinancing of risk coverage to allow loans of longer tenure to be given for rural electrification projects.

ES 9 Power Sector Policy and Planning

JESR 2009 recommended focus on the following specific actions to achieve the overarching reform objectives of the Power Sector Reform Strategy and their effective linkage to (wider) national economic plans and strategies:

Hydrology management in catchment areas

Support of turn-around activities in TANESCO and the achievement of financial recovery

Songas Debt Refinancing

Conversion and Acquisition of IPTL

Investment in Increased Permanent Generation, including T&D lines and substations.

Tariff adjustments as required to ensure cost reflectivity; and

Investment in new and renewable energy sources and introduction of low cost technologies in rural areas.

Several of these items are commented on under other headings (financial recovery of TANESCO, investment, tariffs, low cost rural electrification technologies) or are on-going activities (hydrological management, investment in new and renewable energy sources). Songas Debt Refinancing was completed in 2008, with a consequent reduction in the tariff, but IPTL remains under legal dispute so the conversation and acquisition is yet to proceed.

ES 10 Growth of the Electricity Sector

As shown in Table 2.5, growth rates declined in 2009 but are expected to rise sharply in 2010. Peak demand still grew by 5% in 2009, but is set to rise by 18% in 2010. The corresponding figures for sales to the grid are 8% growth in 2009 and 19% in 2010.

ES13 Generating Capacity

JESR 2009 noted that capacity of 1,100 MW is low compared to demand which is growing at 13-15 per cent per annum and that only 14 per cent of the population have

5 See http://www.ewura.go.tz/sppselectricity.html

access to electricity, as compared with a target of 20 per cent for 2010. Greater use of renewables was advocated.

As already noted, the only major increase in capacity in the last year has been the commissioning of the 45 MW Tegeta gas-fired plant. Total available capacity and forecast peak demand for 2010 are at the same level, around 900 MW, implying zero reserve margin.

The short-term expansion plan shown in Table 2.4 envisages 1,011 MW being added to the system over the period 2010-2015, of which 111 MW are renewables (biomass, wind and hydro) and 200 MW is import capacity made possible by the proposed Ethiopia-Kenya- Tanzania interconnector. Short term actions which would immediately redress the lack of reserves would be to bring the DOWANS units into service as well as IPTL (which is part of the planned 1,011 MW), possibly through large customers contracting this power directly, thereby freeing up capacity elsewhere on the grid. Another large project being discussed with China is the proposed 300 MW gas-fired plant at Mtwara with a DC transmission line to evacuate the power to the mining areas in the north.

ES 15 Establishment of the Rural Energy Fund and Rural Energy Agency

REA should look at new and alternative energy sources, have adequate finance and stronger technical capacities, provide incentives for private investment and give subsidies for connection charges to promote affordability.

As noted in Section 2.3.4.1, REF has thus far had more funds than it has been able to disburse, but the level is nonetheless well below what is needed to begin addressing rural energy needs with the purposefulness required by MKUKUTA. While not neglecting grid extension, REA is actively pursuing renewable energy sources, and is providing incentives and connection subsidies through TEDAP funding. The experience of the TEDAP to date needs to be reviewed and the lessons learnt incorporated in future support schemes. The additional TEDAP financing that has been secured will allow important complementary initiatives: exploring low cost technological options for rural grid electrification and giving small investors access to the long-term loans they need to reach financial closure on their projects.

2.3.6 SWOC Electricity

This section distils the preceding analysis into a few summary bullet points. The sections on the context and overview of findings, as well as the various sub-sections on the electricity sector, all feed into the SWOC analysis.

Electricity strengths • Motivated and skilled personnel in many of the important posts in the state electricity institutions

• Diversified resource base for electricity generation, with much of this yet to be developed

• Electricity regulator and Rural Energy Agency in place, gaining increasing recognition for their professionalism and effectiveness in their respective fields

• Government policy, legislation and institutions in place to encourage private participation in the electricity sector

• Streamlined regulatory framework to encourage small-scale investment in electricity projects (100 kW to 10 MW).

Electricity weaknesses • Monolithic power utility, which despite several rounds of reforms and capacity building programmes, has not been able to achieve the levels of investment in plant and in human capacity to maintain a secure electricity supply for the country and continues to perform poorly on key technical indicators (such as costs of making rural electrification connections)

• The prevailing electricity tariff is not cost reflective, this being the major underlying reason for TANESCO’s financial weakness

• Lack of experienced middle level staff in TANESCO and limited options to effectively replace retiring senior staff from within the utility

• Project preparation and prioritisation processes are not being adhered to, resulting in severe delays in the implementation of projects and significant associated opportunity costs for the economy

• Generation capacity which could provide the reserve margin needed to avoid frequent, costly supply interruptions standing idle due to deficient past procurement and present drawn-out legal disputes

• Very low connection rates and per capita electricity usage, particularly in the rural areas – future expansion of connections in the rural areas has to be tied to areas of economic potential so that there will a sufficient market for electricity for viability.

• The private sector involvement in the rural areas (via REA) has been limited, despite the low cost services opportunities from rural power cooperatives approach

Electricity opportunities • Achieve more efficient use of electricity through demand side management measures (including, but not limited to, having higher, cost-reflective tariffs)

• Achieve financial viability and operational efficiency within the electricity sector

• Integrate electricity investments at the national and local level with socio-economic development opportunities, so as to extend access on a financially sustainable basis

• Connect isolated regions presently supplied by TANESCO diesel generators to the national grid as it becomes economic to do so (that is when the annualised costs of the transmission lines and substations needed for connection exceed the direct benefits of interconnection, which are the annual savings resulting from the difference in generation costs and supply from isolated diesel generators as compared to the power supply from the main grid).

• Take advantage of regional electricity trade opportunities within the South African and East African Power Pools to smooth supply-demand imbalances and enhance security of supply

• Achieve a ‘greener’ electricity sector than would have been the case if the investments had taken place in an earlier epoch where less attention was paid to the environment and renewable generation options were less developed.

Electricity challenges • Obtain public support for substantial electricity tariff increases

• Create an environment in which consensus can rapidly be achieved on Electricity Sector Restructuring, allowing the resulting proposals to be rapidly implemented

• Ensure that future private sector participation in the electricity industry offers sustainable mutual benefits to the nation and the investor

• Raise more than TZS 27 trillion required for the implementation of Power System Development Plan up 2033

• Ensure financing considerations given particular attention when considering sector restructuring proposals.

2.3.7 Electricity recommendations

Recommended strategic directions are implicitly indicated in the above ‘challenges’. Three specific recommendations for the electricity sector are as follows:

• While taking account of the complexities, explore option of large users purchasing power directly from the disputed IPTL and DOWANS plants. This would release up to 215 MW of capacity to the national power system, restore an adequate reserve margin, and reduce outages. If feasible, such arrangements could lead to progressive introduction of competition in electricity sector. This proposal would obviously require the cooperation and agreement of TANESCO, in part because of TANESCO’s right, which is entrenched in the Electricity Act, of first refusal to supply large customers, and because the power would have to be wheeled over the TANESCO grid. It recognises, however, the current imperative for the economy as a whole to restore an adequate level of reserves as quickly as possible.

• Formulate a clear national policy on subsidies to and within the electricity sub-sector. At present, there is no clearly articulated policy and hence subsidies tend to be rather ad hoc and do not necessarily further the intended objectives. Formulating a specific policy on subsidies will be a good opportunity to debate issues such as the pros and cons of maintaining a uniform national electricity tariff, and should make a recommendation on this consistent with the subsidy principles. A key benefit will be to have a systematic presentation of the existing subsidies and an assessment of their individual and combined effects that can provide evidence for policy making.

• Update the Rural Electrification Master Plan, with a focus on identifying centres with significant potential to provide new jobs and income from the use of electricity and of laying out low cost means of making grid connections. The updated RE Master Plan would provide a basis for promotion and approval of investments by REA to be undertaken both by TANESCO and private sector operators. This should include off- grid solutions as well as conventional on-grid rural electrification. In line with contemporary thinking about a Master Plan, this should provide a guiding framework rather than being a rigid implementation blueprint. The Master Plan should, for example, leave flexibility to the private sector promoter to suggest project (bottom-up)

approaches. By definition, the private sector will not go into areas which are not economically viable, but may take the initiative in proposing innovative low cost solutions.

2.4 Petroleum

2.4.1 Policy Framework and Performance assessment

No significant change in petroleum sector policy took place during the year, pertaining either to the upstream or downstream parts of the petroleum sector. The year in review was one of consolidation.

In the upstream sector, exploration continued with oil companies indicating their willingness to undertake deep sea exploration as well as existing operations in shallow water and on- shore. Discoveries of petroleum are yet to be reported.

In the downstream sector, imported products amount to around 130,000 cubic metres per month. EWURA has worked hard with the oil importers to put in place the planned system of national bulk procurement. This should become operational in August 2010. In the medium term, it is expected that bulk procurement could reduce the cost of landed products by as much as 30 per cent.

During the year, EWURA has continued with efforts to protect consumers from the effects of illegal activities, particularly the adulteration of petrol and diesel by kerosene, which attracts much lower taxes (TZS 52 per litre as compared with TZS 540 per litre). Much has already been achieved in this regard, and further significant reductions in adulteration are expected in the near future due to a steep rise in penalties combined with the introduction of more sophisticated screening equipment which has been successfully proven in similar conditions in Uganda.

Health, safety and environment standards continue to be applied and enforced through the EWURA licensing system. The usefulness of the Petroleum Product Price Setting Rules, which were introduced in the face of the very high petroleum product prices which applied in 2008, is now being reconsidered. The wholesale and retail petroleum products markets are considered competitive, so regulation of the product margins by EWURA is no longer required.

The role of petroleum in electricity generation for the TANESCO grid continued to decline with the expansion of gas-fired capacity. Diesel continues to be critical in off-grid locations, but the total capacity is quite small (about 36 MW), with the intention that this will be progressively replaced over the period to 2018 as it becomes economic to connect remote centres to the national grid. The short-term generation plan does, however, include the recommissioning of the IPTL 100 MW plant in 2010 and the Mwanza 60 MW diesel plant in 2011. The IPTL plant is scheduled to modified to run on natural gas rather than heavy fuel oil.

There are several biofuel initiatives underway including the following:

 Ethanol production to start by 2012 from molasses, a of sugar refining, at Bagamoyo, involving the Swedish company EcoEnergy Tanzania;

 Blending of ethanol and petrol by Petrobras of Brazil;

 Large palm oil and jatropha based biodiesel projects being examined by various promoters.

2.4.2 Response to petroleum issues raised in the 2009 JESR

The following issues pertaining to petroleum were raised in the 2009 JESR:

ES 8 Petroleum and Gas exploration and prospects

JESR 2009 reported that exploration has shown more potential in Songo Songo Island, Mnazi Bay and Mkuranga.

It was expected that six new PSAs would be signed by end FY 2009/10.

In July 2009, the total number of active Production Sharing Agreements was 23. During the following year, one additional PSA was signed, bringing the total to 24 in July 2010.

ES 14 Petroleum

Bulk purchasing of petroleum products could reduce prices by 30 per cent – EWURA should finalise the arrangements for this for it to be operational in 2010.

Continue with exploration for petroleum and gas in identified areas

Empower TPDC to participate effectively in investments including through allocation of 50 per cent of fees and licences revenues for TPDC.

EWURA reports that the introduction of bulk purchasing of petroleum products is expected by the end of July 2010. The 50 per cent retention arrangements for TPDC are to take effect in the current financial year 2010/11.

2.4.3 SWOC - Petroleum

Petroleum Strengths • In the upstream segment, high level of interest in exploration (in deep sea as well as shallow waters and onshore) from international petroleum firms, with the support of TPDC

• In downstream segment, effective health-safety-environment regulation and technical standard-setting by EWURA.

Petroleum Weaknesses • The Petroleum Products Price Setting Rules introduced under public pressure in 2009 are inconsistent with Government’s policy to allow market forces to determine prices in competitive markets

• Differential fuel taxation, which is intended to assist low income households using kerosene for lighting and cooking, encourages adulteration of petrol and diesel with kerosene.

Petroleum Opportunities • Reduce landed costs through bulk national procurement of refined products (system for this is nearly in place)

• Produce ethanol in sufficient quantities for it to be introduced as a fuel extender to reduce petrol imports

• Use CNG as a transport fuel to reduce petroleum imports.

Petroleum Challenges • Ensure economic viability of biofuels (for local small-scale uses as well as national- level applications), and manage displacement impacts on more valuable agricultural crops, products and on rural livelihoods

• Provide employment, income and energy diversification benefits for local communities

• Manage environmental effects.

2.4.4 Petroleum - Recommendations

Recommended strategic directions are implicitly indicated in the above ‘challenges’. Four specific recommendations for the petroleum sector are as follows:

• Ensure bulk national procurement commences as soon as possible and monitor the results

• Remove Petroleum Products Price Setting Rules and allow market forces to determine liquid fuel prices

• Support research into the effect on engine performance, longevity and fuel use of:

– adulterated petrol and diesel;

– petrol-ethanol blends in fixed and variable proportions ;

– compressed natural gas;

– jatropha and other vegetable oils;

– biodiesel distilled from vegetable oils.

• Support biofuel projects which studies have shown to be economically viable and environmentally sustainable (or the studies themselves, where these have not yet been conducted).

2.5 Natural Gas

2.5.1 Policy Framework and Performance assessment

As for the petroleum sub-sector, there have been no significant change in gas sector policy, and the year in review was one of consolidation. The important milestone that is keenly anticipated in the sector is the promulgation and subsequent passing into law of the Gas Act. This is expected to establish a comprehensive legal framework for the development of the gas sector and the downstream utilisation of natural gas, clarifying institutional roles and facilitating EWURA’s regulatory role.

During the year under review, the gas utilisation department of TPDC has continued to work with industries in the Dar-es-Salaam area to increase the use of gas in industrial applications. There are approximately 25 industrial customers, supplied via a 42 km low pressure gas distribution network.

A mother station for compressed natural gas (CNG) was inaugurated during 2009. The intention is to use CNG for large gas users who are distant from the network, the first of these being the Movenpick Hotel in downtown Dar-es-Salaam, and to use CNG as a transport fuel. This could be through a dedicated fleet of buses or other vehicles or through the importation of CNG passenger vehicles and the conversion of existing vehicles to run on CNG. So far, 14 vehicles have been converted with another 6 in prospect. The aim is to have at least 200 CNG vehicles in the initial pilot phase, with 3-4 filling stations being made available in the Dar-es-Salaam area.

The operator of the southern Mnazi Bay gasfield, Artumas, has recently merged with the Australian petrochemicals developer, Wentworth Resources. An MOU has been signed with the Government to examine the feasibility of establishing a petrochemicals plant to produce ammonia, urea or methanol or other options to monetise the substantial gas resources of Mnazi Bay.

The role of gas in electricity generation continues to grow, with the 45 MW Tegeta gas-fired plant being commissioned during the year. The total available gas-fired capacity is now over one third of the national total (326 MW out of 907 MW), thereby replacing a large proportion of the other fossil fuels which used to be used for electricity generation and reducing the vulnerability of the still predominantly hydro-based system to drought. The short-term generation expansion plan to 2015 includes 340 MW firm of additional gas-fired capacity being installed at Ubungo (100 MW) and Kinyerezi (240 W).

As mentioned in the electricity section, another large project being discussed with China is the proposed 300 MW gas-fired plant at Mtwara with a DC transmission line to evacuate the power to the mining areas in the north. A project of this scale may preclude the development of a petrochemicals plant based on the same gas field. Another feasibility that is being conducted is to construct a trunk transmission gas pipeline from Mnazi Bay right up the coast as far as Mombassa. This would make it possible for power stations and/or petrochemical plants to be located close to the centres of demand, and for gas to be exported to Kenya while the Tanzanian market is being developed.

With TPDC benefiting hence forward from 50% retention of its revenues instead of an allocation from the Ministry budget, it is expected that the pace of gas utilisation developments will be accelerated.

2.5.2 Response to gas issues raised in the 2009 JESR

The following point in the 2009 JESR summary applies to gas:

ES 14 Gas exploration and development

Under ES 14, there were several points relating to gas:

 Songo Songo requires urgent expansion of gas processing facilities and possibly construction of a second gas train to Dar es Salaam.

 Mnazi Bay could be used for power generation and a pipeline to Mtwara.

 Continue with exploration for petroleum and gas in identified areas.

Songas Tanzania has announced its intention to double its production capacity from the current 70 million standard cubic feet per day (MMscf/d) to 140MMscf/d from the Songo- Songo field. This increase in gas supply has the potential for generating a further 170 MW of electricity (but this would not be done directly by Songas). as well as making possible the expanded use of natural gas for other purposes in the Dar-es-Salaam area. The project will cost USD 80 million and will take 2 years to complete.

The Mnazi Bay field will shortly be supplying more gas when the power station capacity is increased from 12 MW to 18 MW, and the electricity distribution system is extended and reinforced under the Mtwara Energy Project, which is expected to be underway by 2011. Exploration by petroleum and gas companies is continuing.

2.5.3 SWOC – Natural Gas

Gas Strengths • Significant deposits of natural gas, with good prospects for further discoveries in future

• Gas available close to good harbours, allowing beneficiated products to be readily traded internationally

• Positive experience to date of production sharing agreements between TPDC and private firms

• Regulatory framework for downstream industries already established under EWURA (will become fully operational when the Gas Act is in place).

Gas Weaknesses • Lack of a national strategy for the use of gas which could guide potential investors

• Lack of legal framework for the gas sector (but stage has been reached where legal drafters have been briefed and are working on a Gas Law)

• Legacy from the initial deals of complex contractual and pricing arrangements

• Lack of transmission and distribution networks for gas utilisation (except for the limited network supplying gas to 336 MW power plants and around 32 industries in Dar-es-Salaam).

