TANESCO Tariff Adjustment Application for year 2017

ii

Tanzania Electric Supply Company Ltd

TANESCO Tariff Adjustment

Application for year 2017

AUGUST 2016

TANESCO Tariff Review Application

TABLE OF CONTENTS Top Sheet – Request for Regulatory Action .......................................................................... 1 Introduction ........................................................................................................................... 2 Summary of the Application .................................................................................................. 4

Requested Regulatory Action ........................................................................................................... 4 Summary of Proposed Customer Bills.............................................................................................. 4 Alternatives to a Tariff Adjustment.................................................................................................... 5

1 Conditions Imposed and their Current Status .................................................................. 6 2 Current and Proposed Tariffs .......................................................................................... 7

Current Tariffs ................................................................................................................................... 7 Proposed Tariff ................................................................................................................................. 7

3 Current and Proposed Customer Bills ........................................................................... 10 4 Tariff History .................................................................................................................. 14 5 Proposed Customer Benefits ......................................................................................... 16 6 Corporate Financial Reporting ....................................................................................... 18

Audited Financial Statements ......................................................................................................... 18 Projected Financial Statements ...................................................................................................... 18 Financial Implications if Tariff is Not Approved .............................................................................. 18 Affirmation of Completeness .......................................................................................................... 18

7 GENERATION PLAN FOR YEAR 2017 ........................................................................ 19 8 Other Charges............................................................................................................... 20 9 Corporate Business Plan ............................................................................................... 25

Capital Investment Plan .................................................................................................................. 25 ANNEX A: Response to EWURA Order 2016 - 010 ........................................................... 26 ANNEX B: Audited Financial Statements ........................................................................... 28 ANNEX C: Corporate Business Plan (2016/17) .................................................................. 29 ANNEX D: Corporate Budget (2016/2017) ......................................................................... 30

TABLES Table 1: Current Tariff Structure ................................................................................. 7 Table 2: Proposed Tariff Structure ............................................................................. 8 Table 3: Current and Proposed Tariffs ....................................................................... 9 Table 4: Historic Tariffs Evolution ............................................................................. 14 Table 5: Generation Planning for 2017 ..................................................................... 19 Table 6: Other Charges Effective from 1st January 2017 .......................................... 20 Table 7: Financial Statements From 2012 - 2017 ..................................................... 22

TANESCO Tariff Review Application 1

Top Sheet – Request for Regulatory Action

Legal name of the regulated entity

Tanzania Electric Supply Company Limited (TANESCO)

Full address of regulated entity

Umeme Park, Ubungo

P.O. Box 9024

Dar Es Salaam

Authorized officer

Eng. Felchesmi J. Mramba

Managing Director

+255 222 451130 (Direct)

Company Business

To generate, transmit and distribute electricity in Tanzania Mainland and sell bulk supply to Zanzibar.

Date of Incorporation

The Company was incorporated in November, 1931 with an incorporation number 255 and later on issued with a license in February 1957 for 55 years which expired in February 2012. New licences for electricity generation, electricity supply and electricity distribution and cross border trading was issued in March 2013 for 20 years.

Purpose of application

Tanzania Electric Supply Company, Ltd. (TANESCO) respectfully requests that EWURA approve a Tariff Adjustment for year 2017 effectively from January 1, 2017. The proposed tariff increase is from TZS 242.2/kWh to 286.28/kWh equivalent to an average increase of 18.19% effective from January 1, 2017.

It is proposed that this tariff will apply to all sales made from 1st January 2017. The proposed adjustment for 2017 is subject to automatic adjustments for inflation, currency fluctuation and change in fuel prices as per Tariff Setting Rules of 2016 and as modified by the Regulatory from time to time.



Introduction

Due to decrease in operations (fixed and variable) costs, on 24th February, 2016, Tanzania Electric Supply Company Ltd (TANESCO) submitted to The Energy and Water Utilities Regulatory Authority (EWURA) an application requesting EWURA to approve five regulatory actions:

1. Approval of a Multi-Year Tariff Adjustment for two years from April 1, 2016 with a reduction on tariff by 1.1% from April 2016 and 7.9% from January 2017. The proposed tariff is exclusive of inflation, currency fluctuation and change in fuel prices.

2. The automatic adjustments to cater for inflation, currency fluctuation and change in fuel prices which is supposed to take place in quarterly basis

3. Removal of Service Line Application Form fee of TZS 5,000/=,

4. Removal of Monthly Service for T1 Customers; and

5. Approval of charges on other electricity related activities.

The EWURA Board of Directors convened on 29th March 2016 and decided to approve a decrease by the range of 1.5% to 2.4% effective from 1st April, 2016 only for year 2016 and other charges as requested. EWURA also ordered TANESCO to prepare and resubmit to the Regulator a new Tariff Adjustment Application for year 2017 on or before 31st August, 2016.

TANESCO has prepared the 2017 year Tariff Application and resubmitted to EWURA, after reviewing assumptions previously made during the February 2016 submission as follows:

a) Generation Plan for year 2017

b) Long overdue Outstanding amount

Revised Generation Plan Previously it was assumed that during year 2017, the generation mix would not involve significantly usage of liquid fuel plants like Nyakato 60MW HFO and IPTL 103MW HFO power plants. However the revised generation plan shows that for year 2017, Nyakato 60MW and IPTL will generate 260GWh and 348GWh respectively. This scenario has increased the generation costs and changed the possibility of tariff reduction as expected in the previous submission. Clearance of Outstanding financial Obligation It was expected that, the backlog on accumulated debt of TZS 699.57 billion as at 31st December 2015, would be converted into long-term loan and be met through concession loans (from WB and AfDB) and commercial loan from commercial banks. However as of today, the company has not yet received any money from financial institution(s). This scenario has increased our operational costs including deferring some Capex and Operation activities which also contribute to the tariff increase.


