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AFRICAN DEVELOPMENT BANK
TANZANIA
NORTH WEST GRID
(400 KV NYAKANAZI – KIGOMA TRANSMISSION LINE)
RDGE/PESD/COTZ DEPARTMENTS
July 2018
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TABLE OF CONTENTS
CURRENCY EQUIVALENTS - June 2018 ............................................................................ i
FISCAL YEAR .......................................................................................................................... i
WEIGHTS AND MEASURES ................................................................................................. i
ACRONYMS AND ABBREVIATIONS ................................................................................ ii
PROJECT INFORMATION SHEET......................................................................................iii
PROJECT SUMMARY ............................................................................................................ v
ANTICIPATED RESULTS BASED LOGICAL FRAMEWORK ......................................... vii
PROJECT IMPLEMENTATION SCHEDULE ..................................................................... ix
1. STRATEGIC THRUST AND RATIONALE ................................................................... 1 1.1 Project Linkages with Country Strategy and Objectives ............................................ 1
1.2 Rationale for Bank Involvement ................................................................................. 1
1.3 Donor Coordination..................................................................................................... 2
2. PROJECT DESCRIPTION ................................................................................................ 3 2.1 Project Objectives and Components ........................................................................... 3
2.2 Technical Solution Adopted and Alternative Considered ........................................... 4
2.3 Project Type ................................................................................................................ 5
2.4 Project Cost and Financing Arrangements .................................................................. 5
2.5 Project’s target and population .................................................................................... 7
2.6 Bank Group Experience and Lessons Reflected in Project Design ............................ 7
2.7 Key Performance Indicators ........................................................................................ 8
3. PROJECT FEASIBILITY ................................................................................................. 9 3.1 Financial and Economic Performance......................................................................... 9
3.2 Environmental, Social Impact and Climate Change ................................................ 12
4. IMPLEMENTATION ...................................................................................................... 14 4.1 Implementation Arrangements .................................................................................. 14
4.2 Procurement Arrangements ....................................................................................... 15
4.3 Financial Management Arrangements ...................................................................... 16
4.4 Monitoring and Evaluation........................................................................................ 17
4.5 Governance................................................................................................................ 17
4.6 Sustainability ............................................................................................................. 18
4.7 Risk Management ...................................................................................................... 18
4.8 Knowledge Building and Inclusivity......................................................................... 18
5. LEGAL INSTRUMENTS AND AUTHORITY ............................................................. 19 5.1 Legal Instrument ....................................................................................................... 19
5.2 Conditions associated with the Bank’s proposed Financing ..................................... 19
5.3 Other Conditions ....................................................................................................... 19
5.4 Undertakings ............................................................................................................. 20
5.5 Compliance with the Bank’s Policy .......................................................................... 20
6. RECOMMANDATIONS ................................................................................................ 20
APPENDIX I: COMPARATIVE SOCIO-ECONOMIC INDICATORS
APPENDIX II: MAP OF PROJECT AREA (NYAKANAZI – KIGOMA; 280 KM)
APPENDIX III: ENERGY BRIEF
APPENDIX IV: MAPPING THE COUNTRY DP FOCUS AREAS VS FYDP II
APPENDIX V: JUSTIFICATION OF ADB FINANCING OF MORE THAN 50%0
APPENDIX VI: ADB PORTFOLIO
APPENDIX VII: HIGHLIGHTS ON TANESCO FINANCIAL SUSTAINABILTIY
ACTION PLAN
APPENDIX VIII: PROJECT RISKS
i
CURRENCY EQUIVALENTS - June 2018
1 UA = 1.42 USD
1 UA = 3203.88 TSH
FISCAL YEAR
1 July – 30 June
WEIGHTS AND MEASURES
1 metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (“)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
m Metre KOE kilogram of oil equivalent
cm centimetre = 0.01 metre kV kilovolt = 1,000 volts
mm millimetre = 0.001 metre kVA kilovolt ampere (1,000 Va)
km kilometre = 1,000 metres kW kilowatt = 1,000 Watts
m² square meter GW gigawatt (1,000,000 kW or 1,000
MW)
cm² square centimetre MW megawatt (1,000,000 W or 1,000 kW
km² square kilometre = 1,000,000
m² kWh kilowatt hour (1,000 Wh)
ha hectare = 10,000 m² MWh megawatt hour (1,000 kWh)
t (t) metric tonne (1,000 kg) GWh gigawatt hour (1,000,000 kWh)
ii
ACRONYMS AND ABBREVIATIONS
AC Alternating Current MoEM Ministry of Energy & Minerals
ACFA Accelerated Co-financing Facility for Africa MoFP Ministry of Finance and Planning
AfDB African Development Bank MTR Medium Term Review
ADF African Development Fund NAPA National Adaptation Programme for Action
AFD Agence Française De Développement NEMC National Environment Management Council
AfIF
APP
African Investment Facility
Annual Procurement Plan
NWG North West Grid
BoQs Bills of Quantities NELSAP Nile Equatorial countries Subsidiary Action
Program
BPS Borrower’s Procurement System NPV Net present value
CAG Controller & Auditor General O&M Operational & Maintenance
CDM Clean Development Mechanism PAR Project Appraisal Report
CPAR Country Procurement Assessment Report PAPs Project Affected Persons
CPIA Country Policy and Institutional Assessment PCR Project Completion Report
CRB Contractor Registration Board PFM Public Financial Management
CSRF Corporate Social Responsibility Fund PIDA Programme for Infrastructure Development in
Africa
CSP Country Strategy Paper PIT Project Implementation Teams
DP
DRC
Development Partner
Democratic Republic of Congo
RMC Regional Member Country
EAPP Eastern Africa Power Pool RoW Right of Way
EDCF Korea Economic Development Co-operation Fund PE Procurement Entity
EDPG
EIB
EIRR
Energy Development Partner Group
European Investment Bank
Economic Rate of Return
PMP Procurement Methods and Procedure
ENPV Economic Net Present Value PMU Procurement Management Unit
EoI Expression of Interest PRCA Procurement Risk & Capacity Assessment
EPC Engineering Procurement & Construction PP Procurement Plan
PPAs Power Purchase Agreement (s)
ERB Engineers Registration Board PPA Public Procurement Act
E&S Environment and Social PPAA Public Procurement Appeals Authority
ESI Electricity Supply Industry PPPD Public Procurement Policy Division
ESIA Environmental and Social Assessment PPRA Public Procurement Regulatory Authority
ESMP Environmental and Social management plan PPRR Project Procurement Risk Rating
EWURA Energy and Water Utilities Regulatory Authority PSPTB Procurement and Supplies Professionals and
Technicians Board
EU European Union
FC Foreign Currency PSA Power Sales Agreement
FIRR Financial Internal rate of return PURA Petroleum Upstream Regulatory Authority
FM Financial Management QCBS Quality and Cost based Selection
FNPV Financial Net Present Value RISP Regional Integration Strategy Paper
FY Financial Year REA Rural Energy Agency
FYDP Five Year Development Plan RAP Resettlement Action Plan
GPD Gross Domestic Product RfP Request for Proposal
GHG Greenhouse Gas Emissions RMC
SAPP
Regional Member Country
Southern African Power Pool
GPN General Procurement Notice SBD Standard Bidding Document
GPSA Government Procurement Service Agency SEP Stakeholder Engagement Plan
GoT Government of the United Republic of Tanzania SIDA
SME
Swedish International Development Agency
Small-Medium Enterprises
HFO Heavy Fuel oil SPN Specific Procurement Notice
Hi-5s High Fives SREP Scaling-Up Renewable Energy Program
HPP Hydropower plant TANESCO Tanzania Electric Supply Company Limited
INDC Intended Nationally Determined Contributions TDV Tanzania Development Vision
JICA Japan International Cooperation Agency TYS Ten Year Strategy 2013 - 2022
LC Local Currency ToRs Terms of Reference
MD Managing Director UA Units of Accounts
MDB Multinational Development Bank UK DFID
UNCITRAL
United Kingdom Department for International
Development
United National Commission on International
Trade Law
MoE Ministry of Energy USAID
WB
United States Agency for International
Development
World Bank
iii
PROJECT INFORMATION SHEET
CLIENT’S INFORMATION
BORROWER United Republic of Tanzania (GoT)
EXECUTING AGENCY Ministry of Energy (MoE)
IMPLEMENTING AGENCY Tanzania Electric Supply Company Limited (TANESCO)
FINANCING PLAN
Sources Amount
(USD million)
Instrument
African Development Bank (ADB) 123.39 Loan
South Korea Economic Development Co-
operation Fund (EDCF) 44.19 Loan
Government of the United Republic of
Tanzania (GoT) 18.54 Counterpart
Total Financing 186.12
TIME FRAME – KEY MILESTONES
Concept Note Approval September 2017
Board Approval July 2018
Loan signing September 2018
Launching October 2018
Effectiveness December 2018
Closing Date December 2023
Project Completion Report June 2024
ADB KEY FINANCING INFORMATION
Loan Currency United-States Dollars (USD)
Loan Type Fully Flexible Loan
Tenor 24 years inclusive of Grace Period
Grace period 5 years
Average Loan Maturity* 14.75 years
Repayments Equal and consecutive semi-annual payments after Grace Period
Interest Rate Base Rate +Funding Cost Margin+ Lending Margin + Maturity
Premium
This Interest Rate will be floored to zero
Base Rate
Floating Base Rate ( 6-month USD LIBOR reset each 1st February
and 1st august)
A free option to fix the Base Rate is available
Funding Cost Margin The Bank funding cost margin as determined each 1st January and
1st July and applied to the Base Rate each 1st February and 1st
August
Lending Margin 80 basis points (0.8%) per annum
Maturity Premium 10 basis points (0.1%) per annum
Front-end fees 0.25% of the total amount of the Loan shall be due on entry into
force of the Loan, and payable at the earliest of, (i) up to 60 days
iv
from the Date of entry into force of the Loan, or (ii) at the time of
first disbursement.
Commitment fees 0.25% per annum of the undisbursed amount. Commitment fees
start accruing 60 days after signature of the loan agreement and are
payable on Payment Dates
Option to convert the Base
Rate**
In addition to the free option to fix the floating Base Rate, the
Borrower may reconvert the fixed rate to floating or refix it on part
or full the disbursed amount.
Transaction fees are payable.
Option to cap or collar the
Base Rate**
The Borrower may cap or set both cap and floor on the Base Rate
to be applied on part or the full-disbursed amount.
Transaction fees are payable.
Option to convert loan
currency**
The Borrower may convert the loan currency for both undisbursed
and disbursed amounts in full or part to another approved lending
currency of the Bank.
Transaction fees are payable.
v
PROJECT SUMMARY
Project
Overview
The North West Grid (NWG) 400 kV Nyakanazi - Kigoma Transmission
Line Project comprises: (i) Construction of a 280 km power line running
from Nyakanazi to Kigoma in the northwestern part of Tanzania; (ii)
Extension of Nyakanazi substation & construction of a new substation at
Kidahwe near Kigoma town; (iii) Integration of existing Kigoma &Kasulu
33 kV distribution networks to the main grid including supply of last-mile
connection materials to serve at-least 10,000 potential consumers in Kigoma
Region; (iv) Consultancy Services; (v) Audit Services and (vi)
Compensation and/or resettlement of project affected persons.
The Project’s overall cost is estimated at USD 186.12 million to be covered
by the African Development Bank (AfDB herein referred to as the Bank –
using ADB loan), South Korea Economic Development Co-operation Fund
(EDCF) and the Government of the United Republic of Tanzania (GoT)
contributing USD 123.39 million (i.e. 66%), USD 44.19 million (i.e. 24%)
and USD 18.54 million (i.e. 10%) respectively. The Tanzania Electric
Supply Company Limited (TANESCO) will be the Implementing Agency
on behalf of GoT and the Project is expected to be completed in 2023.
The upstream main grid extensions to Nyakanazi have already commenced
under two transmission line projects namely: (i) 220 kV Regional Rusumo
hydropower - Nyakanazi financed by the Bank and (ii) 220 kV Geita –
Nyakanazi jointly funded by Agence Française de Développement (AFD)
and KfW Development Bank. The expected commissioning date of the
upstream grid extensions is 2020.
The Project (i.e. Nyakanazi – Kigoma of 280 km) will form part of the
proposed 1,080 km NWG stretching from Nyakanazi (via Kigoma, Mpanda,
Sumbawanga and Tunduma) to Mbeya. The World Bank (WB), in
conjunction with AFD, is handling the grid extension from Iringa to Mbeya
including Tunduma – Sumbawanga which was approved by the WB Board
on 18th June 2018.
The remaining portion (i.e. Kigoma - Mpanda - Sumbawanga) of the NWG
is still at preparatory phase by the Bank and TANESCO.
