Electricity Supply Industry Reform Strategy and Roadmap Prepared by MEM June, 2014.

Electricity Supply Industry Reform

Strategy and Roadmap

Prepared by MEMPrepared by MEM

June, 2014June, 2014

OutlineTanzania Development Vision 2025

Drivers for ESI ReformESI Reform ObjectivesESI Reform Strategy &Roadmap

Resources RequirementWay ForwardConclusion

Tanzania Development Vision 2025Tanzania Development Vision 2025

Middle Income Country

Raise GDP per Capita from USD 640 to USD at least USD 3,000;Increase Generation Capacity from 1,583 MW to at least 10,000 MW by 2025; andIncrease electricity connection level from 24% to at least 50% by 2025. Economic growth low cost and

reliable power Investment Gx, Tx and Dx;

Tanzania Development Vision 2025Tanzania Development Vision 2025

Drivers for ESI Reforms Drivers for ESI Reforms

DRIVERS OF ESI REFORMS

Policy and legal requirement: NEP, 2003 and Sec 40 of the Electricity Act, 2008 calls ESI reforms. Financing Requirement: Between 2012 – 2017 about USD 11.4 billion – about USD 1.9 billion per annum required. Security of Supply: Diversify Power Generation and effectively participate in EAPP and SAPPStakeholders’ Expectation: Customers, GoT and business partners

DRIVERS Cont’d

Connection and Access levels to Electricity Supply: Connection level targets: 30% (2015), 50% (2025) and 75% (2033). Demographics &Demand Projections: ◊Electricity demand growth rate: 10% and 15%◊Population to increase from 45 million to 69.5 million. ◊GDP per capita to increase from USD 640 to at least USD 3,000Almost 10,000 MW will be required to propel

the economy.

ESI REFORM OBJECTIVESMain: To improve ESI governance and

performance for quality service Delivery. Specific Objectives:• Create ESI to support the National

Development Agenda Roadmap & Indicative Budget

• Establish efficient ESI in environmentally sound and sustainable manner

• Promote financial and commercial viability of the Sector

• Attract private investment to the sector• Ensure adequate, reliable, affordable and

accessible electricity supply

REFORM STRATEGY

Gradual unbundling of Gx, Tx and Dx

REA current set to be maintained with its functions complementing Semi- autonomous Zonal Offices

REFORM ROADMAP

Guide the implementation of the ESI Reform

Process

REFORM ROADMAP Immediate term (July 2014 –

June 2015) Short term ((July 2015 – June

2018) Medium Term (July 2018 –

June 20121) Long term (July 2021 – June

2025)

Summary of Key Activities of the Reform Roadmap

The Roadmap – Immediate ActionsThe Roadmap – Immediate ActionsJuly 2014 – June 2015July 2014 – June 2015

Major Activities Timeframe Lead

Responsibility Establish a Task Force (MEM) and TCMT at TANESCO Jul 2014 TANESCO

Human Capital Needs Assessment and Capacity Build Programme Prepared

Dec 2014 MEM/TANESCO/EWURA

Carry out MIS review and ring fence TANESCO’s SBUs

Dec 2014 TANESCO

Develop standard template Power Purchase Agreement (PPA) models;

Jul 2014 EWURA

TANESCO Turnaround Strategy Dec 2014 MEM

Designate Grid Control Center as Independent System Operator (ISO);

Dec 2014 EWURA

Reviewing of the Electricity Act, 2008, in particular, Section 41(6)

Dec 2014 TANESCO

Initiate Business process review and TANESCO’s Assets and Liabilities valuation

Dec 2014 MEM

Develop of Grid Codes to guide Tx and Dx operations

Dec 2014 EWURA

The Roadmap – The Roadmap – Short Term (Jul 2015 - Jun 2018)

Major Activities Timeframe Lead Responsibility

Unbundle Gx from Tx and Dx Dec 2017 TANESCO

Generators (IPPs) to sell to bulk off takers Dec 2017 MEM

Establish market information Desk Mar 2015 MEM

Designate Independent Market Operator Dec 2015 TANESCO

Continue with TANESCO turnaround Dec 2016 TANESCO

Decentralize decision making (Procurement, budget implementation an Business Plans management

Dec 2016 TANESCO

The Roadmap – The Roadmap – Medium Term (Jul 2018 - Jun 2021)