Summary of the Application

Tanzania Electric Supply Company Limited (TANESCO) is a Tanzanian parastatal organisation established in 1964 that is wholly owned by the Government of Tanzania. Its business includes the generation, transmission, and distribution of electricity, and the sale of electricity to the Tanzanian mainland as well as bulk power to the island of Zanzibar.

This tariff review application closely follows the format set forth in EWURA’s Tariff Application Guidelines of 2009 and Electricity (Tariff Setting) Rules of 2016, including the specific request that the application be as succinct as possible.

Requested Regulatory Action

With this tariff review application, TANESCO respectfully requests that EWURA approve a Tariff Adjustment of 18.19% for year 2017, effective from January 1 2017. The proposed tariff is exclusive of inflation, currency fluctuation and change in fuel prices and is composed of:

a) Generation Tariff: 155.35 TZS/kWh

b) Transmission Tariff: 23.76 TZS/kWh

c) Distribution Tariff: 107.17 TZS/kWh

Total Tariff: 286.28 TZS/kWh

TANESCO requests that the automatic adjustments to cater for inflation, currency fluctuation and change in fuel prices which is supposed to take place on quarterly basis that is to be applied across all customer categories be implemented timely by the Regulator

These adjustments will enable TANESCO to fund its operational costs, capital investment program, to demonstrate its bankability to donors offering concessionary loans/grants, to increase capacity needed to meet system peak demand and to adequately fund R&M to ensure a consistent and stable supply of electricity.

Summary of Proposed Customer Bills

Average increase in energy tariff by class as of January 1, 2017 under the proposed tariff structure will be as follows:

D1 – Domestic: First 75 kWh/month: 5%, Over 75 units consumption: 14.9%

T1a – General Use: Residential, Commercial and Public Lighting: 15.8%

T1b – General Use: Small Industries, Bill Boards and Communication Towers: 16.4%

T2 – Low Voltage: 19.0%

T3MV -- Medium Voltage: 19.1%

T3HV – High Voltage (Zanzibar inclusive): 19.1%

The bill impact will not be identical for each class since consumption patterns for each customer class differs as it shows in the chapter 3. Therefore, a share of cost is higher depending on the level of usage and for those that their consumption coincides (in time) with the peak demand of the whole system whereby the demand is met by dispatching the most expensive thermal power plants in the TANESCO system.


Alternatives to a Tariff Adjustment

The current tariff regime yields an average revenue of 242.21 TZS/kWh equivalent to TZS 1,517,179 million which shows a decrease of 11%, though the Order 2016 – 010 stated that the approved tariffs imply decreasing tariffs by a range of 1.5% to 2.4% in 2016 compared to the current tariff hence making under recovery of 23.26 TZS/kWh (if the decrease was 2.4%) or 25.71 TZS/kWh (if the decrease was 1.5%) for every unit sold. This under recovery has restricted the ability of the company to provide the services required to meet its obligations to both its lenders and its customers.

The Company has not yet meet its financial obligation for the previous years due to the backlog caused by unmet revenues, inaccessibility of concession loans from World Bank, African Development Bank and immaterialized borrowings from commercial banks. Thus TANESCO will be unable to provide the quality of service that our customers deserve and which TANESCO wants to provide if the tariff is not increased.

It is therefore, reasonable to consider what steps TANESCO would take in the event that a tariff not increased as expected. The company will no choice apart for continuing exercising the following options:

Deferred Repair and Maintenance. In the recent past, TANESCO has spent only a fraction of the funds earmarked for repairs and maintenance (R&M) dictated by international best practice due to cash flow problems. The best industry practice requires 15 percent of revenues as desired target for R&M expenditures; TANESCO’s actual expenditure in 2014/15 was only about 6 percent of revenues. Continued deferral can only be expected to result in increased forced outages for both generating equipment and the T&D networks.

Increase Business Risks. TANESCO has always been under-recovering for every unit sold including the period since our last tariff application in February 2016; this has resulted in non-fulfilment of contractual obligations and increased creditors outstanding to TZS 699.57 billion as of 31st Dec 2015. If the tariff is not reviewed as requested, the financial capacity of the company will be paralyzed. This situation may lead to Creditors to take legal action, tarnish TANESCO’s business image and goods & service providers refrain from doing business with TANESCO.


1 Conditions Imposed and their Current Status

The findings of EWURA’s last electricity tariff review were documented in the Tariff Adjustment Order No. 2016 - 010 (April 1, 2016). In addition to authorizing a tariff increase, that order specified a list of conditions imposed on TANESCO in pursuit of operational performance improvement.

Pursuant to Condition (n) of that Order, TANESCO submitted a detailed summary of actions taken as of May 31, 2016; a table from that document which summarizes these actions is attached as Annex A.


2 Current and Proposed Tariffs

Current Tariffs

The current tariff regime distinguishes between the following customer groups:

D1 -- Domestic Low Usage, for low consumption users;

T1 – General Usage, for general use of electricity including residential, small industries, commercial and public lighting;

T2 – Low Voltage Maximum Demand Usage, for general use at 400 Volts with average consumption greater than 7500 kWh per meter reading period;

T3 – Medium Voltage Maximum Demand Usage, for general use where power is metered at 11/33 kV; and

T5 – High Voltage for general use where power is metered at 132kV and above (including bulk supply to Zanzibar).

