Public Disclosure Authorized

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 53557-TZ

Public Disclosure Authorized

PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 101.50 MILLION (US$150.0 MILLION EQUIVALENT) TO THE UNITED REPUBLIC OF TANZANIA FOR A BACKBONE TRANSMISSION INVESTMENT PROJECT

Public Disclosure Authorized

July 29, 2010

Public Disclosure Authorized

Energy Group Sustainable Development Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS (Exchange Rate Effective as of June 30, 2010) Currency Unit = TSh 1,489 = US$1.4789 = Tanzania Shillings (TSh) US$1 SDR 1

FISCAL YEAR July 1 - June 30 (Government of Tanzania) ABBREVIATIONS AND ACRONYMS AC AfDB AICD AWPB Bcf BoT BTU CAG CAS CIP CPAR CQS DFID DGIS DSCR DWDM EAPP EDCF EBITDA EIB EIRR EMP ENPV ERR ESIA ESMP EU EWURA FIRR FM FMA FMR FNPV FOCL FOCS FRP GDP GEF Alternating Current African Development Bank Africa Infrastructure Diagnostic Study Annual Work Plans and Budgets Billion cubic feet Bank of Tanzania British Thermal Unit Controller and Auditor General Country Assistance Strategy Capital Investment Plan Country Procurement Assessment Review Selection based on Consultants Qualifications UK Department for International Development Netherlands Directorate General of Development Cooperation Debt Service Coverage Ratio Dense Wavelength Division Multiplexing Eastern Africa Power Pool Economic Development Cooperation Fund of South Korea Earnings before Interest, Taxes, Depreciation and Amortization European Investment Bank Economic Internal Rate of Return Environmental Management Plan Economic Net Present Value Economic Rate of Return Environmental and Social Impact Assessment Environmental and Social Management Plan European Union Energy and Water Utilities Regulatory Authority Financial Internal Rate of Return Financial Management Financial Management Assessment Financial Monitoring Report Financial Net Present Value Fiber Optical Communication Line Fiber Optical Communication System Financial Recovery Plan Gross Domestic Product Global Environment Facility

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GHG GOT GTZ GVEP HBS HFO HPP HVAC HVDC IC ICB ICR IDC IFC IFMS IFR IMF IPP IPTL IRR JAST JICA kV kWh MCC M&E MEM MKUKUTA mmcfd MOFEA MoU MW NAO NBI NBTF NCB NDF NELSAP NEMC NEP NGO NORAD NPV NSGRP OHL OISF OFC O&M OPGW PAD PDO

Greenhouse Gas Government of the United Republic of Tanzania Deutsche Gesellschaft fr Technische Zusammenarbeit Global Village Energy Partnership Household Budget Survey Heavy Fuel Oil Hydro Power Project High Voltage Alternating Current High Voltage Direct Current Individual Consultant International Competitive Bidding Implementation Completion and Results Report Interest During Construction International Financial Corporation Integrated Financial Management System Interim Financial Report International Monetary Fund Independent Power Producer Independent Power Tanzania Ltd. Internal Rate of Return Joint Assistance Strategy for Tanzania Japan International Cooperation Agency Kilovolt Kilowatt hour Millennium Challenge Corporation Monitoring and Evaluation Ministry of Energy and Minerals Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania Millions of cubic feet per day Ministry of Finance and Economic Affairs Memorandum of Understanding Megawatt National Audit Office Nile Basin Initiative Nile Basin Trust Fund National Competitive Bidding Nordic Development Fund Nile Equatorial Lakes Subsidiary Action Program National Environmental Management Council National Energy Policy Non-Governmental Organization Norwegian Agency for Development Cooperation Net Present Value National Strategy for Growth and Reduction of Poverty Overhead Transmission Line Owners Implementation Support Firm Optic Fiber Communication Operations and Maintenance Optical Fiber Overhead Ground Wire Project Appraisal Document Project Development Objectives

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PEFAR PFM PFMRP PMIS PIU PMU PPA PPAA PPP PPRA PSA PSMP PV QER RAP REA REB REF RPF ROW SAPP SBD SDH SDR SHS SIDA SIL SME SPP SPPA SPPT SSA SSS SWER SWS TA TANESCO T&D TEDAP TPDC TSh UEP UNDP UNFCCC ZECO

Public Expenditure and Financial Accountability Review Public Financial Management Public Financial Management Reform Program Procurement Management Information System Project Implementation Unit Procurement Management Unit Power Purchase Agreement Public Procurement Appeals Authority Public-Private Partnership Public Procurement Regulatory Authority Production Sharing Agreement Power Sector Master Plan Photovoltaic Quality Enhancement Review Resettlement Action Plan Rural Energy Agency Rural Energy Board Rural Energy Fund Resettlement Policy Framework Right of Way Southern Africa Power Pool Standard Bidding Document Synchronous Digital Hierarchy Special Drawing Right Solar Home Systems Swedish International Development Cooperation Agency Sector Investment Loan Small Medium Enterprise Small Power Projects Standardized Power Purchase Agreement Standardized Power Purchase Tariff Sub-Saharan Africa Single Source Selection Single Wire Earth Return System Shield Wire System Technical Assistance Tanzania Electric Supply Company Limited Transmission and Distribution Tanzania Energy Development and Access Expansion Project Tanzania Petroleum Development Corporation Tanzania Shilling Ubungo Expansion Project United Nations Development Programme United Nations Framework Convention on Climate Change Zanzibar Electricity Company Ltd. Vice President: Country Director: Ag. Sector Director: Sector Manager: Task Team Leader: Obiageli Katryn Ezekwesili John M. McIntire Jose Luis Irigoyen Subramaniam V. Iyer Pankaj Gupta

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TANZANIA Backbone Transmission Investment Project CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE .................................................................................. 1 A. Country and sector issues................................................................................................................. 1 B. Rationale for Bank involvement ...................................................................................................... 8 C. Higher level objectives to which the Project contributes ................................................................. 9 II. PROJECT DESCRIPTION ............................................................................................................... 10 A. Lending instrument ........................................................................................................................ 10 B. Project development objective and key indicators ......................................................................... 10 C. Project components ........................................................................................................................ 10 D. Lessons learned and reflected in the project design ....................................................................... 12 E. Alternatives considered and reasons for rejection ......................................................................... 13 III. IMPLEMENTATION ....................................................................................................................... 15 A. Partnership arrangements (if applicable) ....................................................................................... 15 B. Institutional and implementation arrangements ............................................................................. 16 C. Monitoring and evaluation of outcomes/results ............................................................................. 17 D. Sustainability ................................................................................................................................. 17 E. Critical risks and possible controversial aspects ............................................................................ 18 F. Loan/credit conditions and covenants ............................................................................................ 19 IV. APPRAISAL SUMMARY ................................................................................................................ 21 A. Economic and financial analyses ................................................................................................... 21 B. Technical ........................................................................................................................................ 23 C. Fiduciary ........................................................................................................................................ 25 D. Social ............................................................................................................................................. 26 E. Environment................................................................................................................................... 27 F. Safeguard policies .......................................................................................................................... 29 G. Policy Exceptions and Readiness................................................................................................... 30

Annexes Annex 1: Country and Sector Background ................................................................................................. 31 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ........................................ 47 Annex 3: Results Framework and Monitoring ............................................................................................ 49 Annex 4: Detailed Project Description ....................................................................................................... 53 Annex 5: Project Costs................................................................................................................................ 58 Annex 6: Implementation Arrangements .................................................................................................... 60 Annex 7: Financial Management and Disbursement Arrangements........................................................... 64 Annex 8: Procurement Arrangements ......................................................................................................... 71 Annex 9: Economic and Financial Analysis ............................................................................................... 76 Annex 10: Safeguard Policy Issues............................................................................................................. 90 Annex 11: Project Preparation and Supervision ......................................................................................... 97 Annex 12: Documents in the Project File ................................................................................................... 98 Annex 13: Statement of Loans and Credits ................................................................................................ 99 Annex 14: Country at a Glance ................................................................................................................. 101 Annex 15: Maps ........................................................................................................................................ 103

Tables Table 1: Electricity Demand Assessment (2009-2033) ................................................................................ 2 Table 2: Summary Project Costs and Financing by Components (in US$ million) ................................... 12 Table 3: Economic Assessment of Technical Alternatives ......................................................................... 22 Table 4: Summary Results of Net Financial Benefit for the Investment .................................................... 22 Table 5: Tanzania main existing generation plants (recorded at appraisal in May 2010)........................... 33 Table 6: Demand Assessment (2009-2033) ................................................................................................ 35 Table 7: Planned New Generation Capacity (2010-2016) .......................................................................... 35 Table 8: Estimated Generation Reserve Margins (until 2015).................................................................... 36 Table 9: Power System Performance (2009) .............................................................................................. 40 Table 10: Elements of Tanzania's Electricity Reforms ............................................................................... 43 Table 11: Electricity Sales & Tariff by Consumer Category (2005-2009) ................................................. 46 Table 12: Results Framework ..................................................................................................................... 49 Table 13: Arrangements for results monitoring .......................................................................................... 51 Table 14: Project Cost by Component ........................................................................................................ 58 Table 15: Financial Management Risks and Mitigation Measures ............................................................. 65 Table 16: Allocation of Proceeds (IDA Credit) .......................................................................................... 68 Table 17: Financial Management Action Plan ............................................................................................ 69 Table 18: Financial Management Implementation Support ........................................................................ 70 Table 19: Procurement - Risk and Mitigation ............................................................................................. 73 Table 20: Least Cost Assessment of Technical Alternatives (in US Dollars) ............................................ 77 Table 21: Economic Assessment of Technical Alternatives ....................................................................... 78 Table 22: Sensitivities to variation in selected parameters ......................................................................... 79 Table 23: Terms and Conditions of Project Debt Facilities ........................................................................ 80

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Table 24: TANESCO's Operating Costs (Year 2006 to Year 2009, TSh million)...................................... 84 Table 25: Historical Performance of TANESCO (in TSh million)............................................................. 85 Table 26: TANESCO's Capital Expenditure Program (in TSh million) ..................................................... 86 Table 27: TANESCO - Highlights of Projected Financial Performance (2010-2014) ............................... 87 Table 28: Summary of Cost of Service Study............................................................................................. 88 Table 29: Environmental and Social Mitigation Measures ......................................................................... 91 Table 30: Equipment required for Environmental and Social Impact Management................................... 94 Table 31: Environmental and Social Monitoring Measures ....................................................................... 95 Figures Figure 1: Tanzania and Sub-Saharan Africa: Macroeconomic Performance .............................................. 31 Figure 2: National/Rural Electrification rates in SSA countries ................................................................. 41 Figure 3: TANESCO's Organizational Scheme for Implementation of the BTIP ...................................... 60 Figure 4: Project Implementation Schedule ................................................................................................ 62 Figure 5: BTIP Funds Flow Chart............................................................................................................... 68 Figure 6: Results of the Sensitivity Test on Project FIRR .......................................................................... 81 Figure 7: Results of the Sensitivity Test on Project NPV ........................................................................... 81 Figure 8: Regional Electricity Tariffs (Year 2009) ..................................................................................... 82 Figure 9: Customer Connections (2006-2009)............................................................................................ 83 Figure 10: TANESCO's Financial Performance ......................................................................................... 84 Figure 11: TANESCO's Historical Cash Flow (TSh million)..................................................................... 85 Figure 12: TANESCO - Financial Analysis - Sensitivity Analysis ............................................................ 89

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TANZANIA Backbone Transmission Investment Project

Team Leader: Pankaj Gupta Sectors: Power (100 percent) Themes: Infrastructure services for private sector development (67 percent); Other Urban Development (33 percent) Environmental screening category: A (Full Assessment). Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: Date: July 29, 2010 Country Director: John M. McIntire Sector Manager / Director: Subramaniam. V. Iyer / Jose Luis Irigoyen Project ID: P111598 Lending Instrument: Specific Investment Loan For Credits (US$m.): US$ 150.00 Total Bank financing (US$m.): 150.00 Proposed terms: Standard terms - 40 year maturity, with 10 years grace period and 0.75 percent per annum service charge. The maximum commitment fee, charged on the undisbursed balances on the credit amount, will be 0.5 percent per annum. Financing Plan (US$m)* Source Local Borrower** 18.18 International Development Association (IDA) 15.33 African Development Bank (AfDB) 6.54 Japan International Cooperation Agency 6.54 (JICA) European Investment Bank (EIB) 13.57 Economic Development Cooperation Fund of 1.09 South Korea (EDCF) Total: 61.25 Foreign 0.00 134.67 58.315 58.315 120.93 34.97 407.20 Total 18.18 150.00 64.855 64.855 134.50 36.06 468.45

* Excluding interest during construction, and all taxes and duties. **Reflects current estimated cost for the implementation of the Environmental Management Plan and Resettlement Action Plan.