Needs
Assessment
The Project will provide affordable and reliable main grid access to already
electrified but isolated grids and, therefore, replace the expensive diesel-
based power generating plants in Kigoma and Kasulu towns. In addition, the
Project will evacuate power from the proposed renewable generation plants
in Kigoma Region including the multinational Rusumo hydropower plant
(HPP).
In line with the Government’s Five Year Development Plan (FYDP II)
2016/17 - 2020/21, the Project will provide transmission line infrastructure
to address bottlenecks in the energy sector in order to promote socio-
economic transformation and nurture industrialization.
vi
Project
Outcomes
The Project will contribute to: (i) improved power supply through provision
of main grid electricity (ii) lower operation & maintenance {O&M} costs of
TANESCO’s energy production in Kigoma/Kasulu towns (iii) job creation
and (iv) reduction in greenhouse gas {GHG} emissions.
Bank’s
added value
The Bank is one of the Development Partners (DPs) playing a leading role
in financing infrastructure projects at both national and region level with
positive impacts on the socio-economic development of the country.
Therefore, the Nyakanazi - Kigoma Project is expected to make a similar
contribution towards the economic transformation of Tanzania.
In particular, the Project will provide a backbone fostering electricity access
in Kigoma Region whose household connectivity rate is less than 20% as
per the Energy Access Situation Report, 2016 of mainland Tanzania.
Also, the Bank has mobilised additional funding from EDCF (estimated at
USD 44.19 million and covering 24% of the Project overall costs) to
implement the transmission line associated to substations at Nyakanazi and
Kigoma.
Institutional
development
and
knowledge
building
The proposed Project is in line with the ongoing Bank’s energy interventions
in Tanzania. Therefore, lessons learnt in reference to (i) advance contracting
(ii) co-financing (iii) last-mile connectivity and (iv) realistic implementation
schedule, among other things, have been incorporated into the proposed
Nyakanazi - Kigoma Project.
Furthermore, in line with other Bank-funded energy operations, all
Engineering Procurement & Construction (EPC) contracts as well as
Consultancy services under the Project shall include specific provisions for
capacity building offering customised training to Operational staff covering
technical, legal, commercial and safeguard aspects in regard to new Plant &
Equipment.
Lastly, the skills and knowledge gained from Nyakanazi - Kigoma Project
will be used by the Bank to inform future investment lending operations of
the NWG Kigoma - Mpanda - Sumbawanga transmission line as well as
other similar projects in Regional Member Countries (RMCs). The “lessons
learnt’ will be disseminated through sharing findings of Supervision
Missions and the Project Completion Report (PCR).
vii
ANTICIPATED RESULTS BASED LOGICAL FRAMEWORK
Country and project name: Tanzania; North West Grid (400 kV Nyakanazi – Kigoma Transmission Line)
Purpose of the project: To improve supply, reliability and affordability of electricity in Kigoma Region by providing main grid access and consequently contributing to socioeconomic transformation of Tanzania.
RESULTS CHAIN
PERFORMANCE INDICATORS
MEANS OF VERIFICATION RISKS/MITIGATION MEASURES Indicator
(including CSI)
Baseline
(2016) Target (2024)
IMP
AC
T
Increased access to electricity in northwestern
Tanzania
Households connected to electricity
in Kigoma Region
Female-headed households connected
to electricity in Kigoma Region
Demand growth in Kigoma Region
16.2%
17.2%
11.25 MW
20%
20%
38 MW
National Bureau of Statistics reports
(e.g. Energy Access Situation Reports);
Country Strategic Paper 2021 – 2025;
EWURA & TANESCO Annual
Reports;
Power System Master Plan (Updates).
Risk: At Country level, TANESCO’s financial
sustainability remains a concern and may jeopardize
provision of adequate, reliable and affordable electricity
access.
Mitigation: The Bank and other DPs will continue
engagement with GoT through policy dialogue to support
power sector reforms to improve TANESCO’s financial
performance.
OU
TC
OM
ES
Outcome 1
Improved power supply through provision of main
grid reliable and affordable electricity
Availability of supply 69% 95%
TANESCO & EWURA Annual reports;
Project Completion Report (PCR);
TANESCO Audited Accounts;
Consultant’s supervision reports;
Supervision Mission Reports.
Risk:
TANESCO Financial Management issues,;
Protracted procurement processes;
Poor performance of EPC contractors;
Delay in release of counterpart funds;
Delay in implementation of upstream infrastructure.
Mitigation:
Appoint a qualified Accountant as part of the Project
Implementation Team (PIT);
Use of Advance Contracting;
Raise performance guarantees;
Engage GoT early enough to ensure timely
availability of funds and that upstream transmission
infrastructure is completed on time.
Outcome 2
Lower energy production costs
Annual financial resources spent on
O&M of diesel-power plants in
Kigoma & Kasulu towns
~USD 9.44
million
~ 0
Outcome 3
Enhance job creation
Number of temporary and permanent
jobs created
0 600 (temporary) & 50
(permanent)
disaggregated by
gender and at-least
33% allocated to
women.
Outcome 4
Reduction in GHG emissions
GHG Emissions from TANESCO
Kigoma/Kasulu diesel generation
plants
~ 18,895 tons
per annum
~ 0
viii
Outcome 5
Support development of renewable energy
Number of renewable energy power
facilities installed
0 2 TANESCO & EWURA Annual
Reports;
Power Purchase Agreements
(PPAs) signed
Risk:
Delay project implementation;
Complex & lengthy PPA negotiations.
Mitigation
Appointment of skilled PIT;
TANESCO has appropriate skills to
handle PPAs;
Additional support from Africa Legal
Support Facility.
OU
TP
UT
S
Component A: 400 kV Nyakanazi - Kigoma
transmission line
- Length (in km) 0 280 Consultant’s Supervision Reports;
Bank Supervision Mission Reports;
Bank Disbursement Statements;
TANESCO Financial Statements;
TANESCO Annual Reports;
PCR.
Risk: Project completion delay and cost overruns.
Mitigation 1: Closely supervise the Project (through
Bank Task Team, Project Supervision Consultant and
Project Implementation Team).
Mitigation 2: Implement the Project through EPC
contracts to ensure minimum variance in costs
Component B: 400/220/132/33 Substations - Number of new substations
0
2
Component C: Distribution Network -Number of last-mile connections;
-Length (in km) of Medium
Voltage network;
-Length (in km) of LV lines;
-Number of ready boards
32,176
465
1,202
0
42,176
535
1302
7,500
Component D: Consultancy Services -Number supervision reports
(Nyakanazi - Kigoma)
-Number of Design Studies
(Kigoma - Mpanda -
Sumbawanga)
0
0
10
1
Component E : Annual Audit Number of Audit Reports 0 5
Component F: Compensation & Resettlement - Acres affected
- No. of PAPs
0
0
3,937
2,548
Project Cost
1. Component A : USD 106.96 2. Component B : USD 44.19 3. Component C : USD 7.88 4. Component D : USD 8.35 5. Component E : USD 0.20 6. Component F : USD 18.54 7. Overall Cost : USD 186.12
ix
PROJECT IMPLEMENTATION SCHEDULE
N
o
Description Year 2017 2018 2019 2020 2021 2022 2023 2024
Quarter 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1 Concept Note Approval
2 Appraisal
3 Advance Contracting
4 Board Approval
5 Effectiveness
6 Conclude Selection of
Consultants
7 Bid Preparation
8 Bidding period
9 Evaluation and Contract Award
10 Mobilization and Construction
11 Commissioning
12 Operational Acceptance
13 Closing Date
14 Preparation of PCR
1
REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS
ON PROPOSED ADB LOAN TO THE UNITED REPUBLIC OF TANZANIA FOR THE NORTH
WEST GRID (400 kV NYAKANAZI – KIGOMA TRANSMISSION LINE) PROJECT
Management submits the following Report and Recommendations on the proposed ADB loan of USD
123.39 million to the United Republic of Tanzania (GoT) for the Northwest Grid (NWG) 400 kV Nyakanazi
- Kigoma Transmission Line Project.
1. STRATEGIC THRUST AND RATIONALE
1.1 Project Linkages with Country Strategy and Objectives
1.1.1 The Bank’s Tanzania Country Strategic Paper (CSP) 2016 - 2020 is based on two strategic pillars
namely (i) infrastructure development and (ii) strengthening governance and accountability. In regard to
infrastructure development, the Bank’s interventions are focused on improving both domestic and regional
transport connectivity as well as access to electricity. The NWG is one of the interventions mentioned in
the CSP to meet the country’s development goal of enhancing energy transmission to increase electricity
access. Also, the CSP is aligned with the Country’s national development strategies of achieving sustainable
economic transformation as per the Tanzania Development Vision (TDV) 2025. One of the strategies of
achieving the Vison is through Infrastructure Development comprising, among other things, investment in
energy, water and telecommunications. The Vision 2025 is implemented through multiple medium term
plans.
1.1.2 The current Five Year Development medium term Plan II (FYDP II 2016/17 – 2020/21) under the
theme “Nurturing Industrialization for Economic Transformation and Human Development” takes note that
energy infrastructure development is crucial for promoting socio-economic transformation1 and obtaining
a Gross Domestic Product (GDP) growth rate commensurate with a middle-income country. The NWG
project is mentioned in FYDP II and the Power System Master Plan (PSMP Update 2016) as one of the
important infrastructure projects to provide reliable power supply crucial for industrial development in
Kigoma, Katavi, Rukwa and Mbeya regions. Also, the NWG Project will provide one of the avenues
through which the country will implement some of its energy-related Intended Nationally Determined
Contributions (INDCs) for reducing greenhouse gas emissions (GHG) in line with the 2015 United Nations
Climate Change Conference (i.e. COP 21/CMP 11).
1.2 Rationale for Bank Involvement
1.2.1 The rationale for the Bank’s involvement is to: (i) complement the ongoing Bank-funded 220 kV
Rusumo - Nyakanazi interconnection project to provide additional evacuation facilities for the 80 MW
Regional Rusumo Falls HPP2 and (ii) connect the isolated Kigoma/Kasulu grids to replace the associated
expensive diesel-based plants. A map of the Project area (i.e. Nyakanazi – Kigoma transmission line) is
shown in Appendix II including Rusumo HPP.
1.2.2 By replacing the expensive diesel-based power plants in Kigoma/Kasulu with a cleaner energy mix
from the main grid, the Project supports the Bank’s Climate Change Action Plan (2016 – 2020) to mitigate
GHG emissions as well as the Bank’s Energy Sector Policy (2012) whose goals are: (i) to support Regional
Member Countries {RMCs} in efforts to provide their populations & productive sectors with access to
1 The country’s socio-economic indicators (as of June 2017) in comparison with Africa, Developing Countries and Developed Countries are shown in
Appendix I. The information is available at the Bank’s Statistics Department. 2 Construction works (funded by WB and implemented by NELSAP) are ongoing and the expected commissioning date is 2021. Also, the 80 MW resource
will be shared equally among Tanzania, Burundi & Rwanda.
2
modern, affordable & reliable energy services; and (ii) to help RMCs develop their energy sectors in a
socially, economically and environmentally sustainable manner.
1.2.3 Though the NWG Nyakanazi - Kigoma Project is wholly located within Tanzania, it will provide an
anchor point for regional power trade with Rwanda & Burundi (through the 220 kV Rusumo - Nyakanazi)
thus contributing to the objectives of the Eastern Africa Power Pool (EAPP).
1.2.4 Since the NWG is an infrastructure development project, it is aligned with the Bank’s Ten-year
Strategy (TYS 2013-2022) focussing on two objectives to improve the quality of Africa’s growth: (i)
inclusive growth and (ii) transition to green growth; elaborated below.
1.2.5 The Project is directly aligned with one of the Bank’s five priority areas (commonly known as High
5s or Hi-5s) of “Light up & power Africa” which is interlinked with other Hi-5s including the United Nations
Sustainable Development Goals (SDGs). Furthermore, the Project takes into consideration the Bank’s
Gender Strategy (2014 - 2018) as discussed in paragraphs 3.2.9 – 3.2.12 below since sustainable
development must be inclusive in terms of gender, age and geographical location, among other things.
1.2.6 In reference to the New Deal on Energy for Africa, the Project cross-cuts the following flagship
programmes: (i) renewable energy – through providing additional evacuation facilities for Rusumo HPP
& other renewable power projects including an Independent Power Producer developing a 5 MW solar
plant in Kigoma (ii) bottom of the pyramid electricity access – through provision of last-mile connections
and (iii) regional infrastructure development – through linkages with the transmission line to
Rwanda/Burundi.