Table 1 below shows the components of each tariff:

Table 1: Current Tariff Structure

CUSTOMER CATEGORY

TARIFF COMPONENTS

BASIC CHARGE

(TSh/month)

ENERGY CHARGE (TSh/kWh)

DEMAND CHARGE

(TSh/kVA/mo)

D1

T1

T2

T3MV

T3HV

The current tariffs for each class were authorized by EWURA’s Board of Directors in Order No. 2016-010 on 29th March, 2016, which become effective from 1st April, 2016.

Proposed Tariff

TANESCO wishes to apply for a tariff adjustment. It is proposed that build up of tariffs be set out in accordance with the Electricity (Tariff Setting) Rules, 2016 that directs tariffs computation. The same requires tariffs for different segments namely generation, transmission and distribution & supply based on the company’s data/information as approved by EWURA during this tariff review. The proposed tariff structure and increase for year 2017 period commencing in January 1, 2017 is summarized in Tables 2 and 3 respectively.


The Proposed Tariff Structure is as follows:

D1 -- Domestic Low Usage, for low consumption users;

T1a – General Usage, for general use of electricity including residential, small commercial and public lighting;

T1b – General Usage for light industrial use, Billboards and Communication towers

T2 – Low Voltage Maximum Demand Usage, for general use at 400 Volts with average consumption greater than 7500 kWh per meter reading period;

T3MV – Medium Voltage Maximum Demand Usage, for general use where power is metered at 11/33 kV; and

T3HV – High Voltage for general use where power is metered at 132kV and above (including bulk supply to Zanzibar).

Table 2: Proposed Tariff Structure

CUSTOMER CATEGORY

TARIFF COMPONENTS

BASIC CHARGE

(TSh/month)

ENERGY CHARGE (TSh/kWh)

DEMAND CHARGE

(TSh/kVA/mo)

D1

T1a

T1b

T2

T3MV

T3HV

The initial tariff adjustment is proposed to be effective from January 1, 2017. The average rate of increase proposed on that date is 18.19%, from an average targeted tariff yield of 242.21 TZS/kWh to a total tariff of 286.28 TZS/kWh.


Table 3: Current and Proposed Tariffs

The tariff apportionment among different customers categories was based on a share of cost of supply and the usage whereby the high proportion was allocated to customers whose consumption coincides (in time) with the peak demand of the whole system whereby the demand is met by dispatching the most expensive thermal power plants in the TANESCO system.

Category Unit CurrentTariff

ProposedTariff

PercentageChange

D1 Lessthan75units 100 105 5.0%Morethan75units 350 402 14.9%

T1 Units(kWh) 292 338 15.8%

T1b BasicCharge - 7,655Units(kWh) 292 340 16.4%

T2 BasicCharge 14,233 16,368 15.0%Units(kWh) 195 232 19.0%kVA 15,004 17,105 14.0%

T3MV BasicCharge 16,769 19,250 14.8%Units(kWh) 157 187 19.1%kVA 13,200 15,180 15.0%

T3HV Units 152 181 19.1%kVA 16,550 19,022 14.9%


3 Current and Proposed Customer Bills

Current and proposed customer bills by tariff class are summarized below.

Tariff D1 – Domestic Low Usage

Tariff T1a – Domestic – General Usage

Rate Current Proposed

Energy 0-75kWh 100 105

Energy >75kWh 350 402

75

Energy BillImpact

kWh TZS/month TZS/kWh TZS/month TZS/kWh %Change

25 2,500 100 2,625 105 5%

50 5,000 100 5,250 105 5%

75 7,500 100 7,875 105 5%

100 18,750 188 20,550 206 10%

120 27,750 231 30,690 256 11%

150 41,250 275 45,900 306 11%

170 50,250 296 56,040 330 12%

179 54,300 303 60,603 339 12%

200 63,750 319 71,250 356 12%

250 86,250 345 96,600 386 12%

251 86,700 345 97,107 387 12%

270 95,250 353 106,740 395 12%

CurrentBill ProposedBill


Energy 292 338

Demand - -

BasicCharge - -

Energy BillImpact


25 7,300 292 8,450 338 16%

50 14,600 292 16,900 338 16%

75 21,900 292 25,350 338 16%

100 29,200 292 33,800 338 16%

120 35,040 292 40,560 338 16%

150 43,800 292 50,700 338 16%

170 49,640 292 57,460 338 16%

179 52,268 292 60,502 338 16%

200 58,400 292 67,600 338 16%

250 73,000 292 84,500 338 16%

300 87,600 292 101,400 338 16%

350 102,200 292 118,300 338 16%

400 116,800 292 135,200 338 16%

450 131,400 292 152,100 338 16%

500 146,000 292 169,000 338 16%



Tariff T1b – General Usage – Light industries, Billboards and Communication Towers


