POWER AND THE PRIVATE SECTOR IN TANZANIA: PROSPECTS FOR THE AFDB’s HIGH FIVES STRATEGY CYRIL PRINSLOO & TALITHA BERTELSMANN-SCOTT OCCASIONAL PAPER 272 OCCASIONAL PAPER NOVEMBER 2017 SOUTH AFRICAN INSTITUTE OF INTERNATIONAL AFFAIRS The South African Institute of International Affairs (SAIIA) has a long and proud record as South Africa’s premier research institute on international issues. It is an independent, non-government think tank whose key strategic objectives are to make effective input into public policy, and to encourage wider and more informed debate on international affairs, with particular emphasis on African issues and concerns. It is both a centre for research excellence and a home for stimulating public engagement. SAIIA’s occasional papers present topical, incisive analyses, offering a variety of perspectives on key policy issues in Africa and beyond. Core public policy research themes covered by SAIIA include good governance and democracy; economic policymaking; international security and peace; and new global challenges such as food security, global governance reform and the environment. Please consult our website www.saiia.org.za for further information about SAIIA’s work. ECONOMIC DIPLOMACY PROGRAMME SAIIA’s Economic Diplomacy (EDIP) Programme focuses on the position of Africa in the global economy, primarily at regional, but also at continental and multilateral levels. Trade and investment policies are critical for addressing the development challenges of Africa and achieving sustainable economic growth for the region. EDIP’s work is broadly divided into three streams. (1) Research on global economic governance in order to understand the broader impact on the region and identifying options for Africa in its participation in the international financial system. (2) Issues analysis to unpack key multilateral (World Trade Organization), regional and bilateral trade negotiations. It also considers unilateral trade policy issues lying outside of the reciprocal trade negotiations arena as well as the implications of regional economic integration in Southern Africa and beyond. (3) Exploration of linkages © SAIIA NOVEMBER 2017 between traditional trade policy debates and other sustainable development issues, such as climate change, investment, energy and food security. All rights are reserved. No part of this publication may be reproduced SAIIA gratefully acknowledges the Konrad Adenauer Stiftung (KAS), the Swedish or utilised in any form by any means, International Development Cooperation Agency, and the UK Department for electronic or mechanical, including International Development which generously support the EDIP Programme. photocopying and recording, or by any information or storage and retrieval system, without permission in PROGRAMME HEAD Talitha Bertelsmann-Scott writing from the publisher. Opinions [email protected] expressed are the responsibility of the individual authors and not of SAIIA. Please note that all currencies are in US$ unless otherwise indicated. Cover image © Shance Rounce ABSTRACT A stable, affordable energy supply underpins economic development by enabling infrastructure development and investment, and ultimately increases industrialisation and enhances competitiveness. Ensuring electricity security is therefore vital for all countries. Over the past two decades Tanzania has been struggling to achieve electricity supply security owing to erratic droughts; over-reliance on expensive hydrocarbon generation sources; a lack of ongoing investment in and maintenance of generation, transmission and distribution infrastructure; and significant financial difficulties at the national energy utility. Electricity security is a key development priority not only for countries but also for development partners focusing on developing countries. The African Development Bank’s (AfDB) programmatic and development finance focus is a key example of this concern, highlighted in its ‘High Fives’ initiative focusing on five key themes: ‘Light up and power Africa’, ‘Feed Africa’, ‘Industrialise Africa’, ‘Integrate Africa’ and ‘Improve the quality of life for the people of Africa’. It has also developed the New Deal on Energy for Africa, with the ambitious goal of ensuring universal access to electricity on the continent by 2025. This paper examines this ambition within the context of Tanzania’s electricity environment and prospects for broader coverage. Attracting investors to the energy sector to address its supply gap has been a key objective of Tanzania’s national development policies. However, major challenges remain that are likely to hinder greater participation by investors. These include institutional, regulatory and legal barriers, knowledge and capacity limitations, and economic