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Infrastructure: Power and port projects will ease Tanzania's energy supply and congestion
2013/10/07

The cylindrical sections of gas pipeline stacked on trucks beside the quay symbolise the greatest failing – and promise – of Tanzanian infrastructure: energy and the port of Dar es Salaam.

The load shedding that resulted in regular blackouts last year may have diminished, but the national power company is an indebted mess and the port so corrupt and inefficient that, according to the World Bank, the country is losing $1.8bn a year because of it.

In the next two or three years, however, mandarins say all that will change. The pipelines offloaded at the chaotic government bulk cargo port offer the greatest hope things may turn round.

Destined for a 532km Chinese-built pipeline started last year and on track for completion late next year, it will deliver natural gas from Mtwara in the south to the commercial capital Dar es Salaam and double national power generation capacity to 3,000MW.

Only one in five Tanzanians have access to electricity at the moment, much of that unreliable. Many other power projects are also under way, aimed at switching from costly emergency diesel-fuelled plants to cheaper gas-powered replacements likely to become operational in 2015.

"The gas is going to shoot down the cost of doing business in Tanzania," says William Mgimwa, finance minister. He asserts prices will fall to six to eight US cents per kilowatt hour from 40-44 cents at the moment.

He adds: "Industrial goods will be cheaper and the cost of living for our people will be very low."

Donor officials nevertheless believe the pipeline, which has triggered fatal riots by the disgruntled local population in Mtwara, "could have been done cheaper" than the $1.2bn Chinese price tag. As with the Chinese-built Tanzania-Zambia railway of the 1960s, China insists it stepped in because no one else would.

Lu Youqing: defends pipeline

"Remarks such as 'the cost of the project is high' or 'the project is not necessary' are irresponsible," says Lu Youqing, China's ambassador to Tanzania.

"Many other countries have turned down participation in this project but Tanzania urgently needs to construct this pipeline – it's a very big, important infrastructure project."

Fixing the port is the other big, important task facing the country.

Tackling its inefficiency is a consistently unmet priority, thanks in large part to what the World Bank terms "extremely prevalent corrupt practices".

It can take a container vessel 10 days just to find a berth – costing $200,000 in waiting fees – and another 10 to unload.

Firoz Ebrahim, port operations manager for a large company, says: "There is so much congestion here and in most cases when containers arrive they are scattered everywhere." He sits surrounded by queues of trucks, containers and sacks of fertiliser piled up at the port. He says: "It's getting better, but you can still expect delays."

Fees are also on average 74 per cent higher in Dar es Salaam than in Kenya's Mombasa, the main competition along the east African coast.

Recent reforms, including the politically sanctioned sacking of the port director, have led to some improvement but not enough, say shippers.

The World Bank warns in a report this year: "If the current situation is not remedied, the port of Dar es Salaam might lose its existing market share in regional trade."

Although governments along the east African coast are trying to develop megaports, from Djibouti to Kenya, the greatest threat to Dar es Salaam port may come from closer to home.

China Merchants Group (CMG) plans a port with more than 25 times the capacity of Dar es Salaam in Bagamoyo, a former colonial entrepot 75km to the north. It will include an export processing zone, industrial park, and a new city.

The development will take seven to 10 years and cost $10bn, says Mr Lu. He adds that the Tanzanian government will take responsibility for the $500m to dredge the channel, while CMG will start work on a $1bn port phase next year that will take three years to complete. CMG has yet to conclude negotiating terms with Tanzania.

Mr Lu says: "On completion, the port will have berths that can hold a cargo ship as big as 100,000 tonnes and it will be the biggest port in the east African region."

But some warn the project, which is backed by the government, could upset plans for Tanzania's three other ports – Dar es Salaam, Mtwara and Tanga.

A person familiar with the country's port projects says: "This unsolicited bid from the Chinese just arrived, but the government already has a strategic plan for infrastructure and this port was never part of that."

"So if you were bidding to develop one of the port concessions and now suddenly there's the possibility of this huge megaport being built just down the road – it's created a lot of uncertainty, because 80 per cent of your volumes could be redirected to another port in five years' time."

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Tanesco: Restructuring and price rises needed to repair cash-strapped utility

Fixing Tanesco, the power parastatal at the heart of Tanzania's energy crisis for more than a decade, may be the trickiest task of all.

It faces numerous legal actions in different jurisdictions for failing to pay suppliers for years on end and its arrears are so big – at more than $500m – as to distort the government's fiscal position, forcing it to cut general budget spending.

"The whole company is just a huge mess – there's monstrous bureaucracy in there," says an international adviser familiar with the company, which the World Bank says is losing $30m a month. "The idea that Tanzania will be a net exporter of electricity by 2015 seems absurd."

Companies including Standard Chartered Bank, IPTL and Dowans have all taken Tanesco to court over a variety of claims.

The World Bank will lend the stricken utility $300m, and, separately, a consortium of commercial banks is expected to loan "several hundreds of millions of dollars" guaranteed by the government before the end of the year, according to a person familiar with the deal.

But fixing Tanesco will depend on robust management and separating generation from transmission and distribution, a restructuring on which the African Development Bank is advising.

It is also likely to require further price rises.

(By Katrina Manson Financial Times September 30, 2013 )

 

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