Gas Opportunities • Use gas to consolidate power generation and to substitute more expensive and/or less desirable forms of energy for process heat, cooking and transportation

• Use gas as the feedstock of a petrochemicals industry, provided economic viability can be proven for plants which will not be big enough to fully benefit from economies of scale.

• Export any surplus gas to regional or international markets while domestic demand grows and facilities are developed to make use domestically of available gas supply.

Gas Challenges • Maintain a sense of dynamism, so as to ensure the commitment of existing investors and attract new investors

• Be able to remain effective in regulation of the sector even if it grows rapidly due to additional discoveries.

2.5.4 Natural Gas - Recommendations

Recommended strategic directions are implicitly indicated in the above ‘challenges’. Four specific recommendations for the gas sector are as follows:

• Ensure Gas Act clarifies roles, responsibilities and accountabilities of stakeholders.

• Formulate a National Gas Strategy, in consultation with other MDAs and gas sector stakeholders. A Strategy rather than a Master Plan is very suitable for the gas sector at this time. In a largely private sector-led sector, what is needed is a framework within which private initiative can emerge, with the public sector playing a supportive and facilitative role.

• Within the framework of the National Gas Strategy, examine the case for developing a gas transmission and distribution grid.

• Make contingency plans for the possibility that a number of gas discoveries are made simultaneously, requiring a very rapid scale-up of negotiation and regulatory capacity and to manage Dutch Disease effects.

2.6 Renewable Energy

2.6.1 SWOC – Renewable Energy

Strengths

 The policy framework and its overall context are supportive and are intended to trigger development also at micro economic level.

 Comprehensive regulatory framework for small renewable energy projects (100kW to 10MW)

 Several projects aimed at promoting widespread utilisation of renewable energy have been implemented, others are in progress.

 A good number of enterprises specializing renewable energy technology in the country with some already strategically located in major regional towns.

 Existence of vibrant national renewable energy industry association - Tanzania Solar Energy Association (TASEA), providing a platform for a networking, lobbying and advocacy

 Tax and VAT exemptions for some renewable energy equipment, including wind energy, and PV modules

 Quality standards for some technologies and appliances (solar PV and biomass stoves).

Weaknesses

 Policy framework not yet adequately supported by comprehensive renewable energy strategy and implementation strategies

 No regulatory framework for renewable projects above 10 MW

 Largely uncoordinated initiatives/interventions at national, regional and international level.

 Incomplete establishment of approved standards for renewable energy technologies: standards not yet gazetted; awareness raising has yet to start; TBS yet to be provided with test equipment and training for verification.

 Weak interaction between enterprises and technological intermediaries (R&D institutions) in the country.

 Absence of Codes of Practice for renewable energy practitioners in Tanzania.

Opportunities

 Unresolved problems with the safety aspects of nuclear energy, steep price increases/fluctuations of petroleum fuels, as well as the growing concern for the adverse effects of fossil fuels/carbon emissions on climate change.

 Rural electrification through off-grid, stand-alone renewable energy systems as the majority of the population (80-85%) is structurally excluded from access to centralised energy supply.

 Promising delivery models for improving rural energy access from renewable energy sources have been piloted successfully in Tanzania and internationally offering wider roll out prospects.

 Clean Development Mechanism (CDM) funding opportunities.

 Common eastern and southern African markets, East African regional integration promoting collaboration in renewable energy technology such as quality standards, training, research and networking of industry associations.

 Trained technicians on system sizing, fabrication, installation and maintenance of renewable energy systems.

 Renewable energy curriculum for vocational training developed and integrated into the Vocational Education and Training Authority (VETA) system.

 Renewable energy courses and degree programme up to postgraduate level are being offered by some national higher learning institutions.

 Comprehensive network of Savings and Credits Cooperative Societies (SACCOS) which have proven successful in providing financing to small scale consumers of renewable energy.

 Multinational financing institutions such as E&Co providing affordable financing to suppliers of renewable energy equipment.

 Global technological advances particularly in the aspects of energy conservation and efficiency such as energy efficient lighting appliances, which make renewable energy systems more financially attractive.

 Huge untapped potential of all renewable energy sources except wood fuel (small and large scale hydropower, solar, wind, geothermal and ocean energies) - the supply of renewable energies is quantitatively nearly unlimited and could cover the country's energy demand even if only a part of it is used.

Challenges

 Inadequate attention paid to renewable energy sources development by Government and development partners.

 Lack of appropriate technology for some renewable energies - not all kinds of renewable energies have appropriate conversion technologies available in the market at competitive prices.

 Relatively high up-front cost barrier to provision of improved energy services by means of renewable energies.

 Concerns on the quality of renewable energy products in the market and also system designs.

 Supply of energy is not constant for many of the renewable energy sources

 Proven failure of commercial banks in financing small scale renewable technology both at the levels of the consumers and the supplier.

 Address mismanagement of water resource in river basins.

 Address unsustainable use of forests resources due to excessive reliance on wood fuel resources as the source energy for households, institutional and industrial applications.

 Inadequate attention in energy sector to climate change and mitigation.

2.6.2 Response to sector-wide issues raised in the 2009 JESR

ES 7 Renewable Energy

JESR 2009 recommended that MEM should be the driving force behind a more urgent development of renewable sources of energy to supplement existing hydro and thermal and to improve access and energy penetration in rural areas. The Joint Energy Sector Review Workshop raised some major issues related to renewable energy sources and recommended intervention strategies as shown below:

(a) Resource  Assess resource potential

 Develop attractive incentives to upscale investment

(b) Policy  Review the energy policy of 2003

 Develop new and renewable energy strategy

 Access new and renewable energy funding opportunities

 Develop network of information on renewable energy

(c) Framework for new regulation  Develop appropriate regulations

(d) Capacity building

 Build capable expertise

The Government is serious about promoting renewable energy development. MEM views REA/REF as a mechanism to fast track rural energy development. Both MEM and REA together or with support from various development partners have been implementing various projects to promote the application of renewable energy thus improving access to sustainable modern energy to the people. To demonstrate its commitment, the Government believes that renewable energy sector development should be as much as possible home grown and not entirely dependent on development partners. It acknowledges, however, that there is need for support, not only financially but also technically.

MEM’s approach to renewable energy sources is to promote all sources that have proved to be able to meet the people’s needs that are economically viable. Thus MEM is involved in renewable energy resource potential assessment; setting up policy, legal and institutional frameworks for development of renewable energy resources; and direct implementation of pilot projects for various renewable energy sources. MEM’s ultimate goal is that private sector actors will take up the piloted results and implement them on a wider scale. There is evidence of increased installation of renewable energy applications. However, it has not been possible to assess the achievement in renewable energy development because data on newly installed renewable energy systems is not available from MEM.

REA manages REF, oversees rural energy projects; not only rural electrification but other avenues than grid extension and other sources such as bio, wind, solar, geothermal, etc. REA works with private project developers and offers financial and technical support.

Over that past year, there has been visible action by the Government on the issues raised during JESR 2009 as listed above. Whereas there has not been any action reported on the recommendation to review the energy policy of 2003, there has been some activity on the other issues as highlighted below.

Assess resource potential

There has been some activity on this recommendation with regard to wind, geothermal and hydropower resource as highlighted below:

(i) Wind data measurement to establish wind energy resource atlas. (ii) Geothermal energy potential to generate electricity in Songwe. (iii) Study to update previous study on mini and micro hydro resources in Ruvuma, Iringa, Morogoro, Mbeya, Kigoma, Kilimanjaro and Kagera.

Develop attractive incentives to upscale investment

The tax exemptions on solar and wind energy equipment up to 30kW introduced by the Government in 2005 are still in place. REA offers financial support in the form of matching grants (up to 80% of pre-operating project activities cost) and performance grants (based on the number of connections going to be made). Recently, financing credit lines have been formed with special facility for long term loans for rural energy developers from commercial banks.

Develop new and renewable energy strategy

Action in promoting renewable energy application has focused on the following sources: (a) Biomass energy (solid fuels i.e. firewood and charcoal, liquids fuels, and gaseous fuels (b) Solar energy (c) Wind energy (d) Geothermal energy (e) Mini and micro hydro power

The major projects being implemented under the above sources are: (i) Large scale dissemination of efficient cooking stoves and charcoal making devices being implemented by TaTEDO and PROBEC and supported by a number of development partners.

(ii) Tanzania Domestic Biogas Programme (TDBP) housed at CAMERTEC in Arusha and funded by HIVOS.

(iii) Transformation of Rural PV Market in Tanzania Project, which covered the Lake Zone (Mwanza, Kagera, Shinyanga, Mara).

(iv) Sida/MEM Solar PV Project aiming at building solar PV market in Tanzania.

(v) Sustainable Solar Market Packages (SSMP) component of TEDAP, which covers Sumbawanga District in Rukwa Region.

(vi) UNIDO project on mini/micro hydropower.

(vii)Cluster Solar PV project that covers three cluster groups basically agricultural organization with members organized under farmers associations

(viii) Lighting Rural Tanzania Competition (LRTC 2010)

Access new and renewable energy funding opportunities

Performance in this area is demonstrated by the list of active main development partners in renewable energy. They include Sida, NORAD, GTZ, HIVOS/SNV, AfDB, DANIDA, Spanish Government, World Bank, MCC, UNDP/GEF, UNIDO and EU.

Develop network of information on renewable energy

MEM operates a Management Information System (MIS), which maintains data on various aspects of energy, including renewable energy. Also some data, including data on renewable energy resources is accessible from MEM’s website. Renewable energy information is also available from REA, national renewable energy projects and NGOs operating in renewable energy. All these provide the basis for a network on information on renewable energy. More systematic collection and more timely dissemination need to be addressed.

Tanzania, through MEM has become member of the International Renewable Energy Agency (IRENA) with headquarters in Abu Dhabi.

Develop appropriate regulations

The solar PV standards that were developed under the Transformation of Rural PV Market in Tanzania Project are yet to be gazetted in order to have legal basis. Also enforcement of the standards is subject to capacity building of TBS and TRA which are the institutions that are going to be responsible for enforcing the standards.

MEM has prepared guidelines after an influx of investors involved in biofuels production. Currently there is no policy and no legal framework for biofuels. Preparation of the guidelines is complete and they are expected to be launched soon. MEM is also implementing a Project on Strengthening Policy, Legal, Regulatory and Institutional Framework for Liquid Biofuels. The project is financed by SIDA, NORAD and Tanzania Government.

Build capable expertise

MEM in collaboration with REA has facilitated capacity building activities to various energy project developers. These include the following: (i) Training on solar PV technology

(ii) Training on business planning and cooperatives management

(iii) Training on biomass energy technology

(iv) Training on hydropower technology

(v) Training on wind energy technology

Vocational training on solar PV using the curriculum that was developed under the Transformation of Rural PV Market in Tanzania Project is yet to start in most VETA owned VTSC.

Sustained action on this recommendation involves the respective sectoral ministries responsible for education and training namely MEoVT and MCST; and non - Government actors. MEM should keep track and get involved in these initiative. The following are the major ongoing capacity building initiatives:

(i) Regional Master Degree Course in Renewable Energy Programme being offered by the University of Dar es Salaam since 2008 - a total of 35 students has already been enrolled. The programme is supported by NORAD through NOMA (NORAD’s Masters Programme) and involves collaborations with Norwegian Technical University NTNU and regional Universities in Ethiopia, Malawi, Mozambique, Uganda).

(ii) Renewable energy courses in higher learning institutions (UDSM, SUA, DIT and MIST).

(iii) Vocational training in renewable energy being offered by non-Government Mafinga Vocational Training Centre in Iringa.

2.6.3 Recommendations – Renewable Energy

 Accord higher priority to renewable energy technologies in the pursuance of energy, SME development, community development and environmental policies - this should be a key element of the strategy for improving access to modern energy services in rural areas.

 Explore ways of harnessing private and public sector actions and resources for the continued development of renewable energy sources

 In examining subsidy policy issues in the context of the overall strategy for renewable energy development, assess how environmental benefits of renewable energies can be reflected in energy prices and how high upfront costs of renewable energy development including feed-in tariffs and credit resources for the banking sector.

 Introduce new laws and policy provisions for renewable including policy targets, subsidy programs, feed-in tariffs that are favourable to renewable

 As one of the key strategies, rural energy access interventions should fully utilise the existing carbon trading opportunities, including the Clean Development Mechanism (CDM).

3 Sector Governance

3.1 Governance Issues from previous JESR Reviews

Governance in the Energy Sector

The JESR 2009 Report recommended that the mandates and statutory responsibilities of the key stakeholders including MEM, EWURA, TANESCO, REA and other operators, be fully clarified. It also recommended that the technical capacities of EWURA and its independence from MEM should be reinforced.

EWURA Independence

JESR 2009 noted from discussion with the Fair Competition Commission that the distinction between the mandates of the Minister and EWURA lacks clarity and that EWURA appears to be an extension of the Office of the Minister which may not be responsive to fair demands of both investors and consumers. A similar concern was noted from discussion with TANESCO – JESR 2009 (MEM, 2009d:7). Pan African Energy Tanzania (PAET) also noted the need to clarify the powers and authority of MEM and EWURA. PAET thought upstream activities should be dealt with by MEM and downstream activities by EWURA (MEM, 2009d:10).

The role of the regulator should be clear from legislation. It is an inherent challenge for a regulator to separate its role from the policy responsibilities and accountabilities of the Minister and Permanent Secretary. This is also true for Minister and Permanent Secretary. Independent regulation is relatively new in Tanzania and it is to be expected that it will take time to clearly define the responsibility borders of the Ministry and regulator. This is an issue for dialogue which the JESR review process supports.

During the review there has been discussion of whether EWURA should be an actor in the JESWG. This is a complex issue. Full participation could compromise EWURA’s independence. It has been suggested that EWURA should be invited to make presentations to JESWG similar to those provided by TANESCO. In principle, this should not compromise independence, if carefully managed by JESWG. One option would be to set up an ad hoc JESWG working group on regulatory issues which could consult with stakeholders (including EWURA) on regulatory issues and report back to JESWG from time to time.

Mandates and Statutory Responsibilities of Stakeholders

At a legislation level the mandates and statutory responsibilities should be clear. The role of legal drafters supporting Parliament is to ensure this. If they are not clear, then a legislative review would be required.

The JESR consultants are of the view that even if the mandates are legislatively coherent there may be a lack of clarity at the sub-legislative level particularly in the way the performance planning, monitoring and evaluation and accountability architecture is reflected in procedures. This issue is addressed in the following section.

4 Budget Implementation

4.1 Introduction to the Budget cycle

Budget implementation begins with planning. Budget implementation should be assessed in the context of the whole budget cycle, i.e; the policy, strategy, planning and annual budget preparation stages of the budgeting cycle.

The Government has been developing a policy-strategy–planning-budgeting and performance system over many years. The JESR consultants are of the view that this system, in its overall design and overall operation as a process, accords well with international good practice. One reason for its overall success is that it has been developed as a process (not from an external blue print). The system has not yet achieved its full functionality. In part, this is because it is in the essence of public financial management reform6 that it is a journey not a destination. Another reason is that the process of government development and reform in democratic, participatory and inclusive systems does and should take time. This has been the case in all countries successfully developing such systems whether they have developed, developing or transition economies.

The JESR consultants’ assessment is that the Government’s achievements have been impressive (even if that progress has not been as fast and as smooth as all stakeholders would wish). The consultants believe there are two remaining core challenges for the Government and by extension MEM to achieve full functionality of the system.

Perhaps the hardest stage of the PFM reform journey is to have monitoring, evaluation and reporting processes that provide actionable information on financial and service delivery performance, feeding back into and informing the continuing policy review, national and sector strategy, medium term planning and the performance budgeting and delivery processes. This first challenge is fully recognised by the Government and is reflected in Planning and Budget preparation guidance in 2009 and 2010.

The second challenge is a necessary but not sufficient condition for meeting the first challenge: it is to ensure that there is common knowledge among all the stakeholders in the Energy Sector of: (i) what the overall system is; (ii) the procedures that make it effective; and (iii) how its component parts inter-relate and mutually reinforce each other. Establishing common knowledge will enable the JESWG and the JESR process to fulfil their purposes and objectives. The demands of this challenge (not the challenge itself) appear to the JESR consultants to have been less well recognised within central government agencies. There are four potential explanations for this. First, the agencies that have led and managed the development of the system are familiar with the intricacies of its procedural requirements and perhaps assume that this detailed understanding is more widely shared than it actually is. Second, central government agencies are currently focused on meeting the first challenge, i.e., the feedback mechanism.7 Third, monitoring and evaluation is seen more as an accountability mechanism than one of lesson learning for future improvement. The accountability aspect is there and is important, but it should not overshadow and undermine the learning aspect. Fourth, there is a perception that this knowledge is a technical issue for

6 Public financial management reform or PFM reform is a term widely used to refer to the type of system reform that the Government has been undertaking. 7 The Government is aware of this challenge and was highlighted in the GBS review, also making references to loss of DP institutional memory.

policy and budgeting divisions and not the role of Government and DP implementation managers.

The key to understanding and thus meeting the second challenge is the requirement for “common knowledge among all stakeholders”. Common knowledge in this context means that each stakeholder knows how the system works and knows that all other stakeholders know how the system works.8 MEM is conscious as lead stakeholder in the energy sector that it is its role to ensure that this common knowledge is developed and that the JESWG and JESR processes are central institutional, management and consultative arrangements for developing this common knowledge.