Borrower:

Responsible Agency:

Ministry of Finance and Economic Affairs (on behalf of the Government of the United Republic of Tanzania) PO Box 9111 Dar es Salaam, Tanzania Tanzania Electric Supply Company Ltd. PO Box 9024 Dar es Salaam, Tanzania Estimated disbursements (Bank FY/US$m) FY11 FY12 FY13 FY14 10.00 30.00 35.00 45.00 10.00 40.00 75.00 120.00

FY Annual Cumulative

FY15 30.00 150.00

Project implementation period: January 1, 2011 to December 31, 2014 Expected effectiveness date: December 31, 2010 Expected closing date: March 31, 2015

viii

Does the project depart from the CAS in content or other significant respects? Ref. PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G. Project development objective Ref. PAD II.C., Technical Annex 3

[ ] Yes [X] No

[ ] Yes [X] No [ ] Yes [ ] No [ ] Yes [ ] No [ ] Yes [ X] No [X] Yes [ ] No

The Project Development Objective is to increase availability, reliability and quality of grid based power supply to northern regions of Tanzania. Project description Ref. PAD II.C., Technical Annex 4 The proposed project is designed to consist of the following two components: Component 1: Construction of the transmission line: This component will finance one section of the proposed overhead 400kV double-circuit backbone transmission interconnection between the towns of Iringa and Shinyanga (including a Fiber Optic Communication Line (FOCL) and the Shield Wire System (SWS) as a local distribution technology; and the expansion of the associated 220kV substations at Iringa, Dodoma, Singida and Shinyanga. This component is estimated to cost about US$434.76 million (including contingencies, but excluding taxes and duties). Specifically, the IDA credit will finance one of the three sections of this transmission line, namely from Iringa to Dodoma. The proposed IDA-financed section of the transmission line will consist of one supply & install contract related to the construction of transmission line along with FOCL line. The other two sections of the transmission line (including FOCL and SWS) and the upgrade of associated substations are proposed to be financed by AfDB & JICA, EIB, and South Korea EDCF, respectively. Component 2: Technical Assistance to TANESCO: It is proposed that about US$10.0 million is allocated for technical assistance to the implementing agency (TANESCO) for the Project. Upon a careful review of TANESCOs requirements for urgent technical assistance, this component will support the implementing agency through consultancy contracts related to: (i) engineering/safeguard supervision and monitoring consultant for implementation support for the proposed backbone transmission line, and (ii) improve technical, legal, financial, and safeguards capacity of TANESCO in preparing and managing projects. Which safeguard policies are triggered, if any? Ref. PAD IV.F. Technical Annex 10 Environmental Assessment (OP/BP 4.01); Natural Habitats (OP/BP 4.04); Physical Cultural Resources (OP/BP 4.11); Involuntary Resettlement (OP/BP 4.12).

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Significant, non-standard conditions, if any, for: Ref. PAD III.F. Credit conditions and covenants: Conditions for Board x None. Conditions for Effectiveness: x A Subsidiary Agreement has been executed on behalf of the Recipient and TANESCO; and x TANESCO has adopted and submitted to the Association the Operating Guidelines, in a form and substance satisfactory to the Association and the Recipient. Conditions for Disbursement for Component 1: x All parallel Co-Financing Agreements, except for the Economic Development Cooperation Fund of South Korea (EDCF) Co-Financing Agreement, have been executed and delivered and all conditions precedent to their effectiveness or to the right of the Recipient to make withdrawals under same have been fulfilled; and x By January 01, 2012, the EDCF Co-Financing Agreement has received approval from the Economic Development Cooperation Fund of South Korea. IDA Credit Covenants (non-standard) (a) TANESCO shall prepare and deliver to the Bank not later than December 31, 2010, and thereafter not later than June 30th in each successive Fiscal Year up to and including the Closing Date, interim unaudited financial forecasts for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following Fiscal Year, which forecasts shall include calculations of TANESCOs Debt Service Cover Ratio and EBITDA Margin (as such terms are defined below in this Section) as at the end of the next two six month periods within the relevant Fiscal Year. (b) Except as the Association shall otherwise agree, TANESCO shall at all times maintain a Debt Service Cover Ratio equal to or greater than the following table as shall be confirmed by the audited Financial Statements.
Borrowers FY Debt Service Coverage Ratio FY11 1.15 FY12 1.15 FY13 1.15 FY14 1.15 FY15 1.15

(c)

Financial Action Plan (i) Up to and including the Closing Date, if at any time any of TANESCOs interim unaudited financial forecasts referred to above in paragraph.(a) of this Section establish that TANESCOs: (i.1) (i.2) Debt Service Cover Ratio will be less than 1.10 to 1.0; or EBITDA Margin will be less than 20 percent;

then TANESCO: (A) will prepare a Financial Action Plan, acceptable to the Bank, which TANESCO will deliver to the Bank not later than 120 days following the end of TANESCOs immediately preceding Fiscal Year, and will also prepare an interim unaudited financial forecast for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following five Fiscal Years, which forecast shall include calculations of TANESCOs Debt

Service Cover Ratio and EBITDA Margin as at the end of each six month period during the said five Fiscal Years, and which forecast will be delivered by TANESCO to the Bank concurrently with the delivery of the Financial Action Plan; and (B) TANESCO will thereafter prepare and deliver to the Bank, on a semi-annual Fiscal Year basis, interim unaudited financial forecasts for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following five Fiscal Years, including calculations of TANESCOs Debt Service Cover Ratio and EBITDA Margin as at the end of each six month period during the said five Fiscal Years. (ii) If, during the period when a Financial Action Plan is in effect, an interim unaudited financial forecast delivered by TANESCO to the Bank in accordance with paragraph.(a) of this Section establishes that TANESCOs Debt Service Cover Ratio will be equal to or greater than 1.10 to 1.0 and the EBITDA Margin will be equal to or greater than 20 percent, in each case as at the end of each six month period within such Fiscal Year, then, but subject nevertheless to the provisions of sub-paragraph (c)(iii) below of this Section II, the provisions of paragraph (a) of this Section II shall resume. (iii) For the purposes of sub-paragraph (c)(ii) above of this Section, the provisions of paragraph (a) of this Section shall resume on condition that the audited Financial Statements of TANESCO delivered to the Bank pursuant to [paragraph.B.3]1 of this Section certify that TANESCOs Debt Service Cover Ratio was equal to or greater than 1.10 to 1.0 for any fiscal year and the EBITDA Margin was equal to or greater than 20 percent as at the end of each six month period within the relevant Fiscal Year. (d) Additional Debt Except as the Association shall otherwise agree, TANESCO shall not incur any new debt, unless the audited Financial Statements of TANESCO delivered to the Bank pursuant to [paragraph.B.3]2 of this Section show that the net annual revenues equal to, or greater than 1.30 times the estimated debt service requirements of TANESCO in the following Fiscal Year. (e) Third Party Access TANESCO shall ensure the implementation of non-discriminatory Third Party Access to the project,3 including access to export- and international transit-related services, based on agreed tariffs, applicable to all customers, and applied objectively and without discrimination between customers.

1 2

In Project Agreement; requires Audited Financial Statements In Project Agreement; requires Audited Financial Statements 3 Defined as the New Backbone Transmission Line partially financed by IDA

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I.

STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues 1. Tanzania has an estimated population of about 42.5 million, growing annually at a rate of 2.9 4 percent. It has a land area of about 945,087 sq. km and is well endowed with natural resources such as hydropower, tin, iron ore, coal, gemstones, gold, natural gas, geothermal and nickel. Topography and climatic conditions allow cultivation of crops on about 54 percent of the land area. The economy of Tanzania depends heavily on agriculture, which accounts for around 24.6 percent of GDP5 and employs two thirds of the work force. Other key growth sectors are mining, construction, manufacturing, and tourism - all sectors that strongly depend on a reliable and sustainable electricity supply. 2. Tanzania has made significant progress over the past two decades to achieve and maintain macroeconomic stability, becoming one of the best performers in Sub-Saharan Africa. The economic growth has been around 7 percent since 2000. Sound macroeconomic policies, market-oriented reforms, and debt relief have ensured a positive environment for Tanzanias steady economic growth. However, in 2009, economic growth slowed down and was 6.0 percent6, caused by the financial crisis that affected the country, especially due to the effects on tourism, cash crops, regional manufacturing exports, and to lower capital flows related to foreign assistance and private investment. 3. Nonetheless, macroeconomic growth has not translated into a corresponding reduction in poverty. The 2007 Household Budget Survey (HBS) reveals disappointing results in poverty reduction since 2001. Progress has been very limited in terms of basic-needs income poverty. The poverty headcount ratio dropped only marginally from 35.6 percent points to 33.6 percent points. Given substantial population growth, the absolute number of poor people is estimated to have increased by 1.3 million. Past achievements and the macroeconomic level have been insufficient to cope with growth and to ensure an appropriate infrastructure platform to achieve the Millennium Development Goals (MDG) or the governments National Development Vision 2025 that aims, among others, at modernizing the agricultural sector, having a diversified and semi-industrialized economy with a substantial industrial sector, and to develop a strong private sector-led mining industry. 4. A number of structural weaknesses including infrastructure, human capital, and natural resources, will need to be addressed significantly and quickly if Tanzania is to achieve significant poverty reduction through growth. Infrastructure bottlenecks are still a serious constraint to growth and to attract private investment in Tanzania, and while some sectors, such as energy, are gradually improving their performance and institutional setup, continued improvement in the energy sector and the Public-Private Partnership (PPP) policy framework will be critical to unlock the situation. The lack of access to modern energy services continues to constrain Tanzanias growth potential, contributes to the poverty and isolation of rural population, and affects provision of other key services, such as clean water supply, health, and education, threatening the achievement of MDGs. 5. From the broader development perspective, reliable power supply, especially to the northern energy starved areas will enhance the well-being of the population and the economy in general by: (i) providing relatively less expensive and higher quality energy; (ii) removing a binding energy supply constraint to continued economic growth in the region; and (iii) increasing the regions competitiveness in terms of industrial and commercial development with related benefits of increasing employment and income. 6. Tanzanias Power Sector. Tanzania is endowed with diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, much of which is untapped. The countrys main installed generation capacities are based on hydropower (56 percent) and natural gas (34
4 5

Based on 2002 Census undertaken by GOT. Based on updates provided by GOT during Credit Negotiations 6 Based on published statistics in the 2009 Budget which was approved in July 2010.

percent). The short to medium term generation expansion plan (up to 2016) the majority (59 percent) of the planned generation capacity additions are expected to be based on natural gas, biomass, wind and hydropower. Most of these new generation sites are located in the southern regions of the country, where almost all of the renewable hydro and thermal generation resources are situated. 7. Tanzanias power sector comprises a single vertically integrated national utility, Tanzania Electric Supply Company Limited (TANESCO). TANESCO completed a Power System Master Plan in 2008, which was further updated for generation activities in August 2009 (referred to as PSMP here onwards). This PSMP provides a demand and supply assessment for the sector. Based on anticipated needs of the population and economy of Tanzania for the period up to 2033, and a least cost supply response to this demand, the PSMP indicates that the energy sales requirements for Tanzania are expected to be about 10,000 GWh in 2018 and 30,000 GWh in 2033. The long-term growth rate is expected to be an average of 7.9 percent per annum. The national peak installed capacity to meet the demand should be in the range of 2,000 MW in 2018 and 6,000 MW in 2033. Table 1 below provides the power demand forecast for the period up to 2033 under base case assumptions.
Table 1: Electricity Demand Assessment (2009-2033) 2009 (Actual)
National Sales (GWh) National Losses (GWh) National Generation (GWh) National Cumulative Peak Demand (MW) 3,767 1,127 4,894 755

2018
9,646 1,531 11,177 1,925

2033
30,214 4,297 34,511 6,047

Growth p.a. (percent)

7.9 7.2 7.8 7.9

Source: Cost of Service Study, TANESCO and Power System Master Plan Update 2009, SNC Lavalin

8. Total current installed generation capacity of the interconnected system is 1,003 MW, of which 56 percent is hydropower based. The hydro-dominated generation system is vulnerable to drought, especially during peak demand periods. This vulnerability led to one of the countrys major power crises in recent years in October and November 2009. At the peak of the crisis major parts of the country experienced up to 14 hours of load shedding per day. 9. Various energy crises that occurred over the last decade, mainly caused by drought, have highlighted the importance of reliable energy supply for economic growth and poverty alleviation. The recent World Bank Africa Infrastructure Diagnostic study (AICD) estimates that load shedding and emergency generation have cost Tanzania over 5 percent of GDP annually.7 The AICD report has also shown the importance of adequate generation planning, taking into account a well diversified mix of generation resources and timely investments in the transmission and distribution subsectors to maintain the overall reliability of the system. 10. The Tanzanian National Grid consists of 220kV high-voltage transmission lines linking the major hydropower plants at Kidatu, Kihansi and Mtera to Mbeya and Dar es Salaam and feeding into the existing north-south Backbone from Iringa to Singida and extending further north to Arusha and Mwanza. In addition, a 132kV transmission system with three power stations on the Pangani River links Arusha, Dar es Salaam, and Morogoro. The national grid also supplies electric power to Zanzibar Island over a 41 km submarine cable. The current existing main backbone of TANESCOs interconnected grid comprises 3,301 km of 220kV, 1,655 km of 132kV and 773 km of 66kV power transmission lines. The distribution network consists of 11,314 km of 33kV, 5,403 km of 11kV and 23,995 km of lower voltages distribution lines. The National Grid does not cover all parts of the country, leaving a significant portion of the population without access to electricity.