and financial constraints. The paper explores the complementarity of domestic and AfDB efforts to support greater private sector investment in Tanzania’s electricity sector. Throughout the paper, specific reference is made to the renewable energy sector, an area that has attracted significant private sector and government interest, given its far-reaching socio-economic benefits. ABOUT THE AUTHORS CYRIL PRINSLOO joined the South African Institute of International Affairs (SAIIA) as a Researcher in the Economic Diplomacy Programme in 2015. His main areas of focus have been infrastructure investment and financing in Africa, Africa’s interaction with global partners, and the continent’s engagement in global governance forums. He holds an MA from the University of Stellenbosch. TALITHA BERTELSMANN-SCOTT has headed the Economic Diplomacy Programme at SAIIA since 2015. Her main research areas include trade and regional integration, infrastructure investment in Africa, and the creation of regional value chains in Southern Africa. She holds an MA Political Science and an MPhil Economic Policy from the University of Stellenbosch. SAIIA OCCASIONAL PAPER 272 ABBREVIATIONS AND ACRONYMS ADB African Development Bank (non-concessional window) ADF African Development Fund AfDB African Development Bank (institution) BRN Big Results Now DFID UK Department for International Development EAC East African Community EAPP Eastern African Power Pool EPP emergency energy producer EWURA Energy and Water Utilities Regulatory Authority FDI foreign direct investment FIT feed-in tariff GERD Grand Ethiopian Renaissance Dam GWh gigawatt hours IPP independent power producer kWh kilowatt hour MDAs ministries, departments and agencies MDB multilateral development bank MEM Ministry of Energy and Minerals NDP National Development Plan NEP National Energy Policy NGO non-governmental organisation PSMP Power Sector Master Plan PSRGSP Power Sector Reform and Governance Support Programme REA Rural Energy Agency REF Rural Energy Fund REIF Renewable Energy Investment Facility REVC renewable energy value chain SAP structural adjustment programme SAPP Southern African Power Pool SEFA Sustainable Energy Fund for Africa Sida Swedish International Development Cooperation Agency SOE state-owned enterprise SPP small power producer SPPA small power producer agreement TANESCO Tanzania Electric Supply Company Limited USAID US Agency for International Development 4 POWER AND THE PRIVATE SECTOR IN TANZANIA: PROSPECTS FOR THE AFDB’S HIGH FIVES STRATEGY INTRODUCTION In Tanzania less than 16% of the population had access to electricity in 2014. This is low compared to most of its East African Community (EAC) counterparts – in Kenya 36% of the population has access to power, in Uganda 20.4% and in Rwanda 19.8%. Only Burundi has lower levels of electricity access, at 7% of the population.1 While 41.2% of urban areas in Tanzania are connected to the power grid, in rural areas a mere 4% of the population has access to electricity.2 The connectivity challenges in Tanzania are largely a result of its low population density and large geographical area. It is neither feasible nor efficient to connect certain parts of the country to the main electricity grid. Instead, a number of mini-grids and off-grid solutions are employed as more cost-effective measures to extend electricity access. There are presently 20 diesel-based and 13 small-scale hydro-based mini-grids providing electricity to remote communities. Not all of these grids are operated by the government; some are operated by non-governmental organisations (NGOs), faith- based institutions or development partners.3 Tanzania has made some progress in rolling out energy access – in 2000 less than 10% of the population (of an estimated total population of 53.5 million in 2015)4 had access to electricity. This improvement can be attributed to the implementation of the ‘Big Results Now’ (BRN) initiative, a novel public service delivery programme that focused on six development priorities, namely agriculture, education, energy, resource mobilisation, transport and water. In addition, government initiatives such as using a petrol levy to finance the Rural Energy Fund (REF), government subsidies and an improvement in technology have contributed to this process.5 A number of development partner initiatives have also played a role, such as the US’ Power Africa initiative. Other development partners include the World Bank and the African Development Bank (AfDB). The AfDB is focusing on five priorities that are crucial for accelerating Africa’s economic transformation – the ‘High Fives’: • ‘Light up and power Africa’; • ‘Feed Africa’; • ‘Industrialise Africa’; • ‘Integrate Africa’, and • ‘Improve the quality of life for the