Improving budget implementation is seen as a government-wide challenge. The energy sector has the reputation of facing the greatest challenge given the low execution rates in recent years. MoFEA (2009a) stressed Government’s commitment to increasing budget resources to growth promoting public investments including infrastructure development in energy. But it highlights that budget execution rates in the energy sector have remained low, especially for the development budget stating that “the energy development budget execution rate remained at an alarming low rate of 15 percent in FY2008/09 from 9 percent in FY2007/08”, and further noted that:

“[t]he important shortcomings in sector development budget execution are especially alarming as they are profoundly detrimental not only to the attainment of sector performance and the rapid resolution of energy problems, but also to the prospects of rapid progress in economic transformation and accelerated growth. The Government is determined to rekindle attention to the sector not only in the continued increase in sector budget, but also by taking swift measures to improve planning, execution and absorption capacities.” (MoFEA, 2009a)

The JESR 2010 ToRs were specifically designed to investigate the causes of this low rate of execution including analysis of the disbursement and procurement processes at project level. The results of that investigation are presented in this section. One of the findings is that past implementation performance was not as poor as it had appeared. Nevertheless, there are important issues that JESWG needs to address and quickly in order to address implementation delays. As part of the investigation, the JESR Consultants reviewed the PFM system and process at the central government and from MEM’s perspective. The results of that review are presented in Annexes to this report as follows:

 Annex D: Understanding MEM’s Performance Budget

 Annex E: Understanding the foreign funded Development Budget

 Annex F: Budget Execution and PFM reform (from the GBS review)

These annexes will appear to be technical in nature for some stakeholders. However, the principles should become common knowledge among JESWG members.9

8 The formal requirement for common knowledge is that A knows X, B knows X, and (respectively) A and B know that B and A know that A and B know X. Of course in a context of many stakeholders this is more complex and more challenging to achieve. 9 The JESR Consultants are aware (from their experience of delivering PFM training that this material is not quickly absorbed by non-PFM specialists), but it is only a basic overview and does not cover the intricacies of the underlying accounting system.

In principle, it should be straightforward to assess budget implementation as a simple comparison of what was presented in the “budget” and what is recorded as actual expenditure in the Government accounts – a comparison of figures in one document with those in another, the recurrent and development estimates with the recurrent and development accounts. This is the approach that has been commonly used in various documents reviewing the energy budget, including in MEM’s financial statements (MEM 2008 and MEM 2009g), the JESR 2009 (MEM, 2009d), an analysis of the energy sector by OPM (OPM, 2010), and at the central level (MoFEA, 2009a).

MoFEA (2009a) reported that detailed analyses have shown that the difficulties in improving development budget execution in the more capital intensive sectors can be traced to persisting institutional weaknesses in the “planning and execution of key investment projects and problems related to sources and modalities of funding”. The JESR consultants are of the view that the principle difficulty lies in planning. The planning weaknesses are revealed in the translation of strategy and master plans into implementation actions in the form of activities to which budget funds should be assigned.

MoFEA (2009a) noted that underperformance in budget execution in the sector can be seen in the foreign funds as well as in the local counterpart. About 22 percent of the budgeted local funds were released and spent, while only 11 percent of the budgeted foreign funds were released and spent in FY2008/09. The poor sector performance in development budget execution is attributed to delays in completion of design work and procurement process, both of which reveal problems of planning and absorption capacity in the sector. As a consequence, significant funds were reallocated to other ministries including Ministry of Infrastructure Development. As presented in section 4.5 below, this approach has been misleading in assessing the extent to which budget execution is low in the energy sector.

4.2 Medium Term Plan, MTEF and Budget Formulation

Through the Medium Term Plan (MTP) and Budget Process MEM provides the Parliament and public with information on performance achieved and planned on both expenditure and public service delivery. The performance information is mix of high level measures of service delivery, institutional reform and development progress, project implementation progress and achievement, and planned and actual expenditure. This information is aimed at a variety of users with a variety of information needs.

MEM produces much more detailed performance planning and delivery information for internal Government operational planning and management purposes. This ‘operational’ information is not published. The JESWG (and the JESR process) could benefit from developing more systematic use of this information as it develops its role over time and seeks to fulfil its objectives and deliver its outputs as well as to establish an efficient and effective monitoring, evaluation, and feedback/lesson-learning process. Table 4.1 outlines the main steps in the budget formulation process by the MEM and Box 4.1 defines MEM’s budget committees.

Box 4.1 MEM’s Budget Committees

The main formal working groups within MEM in the process are:

The Budget Technical Committee: chaired by the Director of the Policy and Planning Division and constituted by members of all sub-votes within the Ministry (2 representatives per sub-vote) and all the officers in the Policy and Planning Division, including 8 zonal mimes officers and 2 officers from institutions under MEM (TANESCO, REA, TPDC, STAMICO, GST, MRI and TMAA)

The Budget Development Committee: chaired by the Permanent Secretary and constituted by the heads of all sub-votes within the Ministry, and also MDs and DGs from institutions under MEM.

The Sector Development Committee: chaired by the Minister and constituted by heads of all sub- votes within the Ministry and the MDs and DGs from institutions under MEM.

Source: Authors in consultation with MEM’s Policy and Planning Division.

Table 4.1 MEM’s budget formulation process

What When Who MEM prepares and submits inputs to MoFEA for the October - MEM Budget Technical preparation of the t+1 budget. These inputs include a report November t Committee on implementation of t-1 budget, and an action plan and expenditure estimates for t+1 (Inputs to the budget guidelines). This is submitted in two forms: in text (reporting) and in SBAS (requests). The MoFEA issues Guidelines for the Preparation of Medium January – MoFEA Term Plan and Budget Framework for t+1, informed by February t inputs from all MDAs and providing the ceilings for t+1 MEM’s Budget Technical Committee prepares MTP and March t MEM Budget Technical Froward Budgets in line with the specifications in the Committee, Budget Guidelines. These are reviewed and approved by MEM’s Development Committee Budget Development Committee and MEM’s Sector and Sector Development Development Committee. Committee MEM submits the Forms for Budget Submission to MoFEA April t Budget Scrutinisation for the Budget Scrutiny Committee, which is chaired by an Committee Assistant Commissioner or Commissioner in MoFEA. From the MEM’s side, it is led by Director of Policy and Planning. MEM’s Budget Technical Committee prepares the May t Minister Memorandum for the Budget (summary of MTEF), for review and approval by MEM Budget Development Committee and MEM Sector Development Committee. It is then submitted to the Parliamentary Permanent Committee for Energy and Minerals. MEM prepares revised Forms with Expenditure Estimates May t MEM Budget Technical and Budget Speech. Committee MEM presents Expenditure Estimates a Budget Speech to June - July t Minister and Parliament Parliament. Parliament and MEM discuss and Approved Estimates are decided by Parliament. Source: Authors in consultation with MEM Policy and Planning Division.

The Guidelines for the Preparation of Medium Term Plan and Budget Framework request line ministries to prepare an Annual Cash Flow Plan and an Action Plan. The forms provided in the Guidelines include:

 a ‘3-Year MTEF target Value Form’ (Form 3A), which includes a breakdown per target, the unit of measure and the cumulative indicator by year;

 a ‘Development Expenditure details of annual and forward budget’ form (Form 6), which includes a breakdown per target, per activity and per economic classification and per year;

 a ‘Current Year MTEF Target Value Form’ (Form 11A); which is similar to Form 3A but only for next year’s budget and per quarter, i.e., it includes a breakdown per target, the unit of measure and the cumulative indicator per quarter;

 an ‘Annual Cash Flow Plan Form’ (11B), which provides the funding requirement for every quarter broken down by activity and source of financing; and

 an ‘Annual Action Plan Form’ (Form 14B), which includes the annual budget broken done by objective, target, activity and time frame broken down by month.

MEM’s MTP 2010/11 to 2012/13 (reviewed by the JESR consultants) contained the first two forms mentioned above (Form 3A and Form 6), but did not contain Forms 11B and 14B. These forms are prepared for the MTP in the March preceding the start of the fiscal year (see ). The process of preparing and approving the estimates can result in changes to the first year “budget” and therefore require a change to the information presented in the forms.

In addition, MEM is required to prepare annual (and quarterly) procurement plans in conjunction with, and, to support the annual action plans10.

The Government and DPs providing GBS have set a new outcome indicator that relates to MEM’s compliance with annual planning requirements and the credibility of its action and procurement plans.

4.3 Budget Releases

MoFEA approves releases to MEM taking into account the Quarterly Action Plans and Progress Reports.

MEM receives monthly releases for Recurrent Expenditures and quarterly releases for Development Expenditures. The details on the budget releases procedures are described in Annex G, and the three key points summarised in this section.

First, MoFEA can exercise discretion over budget releases beyond its core mandate of protecting macro-fiscal stability and Government-wide expenditure priorities, through its performance monitoring role and cash budget operations.11

10 The JESR Consultants cannot at this stage confirm that annual procurement plans were prepared and presented to MoFEA at the start of FY 2009/10. We will seek confirmation during the commentary period. 11 This in effect undermines the responsibilities of the MEM Accounting Officer and weakens accountability too, as failure to deliver on performance can be attributed, in part at least, to “inadequate funds release”.

Second, releases can be significantly less than budget for:

- Other Current Expenditures, but MEM has discretion on spending;12

- Local Development expenditures, but MEM has discretion on spending;

- Foreign Development Expenditure (exchequer system), but only if not released by the DP, neither MoFEA nor MEM have discretion13;

- Foreign development expenditure (direct to project), but only if not released by the DP; neither MoFEA nor MEM have discretion14; but when the dummy voucher system is not used it is not possible to capture budget implementation performance.

Third, if in any of the first three quarters of the year releases are less than the request, part of the annual plan will not be fulfilled, unless the delay in action plan is recoverable before the end of the financial year and subsequent releases compensate. If recoverability is not possible or there is not subsequent compensation in release, a quarterly request process reinforces the use of a cash budget system, which, although it may be desirable for ensuring macro-fiscal stability, undermines the predictability required for successful operation of a results-based MTEF system that underpins the NSGRP. (see Box 4.2 on Cash Budgets with an MTEF system).

MoFEA has a strong (cash flow forecasting) incentive to know where recoverability is not possible: it can reduce the impact of below budget releases elsewhere. If recoverability is possible, MEM has a strong incentive for presenting the case by revising the annual plan. If recoverability is not possible the incentive for MEM is weaker, unless there is value in advancing progress on other development project plans.

12 Not for transfers to agencies these are given higher priority by MoFEA than MEM’s other current expenditures. 13 Other than if there are over-riding macro-fiscal considerations in the case of MoFEA, and if the AO has concerns about the financial management control of such funds in the case of MEM. 14 Other than if there are over-riding macro-fiscal considerations in the case of MoFEA, and if the AO has concerns about the financial management control of such funds in the case of MEM.

Box 4.2 Cash Budget in an MTEF system

Cash Budget systems determine within-year budget releases primarily upon the basis of revenue collected, rather than using the cash flow profile associated with the Approved Estimates. In this situation, the approved budget becomes a guide rather than an authority. Cash budgeting systems release the authority to incur expenditure only when adequate cash is available.

A review of practices in sub-Saharan Africa presented the challenges that arise when MTEF operate within a cash budget system. The MTEF provides a degree of financial certainty to spending ministries over the medium term, whilst cash budgeting creates uncertainty and undermines this gain. As a result, historically, ministries have lost interest in medium-term budgeting. However, although it is difficult to run both effectively, especially where cash budgeting is severe, it is essentially revenue uncertainty and financial indiscipline that undermine the MTEF, and not cash budgeting per se, which is a response to these factors.

In recent years, there has been an effort to resolve some of these issues, whilst still including cash availability and/or revenue collection as a key determinant of monthly releases. This has led to better managed cash budgeting arrangements and improved functioning of the MTEF.

Source: OPM (2010)

4.4 Performance and Accountability

Throughout the year, at the beginning of each quarter, MEM prepares and submits to MoFEA, progress reports on financial commitments entered into and activities undertaken (progress towards target achievement) in the previous quarter together with an Action Plan for the quarter. The primary use of these from a monitoring perspective is for MEM’s use.

MEM also presents these reports to MoFEA together with the next quarter Action Plan in support of its Release Requests, as explained below.

There are five Performance Reporting Forms:

 Form 12a: Cumulative Quarterly MTEF Target Monitoring Form

 Form 12b: Quarterly Cumulative Milestone (Priority) Monitoring Form

 Form 12c: Outcome Indicator Monitoring Form

 Form 13a: Quarterly Cumulative Financial Overview Form

 Form 13b: Quarterly Cumulative Financial Detailed Form

In addition, MEM reports on achievements for a fiscal year as they submit inputs to MoFEA on the following year’s budget. The JESR consultants understand that the quarterly plans are only in respect of that quarter, i.e., they do not update the annual plan for all remaining quarters of the year. If this understanding is correct, there is a short-coming in the cash flow management system. This has been pointed out in the previous section on release mechanisms.

Section 8 discusses the Monitoring and Evaluation processes within the Energy Sector Performance Indicators and Information Systems.

4.5 Development Budget execution rates

The scope of this study does not permit a comprehensive assessment of budget execution rates. The assessment is partial and focussed on development projects selected by the JESWG Core Group15. In order to follow the analysis, it is necessary first to define working definitions of some key terms. These are presented in Box 4.3.

It will become clear in this section that the JESWG should give urgent attention to the credibility of the budget. The JESR consultants recommend this joint approach as achieving credibility will require a collective effort and because it will impact on some of the GBS conditions that will be assessed in Q2 FY2010/11.

Figure 4.1 presents a picture of: expenditure estimates, (final) approved estimates, budget releases and actual expenditure for FY2006/07, FY2007/08 and FY2008/09. The presentation for FY2009/10 shows actual expenditures for the first half of the fiscal year (as final year figures were not available at the time of writing), and preliminary figures for budget releases on development expenditure from local sources and for those funded from foreign sources that are channelled through the exchequer. For FY2010/11, budget estimates are shown.

An overview of MEM’s budget for the past few years presents an ‘alarmingly low’ rate of budget releases and budget execution with respect to Expenditure Estimates. However, a project breakdown of the figures helps explaining a significant proportion of these apparently low rates of execution.

While Table 4.2, Table 4.3 and Table 4.4 allow us to explain a large part of the differences between Expenditure Estimates, Approved Estimates, Released Funds and Actual Expenditure, they present a symptom of an underlying issue in the public information and management systems that affects MEM. This is further presented in Annex H (Data Reconciliation) and has been recognised by Government as described in Annex F (Budget Execution and PFM reforms).

15 It is not therefore possible to say for example that budget execution has improved in FY2009/10 from the findings from JESR 2009 or other documents, as the coverage of the development is not comprehensive. Even with full coverage, the assessment would not be possible as it would require re- examining the basis of the findings of JESR 2009. As a result it is not possible to conclude that “systematic bottlenecks” exist or not. Similarly concluding that “procedural bottlenecks” exist is also not possible.

Box 4.3 Working definitions of budget terms

Budget Estimates: Proposal of the Minister of Finance for approval of the National Assembly.

Appropriations: Authority from the National Assembly (in the form of an Appropriations Act) to the Paymaster General (PMG)16 to allocate funds (subject to fiscal and macro stability policy and financial management control and value for money requirements) and issue warrants to Accounting Officers to make spending commitments in the fiscal year subject to timing limits for fiscal year end accounting closure. These are sometimes referred to as “originally approved estimates”, as for example in the GBS Performance Assessment Matrix.

‘ Surprise’ foreign funds: Funds disbursed by DPs that do not appear in the appropriations or otherwise forecast for the fiscal year.

Mid-year review: MoFEA reassessment of the fiscal and macro-stability constraint on the issuing of warrants.

MoFEA Allocation Circulars17: Adjustment from time to time by the PMG to the allocation of funds to Accounting Officers taking account of the mid-year review, surprise foreign funds and actual receipts.

Approved Estimates: A combination of the appropriations and allocation adjustments by the PMG presented in MoFEA Allocation Circulars.

Annual Action Plans: Expenditure plans by MDAs for each month of the fiscal year prepared at the start of the FY.

Quarterly Action Plans: Revisions to the annual action plans for a particular quarter.

Budget release requests: Vouchers presented by the AO to the PMG for warrants.

Budget releases: Warrants issued by the PMG releasing the Authority to Incur Expenditure.

MEM allocations: (re-)allocations of budget releases to fund activity expenditures within the discretionary limits of the Accounting Officer set by public finance legislation.

Foreign Funds Estimates: information from DPs on their commitments to release funds provided to MoFEA.

Source: Authors. These definitions are not necessarily “official definitions”.

16 The PMG is the Permanent Secretary of MoFEA. 17 This is not the proper term but is used in practice.

Figure 4.1 MEM Development Budget FY2006/07 to FY2009/10 by funding source (TZS)

MEM Development Budget 2006/07 to 2010/11 by funding source

10/11 Est

09/10 Act Dec 31st

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual 08/09 Released Local 08/09 Apv Est Forex

08/09 Est

07/08 Actual

07/08 Released

07/08 Apv Est

07/08 Est

06/07 Actual

06/07 Apv Est

06/07 Est

- 100,000,000,000 200,000,000,000 300,000,000,000 400,000,000,000 Shs

Source: For Expenditure Estimates, Approved Estimates and Actual Expenditure, MoFEA, Public Expenditure Estimates FY2006/07 to FY2009/10, Development Votes (Volume IV), Ministerial and Regional Development Program. For Funds Released, MEM Financial Statements for the years ended 30th June 2008 and 30th June 2009. Funds Released for FY2009/10 is from preliminary data provided by MEM. Actual Expenditure for FY2009/10 up to Dec 09 is from FY2009/10 MTEF.

4.5.1 FY2007/08 Expenditure Estimates, Approved Estimates, Released Funds and Actual Expenditure

For FY2007/08, Table 4.2 shows a very low rate (9%) of budget releases with respect to Expenditure and Approved Estimates (only TZS 28.6 billion out of TZS 312 billion released). However, Actual Expenditure shows an execution rate of 100% with respect to the Expenditure and Approved Estimates.