Eberhard, Anton, Vivien Foster, Cecilia Briceo-Garmendia, Fatimata Ouedraogo, Daniel Camos, and Maria Shkaratan. 2008. Underpowered: The State of the Power Sector in Sub-Saharan Africa. Background Paper 6, World Bank, Washington, DC.

11. The PSMP has also highlighted that northern Tanzania including the capital Dodoma, Arusha, Moshi, Singida, Shinyanga, Mwanza, Musoma and Tabora is experiencing a fast-paced increase in the electricity demand estimated at a rate between 8 to 10 percent annually. This increase in demand is expected due to a continued increase in mining activity in the northwest and an increase in economic activity in the northern towns. At least 12 mines (gold, copper, nickel, etc.) are proposed to begin operations in the northwest of the country requiring between 227 to 427 MW of capacity. Given the lack of generation sources in the northern regions, and overloading of the current 220kV single circuit IringaShinyanga transmission line, the PSMP estimates an acute shortage of electricity in the northern parts of the country. The PSMP also indicates that the share of electricity consumption in the north will increase to about 30 percent of total consumption in the interconnected system over the next several years. 12. Despite the significant potential of domestic energy resources and tangible increase in access to electricity from 7.5 percent in 2000 to 14 percent of population in 2009, the electrification rate remains low and users face severe and prolonged power outages.8 The sector has not reached its potential of supplying sufficient and reliable power to support the economic growth of the country for a number of reasons. Some of the reasons for this overall state of the sector include multiple and severe regional droughts that continue to reduce the generation from the hydropower power stations, the technical dilapidation and saturation of the existing transmission and distribution network resulting from decades of under-investment in the sector, inability to efficiently develop its new gas and hydro resources, and inefficient procurement outcomes for power plants over the last several years. While TANESCO has made significant improvements in its financial situation, continued efforts to expand the generation capacity and boost operational efficiency are required to meet the growing demand for power and to reverse operating losses. Some of these key sector development issues are described below. 13. Ensuring appropriate short and long-term domestic generation capacity expansion. Tanzania has faced six generation crises over the last decade. Most of those crises were caused by a combination of lack of generation expansion planning and its timely implementation, and droughts that have led to reduced supply. In order to cope with the continuous strong demand growth in the short term and to reduce its dependency on hydro-based generation resources, TANESCO has also installed an additional 147 MW of gas-fired generation capacity since January 2008 with substantial support from bilateral financiers. At present, TANESCO with support from the government is also in the process of finalizing public procurement of 160 MW of thermal generation (100 MW based on natural gas, and 60 MW based on Heavy Fuel or Diesel Oil). 14. While the recent generation additions helped TANESCO to cope with the increasing demand, the PSMP indicates that the power system needs an additional 1,011 MW over the medium term (up to 2015) to secure an energy reserve margin of 11 percent. The PSMP also indicated that Tanzania will require additional generation and import capacity of about 2,071 MW over the next ten years. Substantial investment is therefore required in generation capacity and high voltage transmission interconnections that allow for the potential sources of power to be developed. 15. The government has proposed a mix of private and public sector financing options for these investments. The next set of generation plants are being proposed to be financed on both public and PPP basis. In order to provide better guidance to the private sector in undertaking new generation capacity, it has also been agreed that regulatory guidance9 that supports competitive procurement of new generation

8 Tanzania has one of the lowest electrification rates in Sub-Saharan Africa (SSA) 14 percent compared to the SSA average of 29 percent and the SSA low income average of 26 percent. Per capita electricity consumption in Tanzania, at a mere 61 kilowatt hours, is extremely low even by low-income-country and Sub-Saharan African standards, where consumption averages 391 and 542 kilowatt hours, respectively. Wood fuel accounts for up to 90 percent of total energy supply. 9 Under the new Electricity Act, EWURA has an obligation to review and approve PPAs. But what this means in different procurement situations has yet to be defined. A recently approved trust fund financed by the Swedish International Development Cooperation Agency (SIDA) and executed by the IDA (TF071411) is currently providing EWURA with technical assistance that will help the regulator to define its interventions on that matter.

capacity will be undertaken.10 The Bank is supporting TANESCO and the GOT in developing its medium to long-term power generation options. Under IDAs 2007 intervention, the Tanzania Energy Development and Access Project (TEDAP), technical assistance is being provided to both GOT and TANESCO to procure technical, legal and financial advisors to develop the Ruhudji Hydro Power Project (HPP) and the Kinyerezi Gas to Power Project. Under this proposed project, such technical assistance support will continue and further support will be provided to update the feasibility assessment for another 200 MW of climate friendly generation (the Rumakali HPP). 16. Supporting development of regional generation resources. Various assessments of the East African power sectors have demonstrated that the differences in generation type and mix between the subregions power could be exploited for mutual benefit of the countries through the development of crossborder transmission interconnections and dedicated export-oriented or regional generation projects. Despite the potential for significant benefits through integration and trading, the Eastern Africa Power Pool (EAPP) is the least developed power pool in Sub-Saharan Africa. To date, there is small-scale interconnectivity between Uganda and Kenya, and small cross-border exchange between Tanzania and Kenya. To develop Tanzanias regional role in power trade, the government has requested support for the interconnections with Kenya and Zambia that will allow the import of significant amounts of hydropower in the short to medium term (from Ethiopia through the planned Ethiopia-Kenya interconnector or from the Southern Africa Power Pool (SAPP) through Zambia) and could potentially allow the development of large indigenous hydro resources in the country in the long term for export. The proposed project is a key link to connect the country to its neighbors. 17. Developing additional gas reserves for power generation. About 340 MW of the capacity to be developed in the next four (4) years is expected to be based on natural gas, thus necessitating a further expansion of Tanzanias natural gas infrastructure. PanAfrican Energy (subsidiary of Orca Petroleum of Canada), Songas Ltd. (a subsidiary of Globeleq from UK) and Tanzania Petroleum Development Corporation (a state-owned enterprise), the developers of the Songo Songo Gas Fields (a public-private joint venture) have confirmed that the current wells in the Songo Songo Fields would be able to provide gas to supply the existing plants. Construction of two additional trains to process the Songo Songo gas to increase the cumulative capacity to transport about 140 mmcfd of processed gas will also be necessary for which Songas Ltd. is in discussions with the government, EWURA, TANESCO and PanAfrican/TPDC about the commercial terms of such an extension, the finalization of the necessary agreements, and gas retail tariff approvals. In the longer term, the Songo Songo West fields and/or the Mnazi Bay gas fields will need to be developed to support additional gas based generation for Tanzania. The government is in discussions with bilateral donors to develop the Mnazi Bay gas for power generation. 18. Ensuring quality of supply. TANESCOs transmission and distribution networks have suffered since the 1980s from important underinvestment leading to high technical and non-technical losses over many years. Consequently, in 2007 the utility identified urgent transmission and distribution investments to improve the capacity of existing networks thus improving power system performance by reducing system losses, frequent outages due to overloaded transformers and old equipment, low and fluctuating voltage conditions and poor power factors. IDA is currently supporting these rehabilitation efforts with the TEDAP, and other donors, including African Development Bank (AfDB), Millennium Challenge Corporation of the USA (MCC), Japan International Cooperation Agency (JICA), Economic Development Cooperation Fund (EDCF) of South Korea and Government of Finland are currently supporting TANESCO in the areas of distribution rehabilitation with individual projects. While TANESCO is receiving this key financial support from the development partners, the improvements of
10 In the recent past, two privately owned power stations (IPTL and Dowans) who have concluded long term power purchase agreements with TANESCO have lead to legal disputes between the utility and the private investors after the power plants had already started operation (IPTL) or completed installation (Dowans). As a result of these ongoing disputes, about 200MW of thermal (heavy fuel oil and natural gas) generation capacities are currently installed but have been intermittently available for power generation. Government is putting in its best efforts to begin utilizing both these stations; TANESCO is currently negotiating a power purchase agreement with new private owners of the Dowans plant.

TANESCOs losses has so far been marginal mainly due to the fact that most of the rehabilitation works are not yet completed, and in some cases awaiting completion of procurement. JICAs transmission rehabilitation project in Dar es Salaam is the most advanced expecting completion by October 2010. The IDA financed TEDAP (P101645) transmission rehabilitation component is under implementation and expected to be completed by mid-2012, while the distribution rehabilitation component is still under procurement. The transmission and distribution rehabilitation projects financed by AfDB, South Korea EDCF and MCC are all at procurement stage and implementation is not expected to start before 2011. The rehabilitation project financed by Finland has yet to be approved by the Finnish authorities and project start is currently expected by fall of this year. The current technical and non-technical combined losses stand at 24 percent. The completion of these activities is expected between 2012 and 2014, upon which significant reduction of technical losses are expected. 19. Continuing financial recovery of TANESCO. In its third year since the approval of TANESCOs Financial Recovery Plan (FRP), the utilitys financial health has further improved. Revenue of the company increased by 27 percent in 2008 (when compared to 2007) due to, amongst other factors, the impact of increase in new connections and the 2008 tariff increase (increased by an average 21.7 percent). Revenues then further increased by 11 percent in 2009. With the increased tariffs and improving sales, the utility has been able to substantially improve the overall gross margin (as a percent of sales) from -60 percent in 2006 to -32 percent in 2007, 1 percent in 2008 and -4 percent in 2009. TANESCOs efforts to further reduce its operating expenditure levels were also supported by the IDAs Songo Songo Gas Development and Power Generation Project (P002797) in August 2009 through the financing of capacitycharge buy-down by TANESCO (in an amount of US$43 million) to reduce the cost of power purchases from the privately owned Songas Plant. 20. In 2008, TANESCO has also been able, for the first time in many years, to meet its operating expenditures with an operating income of TSh 2.7 billion. The same tariff of 2008 and the drought in 2009 worsened the situation with making an operating income of TSh -3.1 billion, but the revenue of the utility increased from TSh 371 billion in 2008 to TSh 413 billion in 2009 due to the impact of increase in new connections of 60,000 customers compared to 56,383 in 2008 resulting from the approved FRP as well as ongoing rural expansion program. This positive trend will be further strengthened by TANESCOs recent tariff application which was submitted to EWURA on May 28, 2010. This application is designed as a multi-year tariff increase to be implemented in phases. This projected financial recovery will remain key to attracting both private and public financing for generation projects noted in paragraphs 15 to 17 above. 21. Improving Management of TANESCO. Since 2007, TANESCO has undergone a complete reorganization, including a leaner HQ, and empowered decentralized staff. TANESCO is now led by a Board-appointed Managing Director and its management now also includes a Chief Financial Officer. Over the last three years, the new management of TANESCO has improved the overall financial and operational health of the company. A new Board has also been instituted including two members from the private sector. The new Managing Director is the former General Manager for Distribution and Marketing and has been with the utility over 20 years. While overall management of the utility has improved over the last several years, current standards still lag international benchmarks and thus further improvements in management and governance are expected during the next several years. 22. Continuing sector reform. The government developed a Power Sector Reform Strategy (2007) in close cooperation and consultation with development partners. This strategy presented a vision for the power industry in Tanzania over the medium- to long-term and envisages the evolution from a single buyer market structure, with competition to enter into long-term Power Purchase Agreements (PPAs) with TANESCO, to ongoing wholesale competition, in which the producer sells directly (or through a pool or voluntary electricity exchange) to the distribution companies over the medium to long-term. The strategy also presents a plan of reform activities with implementation dates regarding key institutional, policy, and regulatory reform actions related to procurement of new generation through competitive bidding and creating an enabling environment for private sector participation; open access to transmission
5