Energy 292 340

Demand - -

BasicCharge - 7,655

Energy BillImpact


300 87,600 292 109,655 366 25%

350 102,200 292 126,655 362 24%

400 116,800 292 143,655 359 23%

450 131,400 292 160,655 357 22%

500 146,000 292 177,655 355 22%

550 160,600 292 194,655 354 21%

600 175,200 292 211,655 353 21%

650 189,800 292 228,655 352 20%

700 204,400 292 245,655 351 20%

750 219,000 292 262,655 350 20%

800 233,600 292 279,655 350 20%

900 262,800 292 313,655 349 19%

1100 321,200 292 381,655 347 19%

1200 350,400 292 415,655 346 19%

1300 379,600 292 449,655 346 18%

1500 438,000 292 517,655 345 18%



Tariff T2 - Low Voltage Maximum Demand Usage


Energy 195 232

Demand 15,004 17,105

BasicCharge 14,233 16,368

ElectricityConsumption kW BillImpact

Energy Demand LoadFactor

kWh kVA % TZS/month TZS/kWh TZS/month TZS/kWh %Change

7,500 38 0.30 2,046,885.00 273 2,406,358.00 321 18%

7,500 29 0.40 1,904,347.00 254 2,243,860.50 299 18%

7,500 23 0.50 1,818,824.20 243 2,146,362.00 286 18%

7,500 19 0.60 1,761,809.00 235 2,081,363.00 278 18%

7,500 16 0.70 1,721,083.86 229 2,034,935.14 271 18%

7,500 14 0.80 1,690,540.00 225 2,000,114.25 267 18%

7,500 13 0.90 1,666,783.67 222 1,973,031.33 263 18%

20,000 101 0.30 5,429,637.00 271 6,383,973.00 319 18%

20,000 76 0.40 5,050,786.00 253 5,952,071.75 298 18%

20,000 61 0.50 4,823,475.40 241 5,692,931.00 285 18%

20,000 51 0.60 4,671,935.00 234 5,520,170.50 276 18%

20,000 43 0.70 4,563,691.86 228 5,396,770.14 270 18%

20,000 38 0.80 4,482,509.50 224 5,304,219.88 265 18%

20,000 34 0.90 4,419,367.67 221 5,232,236.33 262 18%

50,000 254 0.30 13,575,249.00 272 15,961,038.00 319 18%

50,000 191 0.40 12,622,495.00 252 14,874,870.50 297 18%

50,000 152 0.50 12,050,842.60 241 14,223,170.00 284 18%

50,000 127 0.60 11,669,741.00 233 13,788,703.00 276 18%

50,000 109 0.70 11,397,525.57 228 13,478,369.43 270 18%

50,000 95 0.80 11,193,364.00 224 13,245,619.25 265 18%

50,000 85 0.90 11,034,571.67 221 13,064,591.33 261 18%

100,000 507 0.30 27,121,261.00 271 31,888,603.00 319 18%

100,000 380 0.40 25,219,504.00 252 29,720,544.25 297 18%

100,000 304 0.50 24,078,449.80 241 28,419,709.00 284 18%

100,000 254 0.60 23,317,747.00 233 27,552,485.50 276 18%

100,000 217 0.70 22,774,387.86 228 26,933,040.14 269 18%

100,000 190 0.80 22,366,868.50 224 26,468,456.13 265 18%

100,000 169 0.90 22,049,909.00 220 26,107,113.00 261 18%



Tariff T3MV - Medium Voltage Maximum Demand Usage

Tariff T3HV - High Voltage Maximum Demand Usage


Energy 157 187

Demand 13,200 15,180

BasicCharge 16,769 19,250




250,000 1,268 0.30 56,004,369.00 224 66,017,490.00 264 18%

250,000 951 0.40 51,819,969.00 207 61,205,430.00 245 18%

250,000 761 0.50 49,309,329.00 197 58,318,194.00 233 18%

250,000 634 0.60 47,635,569.00 191 56,393,370.00 226 18%

250,000 543 0.70 46,440,026.14 186 55,018,495.71 220 18%

250,000 476 0.80 45,543,369.00 182 53,987,340.00 216 19%

250,000 423 0.90 44,845,969.00 179 53,185,330.00 213 19%

500,000 2,537 0.30 112,005,169.00 224 132,030,910.00 264 18%

500,000 1,903 0.40 103,633,069.00 207 122,402,995.00 245 18%

500,000 1,522 0.50 98,609,809.00 197 116,626,246.00 233 18%

500,000 1,269 0.60 95,260,969.00 191 112,775,080.00 226 18%

500,000 1,087 0.70 92,868,940.43 186 110,024,247.14 220 18%

500,000 951 0.80 91,074,919.00 182 107,961,122.50 216 19%

500,000 846 0.90 89,679,569.00 179 106,356,470.00 213 19%

2,000,000 10,147 0.30 447,957,193.44 224 528,050,738.11 264 18%

2,000,000 7,610 0.40 414,472,087.33 207 489,542,866.08 245 18%

2,000,000 6,088 0.50 394,381,023.67 197 466,438,142.87 233 18%

2,000,000 5,074 0.60 380,986,981.22 190 451,034,994.06 226 18%

2,000,000 4,349 0.70 371,419,808.05 186 440,032,744.90 220 18%

2,000,000 3,805 0.80 364,244,428.17 182 431,781,058.04 216 19%

2,000,000 3,382 0.90 358,663,577.15 179 425,363,079.37 213 19%

5,000,000 25,368 0.30 1,119,867,830.11 224 1,320,097,970.28 264 18%

5,000,000 19,026 0.40 1,036,155,064.83 207 1,223,828,290.21 245 18%

5,000,000 15,221 0.50 985,927,405.67 197 1,166,066,482.17 233 18%

5,000,000 12,684 0.60 952,442,299.56 190 1,127,558,610.14 226 18%

5,000,000 10,872 0.70 928,524,366.62 186 1,100,052,987.26 220 18%

5,000,000 9,513 0.80 910,585,916.92 182 1,079,423,770.10 216 19%

5,000,000 8,456 0.90 896,633,789.37 179 1,063,378,823.43 213 19%



Energy 152 181

Demand 16,550 19,022

BasicCharge - -




21,480,250 48,080 0.68 4,060,721,999.84 189 4,802,503,009.82 224 18%

21,480,250 47,383 0.69 4,049,189,767.96 189 4,789,248,259.68 223 18%

21,480,250 46,706 0.70 4,037,987,028.42 188 4,776,372,216.68 222 18%

21,480,250 46,048 0.71 4,027,099,859.00 187 4,763,858,879.12 222 18%

21,480,250 45,409 0.72 4,016,515,110.96 187 4,751,693,134.27 221 18%

21,480,250 44,787 0.73 4,006,220,356.02 187 4,739,860,697.50 221 18%

21,480,250 44,182 0.74 3,996,203,837.69 186 4,728,348,056.32 220 18%



4 Tariff History