A significant proportion of the low rate of budget releases is explained by five large projects which accounted for 89% of the development expenditure estimates in FY2007/08. Table 4.2 shows that of a total of TZS 278 billion budgeted for these projects, only TZS 15 billion were released, representing 5% of allocated funds. The rate of budget releases for the sum of all the other projects was 40%. The low releases from local sources are explained by project

3137 (Ubungo Gas Fired Plant), while those from foreign sources are explained by 3120 (Oysterbay Substation), 3121 (Makambako-Songea), 3136 (Tegeta Gas Fired Plant) and 3176 (Natural Gas Dev. Songo Songo & Mnazi Bay).

4.5.2 FY2008/09 Expenditure Estimates, Approved Estimates, Released Funds and Actual Expenditure

In FY2008/09, out of TZS 320 billion Approved Estimates18, only TZS 45.3 billion were released, i.e., 14%. However, as shown in , the FY2008/09 Actual Expenditure19, was TZS 120.2 billion, representing a 38% execution rate, and in absolute terms, actual expenditure significantly higher than released funds by TZS 74.9 billion.

As was the case in FY2007/08 and as is shown in Table 4.3, there are a few large projects that explain a large proportion of the low 14% of released funds with respect to the Approved Expenditure. Six projects represented 89% of the total development budget for MEM. Of the TZS 283.6 billion for these six projects, only TZS 35 billion was shown as released in the Financial Statement for the year ended 30th June 2009, representing only 12% of funds allocated. It is worth noting that TZS 17 billion out of the TZS 35 billion were for the Tegeta Gas Fired Plant alone, representing 59% execution rate for this particular project. The low releases from local sources are explained by 3137 (Ubungo Gas Fired Plant), while those from foreign sources are explained by 3110 (TEDAP), 3176 (Natural Gas Dev. Songo Songo & Mnazi Bay), 3191 (Electricity V) and 3198 (IPTL Conversion to Gas).

The differences between actual expenditure and funds released can also be explained by these projects as shown in Table 4.4. Out of the TZS 74.9 billion difference, TZS 68.75 billion is explained by 3137 (Ubungo Gas Fired Plant), TZS 2 billion is explained by 3136 (Tegeta Gas Fired Plant) and TZS 4 billion is explained by 3198 (IPTL Conversion to Gas).

From this analysis it can be seen that assessments of execution rates is complicated by problems of data reconciliation between reports of budgets, funds releases, and actual expenditures.

18 In FY2008/09, Approved Expenditure were equal to Expenditure Estimates project by project. 19 Reported in the Public Expenditure Estimates for FY2009/10

Table 4.2 FY2007/08 Expenditure Estimates and Released Funds

FY2007/08 Expenditure FY2007/08 Released Funds FY2007/08 Releases wrt Estimates (TZS millions) (TZS millions) Estimates (%) Local Forex Total Local Forex Total Local Forex Total 10,03 10,03 3120 Oysterbay Substation - 8 8 - - - 0% 0% 9,58 9,58 3121 132 KV Makambako-Songea - 7 7 - - - 0% 0% 25,64 25,64 3136 Tegeta 45 MW Gas Fired Plant - 3 3 - 5,749 5,749 22% 22% 191,00 191,00 3137 Ubungo 100 MW Gas Fired Plant 0 - 0 - - - 0% 0% Natural Gas Dev. Songo Songo & Mnazi 41,90 42,40 43 3176 Bay 500 1 1 0 8,854 9,284 86% 21% 22% 191,50 87,16 278,66 43 14,60 15,03 Sub-total 5 large projects 0 9 9 0 3 3 0% 17% 5% 5,19 28,54 33,74 4,92 8,69 13,61 Sub-total others 3 8 1 0 2 2 95% 30% 40% 196,69 115,71 312,41 5,35 23,29 28,64 Total 3 7 0 0 5 5 3% 20% 9% Source: FY2007/08 Expenditure estimates from the MoFEA, Public Expenditure Estimates FY2007/08, Development Votes (Volume IV), Ministerial and Regional Development Program. FY2007/08 Released Funds from MEM Financial Statement for year ended 30th June 2008. Project 3137 in the Financial Statement for year ended 30th June 2008 is classified under forex funds. This table has used the Public Expenditure Estimates books classification, where 3137 falls under local funded projects

Table 4.3 FY2008/09 Approved Estimates and Released Funds

FY2008/09 Expenditure Estimates and Approved FY2008/09 Released Funds FY2008/09 Releases wrt (TZS millions) (TZS millions) Estimates (%) Local Forex Total Local Forex Total Local Forex Total 1,50 48,00 49,50 1,05 1,18 2,23 3110 TZ-Access Expansition Project 0 0 0 6 1 8 70% 2% 5% 30,60 30,60 17,95 17,95 3136 Tegeta 45 MW Gas Fired Plant - 0 0 - 1 1 0% 59% 59% 66,32 66,32 3137 Ubungo 100 MW Gas Fired Plant 2 - 2 - - - 0% 0% 0% Natural Gas Dev. Songo Songo & Mnazi 12,06 59,04 71,10 11,23 3,56 14,79 3176 Bay 7 0 7 4 2 6 93% 6% 21% 41,96 42,06 3191 Electricity V Project 100 8 8 100 - 100 100% 0% 0% 24,00 24,00 3198 IPTL Conversion to Gas - 0 0 - - - 0% 0% 0% 79,98 203,60 283,59 12,39 22,69 35,08 Sub-total 6 large projects 9 8 7 0 5 5 15% 11% 12% 16,61 19,86 36,47 8,51 1,74 10,25 Sub-total others 0 0 0 0 1 1 51% 9% 28% 96,59 223,46 320,06 20,90 24,43 45,33 Total 9 9 7 0 6 6 22% 11% 14%

Source: FY2008/09 Approved Estimates from the MoFEA, Public Expenditure Estimates FY2009/10, Development Votes (Volume IV), Ministerial and Regional Development Program. The FY2008/09 Expenditure Estimates equalled the Approved Estimates. FY2008/09 Released Funds from MEM Financial Statement for year ended 30th June 2009.

Table 4.4 FY2008/09 Released Funds and Actual Expenditure

FY2008/09 Released Funds FY2008/09 Actual FY2008/09 Difference Actual (TZS millions) Expenditure (TZS millions) vs. Released (TZS millions) Local Forex Total Local Forex Total Local Forex Total 1,05 1,18 2,23 1,05 1,18 2,23 3110 TZ-Access Expansion Project 6 1 8 6 1 8 0 0 0 17,95 17,95 2,00 17,95 19,95 3136 Tegeta 45 MW Gas Fired Plant - 1 1 0 1 1 2,000 0 2,000 68,75 68,75 68,75 68,75 3137 Ubungo 100 MW Gas Fired Plant - - - 0 - 0 0 - 0 Natural Gas Dev. Songo Songo & Mnazi 11,23 3,56 14,79 11,23 3,56 14,79 - 3176 Bay 4 2 6 4 2 6 0 0 0 3191 Electricity V Project 100 - 100 100 - 100 - - - 4,00 4,01 4,00 3198 IPTL Conversion to Gas - - - 19 0 9 19 0 4,019 12,39 22,69 35,08 83,15 26,69 109,85 70,76 4,00 Sub-total 6 large projects 0 5 5 9 5 4 9 0 74,769 8,51 1,74 10,25 8,50 1,88 10,39 14 Sub-total others 0 1 1 3 9 2 - 6 8 141 20,90 24,43 45,33 91,66 28,58 120,24 70,76 4,14 74,91 Total 0 6 6 2 4 6 2 8 0 Source: FY2008/09 Released Funds from MEM Financial Statement for year ended 30th June 2009. FY2008/09 Actual Expenditure from Public Expenditure Estimates FY2009/10, Development Votes (Volume IV), Ministerial and Regional Development Program.

4.6 Review of selected projects

4.6.1 Projects funded exclusively through local funds

In the development budget estimates for FY2009/10, only two projects were shown as being exclusively local-funded. These were the Petroleum Sub-Sector Development Project (3115) and the Emergency Power Plants (3147). An overview of the Expenditure Estimates, Approved Estimates, Released Funds and Actual Expenditure since FY2006/07 is provided in the following two sub-sections.

4.6.1.1 Petroleum Sub-Sector Development This project signals one of the issues of concern while assessing budget execution, which is over-budgeting. This is an issue that arises in all the projects reviewed here.

The project first appeared in the budget estimates in FY06/07 in an amount of TZS 6.5 billion. As shown in Figure 4.2 no actual expenditure was made in that year. In FY07/08 the budget estimate was TZS 1 billion. The approved estimates were TZS 1.225 billion. Releases were TZS 0.8 billion. Actual expenditure was TZS 1.225 billion. Approved estimates for FY08/09 were TZS 1.5 billion. Estimates for FY09/10 are TZS 3.0 billion.

Adding it up, although the project had originally been intended to spend TZS 6.5 billion in FY06/07 no expenditure was made. From FY2007/08 to FY2009/10 the cumulative budgeted amount for three FYs was of TZS 4.725 billion, i.e, TZS 1.775 billion less than had been originally intended to be spent in the first year. This signals over-budgeting in the first year that it was allocated funds and/or a planning issue.20

20 Ministries of Finance are always suspicious of the preparation effort for projects which have neat round numbers.

Figure 4.2 Petroleum Sub-Sector Development Project: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2006/07 to FY2010/2011

3115 - Petroleum Sub-Sector Development Project

10/11 Est

Actual Dec 09

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual

08/09 Released

08/09 Apv Est Local 08/09 Est Forex

07/08 Actual

07/08 Released

07/08 Apv Est

07/08 Est

06/07 Actual

06/07 Apv Est

06/07 Est

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Shs mn

Source: Public Expenditure Estimates, Volume IV from FY2007/08 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to December 2009 from MTEF 2010/11. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. As noted in Annex H, there are variations in figures from different data sources which would require further scrutiny to validate them.

4.6.1.2 Emergency Power Plants This project appeared in the budget for the first time in the FY2009/10 Expenditure Estimates with TZS 1 billion and although nothing was spent, the amount budgeted in the FY2010/11 budget is TZS 49.5 billion.

Figure 4.3 Emergency Power Plants: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2009/10 to FY2010/2011

3147 - Emergency Power Plants

10/11 Est

Actual Dec 09 Local 09/10 Released Forex

09/10 Apv Est

09/10 Est

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Shs m n

Source: Public Expenditure Estimates, Volume IV, from FY2009/10 to FY2010/11 for Estimates and Approved. Actual Expenditure for FY2009/10 was only available up to December 2009 from the MTEF 2010. Data on Released Funds in FY2009/10 were provided by MEM on hard copy.

4.6.2 Electricity V in the Budget21

This project exemplifies the problem of over-budgeting and the importance of taking “shovel- readiness” into account during the annual budget preparation. Annex J provides a description of the project and presents detailed information on the way the presentation of project targets have changed (improved) over time.

The first stage of the project was to contract consulting support into TANESCO to design and then manage the service delivery elements of the project. It first appears in the FY2008/09 budget in an amount of TZS 42 billion. A review of the budget breakdown (Annex J.2) indicates that MEM budgeted TZS 14.5 billion for capital expenditure and TZS 22.3 billion for current expenditure in FY2008/09. The original (project) implementation plan shows that the activities did not include the start of capital works in FY2008/09 and therefore, the project was over-budgeted in FY2008/09.22 This is illustrated in Figure 4.4.

21 The JESR ToR of reference and subsequent guidance from JESWG Core Group required an assessment of procurement issues in Electricity V. These are reported in section 5. In the course of assessing procurement procedures and practices in this project the underlying issues presented here emerged. They are presented here to demonstrate the over budgeting issue. JESWG may wish to consider how this issue is presented in the final report. 22 It is not feasible to translate the cost estimates by fiscal year as these are presented in the original project document in calendar years.

A further problem was the delay in setting a subsidiary loan agreement between the Government and TANESCO. A key lesson from this experience is that subsidiary loan agreements should be drafted before a DP financing agreement is presented for board approval, at least in a Heads of Agreement form.23 The project was therefore, not “shovel- ready” for FY08/09 as the budget implied.

For FY09/10, the release figures indicate that the loan agreement delays continued. The project no longer appears in the budget estimates of FY10/11. If this is an omission, the approved estimates and/or actual expenditure for FY10/11 will differ significantly from estimates again, showing a misleading execution rate, potentially an improvement in the aggregate for MEM but this time as a result of under-budgeting.

Recent discussions between MEM TANESCO and AfDB have sought to address these budgeting issues. A dedicated project team is to be established to review the project and improve the planning and monitoring arrangements to ensure that the project is given the attention its relatively high priority within the energy sector requires and to ensure that it is quickly brought to “shovel readiness” with adequate MEM financial resources provided for it.

Figure 4.4 Electricity V: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2008/09 to FY2010/11

3191 - Electricity V

10/11 Est

Actual Dec 09

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual

08/09 Released

08/09 Apv Est

08/09 Est

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Shs mn

Local Forex

Source: Public Expenditure Estimates, Volume IV from FY2008/09 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to

23 Heads of Agreement are used to set out the broad agreements prior to detailed loan negotiation and are intended to ensure that the process of negotiating a formal loan document does not encounter any potential ‘deal breaker’ issues or delay implementation plans.

December 2009 from MTEF 2010/11. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. As noted in section XX, there are variations in figures from different data sources which would require further scrutiny to validate them. Note: actual local expenditure in FY2008/09 of TZS 100 million does not show up on the graph due to relative scale.

4.6.3 TEDAP in the budget

A review of the budget allocations for TEDAP also reveals the ‘over-budgeting’ issue, although to a lesser extent. Further details on TEDAP are presented in Annex I.

The first time that TEDAP appeared in the budget was in the Expenditure Estimates in FY07/08 with TZS 200 million to be funded through local resources. However, there was no provision in the Approved Estimates and Actual Expenditure was also nil.

As shown in Figure 4.5, in FY08/09, the project was allocated a total of TZS 49.5 billion, of which TZS 1.5 billion were from local sources and TZS 48 billion were foreign. The Approved Estimates equalled the Expenditure Estimates, but Actual Expenditure at the end of FY2008/09 was only TZS 2.2 billion (TZS 1 billion of local sources and TZS 1.2 billion of foreign), representing an execution rate of 4.5%. This appears ‘alarmingly low’. However, as with other projects these figures require closer scrutiny before concluding on execution rates.

The total loan amount in the project appraisal from November 2007 for TEDAP was USD105m, which is approximately TZS 129 billion24. Of this, the amount budgeted for FY08/09 represented 38%. As shown, this amount was not spent, and in the next year’s budget (FY09/10), the expenditure estimates were reduced by close to 50%, i.e., to TZS 25 billion. For FY10/11 the Expenditure Estimates are TZS 28 billion, 93% of which is estimated from development partner funds. This signals that the amount originally allocated to TEDAP in FY2008/09 was over-budgeted.

24 Exchange rate provided by MEM from table on donor funded projects for year FY2009/10.

Figure 4.5 TEDAP: Expenditure Estimates, Approved Estimates, Released Funds and Actual Estimates from FY2007/08 to FY2010/11

3110 - TEDAP

10/11 Est

Actual Dec 09

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual Local 08/09 Released Forex 08/09 Apv Est

08/09 Est

07/08 Actual

07/08 Released

07/08 Apv Est

07/08 Est

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Shs mn

Source: Public Expenditure Estimates, Volume IV, from FY2007/08 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to December 2009 from MTEF 2010/11. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. As noted in section XX, there are variations in figures from different data sources which would require further scrutiny to validate them.

4.6.4 Rural energy projects funded by Sida

Sweden is one of the highest contributing development partners in the energy sector. In recent years, SIDA has particularly funded a number of projects on rural energy. Figure 4.6 shows the trends in expenditure on these projects. In the FY10/11 budget, there are three projects on rural energy funded by SIDA: REA and REF (3113), Capacity Development to REA (3146) and the Rural Pv Market Development project (3117). An overview of budget implementation of these three projects is presented below, while further details for these three projects are provided in Annex K.

Figure 4.6 Development Projects in MEM funded by Sweden from FY2006/07 to FY2009/10

Development Projects in MEM funded by Sweden from 2006/07 to 2010/11

10/11 Est

Acual Dec 09 Rural Energy Services 09/10 Released Credit to TANESCO 09/10 Avd Est

09/10 Est Rural Energy Agency & Rural Energy Fund

08/09 Act Rural Pv-Market (Barrier Removal) 08/09 Released 132 KV Makambako-Songea 08/09 Avd 08/09 Est Makambako Subt & Njombe Network Exp. Hydro Power Studies 07/08 Actual

07/08 Released Capacity Development REA 07/08 Avd Est Management of TANESCO 07/08 Est

Institutional Support 06/07 Actual 06/07 Avd Est 06/07 Est

- 5,000 10,000 15,000 20,000 25,000 Shs. mn

Source: Public Expenditure Estimates, Volume IV from FY2007/08 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to December 2009 from MTEF 2010/11. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. As noted in Annex H, there are variations in figures from different data sources which would require further scrutiny to validate them.

4.6.4.1 REA Financing In FY09/10, expenditure estimates were TZS 38.6 billion, although only TZS 12 billion was released, and up to Dec 2009, only TZS 1.8 billion had been spent. In FY09/10, most of the expenditure for REA and REF is expected to be sourced from local funds. Regarding the economic classification of expenditure, out of the TZS 36.8 billion budgeted, 86% is of recurrent nature. This is mainly due to the grants provided to project developers, which accounted for TZS 29 billion.

Figure 4.7 REA and REF: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2006/07 to FY2009/10

3113 - REA and REF

10/11 Est

Actual Dec 09

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual

08/09 Released

07/08 Actual

07/08 Released

07/08 Apv Est

07/08 Est

06/07 Actual

06/07 Apv Est

06/07 Est

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Shs mn

Source: Public Expenditure Estimates, Volume IV, from FY2006/07 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to December 2009. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. Data on Released Funds in FY2009/10 were provided by MEM on hard copy. As noted in Annex H, there are variations in figures from different data sources which would require further scrutiny to validate them.