Major Activities Timeframe

Lead Responsibility

Unbundle Dx from Tx June 2021 MEM,Zonal Offices’ Performance Assessment

Sept 2020 Dx

Setting up a mechanism and rules for the operation of a retail market

Nov 2018 EWURA

The Roadmap – The Roadmap – Long Term (Jul 2021 – Jun 2025)

Major Activities Timeframe Lead Responsibility

Unbundle Dx segment into Zonal Distribution Companies

June 2025 MEM

Establish ESI service standards Jul 2020 EWURAInvest in human capital and trading system in preparation to retail market operations

Jul 2020 MEM

Introduce Retail Competition Jul 2023 MEMPrepare Gx Company and Dx for listing

Jan 2025 GenCo and DisCos

Reduce losses (technical and non-technical) from 15% to 12% by 2025

Dec 2025 Tx and Dx

Increase electricity connectivity from 36% to 50% by year 2025

Dec 2025 DisCos

The Roadmap – The Roadmap – Long Term (Jul 2021 – Jun 2025)

Major Activities Timeframe Lead Responsibility

Unbundle Dx segment into several Zonal Distribution Companies

Dec 2023 MEM

Establish ESI service standards Jul 2020 EWURAInvest in human capital and trading system in preparation to retail market operations

Jul 2020 MEM

Introduce Retail Competition Jul 2023 MEMPrepare Gx Company and Dx for listing

Jan 2025 GenCo and DisCos

Reduce losses (technical and non-technical) from 15% to 12% by 2025

Dec 2025 Tx and Dx

Increase electricity connectivity from 36% to 50% by year 2025

Dec 2025 DisCos

Electricity Supply Industry Reform Status and Way ForwardElectricity Supply Industry Reform Status and Way Forward

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2003

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Vertically Integrated TANESCO

Unbundle Generation from

Transmission and Distribution

Unbundle Transmission

and Distribution

Complete Vertical

Unbundling

Unbundling of Distribution

from Transmission

2019

Key Risks of ESI ReformsRisk Definition Mitigation

None response from private sector

Necessary condition for effective participation of private sector hence competitive power market

Review the existing legal and regulatory framework

TANESCO turn around not met

Expected benefits to stakeholders may not be realized.

Retire EPPs, constructing new gas infrastructure

Adjusting electricity tariffs

Unbundling Small power system 

There is a risky of increasing overhead costs without necessarily improving the quality of services.

Unbundling will take place in 2017 when installed will be at least 3,000MW which is above the acceptable level of 1,000 MW

Resistance to Change Successful implementation of ESI reforms is dependent on stakeholders consensus

Participatory approach to reform

Implement change management programme;

Implement awareness campaign;

Human Capital Needs Inadequate skilled personnel impairs implementation of reform strategies.

Capacity development programme to be instituted ;

Implement contract management strategies;

Nationalization of investment

Private sector fear of their investments being expropriated

Investors’ risks of nationalization are cushioned by Investment Act of 1997.

Non implementation of the Roadmap

Change in direction will negatively affect the Performance and sustainability of ESI.

GoT is committed to ensure that the Roadmap is timely implemented

RESOURCES REQUIREMENTHuman Resource: New Skills to marshal

the reforms implementation will required.

Financial Resource: To implement the reforms USD 1.15 billion will be required to facilitate studies, human capital development and TANESCO Balance Sheet clean up.

◊ New Companies to start with clean balance sheet

◊ Funds is expected to be contributed by GoT and Partners and TANESCO

Conclusion - ExpectationsConclusion - Expectations

WAY FORWARDWAY FORWARD

• Submission to Cabinet Secretariat for comments by 13 June, 2014

• Submission to Permanent Secretaries meeting by 20 June, 2014

• Submission to the Cabinet by 27 June, 2014

Publication of the ESI Strategy and Roadmap by 30 June, 2014

Conclusion - ExpectationsConclusion - Expectations

Reforms is essentially a process rather than a one time event, the Roadmap shall be reviewed from time to time

There is no one size fits all reform model, the proposed reform strategy is tailored to

Tanzanian ESI needs

Concerted efforts from all stakeholders are required to make the reform a success

Conclusion - ExpectationsConclusion - Expectations

THANK YOU!