grid; institutional and legal framework, tariff policy, promoting market based pricing, etc. Furthermore, it provides steps to improve participation of Independent Power Producers (IPPs) under the single buyer model, and those needed to move to ongoing wholesale competition. It also covers broad issues and options related to regulation of rural and offgrid electrification with a plan for reform activities, including the development of a rural energy policy. 23. In 2008, Tanzania adopted a very comprehensive Electricity Act, which takes into account many of the international best practices for electricity sector reform and tailors them to the specific ground level realities of the Tanzanian environment. The Act establishes a general framework for the powers of the Ministry of Energy and Minerals (MEM) and EWURA. It also defines key parameters for EWURAs tariff setting criteria and procedures, EWURAs criteria for awarding provisional and permanent licenses, EWURAs monitoring and enforcement activities, a requirement for ministerial plans and strategies for rural electrification, dispute resolution procedures and a process for determining possible future reorganization of the electricity sector. A number of specific actions for the MEM and EWURA have also been mandated, which aim to develop the sector in the interest of all stakeholders. For example, the Act specifically requires the MEM to develop regulations related to: (i) TANESCOs right to first refusal to the supply of electrical energy to all intensive electrical energy consumers thus safeguarding TANESCOs financial capacity; and (ii) supply of electricity to local communities where electrical supply installations are located or along transmission lines thus safeguarding rural population from being excluded as the grid is expanded. In addition, MEM is required to prepare and publish a policy for the reorganization of the electricity market and to develop a rural electrification plan and database. Both reform steps are currently expected to be implemented by the end of 2010. 24. Strengthening the independent Electricity Regulator. Since its creation EWURA has taken various actions in the power sector demonstrating its capability of assuming its regulatory mandate. At the end of 2007 EWURA reviewed a tariff application by TANESCO, which subsequently was granted with a retail tariff increase of 21.7 percent in January 2008. EWURA also has recently prepared, approved, and disseminated Standardized Power Purchase Agreements (SPPA), tariff methodology as well as the actual Small Power Producer (SPP) tariffs for 2009, to attract investors in the (renewable) power sub-sector (under 10 MW) for both grid-connected projects and isolated grids. Consequently, five SPPAs have already been concluded with TANESCO thus paving the way for further development on rural and small renewable energy generation projects. The SPP tariffs have been further increased in 2010 to take into account revenue requirement increases due to inflation. Overall the initial track record of EWURA in the power sector has demonstrated that the regulator is capable of assuming its mandate of an independent regulatory body, though additional needs to further strengthen the regulators capacity have also been identified. 25. Expanding Access to Unserved Areas. Access scale-up is an important component of the governments long-term economic growth plan and is one of the governments highest priorities in the context of the power sector which aims at connecting 100,000 new customers per year.11 At present, access to modern energy services is scarce outside Dar es Salaam. TANESCO serves about 803,000 customers, out of a population of about 42.5 million. The electricity coverage is 14 percent nationally and in most regions is in single digits. Rural coverage is below 2 percent. The key reasons for this low coverage have included: (i) limited reach of TANESCOs grid and low intensity of connections in the grid areas; and (ii) lack of financial and implementation capacity at TANESCO to expand the grid and rural connections; (iii) poor targeting of governments scarce financial resources; (iv) regulatory and financing constrains for rural electrification in general and alternative offgrid solutions in particular; and (v) relatively high costs of connection and of service provision coupled with low income, calling for alternative low-cost solutions in line with local capacity to pay. 26. Recognizing these constraints, TANESCOs 5-year investment plan also contemplates an ambitious electricity access scale-up program, increasing coverage from 14 percent to 25 percent. To
11

In 2008, TANESCO reached about 60 percent of the proposed target of 100,000 new customers per year.

achieve this goal the utility also needs to make substantial investments in its grid expansion, including the construction of new transmission lines. On the expansion of its grid, TANESCO recently put into operation two new transmission lines. One 220kV transmission line linking Shinyanga to Buzwagi was commissioned and became operational in February 2009 and another 132kV transmission line from Musoma to Tarime became operational in September 2009. The proposed project is the next major milestone in TANESCOs transmission grid enhancement and extension efforts to overcome major bottlenecks in its transmission network. 27. Further, in 2005, Tanzanias Parliament approved a Rural Energy Act, which established a Rural Energy Agency (REA) to lead the development of rural energy access initiatives and a Rural Energy Fund (REF) to finance such initiatives. REA and REF are now fully staffed and operational. REA Board is functional and a Director General and a Chief Financial Officer have been appointed. 28. The Bank strategy for improving access to electricity aims at supporting TANESCOs plan to expand generation, distribution and transmission (including rural connectivity); identifying a least cost investment plan; ensuring the financial sustainability of the sector; increasing access to commercial energy sources, competition in electricity supply, alternative energy sources (renewable); strengthening key sector institutions, developing the regulatory and policy environment. All those efforts are currently facilitated through the Banks TEDAP project. The objective of TEDAP is to improve the quality and efficiency of the electricity service provision and establish a sustainable basis for energy access expansion. TEDAP activities have focused on urgent investments in the national utilitys transmission and distribution network and development of offgrid solutions especially in areas not covered by TANESCOs grid. TEDAP has also supported the sector reforms and institutional development, including assistance to the newly established REA. 29. Furthermore, the Lighting Africa initiative sponsored by the Bank and the International Finance Corporation (IFC) is also providing support. This initiative aims at facilitating affordability and access of the poor to modern, clean, low-cost lighting products and services in Sub-Saharan African countries, including Tanzania. Several areas of cooperation have been identified between REAs electrification programs and Lighting Africa initiative, including Lighting Tanzania competition, Photovoltaics (PV) aggregation packages and the pilot project for rechargeable batteries for students. 30. Increasing the use of Renewable Energy: The government has also expressed a commitment to increase the use of renewable energy, including the generation and monetization of carbon credits and considers the growth of the renewable energy industry as an integral part of its rural energy and power sector development strategy. In the 2003 National Energy Policy document, GOT has reiterated its objectives to reduce the dependency on fossil fuel for isolated grids and remote locations and suggested additional research and development of renewable energy, particularly as part of rural electrification initiatives. Various studies demonstrate that Tanzania has substantial potential for renewable energy development. 12 31. As noted earlier, TANESCO and the government are supporting the development of large hydropower and clean burning gas for electricity generation. Moreover, IDAs engagement through the 2007 TEDAP has yielded significant positive results in terms of creating an enabling regulatory framework for scaling-up electricity access and promoting private sector participation in renewable energy projects, with numerous small power projects (SPPs) now under development. Tanzanias comprehensive regulatory framework supporting small renewable energy projects is considered one of the best practices in the region. The comprehensive policy and regulatory framework, the supportive institutional structure and pre-investment support have created the necessary preconditions for a private sector-driven renewable energy program. As a result, a number of rural renewable energy projects have been initiated by the local private sector. Eighty potential projects have been identified, of which 22 are

12

The most promising resources include small hydro, biomass, solar and geothermal (with a more limited wind potential).

considered priority (with confirmed sponsors and detailed design studies completed or underway) with a cumulative total size of 78 MW. 32. However, the lack of long-term financing for small renewable energy projects (typically facing high upfront investment costs, particularly in the case of small hydro projects) remains the key constraint to turning this potential into reality. To meet this challenge, in early 2010, IDA approved Additional Financing for the TEDAP which will support a credit line for financing small rural/renewable energy projects.13 B. Rationale for Bank involvement 33. The Bank is one of the key partners supporting the Tanzanian government in its efforts to establish enabling conditions for sustainable development and reliable energy provisions for economic growth and poverty alleviation. The current Joint Assistance Strategy (JAST) for Tanzania highlights lack of energy as one of the key development focus areas. By increasing the availability and reliability of electricity in the northern part of the country, the proposed project will not only support the governments growth and poverty alleviation efforts that access to electricity brings in terms of social and economic benefits (i.e., improved water supply, institutional facilities such as rural schools and hospitals, as well as increased industrial and commercial activities in rural areas) but also facilitates the conditions for private sector development of commercial activity in the northwest provinces of Tanzania. 34. The proposed project is in line with the Banks efforts to support the development of Tanzanias power sector. IDA has provided support to the energy sector of Tanzania for the last several years. Recent engagements have been predicated on continuing sector reform and financial recovery of the sector. Since 2007, investments in the sector have supported infrastructure improvements to allow for a faster and fuller financial recovery of TANESCO. In the same vein, the proposed project is one of the high priority items of TANESCO 5-year investment plan that focuses on availability of power in the energy-starved northern provinces of the country, complemented by measures aimed at improving TANESCOs technical capacity to undertake private and public generation projects. It is expected that the successful implementation of this proposed project, combined with the ongoing TEDAP will contribute to the security and reliability of grid based power supply. Through the proposed project, the Bank would continue to engage in alleviating some of the constraints in the Tanzanian power system, continue to support GOT efforts in developing generation capacity and thus contribute to the economic growth of the country. 35. The proposed project is being designed as the key link for the future interconnection of the country with Kenya and Zambia, thus supporting the regional integration efforts in East Africa. More specifically, regional approaches to energy such as this project offer scope to improve the utilization of existing supply and production capacities and potentials and to optimize new generation investments across countries. The project will not only construct the physical infrastructure in Tanzania to increase power trade in the region, but will also help rationalize and coordinate the multiple and sometimes conflicting power trade initiatives being discussed in the region by helping the countries prioritize key generation and transmission investments. It is expected that IDA will continue supporting GOT in developing grid interconnections with Kenya and Zambia. 36. The Bank has played a key syndication role to develop the project. The project has been prepared based on a consultative approach with other key donors (AfDB, EIB, JICA, South Korea EDCF, and the Norwegian (NORAD) and Swedish (SIDA) cooperation agencies) who have jointly supported the preparation of the project with the Bank. This collaboration and coordination are expected to continue during implementation as well. The Bank is playing a convening role in bringing additional donor financing to the power sector.

13

This credit line would address the financing gap in the financial system by providing local banks with long-term funds for financing small renewable energy projects, and would scale-up TEDAPs outcomes and targets for renewable energy generation.

37. Finally, Bank participation will serve as a vehicle to provide for increased attention to social and environmental aspects, as reflected in the preparation and future implementation of the Environmental and Social Impact Assessment (ESIA), Resettlement Policy Framework (RPF) and Resettlement Action Plan (RAP) according to Bank standards. Moreover, the proposed project is expected to provide important environmental benefits as it will contribute to the elimination of highly polluting offgrid diesel generators by allowing reliable transmission of existing hydropower and through current and proposed clean gasfired generation. In the medium to long term, by ensuring the interconnection with other countries in the region, the proposed project will facilitate the import of hydropower from SAPP (via Zambia) or EAPP (via Kenya) thus furthering Tanzanias move toward a lower carbon footprint. C. Higher level objectives to which the project contributes 38. The overall objective of the Joint Assistance Strategy for Tanzania is to contribute to sustainable development and poverty reduction in line with the National Vision 2025 by consolidating and coordinating government and donor support under a single government-led framework to achieve results on the 2005 National Strategy for Growth and Reduction of Poverty (NSGRP/MKUKUTA14). The MKUKUTA is committed to the achievement of the MDGs and has an increased focus on growth and governance. The MKUKUTA identifies three clusters of broad outcomes: (i) growth and reduction of income poverty; (ii) improvement in quality of life and social well being; and (iii) good governance. 39. The proposed project will support and contribute to the outcome and achievement of goals of the JAST and MKUKUTA (Goal 6: Provision of reliable and affordable energy to consumers) allowing for improved electricity access to the population and through focusing the majority of investments on specific, targeted service quality improvements and access expansion in the key growth areas. The project will target six out of eight World Bank CAS milestones related to the achievement of MKUKUTA Goal 6, improving the quality of life for the affected population. 40. The GOT is currently drafting the second National Strategy for Growth and Reduction of Poverty (NSGRP II or MKUKUTA II), which is a continuation of the government and national commitments to accelerate economic growth and fighting poverty. The MKUKUTA II is currently under review by the development partners active in Tanzania and ratification of the new strategy by the GOTs cabinet is expected later this year. As for the current MKUKUTA, the successor strategy currently proposes to maintain energy as a prioritized driver of growth directly in manufacturing and indirectly as part of supporting physical infrastructure and in agriculture. 41. The Bank has recently launched the preparation process for a new Country Assistance Strategy (CAS) for Tanzania, which is proposed to be submitted to the Board in FY11. The current concept paper proposes to maintain energy as one fundamental pillar for growth and thus it is expected that this project will also be in line with the proposed successor documents to the overall country assistance framework. 42. At the regional level, the project will support several economic and social objectives of the World Banks Africa Action Plan. The project will support closing the infrastructure gap and regional integration in Africa. In anticipation of future interconnections with neighboring countries of Kenya in the north and Zambia in the south, this strengthening of the grid is a key component of regional economic cooperation and development. Therefore, the project will support the achievement of economic growth required for poverty reduction. 43. Finally, the proposed project will allow Tanzania to ensure reliable transmission of existing available hydropower and therefore, it will contribute to a higher-level global objective of reducing greenhouse gas emissions. Tanzania signed the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 (and ratified it on April 17, 1996, as a non-Annex 1 party).

14

Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania (National Strategy for Growth and Reduction of Poverty).

II.