4.6.4.2 Capacity Development REA Sida has been supporting capacity building in REA since FY2009/10. This is in MEM’s budget under code 3146. Sida channels the funds for this project through the exchequer system, which facilitates the reconciliations of accounts among different stakeholders and as shown in Figure 4.8 below, these are captured by MEM as soon as they are released. This use of the exchequer system has been commended by the Permanent Secretary of MEM. However, it remains unclear why no expenditure had been captured in the first two quarters of the year.

Figure 4.8 REA Capacity Development: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2009/10 to FY2009/10

3146 - Capacity Development REA

10/11 Est

Actual Dec 09 Local 09/10 Released Forex

09/10 Apv Est

09/10 Est

- 100 200 300 400 500 600 700 800 900 1,000 Shs m n

Source: Public Expenditure Estimates, Volume IV, from FY2009/10 to FY2010/11 for Estimates and Approved. Actual Expenditure for FY2009/10 was only available up to December 2009 from the MTEF 2010. Data on Released Funds in FY2009/10 were provided by MEM on hard copy.

4.6.4.3 Rural Solar PV Market Development

The Rural Solar PV Market Development project has been fully funded by foreign sources as shown in Figure 4.9. It is worth noting how actual expenditure exceeded significantly expenditure estimates in FY06/07 signalling once again the difficulties in managing development partner funds outside the exchequer system. Similarly, in FY07/08, actual expenditure appears higher than funds released which is again a sign of challenge in data management, rather than on budget execution.

Figure 4.9 Rural PV Market Development: Expenditure Estimates, Approved Estimates, Released Funds and Actual FY2006/07 to FY2009/10

3117 - Rural Pv Market Development

10/11 Est

Actual Dec 09

09/10 Released

09/10 Apv Est

09/10 Est

08/09 Actual

08/09 Released

07/08 Actual

07/08 Released

07/08 Apv Est

07/08 Est

06/07 Actual

06/07 Apv Est

06/07 Est

- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Shs mn

Source: Public Expenditure Estimates, Volume IV, from FY2006/07 to FY2010/11 for Estimates, Approved and Actual Expenditure up to Approved FY2009/10. Actual Expenditure for FY2009/10 was only available up to December 2009. Data on Released Funds in FY2007/08 and FY2008/09 is from the Financial Statements for year end 30th June 2008 and 30th June 2009. Data on Released Funds in FY2009/10 were provided by MEM on hard copy. As explained, there are variations in figures from different data sources which would require further scrutiny to validate them.

5 Procurement

The previous section of this report has demonstrated that many of the perceived problems in budget execution stem from short-comings in the planning and budget preparation processes.

The Terms of Reference for this review specifically include an assessment of procurement issues in the energy sector, because of a perception that some of the delays can be attributed to procedural issues – both in their design and implementation.

This section assesses procurement systems used in MDAs both for locally funded activities and for activities funded by Development Partners. The conclusions drawn from this assessment are: (i) procurement procedures are well defined (ii) national procedures set by the PPRA are consistent with practices of DPs such as the World Bank and the AfDB (iii) Procurement Management Units (PMUs) in MDAs are adequately trained; (iv) some delays in the procurement process arise because of a lack of experience among staff of PMUs; (v) lack of experience in PMUs in evaluating bids and writing evaluation reports; (vi) lack of experience can be compensated for by the provision of advisory and mentoring support from experienced procurement practitioners; and (vi) the perceived ‘procurement’ delays other than those attributable to lack of experience are not procurement problems but planning problems.

MoFEA (2009a) noted that most MDAs produce procurement plans each financial year, however, such plans are often prepared late in the year and their quality remains weak. Release of development funds from the Treasury are subject to preparation and submission of procurement plans to MoFEA. Delays in submission of such plans also delays disbursement of funds to MDAs. MoFEA (2009a) stressed the Government’s commitment to strengthen MDA procurement plans in order to ensure timely and predictable release of funds, both local and foreign funds. The Government is assessing the possibility of integrating procurement plans in relevant modules of the IFMS.

The Medium Term Strategy Planning and Budgeting Manual highlights that procurement plans cannot meaningfully be developed independently of MDA action plans (URT:2005a).

The Government and GBS DPs have agreed on a new GBS outcome indicator that is designed to encourage compliance with rules on the preparation of action and procurement plans.

The JESWG Core Group requested the JESR consultants to consider the following DP funded projects:

World Bank TEDAP

AfDB Electricity V

MCC Energy Projects Implementation Arrangements

Sida’s projects on rural electrification and capacity building program.

5.1.1 Procurement in TEDAP

The procurement procedures follow World Bank standard procurement rules. Government procurement rules developed by PPRA are consistent with World Bank rules. No problems have been encountered in procurement other than those relating to experience of PMUs and issues in the preparation of ToRs. This ToR preparation issue is not strictly a procurement issue, but a planning problem. This is discussed in the presentation of recommendations on procurement.

5.1.2 Procurement in AfDB Electricity V

AfDB’s Electricity V has experienced significant delays. The reasons for these are presented in the previous section. At the time of reporting there has been no procurement completed in the project.

In September 2009, the AfDB published its Country Portfolio Assessment Report for Tanzania. The report noted that there was ‘low’ procurement capacity at local level and a lack of familiarity with AfDB procedures.

“ Persistent procurement problems exist especially in the infrastructure sector. Typically, projects in these sectors experience protracted delays during the bid evaluation and contract award stages. A more accurate and elaborate planning of procurement activities, timely approving procurement documents at the Ministerial Tender Board level, and building capacity of procurement specialists at the level of the PIU would substantially improve procurement performance. Recruitment of a national Procurement Officer at the Field Office is well advanced and the Officer is expected to join the Field Office in Nov. 2009 to specifically assist the Field Office in these efforts.” (AfDB: 2009:7).

The AfDB General Procurement Notice for the project indicates that procurement of goods and works will be in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works. Acquisition of the services of Consultants will follow the Bank's Rules of Procedure for the Use of Consultants.

The AfDB has since recruited a national Procurement Officer at the Field Office to support PMUs in procurement of AfDB funded projects. He has indicated that in the energy sector procurement systems are good and that any short-comings in the procurement system are a function of experience and can be overcome through advice and mentoring from more experienced practitioners. This view is echoed by another experienced procurement expert active in providing advice to MDA PMUs in the energy sector.

These views have been taken into account in the preparation of the Backbone Project funded by AfDB within a multi-DP funding arrangement.

5.1.3 Procurement in MCC Projects

Procurement for MCC projects has been contracted out to a procurement service provider. This arrangement is determined by agreement between the Government and MCC. MCC funds cannot be channelled through government systems. The arrangements also include

provision of advisory support to procurement management and staff in TANESCO for other procurements not funded by MCC. This advisory arrangement has been effective and should be applied elsewhere, where there is identified need.

5.1.4 Procurement in SIDA Funded Projects

SIDA Tanzania staff indicated that the only problem that had occurred in procurement under its projects was the failure of a tender due to a bidder complaint. The project procurement was supported by a procurement advisor. Bidder complaints can result in re-tendering for reasons outside the control of the PMU.

5.1.5 Conclusions and recommendations on Procurement

The JESR Consultants are of the view that the difficulties that are perceived in procurement in the energy sector are in the process of being overcome from a systemic point of view. Legislation has been in place since 2004, rules regulations and standards were drawn up subsequently. These are considered by practitioners to be consistent with good international practice. The lack of qualified staff in PMUs can be overcome in time as more people graduate from procurement courses that are available including training provided by the PPRA.

There is qualified staff in PMUs but not enough of them for the procurement demands. This is a planning issue. Action plans should take account not just of the standard timetable for procurement, but what the demands on PMUs are. Action planning and procurement planning should be a combined exercise.

Qualifications and training on procedures are not enough to ensure smooth and timely procurement processes: experience is also an issue particularly in evaluation and reporting skills. This can be compensated by provision of advisory support as energy sector project experience has shown.

Delays and difficulties in drawing up terms of reference have been associated with procurement delays. The responsibility for drawing up terms of reference does not lie with PMUs but with project managers. PMUs should only screen ToRs for coherence not content. DPs do provide consultancy support to MDAs for the detailed design and management of project implementation, specifically to overcome this problem. MEM should encourage all projects to provide such support where it considers implementing agency capacity to be stretched.

Proposals from experienced procurement practitioners include (i) contracting out procurement to an agency which can provide experienced personnel; (ii) contracting advisers/mentors to support PMUs; (iii) a combination of (i) and (ii).

Contracting agents for the PMU role could repeat the experience of PIUs and implies the same trade-offs – long term sustainable procurement capacity for short term gains in project implementation and service delivery.

6 Sector Co-ordination

The principles for engagement and dialogue between DPs internally and with Government are organised around the structure of the national development framework for Mainland Tanzania MKUKUTA. In 2008, the Government endorsed a new Dialogue Structure that is led by the Government and guides coordination between the Government, DPs and domestic stakeholders by integrating all major national and sectoral development interventions into a single structure, whilst retaining government exclusivity on its internal dialogue. The structure covers four main levels: Sector and Thematic area Working Groups, Cluster Working Groups, MKUKUTA-PER Main group and a Joint Coordinating Group. 25 The Joint Energy Sector Working Group is one of the Working Groups set up under this arrangement.

In the 2009 Budget Speech, the Minister announced MEM’s intention to finalise preparations during 2009/10 to begin the implementation of the Strategy of Information, Education and Communication. This strategy is intended to help improve communication between ministries and stakeholders, in particular, and to provide accurate information about the activities of the energy sector.

6.1 Joint Energy Sector Working Group (JESWG)

6.1.1 Background to the JESWG

The Joint Energy Sector Working Group was established in February 2009.26 Box 6.1 shows the organisations represented on the JESWG.

The “Division of Labour”27 shows the Sector/Thematic Area as “Energy and Minerals”28

DP participation in the JESWG is facilitated by the Energy Development Partners’ Group (EDPG). The activities of the EDPG are governed by a memorandum of understanding. The Group plans to meet on the first Tuesday in every calendar quarter – thus for FY 10/11 the meeting schedule is: Tuesday 6th July 2010; Tuesday 5th October 2010; Tuesday 4th January 2011; and Tuesday 5th April 2011. The EPDG also operates ‘virtually’ to prepare for JESWG meetings.

Although formally required, the EPDG has elected not to seek to present the EDP as one voice, preferring to encourage dialogue and information exchange both within the EDPG and in DP participation in JESWG. This approach is accepted by JESWG.

25 http://www.tzdpg.or.tz/external/dpg-tanzania/aid-coordination-and-national-dialogue-structure.html (01/07/10).

26 The Terms of Reference for the JESWG are dated 27th February 2009. 27 Division of Labour (Update 31 March 2010 Is a summary of agreements and distribution of roles building on agreements made in: i) the April 2009 DCF Meeting; ii) June 2009 meeting between GoT and DPs on Division of Labour; iii) the Joint Co-ordination Group Meeting in November 2009 and subsequent sector specific agreements. 28 Sida’s comments on the outline draft indicated that there was not a separate group for minerals and that the JESWG just covered energy.

Box 6.1 Organisations in JESWG

Lead Government Counterparts

Ministry of Energy and Minerals (Leader)

Ministry of Industry, Trade and Marketing (Deputy Leader)29

Agreed Lead Arrangement

Lead: World Bank

Deputy: Sweden

Agreed Active Members

Norway

Korea EDCF

Contributing/Delegating

Netherlands

European Commission

France

USA/MCC

Finland

Source: JESRGW (2009c)

6.1.2 JESWG Terms of Reference

The JESR Consultants’ ToR required a review of the JESWG ToR. The first reaction of the JESR Consultants was that the ToR could usefully be edited to make clearer what the JESWG is required to do in practice.30 Whilst editing could still be useful, after discussion with DP members, the JESR Consultants considered that a more practical approach would be to identify what the JESWG is required to do and at what points in the budget/PFM cycle and then propose a date for 4 regular meetings and a core agenda for each meeting, which reflect what the JESWG ToR require.

29 From comments to the Outline Draft report Sida indicated that MITM was not the co-lead. 30 And also simply to update it to take account of MKUKUTA 2.

From discussions with DPs, it emerged that, apart from the principal DP JESWG members (lead and co-lead), knowledge of the JESWG ToR was either non-existent or very limited. This appears to be the case for at least some of the active partners who are members of JESWG. This reflects a partial loss of institutional memory through turnover of DP staff with limited overlap between old and new staff.

One option to rectify that would be to recommend distribution of JESWG ToRs to EDPs, but the problem of ensuring that new DP staff are briefed on the practical operation of the JESWG remains. By identifying the regular meetings and required core agendas in this report, the same briefing effect can be achieved and also for a wider group of stakeholders. Also, since the Energy Development Partners’ Group organises itself to a large extent in the context of JESWG meetings this effect can be continuously achieved for new DP staff. Moreover, the core agenda for each meeting guides what practical changes are needed in order that the JESWG can fulfil its Terms of Reference in the future.

At first sight the JESWG Terms of Reference appear quite demanding and lead to what appears to be very heavy agendas. However, if the JESWG continues to develop as it has over the last 18 months and continues its gradual approach, the Terms of Reference are feasible. Also, the Terms of Reference permit more frequent meetings and encourage the use of ad hoc working groups. The use of ad hoc working groups could reduce the agenda burden in practice.

The regular meetings are intended to be for JESWG members. The ToR allow for non-state actors to be invited to specific meetings. This does not preclude invitation of non-state actors at regular meetings where appropriate but consultation with non-state actors is better managed through working groups. This is particularly so in the case of EWURA as discussed in Section 3.

The proposed regular meetings and core agendas are presented in section 6.1.5.

6.1.3 Successes of the JEWSG

The JESR Consultants’ ToR required an assessment of what works well. The JESWG is a relatively ‘young’ institution and as such, it will take time to become fully operational.

The JESWG is perceived by the participants consulted to be developing well and has been successful as a forum for: information sharing; consultation; joint analysis and assessment of (some) energy sector issues. It has yet to consider systematically performance issues and provide advice on ‘policy, budgetary and other issues’.

Some EDPG members were initially concerned that MEM might view this as a DP driven exercise because this is a government-wide requirement following the development of GBS Generic Terms of Reference for Joint Sector and Thematic Area Working Groups and the requirement that the JESWG be formed. As it has turned out these concerns seem to have been unnecessary as EDPs generally see the JESWG as effectively led by MEM.

TANESCO presentations have become a regular feature of meetings and are seen by DPs as important and useful, particularly given the significant role of TANESCO as an implementing agent in the energy sector. TANESCO is not the only agency in the sector and similar presentations from other agencies and perhaps non state-actors should be encouraged in the future. REA and TPDC have attended some meetings.

EDPs consulted consider that the Lead and Co-Lead DPs have been effective in fulfilling their duties with respect to the JESWG and the EDPG. The arrangements for the EDPG allow for annual rotation of Lead and Co-lead responsibilities among ‘active’ DPs.31 The existing lead and co-leads are willing to continue for a further year and have the support of the EDPG. The JESR Consultants consider that that this continuity will ease the future development of the JESWG.

Custom and practice has developed a JESWG Core Group comprising MEM as JESWG lead and the Lead and Co-Lead DPs. This has been an effective ‘working group’ of the JESWG and has facilitated the preparation for and follow up of JESWG meetings, as well as the commissioning of JESR consultants. It is also fulfilling the Secretariat role required by the ToR.

JESWG operation has benefitted the functioning of the EDPG. More DPs are joining and the EDPG is open to DPs who currently do not participate either because they are not yet contributing to the sector or are relatively new to Tanzania and not yet familiar with Government-DP co-operation mechanisms.

EDPG plans to meet at least quarterly on the first Tuesday in the calendar quarter. In practice, this schedule is adaptable to the needs of the JESWG. The Lead and Co-lead are effective in: ensuring that the JESWG have optimal DP participation; serving as focal point for DP members to communicate with the Government side through the Government lead; communicating, together with the Government lead, on behalf of the energy sector with the CWG and attend CWG meetings.

One concrete example of EDPG development through the operation of the JESWG, is the development of a DPs Active Project Matrix. This is a DP initiative and has now been brought into the business of the JESWG. EDPG Lead has advised JESWG that the matrix will be further developed as a tool for DP harmonisation and will be shared with the JESWG on a regular basis so that it becomes a JESWG management tool. Section 6.2 provides some comments and recommendations on the Matrix.

6.1.4 Assessment Indicators for DPs

One of the mechanisms for assessing PFM performance and often for progress under GBS arrangements that is now widely used and has been used in Tanzania is the PEFA Performance Measurement Framework (PEFA-PMF).32 The PEFA-PMF includes an assessment of donor practices designed to capture elements of donor practices which impact the performance of country PFM system. The PEFA-PMF with respect to donor practices is described on pages 50-52 of the PMF document.33 These assessments are 31 The status of Development Partners in the sector is defined in the JAST. Other DPs are named as contributing – that is providing financial support but not ‘active’ participants in the JESWG in the sense of participating directly in the dialogue, and by implication, taking the ‘lead’ from the active partners who rotate as lead of co-lead development partner in the JESWG. 32 PEFA is a partnership between the World Bank, the European Commission, the UK's Department for International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, and the International Monetary Fund.

PEFA aims to support integrated and harmonized approaches to assessment and reform in the field of public expenditure, procurement and financial accountability. The JESR consultants believe that there has been a (second) PEFA PMF review for Tanzania in 2007 or 2008. It is not available through the PEFA website. This is perhaps because of the sensitive nature of some of the findings. 33 Available at http://www.pefa.org/pfm_performance_file/the_framework_English_1193152901.pdf.

usually done on a government-wide basis and include GBS disbursements. For the EDPG, the dimensions of assessment that could be relevant at a sector level are:

(i) Completeness and timeliness of budget estimates by donors for project support;

(ii) Frequency and coverage of reporting by donors on actual donor flows for project support; and

(iii) Overall proportion of aid funds to Government that are managed through national procedures.

