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Document of The World Bank - FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 4050-TA STAFF APPRAISAL REPORT Public Disclosure Authorized TANZANIA FOURTHPOWER PROJECT Public Disclosure Authorized June 29, 1983 -~~~~~~Z Public Disclosure Authorized Energy Division Eastern Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS 1 Tanzania Shilling (TSh) = US$0.082 US$1 = TSh 12.2 1 TSh = 100 T cents WEIGHTS AND MEASURES I liter = 1.057 quarts 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.621 miles 1 square kilometer (km2) = 0.386 square miles 1 kilovolt (kV) = 1,000 volts 1 kilowatt (kW) = 1,000 watts 1 megawatt (MW) = 1,000 kilowatts 1 megawatt hour (MWh) = 1,000 kilowatt hours 1 megavolt ampere (MVA) = 1,000 kilovolt ampere (kVA) 1 gigawatt hour (GWh) = 1 million kilowatt hours 1 kilo calorie (kcal) = 3.97 British thermal units (Btu) 1 ton of coal equivalent (tce) = 7,000,000 kilocalories 1 ton of oil equivalent (toe) = 10,500,000 kilocalories (kcal) ABBREVIATIONS AND ACRONYMS Acres = Acres International Limited AATP = Arusha Appropriate Technology Project BADEA = Arab Bank for Economic Development in Africa CIDA = Canadian International Development Agency EAPL = East African Power and Lighting Company Limited KfW = Kreditanstalt fur Wiederaufbau MWE = Ministry of Water and Energy NORAD = Norwegian Agency for Development OPEC = Organization of Petroleum Exporting Countries RUBADA = Rufiji Basin Development Authority SIDA = Swedish International Development Authority SIDO = Small Industries Development Organization SWECO = Swedish Consulting Group TANESCO = Tanzania Electric Supply Company Limited TARECO = Tanzania Rural Electrification Corporation TTI = Technical Training Institute TANESCO's Financial Year (FY) Calendar This report was prepared by Messrs. J. Besant-Jones (Economist), V. Mastilovic (Engineer) and R. Mitchell (Financial Analyst) and is based on the findings of the appraisal mission which visited Tanzania in December 1981. Mission members included Ihsan Tuncay (Mission Leader), David Hutchins (Consultant) and Gerd Steinke. FOROICIAL USEONLY TANZANIA STAFF APPRAISAL REPORT FOURTH POWER PROJECT Table of Contents Page No. I. THE ENERGY AND POWER SECTOR Energy Resources and Planning ...... .........................1 Renewable Energy Resources . ............... 1 1980 Energy Balance ................................... .....* 2 Energy Prices ........................... 0.... 3 Power Sector ................................................ 4 Existing TANESCO Facilities ........... ....... ....... ...... .. 5 Access to Service and Electrificationof Rural Areas .... .... 6 Role of IDA/Bank ........0...................... 6 Government Strategy in the Power Sector ..................... 7 II. THE BORROWER, BENEFICIARY AND EXECUTING AGENCY The Borrower .................................. 8 The Beneficiaryand Executing Agency ........................ 8 Accountingand Auditing ..................................... 8 Billing and Collection .......................................o ............. 9 Personnel and Training ..................................... 9 Insurance ............ .......................................10 III. DEVELOPMENTPROGRAM AND THE PROJECT Demandand Market ..... ........ ................. 10 Development Program ................... ................. 11 Project Objectives ...... .. ........... 13 Project Description ................... 13 Cost Estimates ............................................ 14 Project Financing ........................................ 16 EngineeringConsultants' Services and Project Implementation ................ ................... 17 Procurement ........................................ 17 Disbursement . ........................................ 18 Project Monitoring and Evaluation ...........................18 EnvironmentalAspects . ......................................18 IV. FINANCIAL ASPECTS TANESCO's Past Financial Performance .... ......... 19 TANESCO 1980Cs Financial Position ...........................20 This documenthas a restricted distributionand may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. - ii - Page No. Tariff Levels and Rate of Return ...........................21 TANESCO's Financing Plan ...... ..............................23 Future Operations and Financial Performance ................ 25 V. ECONOMIC ANALYSIS Need for the Project .......................................26 Least Cost Solution ...... .................................26 Power System Costs ......................................... 27 Economic Rate of Return ...... ..............................29 Tariffs .................................................... 