Table 4 summarizes the historical evolution of tariffs by customer class from June 2006. The 2006 and 2007 increases were of 5 and 6 percent respectively, designed to adjust for inflation. The 2008 increase average 21.7% followed by an emergency tariff adjustment of 40.29% in January 2012, then in February 2013, the emergency tariff was changed to a normal tariff adjustment and then increased by 39.19% effective from January 2014 tariff and followed by a tariff reduction of 2.2% as a result of an Automatic Adjustment in April 2015 and then a reduction by the range of 1.5% to 2.4% in April 2016 Although the actual computations shows that the tariff was reduced by 11% in April 2016.

Table 4: Historic Tariffs Evolution

CURRENT

from from from from from

1-Jun-06 1-Feb-07 1-Jan-08 1-Jan-12 1-Feb-13

(TSh) (TSh) (TSh) (TSh) (TSh)

Basic charge 0 0 0 0 0

Energy charge

0 – 50 kWh/mo 60 60

High Cost Units Energy charge

Penalty - High Usage: more than 50 kWh 273 273

Basic charge/month 1,785 1,892 2,303 3,841 3,841

Energy charge 100 106 129 221 221


Energy charge 66 70 85 132 132

Demand (kVA) 7,245 7,680 9,347 16,944 16,944



Demand (kVA) 6,720 7,123 8,669 14,520 14,520



Demand (kVA) 3,686 3,907 4,755 12,079 12,079

TANESCO

Board EWURA EWURA EWURA EWURA Approving Authority:

T2 Low Voltage Supply

T3 High Voltage Supply

T5 Zanzibar (Bulk Supply)

49

121 128 156

T1 General Use

CUSTOMER CATEGORY COMPONENT

D1

Domestic Low Usage 38 40


CUSTOMER CATEGORY COMPONENT

Year 2014 Year 2015 Year 2016

from 1-Jan-14

(TSh)

from 1-March-15

(TSh)

from 1-April-16

(TSh)

D1

Domestic Low Usage

Basic charge 0 0 0

Energy charge 0 – 75 kWh/mo

100 100 100

High Cost Units Penalty - High Usage

Energy charge Above 75 kWh

350 350 350

T1 General Use Basic charge/mo 5,520 5,520 0

Energy charge 306 298 292

T2 Low Voltage Supply

Basic charge/mo 14,233 14,233 14,233


Demand (kVA) 15,004 15,004 15,004

T3/ T3MV

Medium Voltage Supply

Basic charge/mo 16,769 16,769 16,769


Demand (kVA) 13,200 13,200 13,200

T5/ T3HV

High Voltage Supply

Basic charge/mo 0 0 0


Demand (kVA) 16,550 16,550 16,550

Approving Authority EWURA EWURA EWURA


5 Proposed Customer Benefits

The proposed tariff comes with a specific set of performance targets on the part of TANESCO. In return to the tariff increase, we commit to provide our customers with benefits in the following areas:

Improvements in Customer Service:

1. TANESCO will strengthen media communications with customers, in order to receive and follow-up on issues/concerns raised by customers without requiring them to physically go to TANESCO offices.

2. TANESCO will frequently be informing its customers about services and products.

3. TANESCO will continue to strengthen its customer service charter whereby customers are made aware of their rights and obligations as electricity consumers.

4. TANESCO will continue to open more district offices in close proximity to customers.

Reduction of operational costs:

1. TANESCO will continue and expand usage of banks in collecting revenues.

2. TANESCO to continue its LUKU rollout program by and installation of Automatic Meter Reading (AMR) meters for new T2 and T3 customers.

3. TANESCO will increase use of mechanised tools for distribution network operations.

4. TANESCO will continue the use of fleet management system by employment of car track system.

5. TANESCO will start usage of AMR systems to monitor fuel consumption in its isolated power stations.

Significant reduction in power rationing:

1. TANESCO will continue adding new generation capacity.

2. TANESCO will continue to strengthen its transmission and distribution systems.

3. TANESCO will carry out the energy efficiency programme such as Demand Side Management.

Improved system reliability and quality of supply by reducing outages through upgrading and rehabilitation of the transmission and distribution lines:

1. TANESCO continue the process of shifting to high voltage distribution systems (HVDS) instead of relying on long low voltage lines.

2. TANESCO will continue investing in the rehabilitation/maintenance of existing distribution systems.

3. TANESCO will use 33kV lines instead of 11kV lines in most new areas.

Reduction in transmission losses from 6.25% in 2016 to 6.0% by 2017:


1. TANESCO will invest in upgrading and maintenance of the network.

2. TANESCO, with the support of Government and Development Partners, will complete the backbone transmission project of a 400 kV network from Dodoma – Iringa – Singida – Shinyanga this year 2016, which will reduce losses resulting from long transmission distances and overloaded lines.

Reduction in distribution losses from 11.5% in 2016 to 11% by 2017:

1. TANESCO, through its own budget and credits from institutions such as the World Bank and the African Development Bank, will continue to invest in reinforcement and maintenance of the backbone 33 and 11 kV networks and substations.