1.3 Donor Coordination
1.3.1 In Tanzania, the Ministry of Finance & Planning (MoFP) oversees the activities of the Development
Partner Group (DPG). The Energy Development Partner Group (EDPG) is one of the many technical arms
of DPG. The EDPG primarily focuses on energy issues by coordinating Development Partner (DP) activities
in liaison with the Ministry of Energy (MoE). The DP interventions in energy include, among others,
physical infrastructure development, on-grid & off-grid energy access, renewable energy & energy
efficiency, power sector reforms, promotion of private sector investments, capacity building and energy
diversification. Appendix III gives a brief on the Tanzania energy sector while Appendix IV shows a
summary of the various DP interventions in the country including energy.
1.3.2 The Bank, being a member of EDPG, closely collaborates with other Group members composed of
multilaterals {European Union (EU), World Bank (WB) and European Investment Bank (EIB)} and
bilateral institutions {United Kingdom Department for International Development (UK DFID), Swedish
International Development Agency (SIDA), Japan International Cooperation Agency (JICA), South Korea
Economic Development Cooperation Fund (EDCF), Embassy of Norway, Agence Française De
Développement (AFD), United States Agency for International Development (USAID) and KfW
Development Bank. The EDPG chairs for the period 2017/8 are EU/Sweden.
1.3.3 In particular to the NWG preparation, the Bank in conjunction with EDCF held several meetings
with AFD, WB, EU and KfW to harmonize the development of the Project with other energy transmission
infrastructure extensions in western and northwestern Tanzania such as: (i) ongoing 220 kV Geita -
Nyakanazi and (ii) proposed 400 kV inter-connections namely Tanzania - Uganda & Tanzania - Zambia.
3
2. PROJECT DESCRIPTION
2.1 Project Objectives and Components
2.1.1 In addition to significantly contributing to socio-economic transformation of Tanzania in line with
FYDP II, the ultimate development objectives of the Project comprise: (i) improve power supply through
provision of main grid reliable and affordable electricity (ii) lower energy production costs by
decommissioning the expensive diesel power plants in Kigoma & Kasulu (iii) enhance job creation (iv)
reduce GHG emissions3 and (v) provide power evacuation facilities for the Rusumo HPP and other
renewables.
2.1.2 Presently, Kigoma region is supplied by three isolated diesel generators at Kigoma town (6.25 MW),
Kasulu (2.5 MW) and Kibondo (2.5 MW). The Nyakanazi - Kigoma Project will provide main grid access
to Kigoma/Kasulu and consequently the associated diesel plants will be decommissioned. It is expected that
the Kibondo diesel power plant will be taken out of service upon commissioning of the ongoing 220 kV
Geita - Nyakanazi project funded by AFD/KfW. The diesel power plants in the region are operated at a load
factor of 75% which is relatively high implying that the demand is firm. However, the supply is very erratic
and load shedding is a common occurrence (with a plant availability factor of 69%). With access to the
main grid, the availability of supply in Kigoma will improve to at-least 95% given the fact that the Rusumo
80 MW HPP (and the associated 220 kV transmission line to Nyakanazi from Rusumo) will be operational
at the time of commissioning the Nyakanazi - Kigoma Project.
2.1.3 In addition to power rationing, growth in electricity demand from Small-Medium Enterprises
(SMEs) including households is constrained due to lack of distribution line materials and accessories to
service new customers. Also, several potential industrial-based businesses such as water filtration, fish
processing, palm oil processing and salt mining & processing, among others, have not been developed due
to lack of adequate supply in the region. The PSMP (Update 2016) demand forecast (i.e. base case scenario)
for Kigoma Region is 38 MW (in 2023 at commissioning of the Project) and 101 MW after ten years.
Furthermore, it is envisaged that an aggregated demand of at-least 645 MW will be served by the whole
1,080 km NWG covering regions of Kagera, Kigoma, Katavi, Rukwa and Mbeya by the year 2032 in
addition to providing evacuation facilities to new generation plants with a combined installed capacity of
285 MW in Katavi/Kigoma regions.
2.1.4 In context, TANESCO (i.e. Implementing Agency) engaged a Consultant4 in 2007 to undertake a
“study of transmission and sub-transmission system and alternative supply options for western & north-
western Tanzania.” Taking into account the planned generation sources in the western part of the country
and in addition to increasing reliability of the 400 kV network, TANESO re-engaged the Consultant to
upgrade the feasibility study from 220 kV to 400 kV (herein referred to as NWG). The revised 400 kV study
was completed in November 2016.
2.1.5 Further to the above studies, TANESCO prepared Environmental & Social Impact Assessment
(ESIA) studies as well as the 400 kV Nyakanazi - Kigoma transmission line Resettlement Policy Framework
(RPF) and a Resettlement Action Plan (RAP).
3 The net benefit of the Project is displacement of at-least 18,895 tons of GHG per annum produced by Kigoma and Kasulu TANESCO-owned diesel
generators. The emissions associated with the diesel power plants will reduce to zero since the plants will be taken out of service in 2023 upon commissioning
of the NWG Nyakanazi – Kigoma Project. The emissions figure is based on a grid emission factor of 0.586 tCO2/MWh for TANESCO generation published
Green Resources period 2006 – 2008. 4 SWECO International in Joint Venture with Norconsult
4
2.1.6 The revised 400 kV study of 2016 proposed a phased approach of implementing the NWG in three
parts namely: (i) Mbeya - Tunduma - Sumbawanga5 (ii) Nyakanazi - Kigoma - Mpanda and (iii)
Sumbawanga - Mpanda. The AfDB/EDCF and WB/AFD6 will finance the Nyakanazi - Kigoma and Mbeya
- Tunduma - Sumbawanga projects respectively. The remaining portion Kigoma - Mpanda - Sumbawanga
is still under preparatory phase by the Bank and TANESCO.
2.1.7 The Project components are summarized in Table 2.1 including at-least 10,000 last-mile connections
to address the backlog of SME and household service connection applications mentioned in paragraph 2.1.3
above as well as other potential consumers in Kigoma region.
Table 2.1: Project Components
Component Name Component Description
Component A: 400 kV
Transmission Line
Construction of a 280 km double-circuit 400 kV rated
transmission from Nyakanazi to Kigoma.
Component B : Substations Extension of 400/220 kV Nyakanazi substation and
construction of a new 400/132/33 kV Kigoma (Kidahwe)
substation.
Component C: Distribution
Networks including last-mile
connections
Construction of approx. 70 km medium voltage distribution
networks including 100 km of low voltage reticulations and
supply of 10,000 last-mile connection materials and 7,500
ready boards for Kigoma Region.
Component D: Consultancy
Services
Consultancy firms will be engaged to undertake: (i) Project
Supervision & Management of transmission lines and
distribution networks including ESMP Implementation and
(ii) Design for Kigoma - Sumbawanga including RAP and
economic/financial analysis.
Component E Annual Audit Project Audits for 2019 – 2023.
Component F: Compensation
and Resettlement
Compensation and Resettlement for Project Affected
Persons (PAPs)
2.2 Technical Solution Adopted and Alternative Considered
2.2.1 The optional alternatives of the NWG including supply to Kigoma are elaborated in the studies
mentioned in paragraph 2.1.4 above.
2.2.2 Though a radial 132 kV transmission line was the least-cost supply option in 2007, the cost variance
(i.e. between 132 kV and 220 kV) was insignificant in comparison to the benefits7 accrued by supplying
Kigoma using a 220 kV network line from Geita/Nyakanazi. Furthermore, the 220 kV ring option from
Geita/Nyakanazi to Mbeya via Kigoma/Mpanda presented significant loss savings but required a substantial
investment cost in addition to reinforcement of Iringa - Singida to realize a reliable robust grid.
5 This component will be implemented concurrently with Iringa – Mbeya as part of the Tanzania – Zambia Interconnection project and was approved by the
WB Board on 18 June 2018. 6 The AFD package is likely to include Grant Financing from the EU Africa Investment Facility (AfIF). 7 The benefits include (i) Increased power carrying capacity with less technical losses (ii) Enhanced compatibility with future inter-connection projects to
Tabora and Mbeya.
5
2.2.3 Taking into account ongoing 400 kV projects {such as the Iringa - Shinyanga via Dodoma/Singida
Backbone Transmission Investment Project (BTIP)8 & Kenya-Tanzania Power Interconnection
Transmission Project (KTPIP9)} and the planned Tanzania - Zambia (i.e. Iringa - Mbeya - Tunduma -
Nakonde) including future generation developments (i.e. Rusumo HPP, Songwe HPP and the Mbeya
Geothermal plants), the revised NWG study of 2016 recommended upgrading the voltage level from 220
kV to 400 kV. Also, as already mentioned in paragraph 2.1.6 above, the study proposed implementation of
the project in a phased-approach in tandem with the various commissioning dates of ongoing and planned
transmission and generation projects. Therefore, in consideration of the long term load forecast presented
in the PSMP (Update 2016), the Nyakanazi - Kigoma Project will be designed and operated as a 400 kV
double-circuit transmission line. Table 2.2 shows the alternatives considered and the respective reasons for
rejection.
Table 2.2: Alternatives Considered and Reasons for Rejection
# Alternative and Description Reasons for Rejection
1. 2007 Study: 132 kV network
Least cost supply option to
supply to supply Kigoma
Taking into account future inter-connections to Tabora
and Mbeya regions, the 132 kV line from
Geita/Nyakanazi to Kigoma would cause high technical
losses in addition to having a limited power carrying
capacity.
2. 2016 Study: 220 kV network The study, taking into account the planned generation
sources in the north-western part of the country,
concluded that a 220 kV network was not compatible (in
terms of power transfer capabilities) with the ongoing
BTIP and KTPIP as well as other regional inter-
connection 400 kV lines.
2.3 Project Type
The proposed intervention is a standalone investment project using ADB loan and with parallel co-
financing from EDCF. The funds from EDCF are a result of the tripartite designation to cooperate in
financing the 400 kV North-West Transmission Line Project signed on 25 October 2016 by AfDB, Ministry
of Strategy & Finance (Republic of South Korea) and MoFP.
2.4 Project Cost and Financing Arrangements
2.4.1 The overall Project cost, estimated at USD 186.12 million, is shown in Table 2.3, including
contingencies of 10% (i.e. physical contingency of 5% and price contingency of 5%) is. It also includes
the cost breakdown in both foreign currency (FC) and local currency (LC).
2.4.2 The cost per source of funding is shown in Table 2.4 including respective percentage contributions10.
The Bank’s cost breakdown per category and financing expenditure (2019 - 2023) are shown in Table 2.5
and Table 2.6 respectively.
8 Co-financed by AfDB/WB/EIB/JICA & EDCF 9 Co-financed by AfDB/JICA 10 The justification of an ADB contribution of more than 50% of the Project cost is provided in Appendix V.
6
Table 2.3: Project costs by Component & Category
# Component/Category In Million USD
FC LC Total
1 Works
1.1 Component A: 400 kV Transmission Lines 85.57 21.39 106.96
1.2 Component B: Substations 35.35 8.84 44.19
1.3 Component C - 1: Distribution Networks 3.14 1.34 4.48
1.4 Sub-total 1 124.06 31.57 155.63
2 Goods
2.1 Component C - 2: Supply of Last-mile connections 3.00 0.40 3.40
2.2 Sub-total 2 3.00 0.40 3.40
3 Services
3.1
Component D: Consultancy services for (i) Nyakanazi –
Kigoma project management & supervision and (ii) design
studies for Kigoma - Mpanda - Sumbawamga. 2.78 5.57 8.35
3.2 Component E: Annual Audits 0.00 0.20 0.20
3.3 Sub-total 3 2.78 5.77 8.55
4 Others
4.1 Component F: Compensation & Resettlement Costs 0.00 18.54 18.54
4.2 Sub-total 4 0.00 18.54 18.54
5 Overall Project Cost 129.84 56.28 186.12
Table 2.4: Project costs by Sources of financing
No. Financer In Million USD
% FC LC Total
1 AfDB 94.49 28.90 123.39 66
2 EDCF 35.35 8.84 44.19 24
3 GoT11 0.00 18.54 18.54 10
4 Overall Project Cost 129.84 56.28 186.12 100
Table 2.5: AfDB Project costs per category
Category In Million USD
FC LC Total
Works 88.71 22.73 111.44
Goods 3.00 0.40 3.40
Services 2.78 5.77 8.55
Total for ADB financing 94.49 28.90 123.39
Table 2.6: AfDB Project financing plan 2019 – 2023
Source Year, Million USD
2019 2020 2021 2022 2023 Total
ADB 2.47 22.21 43.19 30.85 24.68 123.39
11 The Government’s contribution will cover compensation and Resettlement Costs including land acquisitions, customs and
duties.