29 Risks ......................................................30 VI. AGREEMENTSREACHED AND RECOMMENDATIONS................. ... 31 LIST OF ANNEXES 1. TANESCO - Existing Power Facilities 2. Statistical Data on TANESCO's Power System 3. TANESCO - Organizational Structure 4. TANESCO - Future Sales and Maximum Demand 5. Project Description 6. Project Cost Estimates 7. Implementation Schedule 8. Disbursement Schedule 9. Project Monitoring Guidelines 10. TANESCO - Income Statements, 1978-1990 11. TANESCO - Balance Sheets, 1978-1990 12. TANESCO - Cash Flow Projections, 1981-1990 13. Notes and Assumptions for Financial Projections 14. Economic Analysis - Least Cost Solution 15. Economic Rate of Return 16. Selected Documents and Data Available in the Project File MAP IBRD 16231 TANESCO's Principal Power Facilities and the Proposed Project I. THE ENERGY AND POWER SECTOR Energy Resources and Planning 1.01 Tanzania's energy resources are large and diverse but have not yet been exploited systematically. In addition to forestry resources, the country has coal deposits in the south-western area estimated at about 300 million tons of proven reserves. Despite their remoteness from the main population centers and harbors, exploitationon a sizeable scale appears feasible and is being examined under a recently approved I.D.A. assisted coal engineering project. Tanzania has si nificant natural gas deposits on Songo-Songoisland (about 800 billion ftf proven) and possible additional reserves at Kimbiji and Mnazi Bay where exploration is continuing. The potential for oil is being investigated although no significant discovery has yet been made. 1/ Tanzania also has a significant hydro power potential mostly sited in the basins of various rivers which drain into the Indian Ocean. The country's geothermal and uranium potential is unexplored. Tanzania has a general energy policy for the development of various energy forms, giving priority to renewable energy resources. However, a systematic approach to the development of existing resources, supply of fuel and its transportation,maintenance of equipment and training has yet to be established. A UNDP-Bank joint energy assessment mission is visiting Tanzania in mid 1983. Renewable Energy Resources 1.02 Tanzania has so far concentratedits efforts on six types of renewable energy resources for development, i.e. biomass, hydro power, animal power, wind, solar and geothermal. At present, Tanzania depends mostly on biomass sources in the form of firewood for heating, cooking and some industrial processes, and on hydro power for electric energy. 1.03 Firewood and charcoal, which provide about 86% of Tanzania's total energy consumption, are the traditional sources of energy particularlyin the rural areas. About 90% of the population lives in the villages and depends almost exclusively on firewood. Current consumption is estimated at about 35 million m3 (about 2.1 m3 per capita per annum); and the annual average growth of consumption is about 1.7%. The household use of firewood as well as by industrialprocesses (such as tobacco curing, tea drying, fish smoking, heating, brewing, brick-makingand pottery) are causing sources to be fast depleted. The Government has formulated strategies to avoid deforestation by introducing simple technologiessuch as condensing wood residues into readily transportable briquettes and pellets, improving the design of wood stoves, and by reforesting and controlling wood harvesting. Tanzania has also made efforts to develop biogas and gasification by particle combustion projects in recent years. The Small Industries Development Organization (SIDO) and the Arusha 1/ The Bank financed an exploration project in 1980 to assess petroleum at Songo-Songo (IDA Credit 27-TA for US$30 million, June 30, 1980) and oil-gas exploration project for US$20 million (IDA Credit 1199-TA, January 13, 1982). -2- Appropriate Technology Project (AATP), both government organizations,have about 16 planned projects (comprisingthe constructionof gas tanks with a total capacity of about 240 m3, at a cost of about US$30,000). 1.04 So far more than 70 potential sites for hydro power and irrigation have been identified in Tanzania, mostly by the UN Food and Agricultural Organization. The total hydroelectric potential has been estimated to be about 19,000 GWh per year production capability,with about 3,800 MW capacity, 2/ of which 247 MW 3/ has been developed. In addition to the large hydroelectric power potential, there are also a number of sites suitable for mini hydro stations mostly in rural areas far from the main power grid and the major