PROJECT DESCRIPTION

A. Lending instrument 44. It is proposed that a Specific Investment Loan (SIL) be provided by IDA to support the project. The total IDA-financing sought is US$150 million. The proposed IDA credit is expected to have fouryear disbursement period (spanning over five Bank FYs), 10 years grace for repayment of principal, and a 40-year door to door maturity. It is proposed that the IDA credit be on-lent to TANESCO by GOT on the same terms as the IDA credit to GOT. The last IDA credit to TANESCO was provided as equity by GOT. Given the improvement in TANESCOs financial health, and in support of its continued but still precarious financial recovery, it has been agreed that GOT will onlend the IDA credit to TANESCO, but on concessional terms.15 B. Project development objective and key indicators 45. The Project Development Objective (PDO) is to increase availability, reliability and quality of grid based power supply to northern regions of Tanzania. The proposed project will finance a new 667 km, HVAC transmission line from Iringa to Shinyanga linking existing and future generating sources in the southern regions of Tanzania to the load centers in the Mwanza and Arusha regions in northern Tanzania. 46. In the medium to long term, the project will facilitate power trade in the region in the context of multi-purpose water and energy resources development by providing the critical link between the Eastern Africa Power Pool (EAPP) and the Southern Africa Power Pool (SAPP) linking Tanzania with Kenya in the north and Zambia in the south. 47. Progress toward achieving the PDO Outcomes will be measured by the following Project Outcome Indicators, as shown in Annex 3: x Maximum transmission capacity in the Subsystem16 (in MW) x Reduction in transmission losses in the Subsystem (in percent) x Cumulative power outages that are linked to malfunctions in the Subsystem (in days) x Reduction in the number of power outages that are linked to malfunctions in the Subsystem (in number). C. Project components 48. i. ii. The proposed project is designed to consist of two following components: Construction of the proposed Overhead Transmission Line (OHL) from Iringa to Shinyanga and upgrade of four substations at Iringa, Dodoma, Singida and Shinyanga; and Technical Assistance to TANESCO.

49. Component 1: Construction of the transmission line. This component will finance one section of the proposed overhead 400kV double-circuit backbone transmission interconnection between the towns of Iringa and Shinyanga, including the Fiber Optic Communication Line (FOCL) and the Shield Wire
Other financiers to the project, such as AfDB , JICA, South Korea EDCF and EIB have also indicated their intention to ensure that their loans to GOT are onlent to TANESCO on concessional terms for the purposes of this Project. 16 The proposed project will support and enhance the Subsystem within the whole transmission network in place. This Subsystem is comprised of the existing 220kV transmission line from Iringa-Dodoma-Singida-Shinyaga and the proposed 400kV from Iringa-Dodoma-Singida-Shinyaga. This Subsystem will supply electricity at high voltage levels to private and public high voltage consumers, including mines. Therefore, tangible improvements that are measurable in normal operation of this Subsystem are being proposed.
15

10

System (SWS) as a local distribution technology; and the expansion of the associated 220kV substations at Iringa, Dodoma, Singida and Shinyanga, This component is estimated to cost about US$434.77 million (including contingencies, but excluding taxes and duties). Specifically, the IDA credit will finance one of the three sections of this transmission line, namely from Iringa to Dodoma. The proposed IDA-financed section of the transmission line will consist of one supply & install contract related to the construction of transmission line along with FOCL line. The other two sections of the transmission line (including FOCL and SWS) and the upgrade of associated substations are proposed to be financed by AfDB /JICA, EIB, and South Korea EDCF, respectively. 50. Component 1(a): The IDA financed Over Head Line (OHL) section from Iringa to Dodoma is about 225 km long and is expected to cost US$134.50 million (including contingencies, but excluding taxes and duties). The AfDB /JICA financed (under AfDB procurement procedures) OHL section from Dodoma to Singida is about 217 kms and is expected to cost US$129.71 million (including contingencies, but excluding taxes and duties). The EIB financed OHL section from Singida to Shinyanga is about 225 kms and is estimated to cost US$134.5 million (including contingencies, but excluding taxes and duties). 51. Component 1(b): The upgrade of 220kV substations at Iringa , Dodoma , Singida and Shinyanga, including additional feeders, reactive and capacity compensation equipment and disconnections, is estimated to cost US$36.06 million (including contingencies, but excluding taxes and duties) and will be financed by South Korea EDCF under tied concessional financing. 52. To avoid the implementation of an oversized solution and to reduce the initial investment costs, a two-stage implementation of the proposed component will be adopted. The new IringaShinyanga transmission line will be built as a 400kV double circuit line operated at 220kV in a first step, with a capacity of 1,000 MW (500 MW x 2), and will be upgraded to 400kV in a second phase, with a total transmission capacity of 2,000 MW (1,000 MW x 2),. The upgrade to 400kV operations (Phase 2) is not a part of this project, and is expected to be undertaken in about seven years after operation of the line is initiated, when the load on the line is expected to increase. This proposed phasing of the investments will result in cost savings arising out of the 400kV switchgear (transformers, bays, protection, compensation, etc.) that will only be installed during Phase 2. No upgrade will be required in the lines since they will be constructed and designed to operate on 400kV. 53. Component 2: Technical assistance to TANESCO. It is proposed that about US$10.0 million is allocated for technical assistance to the implementing agency (TANESCO) for the project. Upon a careful review of TANESCOs requirements for urgent technical assistance, this component will support the implementing agency through consultancy contracts related to: (i) engineering/safeguard supervision and monitoring consultant for implementation support for the proposed backbone transmission line; and (ii) improve technical, legal, financial, and safeguards capacity of TANESCO in preparing and managing projects. 54. Component 2(a): Implementation Support: Under this subcomponent, an engineering consultant will be procured using Bank consultant guidelines to assist TANESCO with (i) project management and supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations) undertaken in Component 1; and (ii) supervision and monitoring of the implementation of the Environmental and Social Management Plan (ESMP) and Resettlement Action Plan (RAP) which will be prepared based on the existing Resettlement Policy Framework (RPF). It is expected that this implementation contract would cost about US$6 million. The services will include certifications for contractor payment, supervision during construction/implementation and preparation of reports required by IDA and TANESCO, expertise transfer and training for staff and other related matters. 55. Component 2(b): Under this subcomponent that supports capacity building for TANESCO, US$4 million will be allocated to support TANESCO in the following activities:

11

(i)

Enhancing its environmental and social capacity to implement this and other projects US$500,000;

(ii) Carrying out the feasibility analysis of the Rumakali Hydropower Project US$1 million. (iii) Supporting TANESCOs capacity to develop public and private generation projects through the provision of legal, technical, financial, environmental, and social advisory services. US$2.5 million.
Table 2: Summary Project Costs and Financing by Components (in US$ million), excluding Interest During Construction and Taxes & Duties IDA
Component 1: Construction of Transmission Line 1(a): Of which IDA-financed section of the Transmission Line 1(a): Other sections of the Transmission Line 1(b).Expansion of four substations Environmental and Social Mitigation Measures Sub-Total Component 2: Technical Assistance 2(a): Engineering consultant 2(b): Capacity Building for TANESCO Sub-Total Unallocated Total

Other Donors
0.00 264.21 36.06 0.00 300.27 0.00 0.00 0.00 0.00 300.27

Borrower

Total

134.5 0.00 0.00 0.00 134.5 6.00 4.00 10.00 5.50 150.00

0.00 0.00 0.00 18.18 18.18 0.00 0.00 0.00 0.00 18.18

134.5 264.21 36.06 18.18 452.95 6.00 4.00 10.00 5.50 468.45

D. Lessons learned and reflected in the project design 56. The Banks experience with power sector projects (generation, transmission, sector reforms, etc.) has been suitably incorporated in the proposed project. For public sector implemented projects, these include the following: 57. Financial viability of utilities. Increased transmission capacity requires, at a minimum, a stresstested financial recovery plan for financially recovering utilities. Investments for corresponding generation, transmission and distribution capacity in the sector should be targeted to improve the cash flow to the utilities. Therefore, it is well regarded that targeted interventions in utilitys transmission and distribution system can simultaneously improve service, reduce technical and commercial losses and increase revenues and that such interventions are critical as utilities increase in size. In addition, a financially viable and operationally sustainable utility is of key importance to promote private investments in the sector. 58. Continued coordination among donor partners during implementation. Prior experience has also shown the need for close coordination among co-financiers during the implementation phase in order to ensure efficient procurement and implementation of components, as well as compatibility of lending terms and conditions. The project has been prepared with close coordination with development partners and IDA has led the effort in convening and coordinating the financing for the project. IDA proposes to lead the coordination of the donor group during the implementation stage of the project as well. The project will be jointly supervised by the donor group as well. 59. Commitment of local and provincial authorities to implementation of the safeguards mitigation plan. Prior Bank experience in the implementation of transmission projects has revealed some specific areas that require special attention, including thorough analyses to ensure that facilities are designed and routed to minimize the social impact. Thus, commitments by provincial governments and public participation to improve safeguard implementation processes are key factors to successful environmental
12

management. These issues have been addressed in the projects environmental and social impact assessment. E. Alternatives considered and reasons for rejection 60. An extensive analysis of project alternatives has been carried out related to both technical and environmental/social aspects. The following alternatives were considered: 61. No-project alternative. This alternative was rejected considering the important economic, social and environmental benefits from the project, To evaluate this alternative, supplying power to the north was also considered through: (i) Building a new power plant in the north of Tanzania. Power generation in Tanzania is predominantly dominated by hydropower and the major plants are mainly located in the southern part of the country or in the Dar es Salaam area. A new plant in the north of the country is not a viable option because Tanzania has limited natural resources in this part of the country to meet the increasing power demand.17 There is a possibility of developing wind resources up to 100 MW at Singida but given the intermittent nature of the resource, base load electricity cannot be provided. Thus reliable electricity resources will not be available to the consumers. The only alternative strategy for energy supply at the required level may be the installation of diesel electric power plants resulting in negative environmental impacts. The cost of diesel fuel and its transportation to the north of the country also render this alternative not viable at a large scale (see economic analysis of the project). (ii) Importing power from Kenya. No excess energy is envisaged in Kenya at present or in the near future. The only possibility is export of hydropower from Ethiopia to Tanzania through the Ethiopia-Kenya-Tanzania interconnector that is currently being studied. Even though the proposed project is an integral part of the planned interconnection corridor to link the grids of Zambia, Tanzania and Kenya, due to the persistent shortages of generation capacities in all three countries and the urgent need in Tanzania for a national transmission capacity enforcement to link capacities in the south of the country to the load growth centers in the north, it has been agreed that Tanzania would develop its backbone as a domestic project, but in such a manner that it is designed to include regional integration options for future power export and import activities. In that context, the proposed project is being designed to be compatible with grid codes of the neighboring countries. Feasibility assessment is also ongoing with support from Norway for the Kenya-Tanzania power interconnection. (iii) Supplying the load growth centers of northern Tanzania through offgrid electrification: This option was discarded as the offgrid renewable energy potential is limited compared to the power demand in north, especially in northwestern Tanzania, of over 1,000 MW in the medium term. Even if the potential was present, offgrid renewable energy projects are currently under early development in Tanzania. Relying on these would be risky for the country as they may not materialize on the same pace as larger grid connected plants. This is substantiated by the fact that over the last few years, REA has generated interest in developing small renewable energy projects across the country for only 78 MW. The lack of capacity and the financial constrains faced by the developers are also expected to pose significant challenges for these projects to materialize. 62. New Iringa-Shinyanga HV Transmission Line - Technical alternatives. Various technical configurations were also considered as part of the feasibility process. TANESCO is being supported by Fichtner Ag of Germany (a engineering consulting firm), which carried out a complete technical alternative analysis for the proposed Iringa-Singida-Shinyanga backbone transmission line.
17

The PSMP estimates that the share of electricity consumption in the north-west will increase to about 30 percent of total consumption in the interconnected system over the next several years.