7
2.5 Project’s target and population
2.5.1 As already mentioned, the transmission line will traverse approximately 280 km from Nyakanazi to
Kidahwe at the outskirts of Kigoma town12. Nyakanazi (in Kagera region) is a few kilometres outside
Kigoma region near the four-way highway junction from Dodoma (in the East), Rwanda/Burundi (in the
West), Uganda via Bukoba (in the North) and Kigoma town (in the southern direction). Kigoma region,
one of the administrative regions of Tanzania, is sub-divided into District Councils of Kibondo, Kasulu,
Kigoma, Kigoma Ujiji, Uvinza, Buhingwe, Kakonko and Kasulu Mjini covering a total area of 45,066 sq.
km with a population of 2,028,82713. The region has about 483,363 households of which 16.2%14 are
connected to electricity. Also, Kigoma is one of the regions in the country where the number of female-
headed households connected to electricity is higher than that of male-headed homes at 17.2% and 15.8%
respectively. It is noted that the number of households in mainland Tanzania is 11,454,818 of which 32.8%
are connected to electricity. Overall, the connectivity of female-headed and male-headed households is
32.3% and 32.9% respectively on mainland Tanzania.
2.5.2 In view of the above, the Project will provide reliable main-grid electricity to existing connections
in Kigoma region including households, social amenities, SMEs and large electricity consumers in addition
to targeting a connectivity rate of at-least 20% (in 2023) with associated increase for female-headed homes.
In order to achieve 20% connectivity, at-least 18,368 new connections (taking into consideration population
increase) are required of which the Project will provide 10,000. The remaining 8,368 will be provided via
Government interventions in collaboration with other stakeholders including individual household efforts
and off-grid solutions. Based on the existing number of households and connectivity rate, the potential
number of new connections in Kigoma region is at-least 405,000.
2.6 Bank Group Experience and Lessons Reflected in Project Design
2.6.1 The Bank is actively involved in country’s energy sector as shown in Appendix VI (i.e. Portfolio as
of April 2018). In summary, the ongoing operations of the energy portfolio include Iringa - Shinyanga BTIP
(approved in 2011; UA 45.36 million), Regional Rusumo HPP - Nyakanazi transmission line (approved in
2013; UA 22.41 million), KTPIP (approved in 2015; UA 75.29 million), Scaling-Up Renewable Energy
Program {SREP} Grant (approved in 2013; UA 0.7 million). Two multi-sectoral operations relating to
energy sector are: (i) Kikonge Multipurpose dam for irrigation & hydropower generation and (ii)
Institutional support project for domestic resources mobilisation & natural resources governance.
2.6.2 There were cases of slow disbursements in 2016 and 2017 mainly due to protracted procurement
delays and non-availability of counterpart funds. Nonetheless, the issues have been sorted out and
disbursements are expected to significantly improve in Quarter four (i.e. Q4) of 2018.
2.6.3 The most recently completed operation in the energy sector is Electricity V (UA 28.7 million, which
was approved in 2007 and closed 2015). It was rated satisfactorily in regard to both Development Objectives
and Implementation Progress as per the PCR finalised in December 2017. In regard to the multi-sectoral
Power Sector Reform & Governance Support Program, the PCR will be completed by August 2018.
12 Kigoma town, a port on Lake Tanganyika, is the regional headquarters of Kigoma Region. 13 Energy Access Situation Report 2016; published in February 2017 by the National Bureau of Statistics (NBS) and Rural Energy Agency (REA). 14 Kigoma is one of the few regions in the country with a household connectivity rate of less than 20%. The 16.2% includes electrification from TANESCO
isolated grids and off-grid solutions such as solar home systems
8
2.6.4 Also, it is noted that the original scope of the BTIP (i.e. 217 km 400 kV Dodoma - Singida
transmission line) was completed satisfactorily in December 2016 utilising about 45% of the original loan
amount. The loan saving of about UA 24.95 million was approved, in conjunction with JICA, for the 400
kV substation upgrade at Dodoma/Singida and the EPC contract was signed in December 2017.
2.6.5 A number of important lessons can be drawn from both the Bank’s past and ongoing operations
mainly related to: (i) procurement delays including protracted tender evaluation processes (ii) delay in
implementation of RAP due to non-availability of counterpart funds (iii) poor performance of contractors
and (v) slow project start-up due to use of conventional & traditional topographic survey techniques.
2.6.6 In most cases, the challenges mentioned above have resulted into long periods of no disbursements
forcing the Bank to issue Cancellation Notices in line with the Presidential Directive (PD 02/2015).
Therefore, the lessons learnt have been taken into account in the design of the proposed Project notably
through: (i) Advance contracting in addition to ensuring that the Project Management & Supervision
Consultancy entails procurement support (ii) Use of National Procurement Systems for a few selected
Project Components elaborated in paragraph 4.2 below (iii) Regular dialogue meetings with relevant
Government Ministries regarding availability of counterpart funds (iv) Enhanced due diligence to avoid
financially constrained Contractors and (v) Use of modern Airborne LiDAR15 survey techniques to reduce
the amount of time spent in design review data collection.
2.6.7 To avoid having significant un-utilised loan amounts similar to the situation described in paragraph
2.6.4 above, the cost estimate for the Nyakanazi - Kigoma Project has been critically reviewed to ensure
that it is realistic. However, in the event that there are any significant loan savings, decisions will be made
well in advance to ensure timely usage in order to avoid un-necessary extensions of the loan closing date.
2.6.8 Also, in regard to “lessons learnt” under co-financing, the good attributes of the ongoing BTIP and
KTPIP will be employed by the proposed AfDB/EDCF parallel co-financing arrangements for the
Nyakanazi - Kigoma Project. This will include holding joint AfDB/EDCF supervision missions in addition
to having one overall TANESCO Project Coordinator. However, one of the Conditions Precedent (CPs) to
first disbursement shall be securing funds for the substation component by GoT. This is not expected to be
a major issue due to the fact that EDCF already committed to provide funding as explained in paragraph
2.3 above.
2.7 Key Performance Indicators
2.7.1 The proposed key performance indicators that will be used to measure the impacts, outcomes and
outputs of the Project have been discussed with the Implementing Agency; details of which are presented
in the Results Based Logical Framework and summarized below.
2.7.2 The performance of the Project will be measured in relation to: last-mile connectivity (gender
disaggregated), demand, availability of supply, energy production costs, job creation, GHG emission
reductions resulting from decommissioning the diesel power plants, length/number of plant & equipment
and number of supervision mission reports etc. using a baseline of 2016.
15 LiDAR: Light Detection and Ranging
9
2.8 Participatory Process
2.8.1 The preparation activities of the NWG Nyakanazi - Kigoma Project comprised extensive
consultation at both local/national and regional levels including DPs namely WB, KfW, EDCF and AFD.
At the regional perspective, discussions were held with KfW and WB/AFD to harmonize the development
of the NWG with the planned 400 kV Tanzania - Uganda16 and Tanzania - Zambia17 transmission lines
respectively.
2.8.2 The concerns and opinions of the DPs, in regard to TANESCO’s financial sustainability, are
addressed in paragraph 3.1 below. In addition, the Government has developed an elaborate Action Plan to
significantly improve TANESCO’s financial sustainability. In a nutshell, the project will improve
TANESCO’s positive cash flows by reducing the energy supply costs which will be further enhanced by
cheaper renewable sources such as Rusumo HPP.
2.8.3 At national level, consultations were held with both MoE and MoFP including key stakeholder
institutions namely REA, Energy & Water Utilities Regulatory Authority (EWURA) and the National
Environmental Management Council (NEMC). Also, as part of stakeholder engagement, the Bank Task
Team including Environmental & Safeguard staff undertook a field visit to the Project area in May 2017
and participated in meetings between TANESCO/Local Authorities and potential PAPs including women.
3. PROJECT FEASIBILITY
3.1 Financial and Economic Performance
3.1.1 A financial/economic analysis of the NWG was conducted based on the least-cost options in the
aforementioned feasibility studies in paragraph 2.2 above. However, revised analyses have been undertaken
for the stand-alone Nyakanazi - Kigoma Project taking into account the deliberate efforts to foster demand
through expansion of the distribution network and associated increase in last-mile connections as well as
the envisaged improvement in availability of supply.
3.1.2 The region is presently supplied from diesel power plants with high O&M costs driven by volatile
foreign exchange rates and high cost of spare parts, tools & consumables including expensive fuel road
transportation means from Dar es Salaam. The ever increasing energy production costs have adversely
impacted TANESO’s financial performance. As an example, TANESCO spent approximately USD 9.44
million (i.e. USD 0.33 per kwh) in 201618 to run the diesel power plants of Kigoma and Kasulu but received
revenues worth USD 3.26 million from the total of 28,542,24219 kWh units of energy sold in Kigoma region.
In light of such operational issues, the existing isolated grid facilities cannot be expanded to accommodate
the huge suppressed demand mentioned in paragraphs 2.1.2 & 2.1.3 above without serious financial and
environmental consequences
3.1.3 The updated financial assessment presented in the PAR is based on incremental impact between
“with project” and “without project” scenarios. In the “without project” scenario, Kigoma region will
16 KfW has provided grant to undertake a feasibility study to interconnect Masaka (in Uganda) to Mwanza (in Tanzania) via Nyakanazi. 17 WB/AFD is in advanced stages completing the preparatory activities to finance the Tanzanian component of the Tanzania – Zambia interconnection
including the NWG Mbeya - Tunduma - Subawanga. 18 It is expected that the Utility will spend about USD23.60 million to run these diesel plants but collect revenues worth USD 7.0 million in 2023 at the time of
commissioning the NWG Nyakanazi – Kigoma transmission line project. Howver, this figure will be slightly lower because Kibondo will be grid connected
earlier than Kigoma & Kasulu. 19 This is to number of kWh sold from Kigoma, Kasulu and Kibondo diesel power plants.
10
continue to be served by the expensive diesel-based power generators or other improvised off-grid facilities
in order to conduct economic activities in addition to having unreliable supply and suppressed demand. In
the “with project” scenario, the new infrastructure will provide Kigoma region with cheaper supply from
the main grid and renewable power plants.
3.1.4 A summary of the financial and economic analyses is shown in Table 3.1 where the project is
financially sustainable and economically viable to justify use of the country’s resources for the investment.
A loan tenor of 24 years was used in the analysis taking into account a conservative lifespan of 25 years for
the transmission line. The assumed average end-user tariff and long-run cost of hydro generation are USD
0.12/kWh and USD 0.07/kWh respectively.
3.1.5 To assess the financial viability of the project with a conservative approach, the analysis considers
the benefits and costs in the project area only20. Its financial internal rate of return (FIRR) is estimated at
18% (real) while the financial net present value (FNPV), discounted at a weighted average cost of capital
(WACC) of 13%, is USD 68 million.
3.1.6 The FNPV is calculated using a relatively high discount rate, equal to TANESCO’s WACC, and is
expected to positively contribute to TANESCO sustainability given that the interest rate of the project’s
concessional financing is considerably lower than the entity WACC.
3.1.7 In regard to economic analysis, an integrated approach was used where by the assessment was based
on the financial cash flows of the Project. Once the transmission line is in place, the existing TANESCO
diesel-based generators including off-grid privately-owned diesel sets will be displaced by the reliable and
affordable main grid electricity21. Therefore, the value of the local diesel power plants was used to estimate
the economic benefits of the NWG Nyakanazi - Kigoma Project. Shadow prices, reflecting foreign
exchange premiums on imported items for the Project as well as local economy distortions, were applied to
project cost items to derive resource outflows. The project will yield a high economic internal rate of return
(EIRR) of 27% (real) and an economic net present value (ENPV) discounted at the opportunity cost of
capital of 12% (real), estimated at US$ 388 million.
3.1.8 A sensitivity analysis was also performed against the key risks identified including increase in costs
associated with generation, investment and O&M. The highlights of the sensitivity analysis are shown in
Table 3.2 indicating that the financial and economic outcomes are robust under adverse conditions related
to end-user tariff reduction and energy cost increase. The main reason of the robustness arises from the
significant cost savings of replacing the diesel power plants.
20 Other benefits in regard to regional interconnectivity, with Zambia and Burundi, will be considered during Kigoma – Mpanda – Sumbawanga transmission
line Project Appraisal in 2021. 21 The cost of energy is expected to significantly drop at commissioning of the 80 MW Rusomo HPP. Furthermore, the security of supply will be boosted from
the 87 MW Kakono HPP whose construction is expected to commence not later than 2020.