The JESR consultants found that the current process used for reporting on aid disbursements to be included in Government’s annual budget is a form requested by and provided to the Ministry of Finance. In some cases, this form (or the bits relevant to the energy sector) was not provided also to MEM, on the assumption that MoFEA would channel the information to MEM. It was also found that in a number of cases EDPs did not know how their projects were presented in the Budget Estimates. This has implications on the accuracy of information related to development projects funded by development partners in the Public Expenditure Estimates documents. The recommendations for core agendas should enable JESWG to rectify systematically and sustainably any shortcomings in this regard in the future.

6.1.5 Recommendations for enhancing effectiveness of JESWG

The recommendations for enhancing effectiveness of JESWG are the following:

 The JESR Consultants recommendations for enhancing the effectiveness of JESWG are as follows.

 JESWG sets four regular meetings in each FY as follows with an established core agenda for each meeting:

Annual Reporting Meeting FY Q1 (Box 6.2)

Policy and Strategy Review Meeting FY Q2 (Box 6.3)

Medium Term Expenditure Planning Meeting FY Q3 (Box 6.4)

Annual Budgeting Meeting FY Q4 (Box 6.5)

 JESWG Core Group reviews the agenda for each meeting in advance of the next annual meeting and identifies which items might benefit from the creation of and inputs from a JESWG Sub-Working Group.

 EDPG develops the DP Active Projects Matrix to align it with Government planning and performance reporting structures, for example using: Chart of Accounts (CoA) codes; budget document project short names; an output/target presentation of project components and deliverables (consistent with CoA); TZS as the currency of reporting. See section 6.2 for review of the matrix.

 EDPG propose and discuss a structuring of DP funded projects with MEM.

 EDPG Lead circulates JESWG ToRs to members.

 Current EDPG commit to briefing their replacements on the JESWG ToR

Box 6.2 Annual Reporting Meeting in the Q1 of FY (July-Sept)

Annual Reporting Meeting Timing: FY Q1 - CY Q3.

Core Agenda34

1. Q4 and annual (t-1) Financial and Physical Performance (including analysis of funding requests and releases)

2. Reports from JESWG ad hoc working groups35

3. Review proceedings and recommendations of Joint Energy Sector Review Workshop

4. Finalisation of Joint Energy Sector Review

5. Report to Cluster Working Group 1 on Review

6. Inputs to Annual MKUKUTA Implementation Report/ Biennial MKUKUTA Status Report

7. Inputs to Poverty and Human Development Report

8. Inputs to JAST review and annual progress report

9. Report to Cluster Working Group on progress against GBS Performance Assessment Framework

10. Inputs into GBS Annual Review Report

11. Participation in GBS Annual Review

12. Requirements for Energy sector (PER/MKUKUTA) studies

13. Assessment of operation of JESWG in previous year

14. Stakeholder Presentations to JESWG for coming year

15. Changes to Terms of Reference for next JESR and commissioning financing next JESR, establish ad hoc working group to report at next JESWG.

16. Energy Development Partners on EPDG Discussions

Source: Authors.

34 This agenda appears to be heavy and for a first meeting would probably be quite time consuming. It should be possible to manage this agenda with appropriate allocations of reporting responsibilities and the use of smaller working groups to prepare for particular items in advance of the meeting, thus reducing the business burden. Other standard agenda items – approval of minutes of last meeting, apologies for absence, agenda adoption, any other business, action points, and date of next meeting are omitted here ease of presentation of a ‘core agenda’. 35 This item is a place marker for such items. In practice these reports would come under the relevant agenda item.

Box 6.3 Policy and Strategy Review Meeting in the Q2 of FY (Oct-Dec)

Policy and Strategy Review Meeting Timing: FY Q2- CY Q4.

Core Agenda:

1. Q1 Financial and Physical Performance (including analysis of funding requests and releases)

2. Report on Cluster Working Group, GBS Review, JAST Review

3. Reports from JESWG ad hoc working groups

4. Policy Review

5. Strategy Review

6. Resource requirements for implementing energy sector policies, strategies and programmes

7. Energy Development Partners’ external resource projections for FY+1, 2, 3

8. Guidance for MEM Inputs into the Plan and Budget Guidelines for FY+1, 2, 3

9. Report of JESR ad hoc working group

10. SWAp development in the Energy Sector

11. Energy Development Partners Report on EPDG Discussions

Source: Authors.

Box 6.4 Medium Term Expenditure Planning Meeting in Q3 of FY (Jan- March)

Medium Term Expenditure Planning Meeting Timing: FY Q3- CY Q136

Core Agenda

3. Medium Term Plan and Forward Budget

4. Memorandum on Recurrent Budget

5. Memorandum on Development Budget

Source: Authors.

36 The timing of this meeting is intended to be when MEM has drafted the documents for each item and is able to share them with JESWG for review and comment, prior to submission to MoFEA etc.

Box 6.5 Annual Budgeting Meeting in Q4 of FY (April-June)

Annual Budgeting Meeting Timing: FY Q4 – CY Q2

Core Agenda

3. Reactions from Parliamentary Committees on MTP and Forward Budget

4. Revised budget ceilings

5. Proposed changes to MTP expenditure plans

6. Implications for EDP funding

7. Budget Speech

Source: Authors.

6.2 Active Projects Matrix

Introduction

The Active Projects Matrix is an initiative of the EDPG. It was originally intended as a DP information sharing tool, updated for and presented at EDPG meetings. Its role is being expanded as it is now shared with JESWG. The Lead EDP has proposed further development of the Matrix and will revert on this matter to JESWG after August 2010. One DP suggested that the Matrix be used as a tool by MEM when discussing potential support with new and existing DPs.

The JESR consultants have reviewed the Matrix and discussed it with some DPs. Comments and recommendations on developing the matrix are presented below.

The recommendations are made in the spirit of promoting linkage of DP systems with Government systems. It is understood that the matrix has dual use: by DPs and by JESWG as a whole. DPs will have a need to take a project view of their interventions in some instances; JESWG will need to take a sub-sector and output based view. The two are not incompatible but will require a change of software. This is a technical matter and is not discussed here.

The Active Projects Matrix was provided by the Deputy Lead Development Partner.

Comments and recommendations

The Active Projects Matrix is currently presented in a word-processor table, listing projects in no particular order although projects are grouped together by the main or managing DP.

 Project Numbering. The projects are numbered 1 to n. There is no reference to Government’s project or expenditure coding for projects that have begun and that are included in the Budget. There is no reference to Government project coding from the MTP for projects with a start date beyond the current fiscal year.

Recommendation: In DP Matrix use Government coding for numbering.

 Project Names. The project names have a variety of styles. For projects that are already prepared and included in the Budget or MTP the names should match those used by Government in its documentation, or at least there should be a separate column to show the relation. There is some duplication of names for projects with different types of outputs. As an example project #10 and project # 11 are both called “Support to TANESCO”, but the first is a twinning arrangement for capacity building on transmission and the second is also capacity building but for hydropower station operation and maintenance.37 There seems to be more than one WB Trust Fund.

Recommendation: Use Budget Document short names for projects. DPs could suggest a style for project names but be aware of space considerations in budget documentation – there is probably a limit in the number of characters that can be used in the FMIS or perhaps by the type setting arrangements used by the Government Printer. The code is always the unique identifier and it is common practice to have both short and long names for projects.

 Project Description. There is wide variation in the styles used for project description. JICA list project outputs – this is good practice as projects are essentially a collection of outputs packaged together either for convenience of procurement purposes, or to reduce DP transaction costs. The use of output information is also the only real means of establishing the extent to which there is complementarity with output delivery in other projects or indeed duplication.

Recommendation: Set a format for project descriptions. As a first reference use whatever is Government practice. Alternatively set a character limit for description. This is often a useful discipline as a space constraint can show the practical nature of a project or the degree to which is a essentially several ‘projects’ combined.

Recommendation: More importantly projects should show their outputs. These should, of course, be SMART.

 Funding Entity & Key Contact

The funding entity terms are obvious to EDPG and also to MEM but are might not be so for other stakeholders in the sector. A lot depends on who the audience is, but there could be a case for publishing this on a website so for example, identifying EDCF with Korea would be useful both for the reader and also for the visibility of Korea’s aid programme. Also short hand for Trust Funds might usefully be explained in a footnote.

Key contact: again the EGDP will be familiar with who their colleagues are. Names are useful but more importantly old fashioned considerations of title i.e., forms of address, job titles and rank. 37 In relation to this Project #25 although not called Support to TANESCO also aims to build capacity for transmission.

Recommendation: either in the matrix or better as a list attached/below it show titles, names, job titles, email and phone numbers. Provide similar information for managers and primary contacts in MDAs.

 Estimated Budget. There are different styles in reporting estimated budget. A reader has a quick understanding of the relative size of the projects provided they are familiar with the rate of exchange between USD and EUR, NOK and SEK. This begs the question of what information is being conveyed here and to whom. In international comparisons of donor spending (e.g. OECD DAC) USD is the standard used. But this is a report on DP activity in Tanzania. DPs should consider using TZS as the reference currency. Each DP will be readily familiar with rate of exchange with their own currency. If TZS are used as the reference currency Government staff can readily assess the size of projects and also make comparisons with project funding information shown in the Budget and other financial planning documents.

Recommendation: put budgets in TZS. If really required USD information can be used as well. There is no harm in showing donor currency as well. The question arises of what exchange rate to use – the best rate to use is the rate used for current FY budget purposes. There will be MoFEA guidance for MDAs on what exchange rates to use. Of course, there may be potential confusions with the rates used in project documents, but a reference can explain.

Recommendation: show the budget for the project broken down as: (i) cumulative from project start to end of previous fiscal year; (ii) for the current fiscal year; (iii) for FY+1; (iv) for FY+2; (v) remainder; and (vi) total. This information should be compared with what is in the budget and MTP documents. Thereafter, produce this information at output level.

 Schedules and Milestones. There is again a range of different styles used with a range of information. The milestones information seems useful but again familiarity with the project outputs and timing are assumed. For EDPs engaged in regular and frequent discussion this is undoubtedly useful. But there are some problems related to the way “scheduling” is reported. For example, “completed by 2009”38 begs the questions: as originally planned? In which fiscal year 2008/09 or 2009/10? Or, consider Project 14 “Grant Agreement signed 2008, Credit Agreement expected early 2010 ... consultant in place mid 2011... construction start est. Mid 2011.” One might think there were serious planning delays in this project with such gaps between grant funding and loan funding and then mobilisation of consultant and start of construction.

 These questions would be less likely to arise if the table was augmented by a table showing actual/planned start and end dates for outputs with planned financing flows by FY. Checking these against the MTP/Budget would go a long way to helping resolve the Governments over-budgeting problem.

Given the concerns about the procurement processes, information on planned stages in the process could be included – subsidiary financing agreements completed, ToRs finalised, procurement notice issued, evaluation completed, contract negotiations completed, contract awarded, contractor in place. Checking these against Government action plans would also be useful.

38 Project 12 “Zanzibar” _ N.B. Project 13 is also named “Zanzibar”

These recommendations imply a significant amount of work. Once the base information is in place, an exceptions reporting approach would reduce this burden. Assume everything is on track unless otherwise stated. Delays or problem in timing of delivery of an output – to let other DPs know in case this affects their project planning/implementation and to perhaps indicate to other JESWG members and sector stakeholders if any action is required of them or if local cost contributions can be re-allocated.

The exceptions approach should also include positive news, e.g., new agreements signed, previously reported difficulties/delays resolved (back on track).

Recommendation: consider employing locally based TA to co-ordinate inputs and compile table. This approach is used effectively elsewhere.

6.3 A Sector Wide Approach (SWAp) for the energy sector

Introduction

The JESWG ToR requires working group members to “establish SWAp arrangements between Government and DPs in order to harmonise Government and DP processes”.

The JESR ToR was more specific: ‘review proposals for dialogue and coordination mechanisms in light of future requirements for a SWAp-based approach retaining project based funding approach but to enhance co-ordination and encourage future joint financing’.

A first stage in exploring a SWAp is to agree on whether the sector or parts of the sector are suitable for SWAp arrangements.

Definition of Energy Sector

The energy sector is not the easiest sector to define. Other sectors such as education or water are easier to define and therefore well-suited to SWAp approaches.

In the education sector, a policy implementation manager’s role is essentially to ensure that learners have access to learning materials and skilled, equipped teachers, in suitable environments. The education service delivery systems to households are similar for the sub- sectors of education: pre-primary, primary, secondary, tertiary and vocational training – and throughout the country.

In the energy sector, policy implementation manager’s roles are essentially to ensure the delivery of energy services, but the mechanisms are many and varied and user needs are very different. Compare:

 a meal, prepared with river water, cooked on an open wood fire, in a kerosene lit household, in a remote rural area with

 a meal, prepared with piped water, cooked in a modern electrical oven and delivered by LNG fuelled vehicle to a high income, brightly lit (solar) household in Dar es Salaam.

Energy sector policy implementation managers have to consider a variety of energy service delivery mechanisms to households in different parts of the country.

Once there is common agreement on the suitability of the sector for SWAp arrangements, the next step is to decide what the SWAp arrangements should be.

Defining a SWAp

Sector wide approaches can range from MDA/DP dialogue around project support; to sector budget support with a single results framework; or anything in between, including participation by non-state actors.

Box 6.6 provides a guide to the steps for developing a sector wide approach.

Box 6.6 Steps for developing a sector-wide approach39

 Partner Government and participating development partners develop and agree on the concept of the SWAp for the particular context.

 Agree Sector Policy framework, identify main strategies and allocate resources

 Review management and institutional implications

 Agree procedures for approving expenditure, disbursement and procurement

 Agree monitoring and reporting arrangements.

 Agree funding mechanisms.

 Draw up Memorandum of Arrangement (MoA), or equivalent.

 Develop annual work-plan and funding Schedule.

 Agree on capacity building strategy

 Actively manage the partnership

Source: NZAID, Government of New Zealand. http://nzaidtools.nzaid.govt.nz/sector-wide-approaches- swaps/what-s-swap (20/07/10)

The JESR consultants found little DP appetite for more than dialogue around a project approach now, which is what the JESR ToRs imply. This is essentially for the following reasons:

 Lack of a common view of the compositional structure of the energy sector and hence a clear view of which parts are suitable for a SWAp arrangement;

 Variable experience of SWAp arrangements in other sectors; and

 Tied aid conditions of some DPs

There is, however, a willingness to explore the issue further.

39 Each of these steps has a set of sub-steps.

The Government’s aid modality preference is for generalised budget support, followed by sector budget support. So the interest in the more ‘advanced’ SWAp arrangement from Government is very strong.

Thus it appears that consideration of a SWAp approach in the energy sector is at the first step of developing a SWAp.

The JESR consultants consider that there are already moves in the direction of a SWAp (beyond dialogue around projects). The ‘Backbone’ project is a multi-DP funded project arrangement bringing together a variety of DPs multi-lateral and bilateral with common procurement arrangements in one element of the electricity sub-sector – transmission.40 The project should provide the JESWG with opportunities for lesson learning and may encourage broader participation and similar co-operation among DPs in other sub-sectors.

The establishment of the REF can also be seen as facilitating a SWAp type arrangement in the rural energy ‘sub-sector.’

The JESR consultants recommend that the JESWG: (i) continues to explore the development of ‘sub-sector’ approaches on a regular basis, through discussions at the JESWG Annual Reporting Meeting; and (ii) considers establishing an ad hoc working group to inform these discussions.

40 The project does not bring together all DPs interested in funding transmission development and rehabilitation, but it is a move in the right direction.

7 Joint Energy Sector Review Process for 2011

7.1 JESR 2010/11 Process

The JESR consultants recommend the following changes to the JESR process.

If the review preparation is to be contracted out, the service provider(s) should be identified much earlier than was the case this year. Ideally the process would begin at the Annual Review Meeting of the JESWG.

JESWG should consider at the same time how the review and workshop costs will be financed. It is understood that the costs have been met previously by a mix of Government and SIDA funds. The review is a MEM document. However, the ToR are agreed by the JESWG. JESWG could consider broadening the participation. Various options and permutations suggest themselves, for example: (i) funding by MEM and the lead and co-lead DPs; (ii) a SWAp approach involving MEM and all active and contributing EDPs; (iii) MEM and EDPs providing GBS; (iv) MEM and EDPs not providing GBS; or (v) MEM and voluntary contribution(s).

The JESR process should take account of the Government’s annual PFM Cycle. It should be explicitly related to the fiscal year. This implies a change of name from JESR 2011 to JESR 2010/11.

The review process should begin when MEM’s annual performance reports have been drafted in August. This compresses the timetable for review, commentary, workshop review and final reporting to the Cluster Working Group prior to the GBS review.

This is an elapsed time compression, but does not necessarily require reduced inputs and therefore coverage. The efficiency of the process could be improved if MEM maintained a review document library, updated each year for the review.41

7.2 JESR 2010/11 Document

The JESR consultants consider the format of this year’s document to be appropriate for the Terms of Reference and the findings. Also they consider that the relative weight on PFM issues is appropriate given the findings. As there is a requirement to follow up on previous year’s recommendations, the format for the 2010/11 document should be consistent with the format used this year.

This year’s review is lighter on sector governance issues than the consultants had originally intended. This is because of the focus on budget implementation issues has been greater than envisaged.

This year’s report has also only been able to sketch strategy and planning issues. Given the findings that many of the budget implementation issues reflect weakness in the strategy and planning processes, this is an area that should receive greater attention in next year’s review.