13

63. Due to the long distance of the backbone transmission line (667 km), as a first step, a technology comparison analysis was required to determine the appropriate technology of the line. The options analyzed were: (i) High Voltage Alternating Current (HVAC), (ii) High Voltage Direct Current (HVDC), and (iii) a combination thereof (where the Iringa-Singida section is HVDC, and the Singida-Shinyanga section is HVAC). The least cost simulation for the transmission backbone comparison analysis was carried out based on peak load conditions of the power system in the years 2012, 2016 and 2020 with 1237 MW, 1,636 MW and 2,125 MW respectively. The simulation took also into consideration future generation, demand growth, mining loads, and imports from Kenya (200 MW). The results of the technical and economic analysis recommended the implementation of a full HVAC 400kV line option over the complete length with drop off and connection to the existing 220kV Iringa, Dodoma, Singida and Shinyanga substations (400 to 220kV). The economic assessment of these alternatives showed that the full HVAC 400kV option is the most cost effective one with the lowest present value of costs, and the lowest levelized costs (defined as the PV of cost divided by the PV of transported energy). This option also presented the highest NPV and economic internal rate of return. Furthermore, a sensitivity analysis proved that the selected full HVAC option would not be affected by variation of the energy transported through the line (variation of the energy-no-served ENS), variation of the costs to compensate for the electricity losses in the transmission line, and variation of the discount rate. 64. Subsequently, in order to optimize the initial investment to meet the demand requirements, five technical different line configurations of the full 400kV line option were analyzed. These include: a) (Alternative A.1) Phase 1: Construction of a 400kV double circuit line, with one circuit strung, operated at 400kV; Phase 2: 2nd circuit strung and installation of additional transformer capacity. b) (Alternative A.2) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 400kV; Phase 2: Installation of additional transformer capacity. c) (Alternative A.3) Phase 1: Construction of a 400kV double circuit line with one circuit strung, operated at 220kV; Phase 2: Stringing of 2nd circuit, operation on 220kV and system upgrade to 400kV. d) (Alternative A.4) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 220kV; Phase 2: System upgrade to 400kV. e) (Alternative A.5) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 220kV on line section Iringa Singida and Construction of a 400kV double circuit line with one circuit strung, operated at 220kV on line section Singida Shinyanga; Phase 2: Stringing of 2nd circuit on Singida Shinyanga transmission line section and System upgrade to 400kV. 65. The results of the technical-economic assessment showed A.2 and A.4 as the most attractive alternatives and compliant with the N-1 criterion. However, alternative A.4 showed the highest Economic Internal Rate of Return (EIRR) and the lowest initial investment resources, when assessing the risks and availability of financing requirements. A sensitivity analysis was also conducted, including a -40 and +20 percent demand variation influencing the power flow through the backbone transmission line due to anticipated changes in supply and demand (see Annex 9 for details). As a result, the technical alternative A.4 was recommended by TANESCO. Bank has undertaken due diligence on these technical alternatives and has found the recommendations to be one that optimizes the use of concessional financing sources. This proposal provides for the development of a first phase by year 2012, consisting of a overhead 400kV double circuit line with both circuits strung operated at 220kV and a second phase to be completed around 2020, consisting of upgrading the system to 400kV when the power transfers are forecasted to reach 1,000 MW (500 MW per circuit). The line corridor of 667 kms will have a total transmission capacity of 2,000 (1,000MW per circuit) after completion of both phases. This alternative also provides the possibility of
14

using the 400kV substation Singida as point of common connection to the 400kV link to Arusha-Nairobi (Kenya) at minimum cost. The proposed project will finance only the first phase. 66. Environmental and Social Consideration leading to Routing alternatives. Different line routing alternatives were also considered to minimize environmental and social impacts. The proposed line route is located in the central highlands of Tanzania between 32 to 36 east and 4 to 8 south. The line is divided into three line sections, with the following section lengths that were changed due to the findings of the ESIA: Iringa - Dodoma 225 km (initially 238 km), Dodoma - Singida 217 km (initially 214 km), Singida - Shinyanga 225 km (initially 231 km). The total length of the line is 667 km (initially 683 km). The line routing adjustments were conducted in order to avoid settlements. Resettlement will therefore be reduced from 1200 households to about 800 households. As a result, only 3 percent of the line routing will cross across settlements compared to the initial 5 percent. The proposed line route will not pass through any national parks or protected areas. III. IMPLEMENTATION

A. Partnership arrangements (if applicable) 67. Project related: The Bank has played a key convening role in bringing together a donor partner group for the proposed project. The African Development Bank (AfDB), European Investment Bank (EIB), Japan International Cooperation Agency (JICA) and Korean Economic Development Cooperation Fund (EDCF) are parallel financiers to the project. AfDB and JICA will co-finance the Dodoma to Singida segment of the transmission line (US$129.71 million) and EIB will finance the Singida to Shinyanga segment of the transmission line (US$134.50 million). South Korea EDCF will finance the expansion of the four substations (US$36.06 million). 68. In addition, various development partners including Swedish Investment Development Association (SIDA), NORAD, EIB and AfDB have expressed interest in financing an electrification program that will support the electrification of cities, villages and towns along the proposed backbone transmission line (approx. US$30-40 million), as part of the social mitigation measures identified in the projects ESIA. 69. Sector related: With respect to the sector, a number of positive actions over the past years (including electrification of over 90 percent of district headquarters, commissioning of a 102 MW and a 45 MW gas power plants in 2008 and 2009 respectively, 3 percent levy from power generation, etc.) have increased the comfort level of the donor agencies in supporting the Tanzanian Power Sector. Over and above the continued engagement of IDA, NORAD, SIDA, and AfDB in the sector, the GOT and TANESCO have been able to draw additional donor interest from Millennium Challenge Corporation of USA (MCC), EIB, Finland, JICA, and South Korea EDCF. Furthermore, to harmonize the support provided to the energy sector, the World Bank has taken the lead in collaborating with SIDA, NORAD, South Korea EDCF, MCC, JICA, Netherlands, EU, AfDB, DFID, IMF and UNDP to design the overall assistance to the energy sector. 70. NORAD is also supporting a twinning arrangement between the Norwegian state-owned Stattnet, the Norwegian transmission system operator and TANESCO. 71. The Bank and SIDA co-lead the development of a comprehensive, sector-wide approach to access expansion in Tanzania under TEDAP. In addition, SIDA has been providing assistance to the energy sector for many years concentrating on rural electrification and support to MEM. Moreover, SIDA continues to support the capacity building activities for REA and EWURA through a trust fund implemented by the Bank. The Bank also partners with the Global Village Energy Partnership (GVEP) funded by Russia to provide support to small power producers for renewable/rural energy development. 72. JICA and South Korea EDCF are now parallel financiers to TEDAP activities. JICA also provides technical assistance to TANESCO in support of a power, distribution and transmission training
15

program. AfDB finances one substation in Arusha and other distribution activities under the AfDB Electricity V project. 73. MCC negotiated a US$206 million grant package for the energy sector that includes high-voltage power sea cable to Zanzibar, the extension of a mini-grid system, and rehabilitation of the existing distribution infrastructure in six regions. The MCC activities related to the rehabilitation of T&D networks have been designed in keeping with the goals of the proposed project. 74. Finally, several initiatives have emphasized that there is a need to facilitate infrastructure development for power trade in the Eastern Africa/Nile Basin Initiative (NBI) countries by promoting key regional investments, particularly backbone transmission investments and national grid interconnections. The Bank is supporting such initiatives. Specifically, the Bank is managing the Nile Basin Trust Fund (NBTF) that supports the Nile Equatorial Lakes Subsidiary Action Program (NELSAP) Power Trade project that will finance various studies supporting various regional interconnections and the Regional Power Trade project that facilitates dialogue and capacity building to build the platform for regional power trade. NELSAP is also leading the preparation of the Norway/SIDA financed feasibility for the Tanzania-Kenya transmission line. B. Institutional and implementation arrangements 75. TANESCO, the wholly-owned government entity, will be solely responsible for implementation of the two components of the project and the sole beneficiary of the credit. TANESCO will be individually responsible for financial, procurement and physical monitoring reports on implemented activities. 76. The lenders to the proposed project have jointly agreed on implementation arrangements for the project. The implementation of the project will be under the overall responsibility of TANESCOs General Manager for Transmission. A Project Coordinator reporting to the General Manager of Transmission will be appointed and assisted by three transmission engineers and one substation engineer responsible for each construction lot of the project. In addition, a dedicated (i) Project Accountant; (ii) Environmental Group including one environmental specialist for each line segment and two social specialists; and (iii) a Procurement team will assist the Project Coordinator. The Project Accountant will report to the Chief Financial Officer, who will report directly to the Managing Director; the Environmental Group will also report to the Senior Manager of Strategic Planning and Projects, and the Procurement Unit will also report to the Senior Manager, Procurement. Additional supervisors counterpart staff to the Supervision Engineer will also be assigned by TANESCO, as required. Further details on the implementation arrangements are provided in Annex 6. 77. The technical assistance component of the proposed project will finance an Owners Implementation Support Firm (OISF) engineering and safeguards consultants to assist TANESCO with: (i) overall project management and supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations); and (ii) supervision and monitoring of the implementation of the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAP), based on an agreed monitoring plan. In addition, the OISF will supervise the implementation of HIV/AIDS awareness and prevention plan in the project areas to mitigate the possible spread of HIV/AIDS as contractors bring outside workers to the area. The terms of reference for this critical OISF will be agreed to jointly by the lenders. TANESCO has agreed that the proposed OISF will be responsible for submitting quarterly reports, through TANESCO, to all financiers of the project and will be required to organize its duties in a way that ensures close supervision of the execution of all lots. In addition, the AfDB will recruit external auditors for auditing all the project accounts. 78. Implementation support from the Joint Lenders: Even though the project is relatively not complicated from an engineering perspective, it is deemed critical that project execution be undertaken in
16

a coordinated fashion. To maximize collaboration amongst the lenders during project implementation, the lenders have agreed to undertake two Joint Lenders supervision missions during the first year of project implementation (after credit approval). This will allow close supervision of all of project activities, including those related to safeguards across the complete line. After the first year of project implementation, the joint lenders will conduct at least one joint supervision mission every year. C. Monitoring and evaluation of outcomes/results 79. Overall monitoring and coordination of project activities will be performed by TANESCO, and specifically by the Senior Manager, Strategic Planning and Projects. Activities to be monitored include: the timely, efficient and transparent (in terms of procurement) construction and commissioning of the transmission line and effective implementation of the ESMP and RAP, and the successful completion of studies and training activities. 80. Annex 3 presents the projects results framework that defines specific outcomes and results to be monitored under this project. In addition, the Bank will carry out the normal review procedures for procurement, regular supervision missions, the Financial Monitoring Reports (FMRs), the quarterly reports provided by TANESCO, independent annual financial audits of the project and of the financial statements of TANESCO. AfDB, EIB, JICA, South Korea EDCF and the Bank have agreed on a single report format that they all will use to monitor environmental and social impacts and track implementation of the ESMP and RAP. The Bank will also carry out a mid-term review after 24 months from effectiveness of the project and an Implementation Completion and Results Report (ICR) at the end of the project. Inputs will be solicited from the joint lenders to the project for the mid-term review and the ICR. D. Sustainability 81. There are two key factors that determine the sustainability of the projects development objective: (a) Sound and timely expansion of least cost generation in Tanzania. The current generation capacity and the proposed generation expansion plan under the PSMP (largely through hydropower, wind and gas) is considered adequate for meeting the growing loads in northern of Tanzania by reinforcing the existing transmission grid. In addition, it is expected that by 2016, up to 200 MW of power will be available for import from Kenya in case of power deficits or emergencies.18 (b) Financial viability of TANESCO. The electricity sales of 2007 increased by 26 percent compared to year 2006, which enabled TANESCO to improve its overall gross margin from -60 percent in 2006 to -32 percent in 2007 (as a percentage of sales). Notwithstanding the 21.7 percent increase in tariff in 2008, the electricity tariffs barely meet operational expenditures, but provide about 60~65 percent of full electricity supply costs. The sustainability of new investments and commercial viability of TANESCO will be at risk, until the levels of electricity tariffss become reasonable. To mitigate this risk, TANESCO has submitted to EWURA a multiyear application for tariff increase to meet full cost recovery.

18 To review the impact of delays in the execution of the PSMP, sensitivity analyses have been carried out. A minus 20 percent load scenario has been analyzed by reducing demand and supply. The energy deficit resulting from three years delayed implementation of the planned power plants represents an average deficit of 17 percent compared to the expected energy demand. The minus 20 percent load scenario therefore represents a delay of generation projects implementation of more than three years time. In this load scenario the implementation of Phase 2 becomes necessary only in the year 2024. In both cases, the transmission line has important economic benefits for the country, as shown in the economic analysis.

17

E. Critical risks and possible controversial aspects 82. High Voltage AC lines are common in Africa and worldwide. Technically, the project is not complex, especially as the proposed routing uses an existing right of way a 220kV single circuit transmission line currently supplies about 200 MW of power from Iringa to Shingyanga. Identified project risks and mitigation measures are summarized in the following matrix. A detailed list of risks and mitigation measures is included in the Risk Identification Worksheet (RIW) for the project. Risk Risk Rating
(after Mitigation Measures) TANESCOs lack of familiarity with the design and construction of 400kV AC technologies leading to quality issues and implementation delays. The proposed option of an HVAC line is a well proven technology and applied since a long term worldwide. The equipment supplier will be procured on a competitive basis and according to technical & design responsiveness. In addition, a supervision engineering consultant will support TANESCO on the supervision of the construction of the overall transmission line.