2. TANESCO will increase its efforts to reduce illegal consumption through extensive revenue protection programmes, including (i) increased inspections, (ii) continue investing in new metering systems such as Automatic Meter Reading (AMR), and (iii) installation of meter cabinets equipped with the appropriate security equipment, preventing meter tampering.

Accelerate customers’ connection.

1. TANESCO is committed to attain a target of connecting 250,000 new customers in year 2017.

2. These targets will also be achieved through contracting private contractors to speed up new customers’ connections in addition to TANESCO’s own capacity.


6 Corporate Financial Reporting

Audited Financial Statements

Audited financial accounts are available from 2012 to 2013 and for year 2014/15, but not signed (eighteen months report). Audit reports for each of these years are attached in Annex B.

Projected Financial Statements

Financial statements from the year 2015/16 Current Estimates and Projections for 2016/17 are presented in Table 6 with the assumption that the proposed tariff will take effect from 1st January, 2017.

Financial Implications if Tariff is Not Approved

If the Tariff Application to increase the tariff by 7.74% will not be approved by the Regulator, TANESCO will continue using the same tariff subject to automatic adjustment done quarterly.

However, this will have an effect on implementation of Repair and Maintenance (R&M) and Capital Investment Plan (CIP). Reduction on R&M expenditure will lead to increased losses and poor quality of power supplied.

On the other hand, failure to achieve CIP expenditure will negatively impact implementation of various other projects including connection of new customers, voltage improvement, revenue protection and in turn result into a fall in Tanzania’s access to electricity below the target of 75% by year 2025.

Affirmation of Completeness

The TANESCO Management affirms that all contractual agreements of the company that may have an impact on the proposed tariffs have been included in this application.


7 GENERATION PLAN FOR YEAR 2017

The Company has assumed an average hydrology for year 2017 as per a table below.

Table 5: Generation Planning for 2017

FORECAST

Energy

Demand

(GWh)

Mtera Kidatu Kihansi NYM HALE NPFMWEN

GAYOVI

UWEMBA

MIN HYD

TOTAL

HYDRO

SONGAS

GasUGP2 UGP1 TGP KINY 1-GT IPTL HFO

NYAKATO

HFO

TANESCO

DIESELTANWT TPC

TOTAL

THERMAL

Energy Not

Supplied

Jan-17 627 55 100 40 2 3 0 2.1 0.5 0.3 203 123 78 60 25 90 16 28 0.4 0.4 2.0 424 0

Feb-17 567 40 80 45 2 3 0 1.9 0.5 0.3 173 112 67 60 23 75 29 27 0.4 0.4 2.0 394 0

Mar-17 654 5 118 105 3 6 25 2.1 0.5 0.3 264 116 75 60 25 99 8 4 0.0 0.4 1.8 389 0

Apr-17 616 0 125 110 2 6 32 2.1 0.5 0.3 278 119 60 60 22 69 4 3 0.0 0.4 0.0 338 0

May-17 650 0 120 102 2 6 34 2.0 0.5 0.3 267 117 67 60 25 99 10 4 0.0 0.4 0.0 383 0

Jun-17 604 15 110 80 2 6 30 1.8 0.5 0.3 246 119 67 60 24 80 3 3 0.0 0.4 1.5 358 0

Jul-17 634 23 115 75 3 6 18 1.4 0.5 0.2 242 123 67 63 25 100 3 8 0.0 0.4 2.0 392 0

Aug-17 656 44 76 60 2 4 13 1.3 0.5 0.2 201 123 76 64 25 91 33 40 0.0 0.4 2.0 455 0

Sep-17 637 44 76 39 2 3 11 0.9 0.5 0.2 176 122 79 62 25 100 35 35 0.4 0.4 2.0 461 0

Oct-17 697 43 73 42 2 2 10 0.8 0.5 0.2 173 123 75 63 25 125 73 37 0.4 0.4 2.0 523 0

Nov-17 675 40 69 40 2 2 10 0.6 0.5 0.2 164 119 83 63 25 116 67 35 0.4 0.4 2.0 511 0

Dec-17 694 40 69 48 2 2 11 0.9 0.5 0.2 174 117 77 63 25 132 67 37 0.4 0.4 2.0 520 0

TOTAL 7711 349 1130 786 29 48 194 18 6 3 2562 1434 872 737 294 1177 348 260 2 5 19 5148 0

GRID PRODUCTION PLAN FROM JANUARY 2017 TO DECEMBER 2017 - AVERAGE HYDROLOGY

HYDRO-THERMAL MIX GENERATION

Month

PRODUCTION, GWh


8 Other Charges

A) Power Factor (PF) Surcharge As per General Conditions of Supply, the Company Standard tariffs are

applicable only to supply of electricity to consumers with Power Factor (PF) not

lower than 0.95 in case of light loads or not less than 0.90 in case of other loads.

Below these PF, the consumer will be subjected to Power Factor Surcharge as

follows:

For Tariff Categories where kVA Demand is charged, Tariff (Energy and

Demand) will be increased by multiplying by 1.25 for each 1% variation

in PF below 90%.

B) Highest Maximum Demand (Billing Demand) For Tariff Categories where kVA Demand is charged, Billing Demand (BD) is the higher of kVA Maximum Demand (MD) during the meter reading period and 75% of the highest kVA Maximum Demand for the preceding three (3) months, provided that during the first three (3) months of operation the Billing Demand shall be the higher of kVA Maximum Demand during the period and 75% of the highest kVA Maximum Demand recorded commencing from the month the consumer is connected.

Table 6: Service Line Rates and Other Charges Effective from 1st January 2017

A) Single Phase Charges

Service Line Urban (TZS VAT Excl.)