11
Table 3.1: Main Financial and Economic Indicators
PARAMETERS VALUES
FIRR 18%
FNPV (@13%) USD 68 million
EIRR 27%
ENPV (@12%) USD 388million
Table 3.2: Sensitivity Analysis
Assumption
Change in
Assumption
(%)
FNPV @
13% DR,
real million
USD
FIRR
ENPV @ 12%
DR, real
million USD
EIRR
Base Case 68 18% 388 527%
Tariff Escalation
-1 17 14 377 28
Energy Cost
increase
5 56 17% 377 27%
10 44 16% 366 27%
15 32 15% 355 27%
Operation and
Maintenance Cost
10 63 17% 384 27%
25 62 17% 383 27%
Increase in
Investment Costs
15 49 16% 367 25%
20 37 15% 353 24%
3.1.9 In regard to the financial performance of the Implementing Agency (i.e. TANESCO), the Company
is in a financially weak position as observed from the Liquidity, Solvency and Activity ratios in one of the
ongoing Audits commissioned by GoT22. The electricity supply crisis of 2011 – 2012 was primarily
responsible for the present financial issues. The country was heavily dependent on hydro power generation
whose capacity was curtailed due to poor hydrological regimes in 2011 forcing TANESCO to engage
expensive Emergency Power Plants (EPPs) based on liquid fuels. The high generation costs weren’t fully
reflected in the end-user tariffs consequently leading to TANESCO’s financial woes. Other issues such as
high commercial losses and expensive O&M costs associated with running at-least eighteen (18) liquid
diesel-powered isolated plants23 have also significantly contributed to TANESCO’s financial problems.
3.1.10 However, the financial situation is expected to improve once the reforms that will be based on the
ongoing study conducted by Ernst & Young (E&Y), commissioned by WB/GoT and supervised by
Controller & Auditor General (CAG), are substantially implemented. On this note, GoT (through MoFP)
submitted a Financial Sustainability Action Plan to the Bank in June 2018 outlining steps that will be
undertaken to improve TANESCO’s profitability24. The NWG project, which is in line with the
Government’s Action Plan highlighted in Appendix VII, will particularly relieve TANESCO of an
estimated financial burden of USD 9.44 million spent annually on running Kigoma and Kasulu diesel power
plants. Therefore, the project will have a strong positive impact on TANESCO’s financial statement by
22 This information was obtained from the tripartite meeting among the Bank, E&Y and CAG held at the Bank offices in Dar es
Salaam in Oct 2017. 23 The estimated installation capacity of the 18 off-grid plants is 25.25 MW 24 In addition, the Government will seek support from the Africa Legal Facility in form of Advisory Services & Capacity
Building to handle IPP commercial negotiations.
12
generating positive cash flows over the project lifetime (from electricity sales in Kigoma region) illustrated
in Chart 3.3 below.
Table 3.3: Cash flow over the project lifetime excluding the five year grace period.
3.2 Environmental, Social Impact and Climate Change
3.2.1 As already mentioned, the Project comprises implementation of a 280 km transmission line of 400
kV from Nyakanazi to Kigoma, substations at Nyakanazi & Kigoma and distribution networks in Kigoma
region as well as last-mile connections. The Project is classified as Category 1 because the potential
environmental & social impacts are significant and required adequate mitigation measures to be identified
through detailed ESIA studies. Furthermore, the proposed transmission infrastructure could result in
displacement of more than 200 PAPs and/or assets. The major impacts include: (i) land uptake since no
settlements will be permitted within the wayleave corridor of the transmission infrastructure (ii) interference
with avian migration routes (iii) waste generation due to construction related activities and (iv) occupational
health & safety risks associated with tower erection & working at heights. Also, a few impacts were
identified concerning the operational phase such as chemical/mechanical control of vegetation in the right
of way (RoW). Furthermore, Category 1 clarification is justified because the Project was found to trigger
all the Operational Safeguards (OS) under the Bank’s Integrated Safeguards System (ISS).
3.2.2 The ESIA studies identified a range of mitigation measures to address the key impacts including
arrangements to compensate PAPs before works are undertaken on any given sections of the transmission
infrastructure. The measures include, among others: (i) clearing of vegetation to be limited to the wayleave
corridor as much as possible (ii) ensuring availability of emergency accident response in regard to tower
erection/stringing & other general occupational hazards (iii) ensuring that contractors prepare waste
management plans and (iv) installation of transmission line reflectors to deter bird collisions.
3.2.3 Summaries of the ESIA & RAP for the Nyakanazi and Kigoma proposed substations including the
280 km 400 kV transmission line elaborating the above-mentioned mitigation measures were disclosed on
the Bank website on 9th August 201725. A total of 3,937 acreage of land will be affected corresponding to
approximately 2,548 PAPs. Compensation of the PAPs will be implemented before commencement of
works on any section of the transmission line as required by both National and Bank policies. The
25 The RAP for the 400 kV Nyakanazi – Kigoma transmission line was completed on 28 February 2018. To this end, an
Addendum to the documentation of 9th Aug 2017 was posted on the Bank’s website.
-
20
40
60
80
100
120
140
160
180
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042
USD
Mill
ion
Project generating profit
Finance cost
13
Environment & Social Management Plan (ESMP) costs, estimated at USD 11 million, will be covered under
the project management & supervision consultancy services as well as the EPC Contracts. In regard to the
400 kV transmission line RAP implementation, the cost estimate is TSH 5,923,850,579 excluding
Nyakanazi/Kigoma substations whose land was already acquired by TANESCO.
3.2.4 As part of the ESIA process, a socio-economic survey was conducted with the purpose of obtaining
a clear representation of the characteristics of population within the Project area and soliciting information
on standards of living. As much as possible, the transmission infrastructure will be routed through areas
with limited settlements to reduce compensation-related costs as well as minimize social disturbance to
ensure consistency with the mitigation hierarchy. To facilitate further stakeholder engagement, TANESCO
prepared a Stakeholder Engagement Plan (SEP) to guide managing and facilitating engagements with
communities throughout the various stages of the Project life cycle.
3.2.5 In line with the SEP implementation, consultations were conducted at all levels comprising
interviews and meetings involving Local Authority Officials such as District Commissioners & Executive
Directors, Ward & Village leaders and with potential PAPs (including women) whose land will be directly
affected by the transmission infrastructure. At village level, the Project was viewed positively in regard to
job creation and provision of electricity to households. At district level, the Project was welcomed in regard
to job creation and growth of secondary economic activities related to the Project.
3.2.6 From the climate change perspective, Tanzania is committed to reducing its GHG emissions as
stated in paragraph 1.1.2 above. The country’s INDC commits to reducing GHG emissions by a range of
measures including increased modern energy access.
3.2.7 The Project will contribute to climate change adaptation by helping to strengthen the economy in
Kigoma region by supplying main grid reliable & cheaper electricity. However, the more obvious benefits
will come from the emission reductions arising from the decommissioning of the existing diesel-powered
plants. On the basis of these emissions reductions and according to the 2015 Joint Report on Multilateral
Development Banks’ Climate Finance (i.e. Annex 3 List of Activities Eligible for Classification as Climate
Mitigation Finance; activity 2.1 Transmission and Distribution Systems), the Project is considered to be
100% climate mitigation finance and should be counted towards the Bank’s target of climate finance
accordingly.
3.2.8 In compliance to the Bank’s Climate Safeguards System, the Project was screened for climate
change impacts and classified as Category 2. Unlike generation facilities, the Project’s vulnerability to
climate risk, as well as its contribution to climate change, is considered minimal. Nevertheless, the Project
will take appropriate measures to mitigate climate change-related risks that could occur in the long-run.
Specifically, the Project Supervision Consultant and EPC Contractors will take into account flood-prone26
areas during the selection of tower & substation locations in order to avoid damage to the infrastructure as
a result of flooding and/or poor drainage. Also, clearing of vegetation before construction of the line will
be restricted within the 50 m wide wayleave corridor.
3.2.9 In regard to social aspects, the communities in the Project area will benefit from the ESMP budget
of USD 11 million, mentioned in paragraph 3.2.3 above, aimed at addressing development inclusion, social
protection, gender inequality and livelihood support. The demographic characteristics show that the region
has a young population indicative of youth in-migration from other regions and rural areas. The 2012
26 Information regarding flood-prone areas is available at the Ministry of Water & Irrigation as well as Local Authorities and Lake Tanganyika Basin
Authorities and NEMC.
14
Census revealed that about 49% of the population constituted the young population below 15 years of age
and only 4% of the population aged 65 years and above. The Kigoma’s age dependency ratio was 110,
implying that there were 100 people in age 15 - 64 supporting 110 persons in age groups 0 - 14 and 65 years
and above. The region is largely agro-based with the majority of the population (i.e. 76.35%) engaged in
subsistence farming. The low agricultural production coupled with high expenditure on social services is
an indicator of high poverty levels in the region. Also, kerosene and firewood are the most common sources
of energy for lighting and cooking respectively.
3.2.10 In regard gender, the country policy is progressive27, however, disparities still exist with negative
impacts on development efforts. The recently published Energy Access Situation Report 2016 states that
“nearly in all regions of Tanzania, the burden to collect firewood is more borne by females than males as
measured by length of time used to collect firewood.”
3.2.11 In view of the above, though the Nyakanazi - Kigoma Project comprises largely of transmission line
infrastructure, it has a component for last-mile connections particularly related to provision of pre-payment
energy meters as well as ready boards targeting low income earners including female-headed households.
Use of ready boards will enhance access to electricity through provision of a “plug & play” low-cost but
quality solution in comparison with expensive conventional house wiring. Also, the pre-payment system
will ensure that households manage their consumption and thus avoid debt. As part of the ESMP,
TANESCO will carry out a public Awareness Campaigns regarding house wiring, demand-side
management as well as benefits of electrification.
3.2.12 In addition to the last-connection strategy towards gender and vulnerable groups, the community
and SEP will increase participation of women-owned businesses such as food vending during Project
Implementation. Also, trainings will be conducted with the aim of reducing the incidence of sexual
exploitation, abuse & violence and sexually transmitted diseases, including HIV/AIDS as well as
unsupported parenthood that may result from the high influx of male workers into communities during
Project Implementation.
4. IMPLEMENTATION
4.1 Implementation Arrangements
4.1.1 In reference to institutional arrangements, GoT through MoFP shall be the Borrower of the loan.
The Executing and Implementing Agencies will be MoE and TANESCO respectively. TANESCO has
demonstrated adequate technical and managerial ability to implement the Project through the completion
of a similar 670 km 400 kV Iringa - Shinyanga BTIP jointly co-financed by ADF/JICA and GoT including
parallel co-financing from WB, EIB and EDCF.
4.1.2 The Project will be implemented by a Project Implementation Team (PIT) comprising key
TANESCO staff namely: Project Coordinator, Transmission Line Engineer, Distribution Engineer, Civil
Engineer, Procurement Expert, Accountant, Environmental Expert and Social Expert. In addition, a
Consultancy Firm will be recruited to handle project management and supervision aspects of the Project,
including ESMP Implementation, in liaison with PIT. Furthermore, the PIT will coordinate the NWG
substation component in liaison with the financier EDCF including MoE and MoFP.
27 Evidenced by the National Gender and Sustainable Energy Network collaboration with the Ministry of Energy
15
4.2 Procurement Arrangements
4.2.1 The procurement of goods (including non-consultancy services), works and consultancy services,
financed by the Bank, will be carried out in accordance with the Bank’s “Procurement Policy for Bank
Group Funded Operations” dated October 2015 in line with the provisions stated in the Financing
Agreement.
4.2.2 In particular, the procurement will be based on the following procurement methods and procedures
(PMP):
i. Borrower Procurement System (BPS) comprising its Laws & Regulations (i.e. Public Procurement
Act, 2011 revised 2016 and its Regulations) using the national Standard Bidding Documents (SBDs)
or other Solicitation Documents.
ii. Bank Procurement System using the relevant Standard Solicitation Documents for contracts that are
above certain financial thresholds.
4.2.3 A Procurement Risks and Capacity Assessment (PRCA) at Country, Sector and Project level
including Implementing Agency was conducted and the findings have been taken into account during the
Nyakanazi – Kigoma Project preparation.
4.2.4 The assessment of the Implementing Agency and its Procurement Management Unit (PMU),
responsible for handling and following up procurement activities in TANESCO, showed that the
organization has a system in place and trained staff competent to handle large contracts. Also, the PMU has
practical experiences and exposures in the working procedures of Bilateral and Multilateral Financing
Institutions including the Bank.
4.2.5 In addition, the assessment revealed increasing trends in the level of participation in public
procurement by both private sector local & international contractors, suppliers and consultants either as sole
entities or in form of joint-ventures and sub-contracting.
4.2.6 The major procurement packages under the Nyakanazi - Kigoma Project comprise six categories
namely: (i) supply & installation of a 280 km 400 kV Nyakanazi - Kigoma transmission line - 2 Lots; (ii)
Supply of last-mile connection materials - 1 Lot; (iii) Consultancy Services - 1 Lot; (iv) Supply &
installation of distribution networks - 2 Lots; (v) Selection of a consultant to carry out annual financial
audit of the Project accounts - 1 Lot; and (vi) Supply & Installation of substations.
4.2.7 The procurement packages (i) – (iii) and (iv) – (v) will be procured based on the Bank28 and
Borrower PMP respectively. The supply & installation of substations will be procured using Third Party
PMP agreed upon between the Borrower and EDCF.