41 This year’s JESR consultants will provide their electronic collection of documents to MEM in September.

Similarly the coverage of coherence among performance indicators has been light. This was because of limitations of project scope. Given the findings of the report this should be an area of focus for next year’s review.

7.3 JESR 2011 Workshop

A widely-shared view among stakeholders consulted was that last year’s workshop was strong on participation but weaker on actionable conclusions and recommendations and that it may have benefited from taking place over two days. The presentation and facilitation were thought to be good but some expressed doubts about the “voting” process. Consultative workshops with such diverse interests among participants (itself a further indication of the difficulty in defining the energy sector) rarely produce clear conclusions. But that does not diminish their role as participatory, consultative events for collecting views.

The duration of the workshop is a matter for JESWG as it is managing the timing.

The JESR consultants recommend that a MKUKUTA intervention package approach be taken for group work in this year’s workshop. These are currently very loosely defined as explained in Section 8.1. Thus an approach which consults stakeholders on operationalising them would both gather views and perhaps provide actionable recommendations to guide MEM in developing the performance indicator hierarchy needed from MKUKUTA for the development of the Strategic Plan and the next MTP.

8 Energy Sector Performance Indicators and Information Systems

8.1 Energy Sector Performance Indicators

The energy sector performance indicators that are assessed annually include those presented in the GBS PAF Matrix.

The PAF Matrix is the framework to assess Government (and now Development Partner) performance on an annual basis for the provision of GBS funding. It contains Government and development partners’ commitments that have been jointly agreed between the Government and GBS–DPs. GBS-DPs decide their GBS funding commitments on the basis of Government performance against the PAF (GBS Review 2009).

Commitments listed in the PAF Matrix are grouped into three categories: Underlying processes; Temporary Process Actions; and Outcome indicators.

 Underlying processes are usually sector or programme reviews. The reviews consist of an on-going dialogue between the Government, DPs and other stakeholders throughout the year and usually with an annual (or semi-annual) multi-stakeholder review.

 Temporary process actions are specific actions that the Government commits itself to complete by a specified timeframe before the GBS Annual Review at which Government performance is assessed.

 Outcome indicators measure broader outcomes in the PAF and in most cases are taken from the MKUKUTA Monitoring System. They have baseline values and targets for each year, corresponding to the MKUKUTA targets wherever applicable.

This section first considers the performance measures in the Draft MKUKUTA 2. It then presents and discusses the GBS PAF performance measures for 2009 and 2010.

Indicators for MKUKUTA 2

The MKUKUTA 2 process has yet to develop indicators for energy sector intervention packages of the sort shown in Table 8.4 for MKUKUTA 1. The Draft has thus far only identified ‘operational targets’, cluster strategies and intervention packages and the actors responsible for implementing them. MEM’s responsibilities are shown in Table 8.5.

Goal 2 Reducing income poverty through promoting inclusive, sustainable, and employment enhancing growth

Operational Targets

B.GDP Growth accelerated (from 5.0% in 2009 to 8-10% p. A. By 2015

D. Growth of manufacturing sector in real terms increased (from 6.6% in 2009 to 9.6% by 2015)

F. Growth of tourism in real terms increased (from 1.9% in 2009 to 8.9% by 2015)

G. Growth of mining sector increased (real terms from 2.0 in 2008 to 12.7 % by 2015)

J. Generation of energy (electricity, etc), utilization of capacity and coverage increase

K. Sustainable supply of water for production use ensured

Goal 3. Promoting and protecting Human Rights for all especially vulnerable women, men, and children

F. Proportion of children under 15 years in child labour reduced

Of these operational targets MEM is directly responsible for 3G, and 3J. For the others it has a supportive role. It will develop targets for these in conjunction with the other key actors who have a more direct responsibility for designing targets for the intervention packages.

The key operational target is Generation of energy (electricity, etc), utilization of capacity and coverage increase. This is currently set in broad terms: it is not specific and not immediately measureable. It is achievable and relevant but not specifically time other than by the end date of MKUKUTA 2.

The Cluster Strategy supporting this target is “expand access to energy coverage”. This is also vague.

The proposed intervention packages are:

 Adequate financing of selective components of the Power System Master Plan

 Emergency Power Generation

 Natural Gas Development

 Supporting Rural Electrification projects through Rural Energy Agency (REA)

 Strengthening, Upgrading and Expanding the National grid

 Harnessing of more potential sources of energy such as wind, solar, small hydro, biogas

 Efficient use of energy by applying energy saving technologies

 Use of environmentally friendly alternative and indigenous energy resources

The level of detail provided at this stage is not sufficient to propose specific indicators. The JESR Consultants are of the view that the loose terminology and a lack of linkage between the hierarchy of performance measures – goal to operational target – cluster strategy – intervention package, does not give an adequate basis for developing a results logic. This was also the case for NSGRP I.

Recommendations for indicators

MEM has already gone beyond MKUKUTA 1 in setting indicators and targets for its operations. These currently run up to June 2013, the end of the third year of MKUKUTA 2. These are reflected in MEM’s MTPFB document for 2010/11 – 2012/13 (MEM, 2010d). This has been achieved by rolling forward existing indicators through the Strategic Plan and MTEF process.

The GBS PAF 201042 has also set indicators up to 2012 for electricity generation and utilization and for rural energy access.

To some extent the SP, MTP and GBS have put the ‘cart before the MKUKUTA horse’, but as there is a mix of fixed time and rolling medium term strategy and planning frameworks, this is bound to happen and so the response is pragmatic.

Table 8.1 is a suggested approach to validating the applicability of MKUKUTA 1 performance measures against the requirements of MKUKUTA 2. This exercise cannot be considered as complete, as the MKUKUTA 2 guidance is so vague, but it serves to demonstrate an approach.

The JESR consultants recommend that MEM validate its MTP targets against the new broad MKUKUTA goals and then set MKUKUTA indicators. This should be done in the policy and strategy review in FYQ2, guided by the JESWG. Thereafter MEM can revise its MTPFB in Q3 2010/11 in the usual way. A similar approach to that of Table 8.1 could be used, substituting the SP and MTP indicators for the NSGRP indicators.

42 GBS PAF 2010 was set in advance of the draft MKUKUTA 2.

Table 8.1 Issues in carrying forward NSGRP Performance Measures

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 adequate Not an ‘intervention Commissioner financing of package’ and should selective not be a MEM target components of the as MEM does have Energy Master exclusive Plan responsibility for funds availability and allocation

Rename if it implies ‘prioritise’ energy master plans Emergency Power Electricity Generation 1. EWURA fully independent and responsive 1. ? Not MEM Generation (Grid) to investors and consumers 2. Cross cutting Commissioner with PPD. policy issue, but AC Energy Development Hydro 2. Cost reflective tariffs in place also an EWURA Commissioner Gas 3. TEDAP (and N/A or AO and PMU HFO 3. Increase in IPPs other projects?) has Director targets Coal AC Electricity 4. This has been ‘Renewables’ AC Electricity 4. PPAs standardized done EWURA and Head of 5. Not a Internal Audit 5. Increased number of projects being implemented performance indicator change to 6. Number of PSAs signed a PMU process target. 7. Increased private sector participation 6. TEDAP (and other projects?) has targets 8. Undertaking of energy auditing 7. linked to (3).,and (6). 8. Is this EWURA only or also MEM Internal audit ( the

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 latter should have an audit plan agreed with AO.

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 Strengthening, Electricity EWURA fully independent and responsive to 1. Separate Length 1. AC Electricity Upgrading and Transmission investors and consumers of lines built by type; Expanding the length of lines 2. AC Electricity National grid Cost reflective tariffs in place rehabilitated by type;

1. Increased grid expansion 2. Technical losses Increased number of projects being implemented only, commercial is 2. Reduction in technical and commercial distribution (?) losses Undertaking of energy auditing

Electricity Distribution EWURA fully independent and responsive to 1. Prices, (Grid) investors and consumers subsidies?

Cost reflective tariffs in place 2. Number of new customers by type from grid and off 1. A conducive marketing structure in grid place 3. Distinction Increased number of projects being implemented between district and rural? 2. Increased connectivity 4. Separate technical and 3. Increased tempo in district and rural commercial losses electrification 4. Number of private 3. Reduction in technical and commercial firms? Turnover? Customers served losses by private firms?

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 4. Increased private sector participation

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 Electricity Off Grid – EWURA fully independent and responsive to Urban investors and consumers

Hydro Cost reflective tariffs in place Gas HFO A conducive marketing structure in place Coal Increased number of projects being implemented ‘Renewables’ Increased tempo in district and rural electrification Number of PSAs signed Reduction in technical and commercial losses

Supporting Rural Electricity Off Grid – EWURA fully independent and responsive to 1. Advertising? Electrification Rural investors and consumers projects through 2. MW? By type of Rural Energy Hydro power? Agency (REA) Gas Rural Energy Policy Master Plan in place and HFO operationalized 3. needs to be more Coal specific to be ‘Renewables’ Cost reflective tariffs in place measureable

A conducive marketing structure in place 4. Has been done. Share of own resources in REF? 1. Promotional activities carried out

Increased connectivity

Increased tempo in district and rural electrification

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 Increased number of projects being implemented

2. Number of PSAs signed 3. Institutions working in energy activities in rural areas

Reduction in technical and commercial losses

Increased private sector participation

4. 3% REF Levy operational

Undertaking of energy auditing

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 Natural Gas Note gas link with EWURA fully independent and responsive to 1. Prepared. Development electricity investors and consumers Operational needs generation to be specified and measured, depends 1. Gas Act in place and operational Exploration on provisions of the Act. Promotional activities carried out Upstream 2. Exploration? Increased number of projects being implemented Production? Downstream

2. Number of wells drilled 3. Numbers of users by type consumption by A conducive marketing structure in place type.

3. Increased use of gas as a source of energy for power generation, industrial use, institutions, households and vehicles

Increased private sector participation

Undertaking of energy auditing

Harnessing of Renewable energy Promotional activities carried out more potential Hydro (but link to sources of energy electricity Increased number of projects being such as wind, generation) implemented solar, small hydro, Mini hydro biogas, with Increased use of alternative modern sources Wind

Intervention Possible Change Indicators MKUKUTA 1 Possible Change MEM Manager Packages (examples) MKUKUTA 2 emphasis on Biogas of energy renewable sources Solar

efficient use of Energy Efficiency Promotional activities carried out 1. Number of energy by applying Increased number of projects being implemented systems by type of energy saving Increased use of alternative modern sources user and by type of technologies of energy system 1. Increased use of energy efficiency systems in households, commercial buildings and industrial establishments use of Clean Development Promotional activities carried out 1. By type of source environmentally Mechanisms and Increased number of projects being implemented how to measure friendly alternative Carbon Trading energy use. and indigenous 1. Increased use of alternative modern energy resources sources of energy Note that in column 4, possible changes to the indicators from NSGRP 1 in column 2 are only suggested once. The NSGRP indicators for which changes are proposed are in bold and numbered.

PAF Matrix performance measures

The Underlying Process Action for the energy sector was the Energy Sector Review. This was considered satisfactory by the Government and unsatisfactory by DPs. There is a difference of opinion about this underlying dialogue process and multi-stakeholder review. This appears to have stemmed from different views of what was being measured – the dialogue and review process or the performance of the sector.

There were split decisions on other underlying process actions. The GBS Review report notes:

“ [t]hese disagreements provide significant pointers on the importance of both the Government and development partners developing SMART assessment criteria and simple and clear performance indicators.” (GBS Review 2009:2).

The JESWG has begun preparation of a joint performance assessment framework for the energy sector. A combination of financial physical and co-ordination indicators are being examined.

PAF Matrix items for the Energy Sector and their assessment are shown in Table 8.2 for 2009 and Table 8.3 for 2010.

Table 8.2 PAF Matrix measures for the Energy Sector 2009

Cluster 1 Working Group

PAF Commitment Responsible Status/Achievement

Underlying Process

Energy Sector Review MEM GoT: Satisfactory

DPs: Unsatisfactory

Temporary Process Actions

Strengthening TANESCO’s revenue TANESCO Not Achieved collection to meet full operational cost recovery by October 2009 Outcome Indicators

Total electricity generation capacity TANESCO Baseline 2005: 889 MW (62%) and utilization, MW % Target 2009: 1091 MW (79%) Status 2009: 1092 MW (70%)

Not Achieved

% of population with access to TANESCO Baseline 2005: 8.2% Electricity Target 2009: 10.9% Status 2009: 14%

Achieved

Table 8.3 PAF Matrix measures for the Energy Sector 2010

Cluster 1 Working Group

PAF Commitment Responsible Status/Achievement

Underlying Process

Energy Sector Review MEM To be determined

Temporary Process Actions

Government to ensure a construction contract has become effective and the MEM contractor has mobilized by August 2010 which ensure that additional power generation capacities of at least 160 MW will be operational by December 2011 2010 2010

Outcome Indicators Target Actual

Total electricity generation capacity and utilization, MW % MEM 1,137 MW 71% % of population with access to Electricity MEM 14.5%

Total value of revenue received from oil and gas concessions MEM TZS 15.6 and licenses billion Cluster 4 Working Group Outcome Indicators Credible cash flow and procurement plans agreed with MoFEA for the FY 10/11 MoFEA None To be determined in budget and execution monitored 2010/11:Q2 Expenditure outturns deviation compared to original approved budget (recurrent MOFEA 12.9 % MDA only- vote level), excluding salary adjustments

For the 2010 PAF, the responsibility for electricity generation, utilisation and access has moved from TANESCO to MEM. This is appropriate as TANESCO was being held for responsibility for targets that it could not completely influence: an example of responsibility without power.

With the advent of MKUKUTA 2, the target for percentage of the population with access to electricity has been moved out from 20 per cent in 2010 to a more gradual performance of increasing access by 0.5 percentage points per year.

Table 8.3 includes two outcome indicators under Cluster 4 which are shown in the PAF as responsibilities for MoFEA. For cash flow plans (should be action plans) and procurement plans, responsibility for the credibility must lie with MEM. MoFEA is only responsible for agreeing that they are credible. MEM has to convince MoFEA. But how is credibility to be determined by MoFEA?

The indicator suggests that MoFEA is also responsible for monitoring the execution of these plans. A note to the 2010 PAF matrix indicates that “(i) Assessment will be based on quarterly releases, and (ii) releases will consider implementation status and standard requirements such as certificates in Infrastructure”. This suggests that the Q1 release will be an indicator of credibility, but “quality of requests” is not the only factor determining releases by MoFEA; receipts and relative priorities are also criteria. For the Q2 release implementation assessment, MEM’s Q1 physical and financial performance reports to MoFEA will show the implementation status, a release in Q2 will follow. If implementation is slower than planned and the release is reduced below the original Q2 requirements in the first annual cash flow plans then how can MoFEA be solely responsible? To the extent that MoFEA controls the releases that influence the degree of execution, MoFEA is responsible for the indicator but other factors besides plans affect releases. Point (ii) of the note brings in MEM responsibility as it is responsible for implementation status.

Is there a monitoring role for MoFEA in respect of implementation? More generally MoFEA is (or should be) responsible for monitoring that monitoring takes place. This outcome indicator is requiring MoFEA to assess the veracity of MEM monitoring reports by including copies of contractors’ certificates. This is micro-management by the centre of Government. The initial responsibility for monitoring lies within MEM, with the Permanent Secretary. As Accounting Officer the PS is accountable to Parliament both for expenditure (financial management control) and performance. For expenditure outturns, MoFEA is responsible at the release level, but is not responsible for the expenditure outturn after release, that is the responsibility of MEM. It is for these reasons that these outcome indicators are also shown in this Energy Sector Table.

The “cash plan” outcome indicator is not SMART as it is not specific enough and is not measureable as is evidenced by the lack of a target in the PAF. It would be better set as a Temporary Process Action (TPA). As a TPA it would be subject to DP assessment, i.e., EDPs would be making an assessment of the credibility of the action plans and procurement plans. As those action plans and procurement plans include EDP funded projects there would be a strengthening of mutual accountability, since the quality of the plans would depend on the quality of the underlying project plans.

For the expenditure outturn indicator there is also joint responsibility between MoFEA and MEM. MoFEA decides the releases and MEM executes the expenditure. If the recurrent releases were less than 12.9 per cent of the 2009/10 budget (appropriations or ‘originally

approved estimates’) then MoFEA is responsible at least in part. If releases were higher than 12.9 per cent then MEM is solely responsible.

8.2 Energy Sector Information Systems

Assessment of the information systems

The JESR consultants reviewed the financial and physical performance reports, provided by MEM, as a means of assessing what information flows to the management of MEM from within MEM, from the co-ordinating teams for DP funded project within MEM, and from implementing agencies such as TANESCO and REA. The original aim was to see the extent to which these outputs from the information system delivered actionable management information. This review highlighted that there were problems in the hierarchical coherence of performance information and in the timeliness of completeness of compliance with information system requirements, with the latter problem being a consequence of the former. As a result a thorough assessment could not be produced. This section discusses these problems and makes suggestions and recommendations to address them.

Performance measures are generally developed starting with a top-down approach – broader macro-level measures of (impact/outcome) through more specific meso-level measures (objectives) to more operational and micro level measures (outputs or “targets”). From this generic three-level hierarchy activities are identified for internal process management purposes and the input needs of these activities are identified and costed to develop expenditure plans and budgets. Experience shows that a principal difficulty in producing SMART performance measures is a lack of coherence between the measures at different levels. This is lack of coherence is a continuing challenge for both the setting of targets in MKUKUTA and in the MTEF. This is principally because the performance hierarchy emanating from a top-down approach needs to be tested bottom-up.

The Government is aware that it has completed this first top-down stage and has indeed had difficulties in developing SMART measures and coherence between them to produce actionable management information for MDA managers and higher level decision-makers in central Government and ultimately the Cabinet.