Rural (TZS VAT Excl.)

Within 30 Meters 272,000 150,000

Within 70 meters, one pole 436,964 286,220

Within 120 meters, two poles 590,398 385,300

B) Three Phase Charges for Urban and Rural Areas

Service Line Meter Type

Urban (TZS VAT Excl.)

Rural (TZS VAT Excl.)

Within 30 Meters LUKU 772,893 772,893

Within 70 meters, (one pole)

LUKU 1,058,801 1,058,801

Within 120 meters, two poles

LUKU 1,389,115 1,389,115


C) Charges for installation of a Meter in case of Damage due to Meter

Tampering/Broken

Customer Category

Description Charges TZS (VAT exclusive)

D1 & T1 LUKU (Single phase) 60,000.00

LUKU (Three phase) 200,000.00

AMR (Three phase) 300,000.00

T2 CT- Operated Meters 1,200,000.00

T3 CT/VT Operated Meters 1,200,000.00

D) Testing and Inspection of Installation Charges

Customer Category

Charges TZS (VAT exclusive)

D1 20,000.00

T1 20,000.00

T2 30,000.00

T3 50,000.00

E) Temporary Power Supply

Customer Category


T2 Connection fee Full cost + 10%

T3 Full cost + 10%

T2 Meter deposit 200,000.00

T3 500,000.00

F) Energy Deposit for Post-paid Meters

Customer Category


D1 Single phase 30,000.00

T1 Single phase 30,000.00

T1 Three phase 150,000.00



G) Reconnection Charges: TZS 7,000.00


Table 7: Financial Statements From 2012 - 2017

(a) – STATEMENT OF COMPREHESIVE INCOME

(FiguresinTZSMillion)

Revenue

CostofSale

GrossProfit/(Loss)

OtherOperatingIncome

2012 2013 2014/15

Actual Actual Actual-not

signed(18mo)820,436 933,525 1,957,756

(1,162,437) (1,417,515) (1,771,342)(342,001) (483,990) 186,414299,389 325,974 374,380

2015/2016 2016/17 YEAR2017

Current

Estimates

Budget-July

'16-June'17

Forecast

Jan-Dec20171,466,649 1,580,295 1,937,570

(1,096,285) (1,093,107) (1,159,787)370,364 487,188 777,784118,339 141,724 147,393

OperatingExpenses

OperatingProfit/(Loss)

InterestIncomeonBankdeposits

Financecosts

SURPLUS/(DEFICIT)beforeTax

(130,956) (228,637) (372,458)(173,568) (386,653) 188,336

1,419 4,335 1,912(51,934) (85,386) (218,506)

(224,083) (467,704) (28,258)

(367,914) (436,820) (450,143)120,789 192,092 475,034

- - -(77,145) (180,996) (152,612)43,644 11,096 322,422

Incometaxcredit

PROFIT/(LOSS)FORTHEYEAR

OtherComperehensiveincome

OtherComprehensiveIncomeafterTaxTOTALCOMPREHENSIVEPROFIT/(LOSS)FORTHEYEAR

45,629 - 1,960(178,454) (467,704) (26,298)

1,055 -1,055 -

(177,399) (467,704) (26,298)

- -43,644 11,096 322,422

(13,093) (3,329) (96,727)

30,551 7,767 225,695


(b) – FINANCIAL POSITION YEAR 2012 T0 2016/17

2012 2013 2014/15 2015/16 2016/17

ACTUAL ACTUAL ACTUAL (18) CURR ESTIM PROJECTION

Non-current assets

Property, plant and equipment 2,247,081 2,662,769 2,740,850 2,751,036 2,833,567

Capital work in progress 435,314 427,424 1,514,113 1,574,201 1,636,674

Intangible asset - 2,734 928 928 928

Investment property - 725 453 453 453

Investments 1,056 1,056 3,333 3,333 3,333

Capacity charges prepayment 51,878 47,399 40,681 40,681 40,681

2,735,329 3,142,107 4,300,358 4,370,632 4,515,635

Current assets

Inventories 127,739 123,659 235,730 252,597 270,671

Assets held for sale - 561 561 561 561

Trade and other receivables 224,914 260,618 357,214 238,247 158,900

Prepayments 100,650 65,663 61,277 161,031 423,177

Current income tax recoverable 2,617 3,013 3,536 3,559 3,583

Bank and cash balances 127,591 178,241 222,114 485,022 506,129

583,511 631,755 880,432 1,141,017 1,363,021

Total assets 3,318,840 3,773,862 5,180,790 5,511,649 5,878,656

Capital and reserves

Share capital 986,717 986,717 986,717 986,717 986,717

Advance towards share capital 161,913 359,909 385,914 385,914 385,914

Accumulated losses (982,676) (1,450,380) (1,476,678) (1,416,737) (1,359,229)