4.2.8 In light of paragraph 2.6.6 on lessons learnt related to advance contracting, TANESCO submitted
an Official Request to the Bank, taking into account appropriate safeguards, to start the procurement process
28 The Quality & Cost Based Selection method will be used to procure Consultancy Services while Open Competitive Bidding will be utilized for the 400 kV
transmission lines as well as supply of last-mile connection materials.
16
prior to Board Approval of the Project. On this note, the Bank granted no-objections and accordingly the
procurement process of Project Management & Supervision Consultancy Services for Nyakanzi – Kigoma
was launched in April 2018..
4.3 Financial Management Arrangements
4.3.1 An assessment of Financial Management System (FMS) of the Implementing Agency (i.e.
TANESCO) was conducted based on Bank’s Financial Management (FM) Implementation Guidelines
2014. The assessment concluded that the overall risk is “Substantial” with issues such as (i) delays in
submitting annual audit reports; and (ii) ineffective budget monitoring tools. Accordingly, the Project has
been designed with a conditionality comprising: (i) assigning a Project Accountant, as part of the PIT, with
qualifications & experience acceptable to the Bank (ii) preparation & submission of quarterly performance
reports, Annual Work Plan & Procurement Plan and (iii) preparing annual audits in accordance to the
Bank’s guidelines described in below.
4.3.2 Furthermore, the Government is committed to undertaking reforms in the Energy Sector with
particular emphasis on TANESCO’s financial sustainability including FM. As already mentioned in
paragraph 3.1, there is an ongoing WB-funded E&Y financial audit, supervised by CAG, which will be
used as a key input to undertaking reforms in TANESCO. Also, coupled with the ongoing initiatives of
paying off arrears and reduction of receivables, it is expected that the revenues will improve significantly
and TANESCO will became profitable within the next few years.
4.3.3 In view of the above mitigation measures, the Project will substantially use the TANESCO FMS.
The overall responsibility of the FM (including Budgeting, Accounting System, Internal Control, Treasury
Management/Funds Flow, Financial Reporting and External Audit arrangements) rests with the TANESCO
Management under the Managing Director (MD). Since the Project FM function will be implemented within
the existing structure of TANESCO, it will be under the responsibility of the Chief Finance Officer (CFO)
who will supervise the Project Accountant. In addition, the TANESCO Internal Audit Department will, as
part of its routine, undertake regular audits of the Project financial transactions which will be shared with
the Bank during the bi-annual Project Supervision Missions.
4.3.4 The audit arrangement of the Project entails that financial statements are prepared and submitted
within three (3) months after the closure of every financial year. The Project Audit will be conducted by
either CAG or a Private Audit firm appointed by CAG in line with the Bank approved audit terms of
reference (ToRs). The audit report, complete with a Management Letter, will be submitted to the Bank not
later than six months after the end of the financial year. As already mentioned in paragraph 4.2, the cost of
the audit shall be borne by the Project in the event that it is conducted by a Private Audit Firm.
4.3.5 In regard to Disbursement Arrangements, the Project will use the Direct Payment Method to
Contractors/Suppliers/Consultants. Other methods may be used when need arises and upon prior approval
by the Bank. The four disbursement methods are described in the AfDB Disbursement Handbook available
on the Bank’s website. The Bank issued a draft Disbursement Letter for discussion, during loan
negotiations, providing specific guidelines on key disbursement procedures and practices.
17
4.4 Monitoring and Evaluation
4.4.1 The performance of the 400 kV NWG Nyakanazi - Kigoma Project will be monitored through
submission of quarterly progress reports to both Bank Senior Management and the Board. This will be
conducted through the established performance indicators and budgets against which actual reporting is
done including detailed explanations of any significant variances. The reports will show cash receipts by
source and expenditure (i.e. services/works/goods) including linking physical implementation progress to
disbursed amounts. In addition, the report will highlight issues requiring Bank’s intervention. The Project
performance indicators are presented in the Results Basic Logical Framework in the introductory section
of the PAR.
4.4.2 The Project will be launched in the 4th quarter of 2018 and will be monitored through Field
Supervision Missions from the Bank’s Headquarters in Abidjan, Regional Offices in Nairobi and the
Tanzania Country Office at least twice a year from 2019 until 2023. The Missions will be conducted in
liaison with EDCF, MoE, TANESCO and MoFP. However, the Task Manager will undertake monthly desk
reviews of the Project and hold ad-hoc meetings with the Project Coordinator to ensure that the Project is
completed on schedule within the available budget.
4.4.3 The PIT, assisted by the Project Management & Supervision Consultant, is primarily responsible
for monitoring implementation and fulfilling TANESCO’s reporting obligations to the Bank, including
preparation and submission of quarterly reports and annual audit reports.
4.4.4 In addition to the bi-annual Supervision Missions, the Bank will undertake a Mid-Term Review
(MTR) of the Project not later than 30 months after the loan approval, which shall inform any adjustments
to the Project design to ensure that Project objectives are achieved. Besides regular monthly and quarterly
project progress reporting, the Project Management & Supervision Consultant shall be required to prepare
and submit a report to the Implementing Agency upon completion of the consultancy assignment. The
Consultant’s Report will form the basis upon which TANESCO will prepare and submit a Completion
Report to the Bank. Upon receipt of both reports, the Bank will, in consultation with MoFP/MoE and
EDCF/TANESCO prepare its own PCR.
4.4.5 The Project will be implemented over a period of five (5) years, as shown in the PAR introductory
sections, starting 2019 and closing not later than 31 December 2023..
4.5 Governance
4.5.1 The Implementing Agency TANESCO is a (limited company) fully government-owned utility under
the MoE and duly registered under the amended Companies Act Cap 12. The Company is responsible for
generation, transmission and distribution of electricity on mainland Tanzania and is regulated under the
Electricity Act No. 10 of 2008. Though TANESCO is vertically integrated, it is not a monopoly following
the amendment of Section 41(6) of the Electricity Act 2008. TANESCO is headed by the MD who reports
to the Board of Directors. The PIT will be under the direct supervision of the Deputy MD - Investment.
Also, TANESCO has a Company Secretariat Division dealing with all legal matters within the organisation.
The Secretariat handles, among other things, issues pertaining to risk management and good governance,
corruption and fraud including physical protection of company property and assets.
4.5.2 In reference to the approved Electricity Supply Industry (ESI) Reform Strategy & Roadmap 2014 -
2025, TANESCO will be un-bundled in the long run into generation, transmission and distribution
18
segments. It is envisaged that in the event unbundling takes place during implementation, PIT will most
likely be transferred to the Transmission Segment.
4.6 Sustainability
4.6.1 The Project is technically, economically and financially sustainable. In addition, the Government is
committed to implementing the NWG Project in order to contribute towards realizing TDV 2025.
4.6.2 Technical sustainability is guaranteed due to the fact that the Project will be implemented based on
proven worldwide technology common in the country. In addition, the Project has been designed taking
into account compatibility with future infrastructure namely: (i) Tanzania - Uganda & Tanzania - Zambia
regional interconnections and (ii) Rusumo HPP and other renewable power plants. Also, the supply &
installation contracts as well as Project Management & Supervision will include relevant on-the-job training
aspects to ensure that the plant & equipment are operated in a sustainable manner where at-least one third
of the training opportunities will be allocated to women.
4.6.3 In regards to economic and financial sustainability, the Project will provide reliable main-grid
supply to Kigoma Region thereby promoting economic activities in the area. From an operational point of
view, TANESCO’s high O&M costs will drastically reduce as a result of commissioning the transmission
line and decommissioning the diesel power plant in Kigoma and Kasulu. Therefore, the Project will
significantly contribute towards addressing the TANESCO’s financial woes.
4.7 Risk Management
4.7.1 The Project involves some degree of risks, in addition to the fiduciary-related issues mentioned in
paragraph 4.3 above, such as: (i) Poor performance of contractors (ii) Delay in releasing counterpart funds
(iii) Delay in implementation of Nyakanazi/Kigoma substations and upstream infrastructure transmission
projects and (iv) Social issues related to large influx of “foreign” workforce in Kigoma region. The major
risks and mitigation measures are shown in Appendix VIII, nonetheless, the overall Project risk is rated as
moderate.
4.8 Knowledge Building and Inclusivity
4.8.1 The Nyakanazi - Kigoma Project will provide on-the-job training opportunities to TANESCO staff
particularly in 400 kV-rated transmission infrastructure which is fairly new to the country.
4.8.2 As mentioned in paragraph. 4.2.7 above, at-least two Project components (i.e. distribution networks
and Audit services) will be procured using the Country’s public procurement system and will, therefore,
attract participation from local Service Providers, Suppliers and Contractors.
4.8.3 In addition, the Bank will use the “lessons learnt” under the Project to inform future energy
operations in Tanzania and other RMCs. Also, if the Project is successfully implemented, it will build a
long lasting partnership between the Bank, GoT and EDCF in energy-related operations.
19
5. LEGAL INSTRUMENTS AND AUTHORITY
5.1 Legal Instrument
ADB Loan Agreement will be signed between the Borrower and the Bank.
5.2 Conditions associated with the Bank’s proposed Financing
5.2.1 Entry into Force
The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower, of the
conditions set forth in Section 12.01 of the General Conditions Applicable to the Bank’s Loan Agreements
and Guarantee Agreements (Sovereign Entities).
5.2.2 Conditions Precedent to First Disbursements
5.2.2.1 Disbursement for Goods and Services - The obligation of the Bank to disburse the proceeds of the
Loan for Goods and Services shall be conditional upon entry into force of the Loan Agreement, and the
fulfilment by the Borrower, in form and substance satisfactory to the Bank, of the following conditions:
(i) Either the parallel co-financier (EDCF) has approved its financing for the Substations at
Nyakanazi/Kigoma or the Borrower has made appropriate arrangements to cover any financing
gap resulting from failure to obtain EDCF’s financing under the Project;
(ii) Conclusion of a Subsidiary Financing Agreement with TANESCO for on-lending or on-granting
the proceeds of the loan to TANESCO on terms and conditions acceptable to the Bank;
(iii) Appointment of the Project Implementation Team;
(iv) Submission of a Works and Compensation Schedule detailing (a) sections into which civil works
under the Project will be divided and (b) time frame for compensation and resettlement of all
Project Affected Persons (PAPs) in respect of each section, in accordance with the Resettlement
Action Plan (RAP).
5.2.2.2 Disbursement for Works – The obligation of the Bank to disburse the proceeds of the Loan for
Works shall be conditional upon the fulfilment of the Conditions Precedent to First Disbursement for Goods
and Services, and the fulfilment by the Borrower, in form and substance satisfactory to the Bank, of the
following condition:
(i) Compensation and/or resettlement of all PAP in accordance with the RAP, in at least the first
affected section of the civil works under the Works and Compensation Schedule of the Project.
5.3 Other Conditions
The Borrower shall provide evidence, in form and substance satisfactory to the Bank, confirming that prior
to commencement of construction on any affected section of the civil works under the Works and
Compensation Schedule of the Project, all PAPs have been compensated and/or resettled in accordance with
the RAP.
20
5.4 Undertakings
The Borrower undertakes, in form and substance satisfactory to the Bank, to:
i. Ensure that co-financing and counterpart funds are availed for Project Implementation;
ii. Fully implement the Environmental and Social Impact Assessment (ESIA), the Environmental and
Social Management Plan (ESMP) and the RAP of the Project, as may be updated, and
comprehensively report to the Bank on the said implementation on a quarterly basis;
iii. Submit Annual Reports approved by the relevant authorities on ESMP and Occupational Health
and Safety (OSHA) compliance and
iv. Make timely provisions in the Borrower’s annual budgets for the funds required as the
Borrower’s counterpart contribution to the cost of implementation of the Project so as to avoid
Project implementation delays.
5.5 Compliance with the Bank’s Policy
This project complies with all applicable Bank policies.
6. RECOMMANDATIONS
Management recommends that the Board of Directors approves the proposed ADB Loan of USD 123.39
million to the United Republic of Tanzania for the financing of the North West Grid (400 kV Nyakanazi -
Kigoma transmission line) Project, subject to the terms and conditions stipulated in this report.
I
APPENDIX I: COMPARATIVE SOCIO-ECONOMIC INDICATORS
II
APPENDIX II: MAP OF PROJECT AREA (NYAKANAZI – KIGOMA; 280 KM)
III
APPENDIX III: ENERGY BRIEF
The Energy Sector on mainland Tanzania is under the direct supervision of MoE based on the Tanzania
National Energy Policy (NEP) 2015. The legal framework is governed by various Acts of Parliament
including (i) Electricity Act 2008 (ii) EWURA Act 2001. On the regulatory side, the EWURA Act
(2001) and the Petroleum Act (2015) empowers EWURA with the responsibilities to regulate the
midstream/downstream petroleum (including natural gas) subsector and the electricity/water utilities
respectively for mainland Tanzania excluding Zanzibar. The upstream activities are regulated by
Petroleum Upstream Regulatory Authority (PURA).