Risk Mitigation Measures

L
TANESCO has started a twinning arrangement with Norways grid operator Stattnet. The arrangement is financed by Norway and foresees an initial term of 3 years extendable to 5 years. Stattnet will train and build capacity within TANESCO Transmission operation staff further giving comfort that TANESCO will be able to operate and maintain the new line technology. The existing transmission line has already reached its limit; outages are resulting in load shedding, or self generation in the north of the country. Planned connection of new rural, urban and industrial customers is resulting in overloading of the network. The PSMP indicates that an additional 1,011 MW over the next 5 years are necessary to secure an energy reserve margin of 11 percent. The Bank is supporting the next least cost generation IPP (hydropower) and gas infrastructure developments to assure continuity of supply. Through this proposed project and the current TEDAP, Bank has allocated key resources to support TANESCO/GOT in advancing private sector generation initiatives. The economic and financial analyses of this project shows that if the expected load on the proposed new backbone is reduced by 20 percent in the base case, the project still generates significant economic and financial returns. The WB is actively engaged in dialogue with GOT on the financial recovery plan for the utility to restore its financial integrity, improve the technical integrity of its network, reduce losses, increase available generation capacity, increase customer numbers and hence the revenue base. M The sector benefits from an independent regulator, a new electricity law and regulations that allow for private sector investments and provides powers to the regulator to set tariffs with public consultations. TANESCO has recently submitted (on May 28, 2010) to EWURA a new a multi-year tariff application that will allow for better cost recovery and a full cost recovery trajectory. TANESCO will establish a dedicated team under the General Manager of Transmission that will be responsible for the implementation of the project. The Bank has reviewed the proposed arrangements and considers them adequate. In addition, the project will finance an engineering and safeguards supervision firm as support to TANESCO to manage: (i) the overall project management and supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations); and (ii) supervision and monitoring of the implementation of the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAP). The Bank has already agreed with TANESCO on a plan to strengthen its

Under-utilization of the transmission line due to slower than anticipated demand growth or lack of generation capacity could result in underutilization of the proposed transmission line in the early stages of operation.

TANESCOs financial sustainability may not improve; appropriate tariff increases may not be allowed by the regulator.

Weak institutional and implementation capacity in TANESCO. L

The procurement capacity

18

Risk

Risk Rating
(after Mitigation Measures)

Risk Mitigation Measures

within TANESCO is stretched due to an important amount of investment projects under implementation. This bears the risk that the procurement process may get delayed or not handled up to highest standards.

procurement capacity, including training for TANESCO staff. In addition, a dedicated procurement unit for this project will be established under the Project Coordinators Support unit. Furthermore, Fichtner of Germany, as part of their current consultancy for TANESCO, will support the preparation of bidding documents for the different procurement packages to be financed by the project as well as the overall procurement process. Taking into account those Mitigation measures the initial Substantial rating for procurement is expected to become Moderate after implementation of those measures. TANESCO will reassign staff to from its Environmental Unit for the project that will include one environmental specialist for each line segment and two social specialists will also assist the Project Coordinator. The supervision engineer will also support TANESCO on the monitoring of the implementation of the ESMP and RAP. The terms of reference of the consultants will also ensure that the consultant will provide on the job safeguards training to TANESCO Staff. As part of project launch, the Bank will also take lead in providing safeguards training for TANESCO. The provincial governments and local communities have actively participated in project preparation through their participation in the public consultations held during the preparation of the ESIA and RPF. Their engagement will continue through their participation in the preparation of the RAP and throughout the implementation of the ESMP.

TANESCOs capacity to implement environmental and social safeguards may be overwhelmed by the additional workload from the proposed Project and other active projects. Commitment by provincial governments and public participation to improve safeguard implementation processes. Overall Risk Rating

F. Credit conditions and covenants Conditions for Board x None. Conditions for Effectiveness: x A Subsidiary Agreement has been executed on behalf of the Recipient and TANESCO; and x TANESCO has adopted and submitted to the Association the Operating Guidelines, in a form and substance satisfactory to the Association and the Recipient. Conditions for Disbursement for Component 1: x All parallel Co-Financing Agreements, except for the Economic Development Cooperation Fund of South Korea (EDCF) Co-Financing Agreement, have been executed and delivered and all conditions precedent to their effectiveness or to the right of the Recipient to make withdrawals under same have been fulfilled; and x By January 01, 2012, the EDCF Co-Financing Agreement has received approval from the Economic Development Cooperation Fund of South Korea. IDA Credit covenants (non-standard) (a) TANESCO shall prepare and deliver to the Bank not later than December 31, 2010, and thereafter not later than June 30th in each successive Fiscal Year up to and including the Closing Date, interim unaudited financial forecasts for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following Fiscal Year, which forecasts shall include calculations of TANESCOs Debt
19

Service Cover Ratio and EBITDA19 Margin (as such terms are defined below in this Section) as at the end of the next two six month periods within the relevant Fiscal Year. (b) Except as the Association shall otherwise agree, TANESCO shall at all times maintain a Debt Service Cover Ratio equal to or greater than the following table as shall be confirmed by the audited Financial Statements.
Borrowers FY Debt Service Coverage Ratio FY11 FY12 FY13 FY14 FY15

1.15

1.15

1.15

1.15

1.15

(c)

Financial Action Plan (i) Up to and including the Closing Date, if at any time any of TANESCOs interim unaudited financial forecasts referred to above in paragraph.(a) of this Section establish that TANESCOs: (i.1) (i.2) Debt Service Cover Ratio will be less than 1.10 to 1.0; or EBITDA Margin will be less than 20 percent;

then TANESCO: (A) will prepare a Financial Action Plan, acceptable to the Bank, which TANESCO will deliver to the Bank not later than 120 days following the end of TANESCOs immediately preceding Fiscal Year, and will also prepare an interim unaudited financial forecast for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following five Fiscal Years, which forecast shall include calculations of TANESCOs Debt Service Cover Ratio and EBITDA Margin as at the end of each six month period during the said five Fiscal Years, and which forecast will be delivered by TANESCO to the Bank concurrently with the delivery of the Financial Action Plan; and (B) TANESCO will thereafter prepare and deliver to the Bank, on a semi-annual Fiscal Year basis, interim unaudited financial forecasts for TANESCO, in form and substance satisfactory to the Bank, covering the immediately following five Fiscal Years, including calculations of TANESCOs Debt Service Cover Ratio and EBITDA Margin as at the end of each six month period during the said five Fiscal Years. (ii) If, during the period when a Financial Action Plan is in effect, an interim unaudited financial forecast delivered by TANESCO to the Bank in accordance with paragraph.(a) of this Section establishes that TANESCOs Debt Service Cover Ratio will be equal to or greater than 1.10 to 1.0 and the EBITDA Margin will be equal to or greater than 20 percent, in each case as at the end of each six month period within such Fiscal Year, then, but subject nevertheless to the provisions of subparagraph (c)(iii) below of this Section II, the provisions of paragraph (a) of this Section II shall resume. (iii) For the purposes of sub-paragraph (c)(ii) above of this Section, the provisions of paragraph (a) of this Section shall resume on condition that the audited Financial Statements of TANESCO delivered to the Bank pursuant to [paragraph.B.3]20 of this Section certify that TANESCOs Debt Service Cover Ratio was equal to or greater than 1.10 to 1.0 for any fiscal year and the EBITDA Margin was equal to or greater than 20 percent as at the end of each six month period within the relevant Fiscal Year.

19 20

Earnigs before Interest, Taxes, Depreciation and Amortization. Requires Audited Financial Statements

20

(d)

Additional Debt Except as the Association shall otherwise agree, TANESCO shall not incur any new debt, unless the audited Financial Statements of TANESCO delivered to the Bank pursuant to [paragraph.B.3]21 of this Section show that the net annual revenues equal to, or greater than 1.30 times the estimated debt service requirements of TANESCO in the following Fiscal Year.

(e)

Third Party Access TANESCO shall ensure the implementation of non-discriminatory Third Party Access to the project,22 including access to export- and international transit-related services, based on agreed tariffs, applicable to all customers, and applied objectively and without discrimination between customers.

IV.

APPRAISAL SUMMARY

A. Economic and financial analyses Economic analysis of the project 83. As per the PSMP 2009 update (and the 2008 PSMP), a large portion of the future electricity load growth will take place in northern Tanzania. Section I of the PAD sets out the various alternatives for delivering power to this region: (i) building a new power plant in northern Tanzania; (ii) importing power from Kenya; (iii) using offgrid electrification; and (iv) generating power in the south of Tanzania and transmitting it to the north using this backbone infrastructure. 84. As discussed in detail in Section I, there are limited options for development of power generation in northern Tanzania. A 100 MW windfarm at Singida would deliver only intermittent power (about 2530 percent load factor and that too not on a base-load basis). The only other alternative would be to install diesel generation sets. Limited power or transmission capacity from Kenya exists to make importing power from Kenya a technically viable option. Offgrid options have very limited output compared with power demand expected to grow over 1,000 MW in northern Tanzania. Most generating options are in southern Tanzania, and therefore the proposed project (Option (iv) above) is seen as the only technically viable option. 85. The economic value of the proposed transmission project is twofold. Firstly, it allows power to be generated using lower cost sources in the south relative to higher cost sources in the north (likely HFO/diesel generating sets). This differential is significant even taking account of the cost of transmission, and constitutes the key economic value of this project. Secondly, generation in the south will have significantly lower CO2 emissions relative to the north (fuel sources in the south are predominantly hydro- and gas-based technologies relative to what would be diesel technology in the north), and thus the project also benefits from significant economic value from avoidance of CO2 emissions. These economic benefits have been assessed and are noted below. 86. Based on the above framework, and using assumptions and parameters set out in Annex 9, all viable technical alternatives were assessed and the least cost two options were found to have the following Economic Net Present Value (ENPV) and Economic Rate of Return (ERR).

21 22

Requires Audited Financial Statements Defined as the New Backbone Transmission Line partially financed by IDA

21

Table 3: Economic Assessment of Technical Alternatives

Alternative TA 1.2 (400kV line operated at 400kV) TA 1.4 (400kV line operated at 220kV in the first instance and then upgraded as demand picks up)

Levelized Cost (USc/kWh)

2.70 2.92

ENPV (in US$ billion; @ 10 percent )

+2.75 + 2.61

ERR
38.7 percent 42.7 percent

87. As shown in Table 3 above, both technical alternatives were found to be economical viable. Alternative TA 1.2 was found to have a marginally lower levelized cost and higher ENPV primarily because under TA 1.2, the line operates at higher voltages and thus technical losses are less. However, given that TA 1.4 has significant lower financing requirement today (about US$162 million lower) and considerable uncertainty is still present around the generation expansion plans, TANESCO and its consultants have recommended the development of the TA 1.4 at the present time, and the line being upgraded to run at 400kV as and when demand/supply situation allows for such expansion. Also both projects, when evaluated individually were found to have significant economic benefits (over 42.7 percent for the chosen option) thus making the decision to opt for the highest ERR and the most-certain technical option TA 1.4 as the optimal decision. As noted above in Table 3, the ERR for the proposed project is expected to be 42.7 percent and an ENPV of US$2.61 billion (at a discount rate of 10 percent). 88. The proposed project was also evaluated for Green House Gas (GHG) savings. The ERR increase to 47.8 percent and the ENPV increases to US$3.25 billion when GHG savings from the project are accounted for. 89. In summary, the economic assessment finds that the proposed project is the viable economic option for supplying significant power to northern Tanzania. This result is found to be robust as it holds under all sensitivities carried out (see Annex 9 for details). Financial analysis of the project 90. The financial analysis indicates that the proposed project is financially viable. Under the base case, TANESCO would achieve a Financial Internal Rate of Return (FIRR) of 19.6 percent and a NPV of US$381 million. Table 4 summarizes the results of the sensitivity analysis of the project (see detailed financial analysis in Annex 9).
Table 4: Summary Results of Net Financial Benefit for the Investment Transport Tariff Sensitivity
FIRR ( percent ) Net Present Value (US$ million)