Revaluation reserve 854,325 854,325 853,270 858,447 863,655

Fair valuation reserve - - 258,887 258,887 258,887

Total equity 1,020,279 750,571 1,008,110 1,073,228 1,135,945

Non-current liabilities

Grants 816,097 1,021,181 1,788,435 1,839,545 1,892,116

Borrowings 237,206 1,000,543 1,265,386 1,288,788 1,312,622

Consumer deposits and IPTL

one day gain 15,895 23,048 21,164 21,470 21,781

Other employment benefits 21,396 22,482 23,567 24,119 24,684

Trade and other payables(IPTL) - 34,594 (3) - -

1,090,594 2,101,848 3,098,550 3,173,922 3,251,202

Current liabilities

Bank overdraft 126,728 - - - -

Trade and other payables 707,012 789,439 989,049 1,179,417 1,406,428

Borrowings 374,227 132,004 85,082 85,082 85,082

Deferred tax liability - - - -

Deferred gain - - - -

1,207,967 921,443 1,074,130 1,264,499 1,491,509

Total liabilities 2,298,561 3,023,291 4,172,680 4,438,421 4,742,712

Total equity and liabilities 3,318,840 3,773,862 5,180,790 5,511,649 5,878,656


(c) – CASH FLOW STAEMENT

STATEMENT OF CASH FLOW FROM YEAR 2012 T0 2016/17

CASH FLOWS FROM OPERATING ACTIVITIES 2012 2013 2014/15 2015/16 2016/17

Cash generated from operating activities (38,224) (233,676) 366,420 66,372 183,210

Interest received 1,419 4,335 1,912 3,124 956

Interest paid (19,141) (23,971) (68,982) (46,477) (34,491)

Tax paid (138) (396) (523) (459) (261)

Net cash (used)/ generated from operating

activities (56,084) (253,708) 298,828 22,560 149,414

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to capital work in progress (337,140) (504,706) (1,316,815) (910,761) (455,380)

Purchase of intangible asset - (3,935) - - -

Proceeds from disposal of property, plant and

equipment 72 1 40 28 34

Net cash used in investing activities (337,068) (508,640) (1,316,775) (910,733) (455,346)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings 140,938 602,589 316,319 259,342 287,831

Loan repayment (60,000) (60,000) (48,000) (48,000) (48,000)

Proceeds from grants 207,939 308,640 767,494 538,067 652,781

Advances towards share capital 1,970 88,497 26,005 57,251 41,628

Net cash generated from financing activities 290,847 939,726 1,061,818 806,660 934,239

Net increase/(decrease) in cash and cash

equivalents (102,305) 177,378 43,871 (81,513) 628,307

Movement in cash and cash equivalents

Cash and cash equivalents at beginning of year 103,168 863 178,241 89,120.50 867

(Decrease)/increase during the year (102,305) 177,378 43,871 (81,513) 628,307

Cash and cash equivalents at end of year 863 178,241 222,112 7,608 629,174


9 Corporate Business Plan

The complete Corporate Business Plan (CBP) 2016/17, is included in this document as Annex C. The CBP highlights among others the following key areas:

Capital Investment Plan

Chapter 8.3 of CBP, summarizes the Capital Investment Plan (CIP) whereby projects and sources of fund reflecting TANESCO’s current ambition to expand its capital base, these include new projects in generation, transmission and distribution areas.


ANNEX A: Response to EWURA Order 2016 - 010

S/No. Order TANESCO’s Action Plan

(a) Strictly follow the least cost merit order dispatch and submit to the Authority, on a monthly basis, reports showing the actual generation and generation plan as proposed by this Order

Submitted by letter ref. SMSP/MCS/EWURA/23 dated 24

th August,

2016.

(b) By 30th June 2016, TANESCO shall submit a revised Capital Investment Program in line with the allowed sum of depreciation and return on its regulatory asset base equivalent to TZS 351.4 billion, and any change to the plan should get the approval of the Authority

Submitted on 17th August 2016 by email due to

its large size.

(c) Resubmit its 2017 tariff application by 31st August 2016 It is now re-submitted

(d)

Submit on quarterly basis to the Authority the supply and reliability data of 11kV, 33kV, 66kV, 132kV, and 220kV by Region for verification. This includes total duration of customer interruptions in hours per feeder, planned outages, unplanned outages, total number of outage per feeder, total number of customers served per feeder, total number of customers affected per feeder, total unserved energy in kWh


th August,

2016.

(e)

Within six months, submit to EWURA implementation plan for metering system improvement in the distribution network to enable accurate measurement of energy and determination of system losses

Preparation of the Plan is in progress and it will be submitted before the end of September 2016

(f)

Within six months, design strategies for fighting illegal connections and eliminate delays in service provision pursuant to the Customer Service Charter

Preparation of the Plan is in progress and it will be submitted before the end of September 2016

(g)

Enhance dissemination of the Customer Service Charter to customers and further ensure timely resolution of customer complaints as required by the Customer Service Charter

The booklets are available at all TANESCO’s regional and district offices

(h)

Connect to D1 tariff category all new single phase domestic customers in rural areas


th August,

2016.


S/No. Order TANESCO’s Action Plan

(i) Transfer a D1 customer to the T1 customer category in the event that such a D1 customer purchases more than an average of 75kWh in a period of three consecutive months

Complying

(j)

Submit to the Authority quarterly reports on efforts made to collect revenues from outstanding debtors and payments made to outstanding creditors


its large size.

(k)

Submit to the Authority, an application for periodic adjustments of tariffs taking into account changes in fuel costs, inflation and currency fluctuations pursuant to the Electricity (Tariff Setting) Rules, 2016

Submitted on July 2016 by email due to its large size.

(l) Submit to the Authority for periodic adjustments, reports on grants and subsidies received from the Government and / or Development Partners


its large size.

(m) On quarterly basis, continue to provide the Authority with information about its financial and operating condition in accordance with the requirements of the Authority


its large size.

(n)

On or before 31st May 2016, submit to the Authority the implementation

plan of each Condition of this Order


th June,

2016.


ANNEX B: Audited Financial Statements

Attached


ANNEX C: Corporate Business Plan (2016/17)

Attached


ANNEX D: Corporate Budget (2016/2017)

The Corporate Budget, is bound separately, but is intended as an integral part of this application.

TANESCO Tariff Adjustment Application for year 2017

Documents