Institutionally, the key organisation include MEM, EWURA, REA, TANESCO (i.e. NWG
Implementing Agency), TPDC and IPPs, etc. TANESCO is a government owned utility under MoE.
Its principal activities include generation, transmission, distribution and energy sales on mainland
Tanzania. It also sells power in bulk to Zanzibar and Kenya; and imports from Kenya, Uganda and
Zambia. In addition to the main grid, TANESCO owns and operates about 18 isolated diesel-powered
grids.
In line with NEP, there are ongoing reforms to address challenges in the electricity sub-sector in order
to provide the country with adequate, reliable, affordable and environmentally friendly supply to
realise the targets of TDV 2025. The reforms are articulated in the Electricity Supply Industry Reform
Strategy & Roadmap (2014 - 2025). It is envisaged that TANESCO will be un-bundled into generation,
transmission and with several regional distribution companies.
In addition, the Power Sector Master Plan (PSMP) was updated 2016 re-assessing the short-term (2016
- 2020), mid-term (2021 - 2025) & long-term (2026 - 2040) generation and transmission plan
requirements of the country, among other things, in order to attain stable supply to achieve economic
growth, energy security and environmental protection.
The country’s installed capacity is approximately1,500 MW comprising both main grid and isolated
grids including imports & exports. The isolated grids operated by TANESCO account for about 127.5
MW. The installed capacity of the main grid is approximately 1366.6 MW comprising hydro (567.70
MW - 41.54%), natural gas (615 MW - 45%), liquid fuel (173.4 MW - 12.69%) and biomass (10.5
MW 0.77%) with a maximum demand of about 1051 MW. The 2020, 2025, 2030, 2035 and 2040
domestic demand forecast (base-case scenario) is 2190 MW, 3659 MW, 5872 MW, 9351 MW and
14332 MW respectively. Therefore, the Country ensure that new plants are brought on line as soon as
possible to realise secure supply in the near future. The transmission losses are estimated at 5.92% as
of June 2017. On the distribution side, Automated Meter Reading (AMR) and pre-paid energy meters
are being installed at large power users and SME/households to reduce commercial loses.
In regard to electrification, about 32.8% of households on mainland Tanzania are connected to
electricity as of 2016. Of the electrified households, 74.9% are grid-connected while 24.7% use solar
power and 0.3% utilise other means. Also, the connection rate of rural and urban households is 34.5%
and 96.4% respectively.
The key challenges presently faced in the electricity sub-sector include (i) low private sector
participation in large scale generation (ii) over-reliance on few generation sources (iii) unreliable and
expensive energy supply (iv) low access to modern energy services and (v) TANESCO financial
sustainability issues, among other things. In addition to the Action Plan prepared to tackle TANESCO’s
financial problems, the Government is expected to seek assistance from the Africa Legal Support
Facility to manage IPP commercial related transactions.
IV
APPENDIX IV: MAPPING THE COUNTRY DP FOCUS AREAS VS FYDP II
V
APPENDIX V: JUSTIFICATION OF ADB FINANCING OF MORE THAN 50%0
Based on the Bank’s policy on Expenditure Eligible for the Bank Group, this operation is proposing
government financial contribution of less than 50%, justified as follows:
1. Country Commitment to Implement its Overall Development Program:
Tanzania’s development framework and long-term development goals are laid out in the National
Vision 2025 (TDV 2025), with the aspirations to transform the country into a middle income and
semi-industrialized economy by 2025. The Vision has the following three targets: (i) a high quality
livelihood for all citizens, (ii) good governance and rule of law, and (iii) a strong and competitive
economy, including through the development of infrastructure. The Government’s medium term
development agenda is outlined in the recently launched Five Year Development Plan (FYDP II:
2016/17-2020/21) with a strong focus on industrialization. The ambitious FYDP II, which bears
the theme – “Nurturing Industrialization for Economic Transformation and Human Development”
– focuses on: (1) growth and industrialization (2) human development and social transformation;
(3) business environment strengthening; and (4) ensuring implementation effectiveness and
efficiency. The Plan aspires to raise annual real GDP growth to 10% by 2021 (from 7% in 2015),
per capita income to US$ 1,500 (from US$ 1,043 in 2014) and reduce poverty rate to 16.7% in
2021 from 28.2% recorded in 2011/12.
2. Financing Allocated by the Country to Sectors Targeted by Bank Assistance:
Infrastructure development remains a top priority in Tanzania’s plans and strategies. The share of
infrastructure (transport and energy) spending in the total budget is around 26%, and there are
several multi-year master-plans and programs in place, but funding remains a challenge. With
regard to energy sector, the Government’s Five Year Development Plan (FYDP II: 2016/17-
2020/21) aspires to increase electricity generation from 1,501 MW in 2015 to 4,915 MW by 2020,
and increase electricity connections from an estimated 36% 2015 to 60% of the population. According
to the Power System Master-Plan, total investment needs to achieve these targets are estimated at about
US$ 11.6 billion (equivalent to an average annual budget of about US$ 2.3 billion). However,
financing remains a major challenge, and for fiscal years 2016/17 and 2017/18, budget allocations for
energy sector were merely about US$ 510 million and US$ 540 million respectively. The shares of
energy sector in the budget are indicated in table 1.
TABLE 1: INFRASTRUCTURE FINANCING IN TANZANIA
2016/2017 Budget 2017/2018 Budget
Financing allocated to infrastructure UA 2089 Million UA 2184 Million
Share of infrastructure (energy and transport) in
the budget 26% 26%
Financing allocated to energy sector UA 358 Million UA 380 Million
Share of energy budget in infrastructure budget 17% 17%
Source: Ministry of Finance
3. Country Budget Situation and Debt Level: In June 2017, the Government unveiled a
TZS 31.7 trillion (approx. USD 14.1 billion) budget for FY 2017/18. The overall budgeted
expenditure is about 26.2% of GDP, slightly higher than the 24.2% of GDP expected outturn for
FY 2016/17. Domestic revenues are projected to increase from likely outturn of 15.3% of GDP in
VI
FY 2016/17 to 16.0% of GDP in FY 2017/18. The budget situation is summarized in Table 2,
which highlights the challenges the Government faced in securing external financing for it
FY2016/17 budget to support the development agenda. The share of foreign loans and grants
declined from a budgeted 12.2% of the 2016/17 Budget, to an expected 8.7%. This is expected to
pick up to 12.5% in the 2017/18 Budget. Net domestic financing is planned at around 1.5% of
GDP in line with International Monetary Fund’s Program – the Policy Support Instrument (PSI).
Tanzania’s public debt stands at around 37% of GDP, and the IMF’s most recent debt sustainability
analyses (DSA) in mid-2016 indicates that Tanzania could expand its fiscal deficit up to 4.5% of
GDP for a few years and still maintain a low risk of debt distress.
TABLE 2: BUDGET SITUATION
2016/17 Budget 2016/17 Likely 2017/18 Budget
Total Expenditure as % of GDP 27.0% 24.2% 26.2%
Domestic Revenues as % of GDP 16.3% 15.3% 16.0%
Share of Foreign Loans and Grants in total Budget 12.2% 8.7% 12.5%
Share of General Budget Support in total Budget 1.6% 1.2% 3.0%
Foreign Loans and Grants as % of GDP 3.3% 2.1% 3.3% Source: Ministry of Finance
4. Country Initiatives: Recent initiatives by the Government in the energy sector include the
ongoing implementation of ambitious rural electrification program, estimated to cost about UA
290 million – funded from the Government’s own resources. By March 2017, about 17,740 kms
of distribution network, inclusive networks in areas that will be serviced by the NWG, had been
constructed resulting in 153,821 new connections. Also, the construction of 240 MW Kinyerezi 2
gas-fired plant which started in 2016 is in advanced stages, and is expected to be completed in
2018. The estimated cost of Kinyerezi 2 is about UA 220 million.
5. Conclusion: In view of the dwindling ADF resources, it is justified to have an ADB
window contribution of more than 50% in order to support the Government of Tanzania to meet
its development objectives given the fact that the Country has undertaken several own-funded
energy investments in line with the NWG objectives.
VII
APPENDIX VI: ADB PORTFOLIO
SN
1 Marketing Infrastructure, Value Addition and
Rural Finance Program
ADF Loan 29-Jun-2011 30-Sep-2018 40.00 35.75 89.4 6.9
2 Agriculture Development Bank ADF Loan 13-Dec-2016 31-Dec-2018 67.27 33.64 50.0 1.4
SUB-TOTAL 107.27 69.39 64.7 4.15
3 Tanzania Road Sector Support Project I ADF Loan 2-Dec-2009 15-Dec-2018 152.00 135.00 88.82 8.4
4 Tanzania Road Sector Support Project II ADF Loan 5-Apr-2012 31-Dec-2018 140.00 122.00 87.14 6.0ADB Loan 30-Sep-2015 31-Dec-2020 71.60 0.86 1.20 2.6
AGTF Loan 30-Sep-2015 31-Dec-2020 32.60 0.20 0.62 2.6
ADB Loan 26-Nov-2015 30-Oct-2021 199.20 20.21 10.15 2.5
ADF Loan 26-Nov-2015 30-Oct-2021 54.00 4.65 8.61 2.5
SUB-TOTAL 649.40 282.92 43.57 4.88
7 Zanzibar Urban Water & Sanitation ADF Loan 19-Dec-2012 31-Dec-2018 14.00 6.86 49.00 5.4
ADB Loan 16-Sep-2015 31-Dec-2020 105.60 5.18 4.91 2.6
ADF Loan 16-Sep-2015 31-Dec-2020 18.00 2.10 11.67 2.6
AGTF Loan 16-Sep-2015 31-Dec-2020 30.90 1.04 3.37 2.6
SUB-TOTAL 168.50 15.18 9.01 4.00
9 Iringa-Shinyanga Transmission Line ADF Loan 26-Oct-2010 31-Oct-2018 45.36 24.50 54.01 7.5
10 Scaling-Up Renewable Energy Program SCF Grant 20-Dec-2013 30-Jun-2018 0.50 0.50 100.53 4.4
SUB-TOTAL 45.86 25.00 54.52 5.95
11 Alternative Learning and Skills Development ADF Loan 29-Jun-2011 15-Dec-2018 15.00 5.17 34.47 6.9
12 Support to Technical Vocational Education and
Training & Teacher Education
ADF Loan 2-Apr-2014 31-Dec-2019 34.00 3.43 10.09 4.1
SUB-TOTAL 49.00 8.60 17.55 5.50
13 Institutional Support Project for Good
Governance III
ADF Loan 3-Feb-2016 31-Dec-2018 12.00 4.11 34.25 2.3
14 Institutional Support Project for DRM and
Natural Resources Govermance
ADF Loan 31-Mar-2017 31-Dec-2019 19.58 0.21 1.07 1.2
15 Kikonge Multipurpose Dam, HEP and Irrigation
Feasiblity Study
TF 27-Jun-2016 31-Dec-2018 1.60 0.00 0.0 1.9
16 Humanitarian Emmergency Assistance for Kagera
Earth Quake
ADF Grant 12-Jan-2017 31-Mar-2018 0.70 0.70 100.00 1.4
33.88 5.02 14.82 1.36
FINANCE
17 TZS Line of Credit to FNB Subsidiary in TZ ADB Loan 12-Dec-2012 31-Dec-2017 31.05 14.32 46.12 5.3
Line of Credit to CRDB Bank Ltd ADB Loan 18-May-2016 1-Aug-2024 11.00 0.00 0.00 2.0
Line of Credit to CRDB Bank Ltd ADB Loan 18-May-2016 30-Nov-2017 88.20 66.15 75.00 2.0
SUB-TOTAL 130.25 80.47 61.78 2.43
NATIONAL Operations 1184.16 486.59 41.09 4.71
19 Arusha-Holili/Taveta-Voi Road Project ADF Loan 16-Apr-2013 31-Dec-2018 79.90 39.00 48.8 5.1
20 Regional Rusumo Hydropower ADF Loan 27-Nov-2013 31-Aug-2019 22.41 0.86 3.84 4.5
21 EAC Centres of Excellence for Skills and
Tertiary Education
ADF Loan 3-Oct-2014 31-Dec-2019 6.25 1.35 21.60 3.5
22 Kenya -Tanzania Interconnection ADF Loan 18-Feb-2015 31-Dec-2019 75.29 10.41 13.83 3.2
23 Lake Victoria Maritime and Transport Project ADF Loan 24-Oct-2016 31-Dec-2019 3.77 0.56 14.85 1.6