MoFEA and PMO have plans to improve the monitoring and evaluation systems. The JESR consultants recommend that MEM and DPs take early and co-ordinated action to improve their own information systems (without waiting for official guidance from the centre of Government).

This action should begin with a systematic review by MEM of its objectives, targets and activities for SMART-ness and coherence. This review can be conducted on the basis of the Medium Term Strategy Planning and Budgeting Manual (URT, 2005a). The review should then consider the coherence of performance measures in DP funded projects with the MEM system and the guidance of for coherence with the existing MTEF and the Manual.

Strategic Plan and MTP performance information

The JESR consultants recommend that JESWG recognize that the Strategic Plan with its fixed 3 year horizon does not serve as a practical guide for the MTPFB after the first year of the SP period. MTSPBP 2005 does give guidance for “off-year” objectives and targets.

However, this guidance does not appear to have been used systematically in the MEM MTEF for 2010/11 – 2012/13.43 This linkage issue weakens MEMs information systems.

JESWG should take this timing mismatch into account during the proposed Policy and Strategy Review Meeting recommended in this report.

The Draft MKUKUTA 2 notes that use of monitoring and MTP procedures needs to be actively developed. In order to achieve this, it proposes that a guiding framework for MKUKUTA implementation is prepared which will ensure a common understanding on MKUKUTA implementation and show the linkage of core reforms, development programmes and projects are linked to goals and targets.

As part of this development, MKUKUTA 2 stresses the importance of the Medium Term Planning and Budgeting Manual in improving: (i) preparation on Strategic Plans (ii) coordination of planning and budgeting; and (iii) monitoring and reporting. It recognizes the need to improve implementation of directives of the Plan and Budget Guidelines. MoFEA is tasked with implementing specific measures aimed at enhancing capacity building on the use of the Manual, including:

 training of MDAs staff responsible for planning, budgeting, monitoring and reporting;

 enforcing standards and principles established in the manual through strengthening of MDAs budget committees, Budget Guideline Committee and Cluster Working Groups; and

 tasking the Policy and Planning Departments in each MDA to drive the implementation of the contents of the manual and report to MOFEA.

These actions will be supported by budgetary resource incentives and disincentive measures, including resource contestability to enforce compliance and reward good performance.

The JESR consultants recognize the key role of the Policy and Planning Department, but recommend that improvements in planning and budget be led by section and division managers in MEM, supported by the Policy and Planning Department. MEM should also ensure that its implementing agencies respect the planning and budget processes.

MoFEA (2009a) reports that for 2010/11 'a framework for monitoring implementation of some specific areas or milestones that are of national interest will be prepared. The aim of proposed framework is to ensure that Government budget produces expected results and its implementation will be on pilot basis.’ If MEM is involved in this pilot, it will be important to ensure that this information is produced from its core systems and does not result in additional monitoring work. This should be feasible as it is unlikely that what is of national interest in the energy sector is not of interest to MEM.

The JESR consultants recommend that MEM changes its way of reporting targets in the MTP, from showing the target at the end point to targets for each year.

43 It is not immediately obvious why while the NSGRP has a five year horizon, the underlying sector strategic plans have only a three year horizon. The fixed year view of the NSGRP means that the MTEF operates without national strategy guidance after the second year of NSGRP and therefore relies on broader (less specific guidance from longer term national development frameworks). This is, however, a system issue for the centre of Government. MEM should consider setting its next Strategic Plan horizon to the end of MKUKUTA 2.

Monitoring overload

MEM is facing a potential monitoring and reporting overload. It has to provide a raft of performance information as inputs into the many central Government reports on the implementation of the various national development frameworks.

MKUKUTA 2 requires (mandatory) PER analysis and discussions at least every two years to address: (i) how priorities are identified on annual basis; (ii) resource allocation to priorities; (iii) costs of priority interventions; and (iv) implementation of priorities and associated reporting.

The JESR consultants consider that this is too frequent for a full sector PER. There is value in supporting the performance hierarchy review recommended above with a full sector PER this year, but the arrangements for the PER should ensure that is led and managed by MEM’s Budget Committees. Consultants could be used to support MEM in the review process producing actionable management decisions. PER Consultants should not work alone to produce a report with recommendations.

JESWG should see the biennial PER requirement as a guide. MEM can use the MTEF preparation process to effect PER-style work, but should consider doing in depth expenditure review for one sub-sector in Q2 of each FY year, and as and when expenditure programmes are introduced for one expenditure programme.

In order to address the potential overload, MEM needs to ensure that the micro-level of its performance information system, i.e., its quarterly financial and physical planning, performance, monitoring and reporting systems are fully functioning. These are the foundation of all monitoring and reporting. They also provide the some of the key material to inform a PER.

The JESR consultants recommend that MEM gives attention to the following issues.

 Timely and full preparation of annual action, financial and procurement plans at each relevant stage of the planning and budgeting processes.

 Capture of DP funds in planning and release – from AMC and dummy voucher systems.

 Timely and full compliance by departments and executing agencies – TANESCO, REA, TPDC, etc. in the provision of quarterly financial and physical performance.

 Quarterly revisions to annual action, financial and procurement plans from all sources

Another challenge in developing actionable monitoring information from MEM’s information systems is the structure of the sector.

Sector structure considerations for PFM information systems Currently the budget presents development projects in a chronological order, under the Energy and Petroleum Division Sub-Vote, determined by the date that a new development project appears in the Government accounts and is given a project code in FMIS. Thus new projects appear at the bottom of the list. This is a sensible convenience for project coding in

a Sub-Vote structure. For presentational purposes, however, this is not the easiest way of presenting progress on performance in sub-sectors of the energy sector.

The Government does not yet operate a programme approach to budget presentation. MoFEA (2009a) indicates that this will come in the future. A programme approach will improve the way the sector is presented and facilitate the delivery of the required monitoring information.

The EPD is sub-divided into 4 Sections – Energy Development; Electricity; Petroleum and Gas; and Renewable.

The EPD’s sections provide a potential programme structure for the Energy sub-vote. However, it is usual practice to adjust administrative structures to programmes. Where this is not possible, programme managers should be identified and a team working approach can be developed. As and when programmes are introduced, the performance information systems will have to adjust accordingly. Programmes will enter the performance hierarchy and will likely have “objectives” attached to them and “outputs” produced within them. Funds will be allocated to programmes below sub-votes and there are likely to be limitations on MEM’s discretion for virement between programmes.

The second column of Table 8.1 is one possible approach to developing a programme and sub-programme structure. It is not a recommendation. It is not complete or comprehensive. Programmes can be seen as a ‘meaningful and manageable’ grouping of outputs. Meaningful is determined by policy goals and objectives. Manageable is a management assessment. It will be for MEM to develop its own programme structure, by assessing what is meaningful and manageable.

In a programme structure, projects must come below sub-programme or be a sub- programme within one programme so that the manageability criterion can be met. This will have implications for some existing projects in the energy sector, for example TEDAP. A programme approach can also facilitate the development of sub-sector SWAp arrangements.

Table 8.4 Energy Sector Performance Indicators - NSGRP 1

Cluster I: Growth and Reduction of Income Poverty

Goal 6: Provision of reliable and affordable energy to consumers Operational Sub Cluster Intervention Package Indicators targets Category Strategies Liberalisation of Regularly update Review of Power Master  Cost reflective tariffs in place the power sub- Energy the power Plans  Increased connectivity sector Efficiency systems master Review of investment  Increased grid expansion plan; and proposals from developers  Increased private sector implementation of participation power projects  A conducive marketing structure in according to the place Power System  EWURA fully independent and and Rural Energy responsive to investors and consumers Master Plan Sustainability Promote efficient Enforce measures for  Increased use of alternative and environmentally increasing adherence to modern sources of energy Environment benign energy guidelines and regulations  EWURA fully independent and development responsive to investors and consumers Guidelines and Monitor performance of regulations for energy systems  Reduction in technical and reduction of commercial losses energy transportation, transmission and distribution losses reviewed, enforced Promote rational Prepare a programme on  Increased use of energy efficiency use of energy and Energy Conservation and systems in households, commercial energy efficiency Efficiency Use

and conservation Sensitise relevant buildings and industrial establishments in all sectors of stakeholders to implement  Undertaking of energy auditing the economy the programme Reforms Promote Finalise restructuring of  Increase in IPPs efficiency and power sub-sector  PPAs standardized effective Private generation and  Increased tempo in district and generation and distribution rural electrification use of the power  Gas Act in place and operational utility At least three Energy Develop and Identify viable sources of  Number of PSAs signed Production resources promote energy  Promotional activities carried out Sharing utilization of Disseminate information to  Increased use of gas as a source Agreements indigenous investors of energy for power generation, industrial (PSA) energy resources Development of potential use, institutions, households and vehicles negotiated, and diversification sources  Gas Act in place and operational concluded and of energy sources  Number of wells drilled signed annually Petroleum Publicized Promote on-shore and exploration petroleum offshore petroleum exploration data exploration

Cluster II: Improvement of quality of Life and Social Well-being

Goal 4: D. Access of the Rural Population to Modern Energy Services Operational Sub Cluster Intervention Package Indicators targets Category Strategies Institutional Organization Put in place right Formulate a Rural Energy  Rural Energy Policy Master Plan in arrangement for institutional Policy Master Plan place and operationalized rural energy arrangements to  Institutions working in energy development increase rural activities in rural areas established and people’s access  Increased number of projects strengthened to modern energy being implemented  3% REF Levy operational

Contribution of New and Facilitate the fast Promote harnessing of  Number of IPPs in renewable solar, wind, renewable uptake of new and renewable energies energy projects biomass and energy renewable energy coal for sources of energy Promote coal electricity for electricity generation and thermal generation applications increased from the 0.5% in 20003 to over 3% from 2010 Over10% of the Alternative Develop and promote Promote biomass technology  Increased number of households population Energy non-wood fuels for and coal briquettes for and institutions accessing modern energy using cooking and other cooking sources and efficient energy saving alternatives to thermal applications stoves wood fuels for cooking Source: JESR 2009 pp. 38-40

Table 8.5 MEM’s Key Actor Responsibilities in NSGRP 2

Cluster 1: Growth for Reduction of Income Poverty

Goal 2 Reducing income poverty through promoting inclusive, sustainable, and employment enhancing growth

Operational targets Cluster Strategies Intervention Packages Key Actors

B. GDP Growth 2.1 2.1 Promote inclusive/pro-poor MAFS, MNRT, MoID, accelerated (from 5.0% inclusive/pro-poor growth and MITM, TIC, MoEM, in 2009 to 8-10% p. A. By growth policies and interventions in Financial Sector, Private 2015 interventions in sectors Agriculture, natural sector of comparative and resources, mining, competitive advantage tourism Special Economic Zones, Export Processing Zones (EPZs) and Development Corridors through enhanced public–private partnerships implementation of district and regional level inclusive/pro-poor (decent job-creating) growth strategies which take into account their respective comparative and competitive advantages D Growth of 2.6. Promote Research De-bottleneck supply Manufacturing sector in and Development(R&D) constraints that real terms increased and technological suppress growth of (from 6.6% in 2009 to innovations to enhance manufacturing sector, 9.6% by 2015) industrial productivity improvement markets for industrial produce

clusters approach in manufacturing

organization and institutional responsibilities for promoting manufacturing activities Promotion of Technology Industrial Zones for enhancing transfer of skills development of Export Processing Zones and SEZ F Growth of tourism in 2.16 Promote Tanzania basic infrastructure MilD, MoHSW, MEM real terms increased to be the best tourists (roads, railways, (from 1.9% in 2009 to destination airstrips, ports) and 8.9% by 2015) energy, water, health facilities, etc to encourage expansion of tourism, including local tourism G. Growth of mining 2.18 Enhance capacity ongoing capacity MEM, MITM, Private sector increased (real of small and large scale building to small scale sector terms from 2.0 in 2008 miners in the application miners in application of to 12.7 % by 2015) of appropriate appropriate technology, environmental friendly processing, and technologies, marketing processing, and marketing Revision on a regular basis, Policy, Laws and regulations usage of modern and environmentally friendly Technologies

adequate security in mining areas

2.19. Increase value set up and MEM, MITM, Private addition of minerals modernization of sector facilities for processing Laws and regulations

Provision of security to facilities. Adherence to quality and standards. 2.20. Improve measures licensing considers MEM; MOFEA, MITM that will attract,minerals national interests first; benefications to curb all forms of leverage the economy corruption in licensing and collection of 2.20. Increase value of revenue; avoidance and revenue received from evasion of payment concessions and licences for minerals

J. Generation of energy 2.23. Expand access to adequate financing of MEM, TANESCO, REA, (electricity, etc), energy coverage. selective components of TPDC,VPO (NEMC) utilization of capacity the Energy Master Plan Private Sector and coverage increase Emergency Power Generation

Natural Gas Development

Supporting Rural Electrification projects through Rural Energy Agency (REA) Strengthening, Upgrading and

Expanding the National grid Harnessing of more potential sources of energy such as wind, solar, small hydro, biogas, with emphasis on renewable sources efficient use of energy by applying energy saving technologies use of environmentally friendly alternative and indigenous energy resources K. Sustainable supply of 2.24. Improve water water supply and MEM, MOWI, VPO water for production use supply coverage and coverage for production (NEMC) ensured expand distribution exploiting more sources network and expanding NSAs distribution network. 2.24. Implement Water Promotion of good Sector Development governance and equity Programme in water resources use and management Strengthening sustainable water resource management by ensuring sound balance between competing users, including biodiversity Cluster III: Governance and Accountability

Goal 3. Promoting and protecting Human Rights for all especially vulnerable women, men, and children

F. Proportion of children 3.5. Develop and Availing alternatives MCDGC, MAFS, MEM, under 15 years in child implement programs including enrolment in MOEVT, MJCA ,MLEYD, labor reduced targeting reduction of primary education and CSOs, Trade

child labour and observe employable vocational Unions, Communities rights of orphans and education skills training vulnerable children

Source: NSGRP II All zero draft

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List of people consulted

Organisation Position Name Government Ministries and Organisations Ministry of Energy and Minerals Assistant Commissioner for Eng. Hosea A. Mbise Energy Development Ministry of Energy and Minerals Assistant Commissioner for Eng. Theophilo Bwakea Electricity Ministry of Energy and Minerals Assistant Commissioner for Eng. Prosper A. M. Victus Petroleum and Gas Ministry of Energy and Minerals Ag. Assistant Commissioner for Mr. Paul Kiwele Renewable Energy Ministry of Energy and Minerals Director of Policy and Planning Mr. Invocavit Humphrey Swai Ministry of Energy and Minerals Senior Economist Ms. Wanja A. Mtawazo Ministry of Energy and Minerals Energy Engineer Mr. John F. Kitonga Ministry of Energy and Minerals Energy Engineer Mr. Noel A. Mwakabungu Engineers Registration Board Chairman Eng. Prof. Ninatubu M. Lema Ministry of Finance and Acting Assistant Commissioner Mr. Mpanda Economic Affairs for Budget Ministry of Finance and External Finance Department, Mr. A. Matembele Economic Affairs Finance Analyst EWURA Director of Electricity Eng. Anastas Mbawala

EWURA Electricity Mr. Nobert Kashoza EWURA Director of Gas Mr. Charles Omujuni EWURA Director of Petroleum Mr. Sirili Massay EWURA Senior Financial Analyst Mr. Joseph M. Mutashubilwa TANESCO Senior Manager, Strategic Eng. Maneno Katyega Planning and Projects TANESCO Principal Commercial Officer Mr. Abdul Masunga TANESCO Ag. Manager, Rural Mr. Gwamaka Elia Electrification REA Energy Project Officer Eng. Boniface Gissima Hanga REA Energy Project Officer Mr. Jones Olotu

TIC Director of Research and Mr. John Kyaruzi Information Systems TPDC Mohammed Ngude Chief of Research and Investments NBI Reg Power Trade Pr Dr Humphrey Ndwiga Regional Project Manager NBI Reg Power Trade Pr David Ngula Lead Specialist Development Partners Representatives World Bank Robert Schlotterer Financial Analyst, Energy Team Sida Göran Haag First Secretary/Program Officer for Energy Sida Stephen Mwakifwamba Program Officer Energy African Development Bank Prajesh Bhakta Country Programme Officer African Development Bank Yussuf Balozi Hija Procurement Officer

European Commission Baptiste Bobillier ? Norway Marianne Damhaug ? Norway Inger Anette S. Dahlen ? Norway Ømulf Strøm Counsellor, Energy & Infrastructure Finland Lina Soiri ? JICA Tomoko Tauchi ? JICA Minako Yamamoto ? United Nations Development Savinus Kessy ? Programme United Nations Development Deputy Country Director, Ms. Louise Chamberlain Programme (Programme) United Nations Development Environment and Energy Mr. Bariki Kaale Programme Specialist MCC Matthew Kavanagh Deputy Resident Country Director MCC Karl Fickenscher ? Korea Hyekyung Lee ? Netherlands Steef Van Den Berg ? European Commission Enrico Strampelli ? European Commission Anne-Claire Leon ? DFID Helen Tilley Economic Advisor DFID Simon Gill Governance Advisor Private Sector representatives TPSF Programme Director Mr. Louis Accaro OGAT Ambassador I B Chialo Chairman CTI Executive Director Ms. Christine Kilindu Songas Oswald Mutaitina Corporate Finance & Business Development Manager Songas Richard Chubb Commercial Manager Artumas Doug Kroeker ? Symbion Power Paul Hinks Chief Executive Officer Symbion Power Steve Jaenisch General Manager - Tanzania Ndovu Resources Thierry Murcia Country Manager & Executive Officer, OGAT Ras Al Khaimah Gas Tanzania Chris Opperman Country Director Ras Al Khaimah Gas Tanzania Greg Gross General Manager - Tanzania