SUB TOTAL 187.62 52.18 27.81 3.6
1371.8 538.8 39.3 4.0
8
5 Dar es Salaam Rapid Bus Transit Project
Transport Sector Support Program6
ENERGY
WATER SUPPLY/SANITATION
Arusha Urban Water Supply Improvement
Porject
SOCIAL
AGE (
Yrs)
DISB RATE
(%)
AGRICULTURE
A. NATIONAL OPERATIONS:
18
TRANSPORT
DISBURSED
AMOUNT
(MUA)
MULTISECTORAL
NATIONAL + MULTINATIONAL
B. MULTINATIONAL OPERATIONS:
SUB TOTAL
APPROVE
D
AMOUNT
CLOSING
DATE
APPROVAL
DATE
TANZANIA: PORTFOLIO BASIC DATA, 30 APRIL 2018
SECTOR
SOURCE
OF
FINANCE
VIII
SN1 Marketing Infrastructure, Value Addition and Rural Finance Program ADF Loan 29-Jun-2011 31-Dec-2017 40.00 30.23 75.6 6.2
2 Agriculture Development Bank ADF Loan 13-Dec-2016 31-Dec-2018 67.27 33.64 50.0 0.7
SUB-TOTAL 107.27 63.87 59.5 3.45
3 Tanzania Road Sector Support Project I ADF Loan 2-Dec-2009 15-Dec-2017 152.00 130.91 86.13 7.7
4 Tanzania Road Sector Support Project II ADF Loan 5-Apr-2012 31-Dec-2018 140.00 102.59 73.28 5.4
ADB Loan 30-Sep-2015 31-Dec-2020 71.60 0.46 0.64 1.9
AGTF Loan 30-Sep-2015 31-Dec-2020 32.60 0.17 0.54 1.9
ADB Loan 26-Nov-2015 30-Oct-2021 199.20 0.08 0.04 1.8
ADF Loan 26-Nov-2015 30-Oct-2021 54.00 0.95 1.76 1.8
SUB-TOTAL 649.40 235.16 36.21 4.20
7 Zanzibar Urban Water & Sanitation ADF Loan 19-Dec-2012 31-Dec-2017 14.00 5.77 41.21 4.7
ADB Loan 16-Sep-2015 31-Dec-2020 105.60 0.56 0.53 2.0
ADF Loan 16-Sep-2015 31-Dec-2020 18.00 1.24 6.89 2.0
AGTF Loan 16-Sep-2015 31-Dec-2020 30.90 0.32 1.04 2.0
SUB-TOTAL 168.50 7.89 4.68 3.35
9 Iringa-Shinyanga Transmission Line ADF Loan 26-Oct-2010 31-Oct-2018 45.36 20.31 44.78 6.8
10 Scaling-Up Renewable Energy Program SCF Grant 20-Dec-2013 15-Sep-2017 0.50 0.03 5.41 3.7
SUB-TOTAL 45.86 20.34 44.35 5.25
11 Alternative Learning and Skills Development ADF Loan 29-Jun-2011 31-Dec-2017 15.00 4.10 27.33 6.2
12 Support to Technical Vocational Education and Training & Teacher
Education
ADF Loan 2-Apr-2014 31-Dec-2019 34.00 2.31 6.79 3.4
SUB-TOTAL 49.00 6.41 13.08 4.80
13 Institutional Support Project for Good Governance III ADF Loan 3-Feb-2016 31-Dec-2018 12.00 2.66 22.17 1.6
14 Power Sector Reform Program and Governance Support programADF Loan 15-Dec-2016 31-Dec-2017 50.00 50.0 100.00 0.7
15 Kikonge Multipurpose Dam, HEP and Irrigation Feasiblity Study TF 27-Jun-2016 31-Dec-2018 1.60 0.00 0.0 1.2
16 Humanitarian Emmergency Assistance for Kagera Earth Quake ADF Grant 12-Jan-2017 30-Sep-2017 0.70 0.70 100.00 0.5
17 Institutional Support Project for DRM and Natural Resources
Govermance
ADF Loan 31-Mar-2017 31-Dec-2017 19.58 0.0 0.00 0.5
83.88 53.36 63.61 0.90
FINANCE
18 TZS Line of Credit to FNB Subsidiary in TZ ADB Loan 12-Dec-2012 31-Dec-2017 31.05 14.32 46.12 4.7
19 Partial Credit Guarantee for TMRC ADB Loan 4-May-2016 Not signed 2.82 0.00 0.00 1.3
Line of Credit to CRDB Bank Ltd ADB Loan 18-May-2016 30-Nov-2017 11.00 0.00 0.00 1.2
Line of Credit to CRDB Bank Ltd ADB Loan 18-May-2016 30-Nov-2017 88.20 66.15 75.00 1.3
SUB-TOTAL 133.07 80.47 60.472.43
NATIONAL Operations 1236.98 467.49 37.79 4.06
21 Arusha-Holili/Taveta-Voi Road Project ADF Loan 16-Apr-2013 31-Dec-2018 79.90 27.01 33.8 4.4
22 Regional Rusumo Hydropower ADF Loan 27-Nov-2013 31-Aug-2019 22.41 0.44 1.96 3.8
23 EAC Centres of Excellence for Skills and Tertiary Education ADF Loan 3-Oct-2014 31-Dec-2019 6.25 0.94 15.04 2.8
24 Kenya -Tanzania Interconnection ADF Loan 18-Feb-2015 31-Dec-2019 75.29 9.75 12.95 2.5
25 Lake Victoria Maritime and Transport Project ADF Loan 24-Oct-2016 31-Dec-2019 3.77 0.00 0.00 0.9
SUB TOTAL 187.62 38.14 20.33 2.0
1424.6 505.6 35.5 3.2NATIONAL + MULTINATIONAL
B. MULTINATIONAL OPERATIONS:
AGRICULTURE
A. NATIONAL OPERATIONS:
ENERGY
WATER SUPPLY/SANITATION
Arusha Urban Water Supply Improvement Porject
SOCIAL
8
5
6
DISBURSED
AMOUNT (MUA)
APPROVED
AMOUNT (MUA )CLOSING DATEAPPROVAL DATE
PORTFOLIO BASIC DATA, 31 AUGUST 2017
SECTORSOURCE OF
FINANCEAGE ( Yrs)DISB RATE (%)
20
Dar es Salaam Rapid Bus Transit Project
Transport Sector Support Program
MULTISECTORAL
TRANSPORT
SUB TOTAL
IX
APPENDIX VII: HIGHLIGHTS ON TANESCO FINANCIAL SUSTAINABILTIY ACTION
PLAN
Tanzania Electric Supply Company Ltd. (TANESCO) is credited for the country’s rapid economic
development that is among the fastest on the continent. The power utility has also a highly skilled
labor force that compares favorably well in the East Africa region, and has access to a vast and
diverse endogenous energy resource base. These factors, and its location at the intersection of the
Eastern Africa and Southern Africa Power Pool presents TANESCO with great opportunities
arising from regional power trade.
However, in the recent past TANESCO’s financial sustainability has faced serious challenges from
huge losses driven by the electricity supply crisis in 2011-2013. The crisis was mainly due to; i)
high dependence on hydropower generation and ii) inadequate forecast system for investments to
meet the rapidly increasing electricity demand. In 2010, the hydro generation represented 52% of
total capacity. The hydropower production capacity was seriously curtailed by poor hydrological
regime and the ensuing supply shortage that hit the country in 2011 forced TANESCO to enter
into short-term contract with expensive private Emergency Power Plants (EPPs). In addition, the
isolated diesel power plants have contributed significantly to TANESCO’s financial woes due to
their high maintenance and operational costs.
Since the 2011-13 electricity supply crisis, TANESCO has improved its financial performance
though tariff increases, improved hydrology, and the phase-out of EPPs. In addition, the collection
rate has increased by 50% and the Transmission & Distribution losses has reduced to 17% in 2017
from 22% in 2011. The aforementioned operation efficiency improvement has contributed to a
gross margin increase of 3% in 2017 from -53% in 2013. Although TANESCO’s cash flow is not
sufficient to meet the investment target, TANESCO has remained in positive operating cash flow
since 2014. According to the “Financial Viability of Electricity Sectors in Sub-Saharan Africa”
published by World Bank in 2016, Tanzania is in a relatively better position compared to other
African countries in terms of the recovery ratio (i.e. tariff collected /generation cost).
Despite of the current recovery, TANESCO still has cash deficit arising from larger cash outflows
than cash inflows. In order to address its financial challenges, TANESCO has planned to invest in
hydrological risks reduction through energy production diversification, implementing regional
transmission line, increasing access rates as well as enhancing grid extensions with the objective
of replacing expensive isolated diesel power plants. Accordingly, the Government submitted to
the Bank an Action Plan, summarized in the table below, to address TANESCO’s financial
sustainability challenges.
The North West Grid transmission line project (including Nyakanazi – Kigoma) will directly
contribute to the Action Plan through:
Realizing the crucial investments in the country’s Power System Master Plan;
Support Generation mix by providing evacuation lines for hydropower generation and
other renewable sources in the North Western Tanzania;
X
Increase TANESCO Customer base in North Western Tanzania;
Displace Diesel Power Plants in North West Tanzania;
Enhance TANESCO’s revenue through provision of pre-paid energy meters;
Improve stability and reliability of the Power Grid in the North West Region;
Address the missing links in the Tanzania Backbone grid system that has attracted several
Development Partners including the World Bank, KfW, AfD, South Korea among others.
Highlights of TANESCO Financial Sustainability Action Plan 3 – 12 Months Planning
Horizon
Objective Strategic goal Activity
Improve
Operational
Efficiency
Reducing system energy losses - Install regional boundary meters
- Introduce Meter Register to track lifetime of meters
Enhancing revenue collection - Reinforce Revenue Protection measures
- Perform meter inspections
Streamlining processes to improve
efficiency and reduce operational
costs
- Installation of the CMS
- Comply to the Customer Service Charter (CSC)
Adoption of cost saving
technologies - Research for new technologies
Design &
Implement a
new investment
strategy
Implement project as per the Power
System Master Plan (PSMP)
- Implement projects using least cost order
- Follow the recommended generation mix
Procure projects that have Value for
Money
- Encourage private participation by procuring projects
that are easy to implement (No obligation of GoT and
TANESCO)
- Obtain projects through International Competitive
Bidding
Develop
sustainable debt
management
strategy
Enhance financial stability of the
company
- Identify genuine debts through special audit by Control
Audit General (CAG)
- Apply for a concession loan to pay for all outstanding
debts
- Extend payment period to suppliers from 30 days to 90
days
Increase customer base - Electricity Urban Areas
Implement
efficient Cost-
Based Tariffs
Implement cost-based tariff,
including a reasonable return on
capital
- Apply for tariff review after EWURA has completed
Cost of Service Study
Implement full pass-through of non-
manageable costs - Apply for quarterly Automatic Adjustment
Improving risk
management
Mitigate Foreign Exchange risks
- Service and goods providers to charge in local
currency, such as Small Power Projects (SPP) tariffs and
Gas price
- Budget to factor such costs
Establish Stabilization fund Modalities to establish special fund to cater for
unforeseen events like disasters such as draught etc.
XI
APPENDIX VIII: PROJECT RISKS
Risk Description Rating Mitigations
TANESCO
Financial
sustainability
TANESCO is in a financially weak
position.
M Efforts are underway by both GoT
and DP to improve TANESCO’s
financial performance.
Financial
Management
- Delays in preparation of audit
reports;
- Ineffective budget monitoring tools.
M - Assign a Project Accountant
- Annual audits conducted in line
with Bank guidelines.
Protracted
procurement
Bidders’ queries regarding:
- Quality of tender documents;
- Outcome of bid evaluation.
M An international reputable firm
will be recruited to prepare the
tender document & participate in
the bid evaluation process.
Poor
performance
of contractors
In the recent past, a contractor handling
a large transmission line delayed
delivery due to financial constraints.
M - Consider raising performance
guarantees to 15 – 20%;
- Split the transmission line and
distribution works into 2 Lots
each;
- Ensure use of qualified sub-
contractors;
- Align project cash flow with
implementation milestones;
- Consider prequalification of
EPC Contractors.
Counterpart
funds
Delay in mobilising counterpart funds
for compensation and RAP cost.
M Engage GoT early enough to
ensure timely availability of funds
Delay in
implementati
on of EDCF
funded
substations
and/or
upstream
Geita –
Nyakanazi &
Rusumo –
Nyakanazi.
The 400 kV Nyakanazi – Kigoma
transmission line is not a stand-alone
project. It is dependent on the
implementation of upstream
infrastructure.
M - Approval of EDCF funding for
the substation will be a CP to
first disbursement;
- AfDB and KfW/AFD and GoT
are committed to implementing
the Rusumo – Nyakanazi &
Geita – Nyakanazi lines.
Negative
environmenta
l & social
impacts
Large influx of “foreign” workers from
outside Kigoma Region
H - The ESMP will include social
issues such as HIV/AIDs
campaign.
L: Low; M: Moderate; H: High