-10 percent
18.3 percent 308

Base Case
19.6 percent 381

+10 percent
20.8 percent 455

91. Additional sensitivity analysis of the project has been carried out to assess the financial viability of the new investments under various scenarios, including 10/20/30 percent increase and decrease in transport tariffs, project investment costs, and O&M costs. The NPV continues to be positive in almost all cases, with the IRR exceeding a discount rate of 12 percent. The project will start becoming financially unattractive if the transport tariff recoveries were decreased by about 30 percent. Utility financial analysis 92. A detailed financial analysis has also been carried out for TANESCO as the implementing agency. 93. As noted before, TANESCO has been suffering from poor technical and financial performance for several years. A combination of high level of network losses, low electricity tariffs, low network
22

voltages and most importantly, lack of hard investments has negatively impacted the creditworthiness of the utility. But at the same time, since 2002, the cost of electricity generation has continuously increased, primarily as the reliance on thermal energy has increased. Hydro generation had been continuously decreasing from 98 percent in 2002 to 40 percent in 2006 (severe drought was experienced in East Africa from 2004 to 2006), and now it is about 56 percent of the installed capacity. Over the last few years, IPPs have become a substantial contributor to thermal electricity generation for TANESCO. IPP contribution to the power sector (in terms of capacity) is expected to increase from 4 percent in 2003 to 28 percent in 2012. The costs associated with such power accounts are expected to be about 12 percent of TANESCOs revenues and about 37 percent of total electricity generation cost from 2010 to 2012. 94. As a result of the aforementioned issues, there have been constant revenue shortfalls to meet operating costs (until CY 2007). TANESCO generated a surplus of TSh 2.7 billion in 2008, but that reduced to TSh -3.1 billion in 2009. Despite governments continuous support for the lease payments of three leased plants and intermittently for IPTLs capacity charges, TANESCO has been incurring a net loss (with depreciation recovery) and was obligated to resort to expensive short-term overdraft borrowing to cover cash flow deficits. 95. TANESCOs financial health has started to improve gradually from 2008. The 2008 financial statements show an increase of operating revenue by 27 percent compared to the previous fiscal year 2007. With the increased revenue, the utility has been able to improve from the net loss of TSh 67,234 million in 2007 (with operating loss of US$63,259 million) to the net loss TSh 47,658 million (with operating loss of US$3,173 million) in 2009. The positive trend in overall improvement of TANESCOs financial situation is expected to continue in the coming years. The overall collection rates have remained high (at 94 percent on average), even though energy losses also remained high (at 24 percent on average) underlying the urgent need for the transmission and distribution rehabilitation works to be implemented at the earliest. Financing for such investments have been made available by the development partners active in the energy sector in Tanzania and such investments are slowly coming to fruition thus enabling reduction in technical losses resulting in further improvements in financial sustainability of the company. 96. However, despite the positive trend, electricity tariffs barely meet operational expenditure, and are about 60-65 percent of current full cost of electricity supply cost. Electricity tariffs consistent with reasonable, if not full cost recovery, are essential to ensure the sustainability of new investments as well as the commercial viability of TANESCO. In order to gradually move the tariff level up to commercially realistic levels that will allow TANESCO to cover its cost of operations, the company received a tariff increase of 21.7 percent in 2008 (applied for 40 percent). Notwithstanding the 21.7 percent increase in tariff approved in 2008,23 the electricity tariffs barely meet operational expenditures. The sustainability of new investments and commercial viability of TANESCO will be at risk, until the levels of electricity tariff levels become reasonable. As part of TANESCOs continuing Financial Recovery Plan (FRP), the company has recently submitted to EWURA a multi-year tariff increase application. According to the results of Cost of Service Study, TANESCO will require tariffs in the range of about TSh 159.9/kWh in 2011, about TSh 181.9/kWh in 2012 and about TSh 207.3/kWh in 2013 to assure continual positive net income (see Annex 9 for details). By legislation, EWURA has eight months to review and respond to this multi-year application by TANESCO. Results from this tariff application are expected after public consultation, after the 2010 elections, and around January 2011. B. Technical 97. The proposed project includes the following components to be implemented by 2014: (i) development of the overhead HVAC 400kV double circuit transmission interconnection operated at 220kV between the towns of Iringa and Shinyanga, including the Fiber Optic Communication Line (FOCL) and the Shield Wire System (SWS) that will allow the rural electrification program along the
23

This increase was applied for in CY2007.

23

transmission line; and (ii) the expansion of the associated four substations at Iringa, Dodoma, Singida and Shinyanga. This proposed new 400kV transmission line will run parallel to the existing single circuit 220kV line. 98. The project presents no unusual construction and operational challenges. The equipment and the technologies involved in construction and operation of transmission lines are well known and proven in developing countries. The design, including technical parameters and estimated project costs for the transmission line have been established by a feasibility study prepared by an international consultant (Fichtner of Germany) and approved by TANESCO. In addition, during the preparation phase, Fichtner has also been hired to prepare technical specifications, bill of quantities and bid documentation, and evaluation of reports as well as to assist TANESCO in contract negotiations for the complete project. 99. A procurement strategy workshop amongst all donors was carried out to agree on salient features of the procurement strategy that TANESCO would undertake for the project. It was agreed that all procurement of goods, works and services financed by the AfDB /JICA, WB, EIB and South Korea EDCF, will be conducted in consideration of the relevant financing institutions procurement guidelines the principle of parallel co-financing of the project would be adopted. However to make the procurement for the project relatively less complicated, for the transmission line (Component 1.a), it has been agreed that the World Banks Standard Bidding Document for works will be used, however bidding will be carried out using the relevant institutions procurement procedures and guidelines. For the Substations package, (Component 1.b), South Korea EDCF documents and guidelines will be used. In the case of the transmission line segment between Dodoma to Singida being jointly financed by AfDB and JICA, the procurement rules of the AfDB will apply (based on the principles of an AfDB-JICA Memorandum of Understanding). 100. The bidding documents will contemplate the line sections basic design for each lot whereas the detailed design will be provided by the selected EPC contractors. Project co-financiers (AfDB, JICA, EIB) have agreed to use the World Bank standard bidding documents to facilitate the procurement process. For the substations expansion lot, a separate consultant will be procured and financed by South Korea EDCF to review Fichtners outputs related to the substation expansion package to ensure that Korea EDCF tied-financing requirements have been appropriately included in the bidding package. To facilitate completion of the project at the same time all four bids for construction of transmission lines and substations will be issued in parallel. 101. For the transmission line sections, it is proposed that TANESCO will issue an expression of interest prior to issuance of the Pre-Qualification Document. This will allow TANESCO to review the pool of interested partiesand thus identifying any eligibility issues for the financing from various lenders. Based on this, an informed decision would be taken to reaffirm that successful bidding could be concluded using single or multiple Standard Bidding Documents (SBDs). A common pre-qualification determination is also envisaged. 102. A joint evaluation of the bidding will be undertaken for the transmission line packages to allow for maximum efficiencies to be generated in the interest of the Borrower. The project would be implemented according to internationally accepted technical criteria and standards. These joint lender and borrower agreements related to Procurement will be provided for in the Operating Guidelines for the project, which will be agreed amongst all lenders to the project before the execution of the project. 103. As part of the projects implementation arrangements, during the construction phase, a supervision engineer (OISF see Annex 6, implementation arrangements) will be contracted by TANESCO to assist in the supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations).

24

C. Fiduciary Procurement 104. Procurement for the proposed project will be carried out in accordance with the World Banks Guidelines: Procurement under IBRD Loans and IDA Credits, dated May 2004, revised October 2006 and May 2010, and Guidelines: Selection and Employment of Consultants by World Bank Borrowers, dated May 2004, revised October 2006 and May 2010; Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and the Board approved modifications as stipulated in the Financing Agreement. 105. Public procurement in Tanzania is governed by the Public Procurement Act, Act No 21 of 2004. The Act has been reviewed by the World Bank and found to be satisfactory and consistent with Bank Procurement Guidelines, except the provisions of Clause 49 of the Act, which permits application of national preference in bid evaluation for national competitive bidding (NCB). Following the Act, the procurement function has fully been decentralized to procuring entities with the establishment of the Public Procurement Regulatory Authority (PPRA) as an oversight body for public procurement. Since its establishment in May 2005, PPRA has made tremendous progress toward building a robust procurement system, as recommended by the 2003 Country Procurement Assessment Report (CPAR). PPRA has developed various instruments for implementing the Act, including: (i) standard bidding documents for the procurement of goods, works, and non consultant services, as well as for the selection and employment of consultants; (ii) guidelines for use of the standard bidding documents; (iii) guidelines for preparing responsive bids and for evaluation of bids; (iv) a system for checking and monitoring procurement activities in the country and the development of performance indicators for the same; and (v) a Procurement Information Management System (PMIS). The major tasks of the PPRA at the national level are to (i) implement the above strategies using the tools that have been developed; and (ii) implement other reforms that will ensure that the system is efficient, transparent, and delivers value for money. 106. An assessment of the capacity of TANESCO, the Implementing Agency to implement procurement actions for the project was carried out in January, 2010. The assessment reviewed the organizational structure for implementing the project and the interaction between the projects staff responsible for procurement and TANESCOs relevant central units for administration and finance. The key issues and risks concerning procurement for implementation of the project have been identified and the findings and recommendations are included in Annex 8. The capacity assessment for TANESCO revealed that most of the staff dealing with procurement have limited experience in procurement of large value works and goods (through International Competitive Bidding procedures) using World Bank Guidelines and procedures. TANESCO is facing the challenge of timely delivery on procurement activities due to limited procurement knowledgeable staff that are dedicated to carrying out procurement of goods and service. TANESCO will also need to train its staff in basic and advance procurement of works and high value consultancy services. The overall project risk before mitigation of the risks is Substantial. To mitigate this risk, TANESCO will be assisted by an engineering consulting firm (Fichtner of Germany) which is under contract for preparation of procurement strategy, documents and evaluation of bids. The residual risk is expected to be Moderate. Financial Management 107. A Financial Management (FM) assessment was carried out at the TANESCO Head Office in line with Bank guidelines. The objective of the assessment is to determine whether: (i) TANESCO has adequate financial management arrangements at all levels to ensure project funds will be used for purposes intended in an efficient and economical manner; (ii) Project related financial reports will be prepared in an accurate, reliable and timely manner; and (iii) the projects assets will be safeguarded. 108. The implementing entity is compliant with the Banks financial management requirements; and there are no overdue audit reports and interim financial reports from this entity.
25

109. The assessment concluded that the overall residual risk rating for TANESCO is Moderate which satisfies the Banks minimum requirements under OP/BP10.02 and it is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by the World Bank. 110. Financial Management issues will also be provided for in the Operating Guidelines for the project, which will be agreed amongst all lenders to the project before the execution of the project. D. Social 111. The project is intended to have positive impacts for the overall development and growth of the country. In particular it will alleviate the increased demands for electricity in northern parts of Tanzania due to increased mining and other economic activities in this area. It is anticipated that the project will stimulate economic growth and social development. An immediate concern the communities along the corridor have expressed during the consultation process is their lack of access to electricity and the need to benefit directly from the investments being made in their region. Along the proposed transmission line, 93 villages with a population ranging from 600 to 9,000 inhabitants were identified, of which only 16 have electricity from TANESCO, and 29 have no electricity at all. The remaining 48 villages have diesel, hydro, biomass or solar generated electricity, or some combination of them. Consequently, village electrification along the line is one of the mitigation measures agreed under the ESMP and its implementation according to the ESMP. The implementation of the ESMP is one of the covenants in the Project Agreement. The affected communities also expressed concern about the possible spread of HIV/AIDS as contractors bring outside workers to the area. To address this concern the ESIA highlighted the need for an effective HIV/AIDS awareness and prevention plan and recommended a monitoring program to assess its effectiveness that would be implemented in collaboration with the Ministry of Health and the relevant municipalities. 112. Through the supervision of this project and other Bank projects (such as TEDAP), the team will be able to monitor the implementation of this ESMP mitigation measure. Moreover, in the first quarter of project implementation, the plan is to undertake a socio-economic baseline survey and social assessment (SA) to ensure that the project activities are enhancing benefit sharing and takes into account the communities concerns. This will be followed by a Social Impact Assessment (SIA) during the mid-term review. It is also important to highlight this project is part of a broader investment by GOT in the energy sector and its activities are complimentary to the activities in other ongoing World Bank/GOT energy projects (TEDAP and the rural electrification programs financed by GOT and other donors), which also aim to enhance communities access to electricity. During these assessments TANESCO will coordinate with MEM and REA. 113. In terms of social safeguards, a Resettlement Policy Framework (RPF) has been prepared as condition for appraisal and disclosed in the country and info shop on December 28, 2009 and December 14, 2009 respectively. An RPF rather than a RAP was selected to comply with the OP 4.12 requirements for appraisal for the following reasons. x x While the transmission line corridor is known, the final alignment of the line has not been established, and it will not possible to establish it until the final design is completed. Even when the design consultant has completed the basic design, the final alignment is likely to be adjusted in the field in response to local conditions, for example to avoid cemeteries or structures. Final alignment is the responsibility of the EPC contractors. The census and socio-economic surveys and the asset valuation necessary for a RAP cannot be conducted until the final alignment is determined, and completing those tasks will require approximately six months. Although the Bank could accelerate the process by having the survey work proceed on the section of the line IDA is financing, this would be inconsistent with the
26

coordinated approach agreed by the participating donors, under which a single RAP will be prepared for the entire transmission line and reviewed and cleared by each donor. x Under Tanzanian law, once the census is completed and amounts of compensation are calculated, the government has a six-month period in which it must compensate the affected persons. If it fails to do so, it is required to pay interest at a rate of 6 percent. TANESCO is reluctant to have the six months begin in advance of Board approval.

114. The RPF is going to be the basis for the RAP, which will be prepared once the exact alignment of the transmission line is known. As part of the preparation of the RPF, the affected people have been consulted. According to the RPF, about 840 structures, including 800 households and a number of shacks and stands) will be affected. Based on the RPF, the estimated cost of the resettlement and compensation would be about US$8 million. 115. As the ESIA indicated, the only physical cultural property that has been identified in the transmission corridor is a few small cemeteries that could be affected, depending on the final alignment of the line. Several options exist: adjustment of the right of way to avoid a cemetery; allowing it to remain in place under the line (if acceptable to the community and the concerned families) but locating towers so as not to disturb it; or relocating it in a culturally acceptable manner, in coordination with the community and families. Decisions on the approach to each cemetery will be made in connection with the physical survey of the right of way. The project will also develop a Physical Cultural Assets Management Plan to ensure that any chance finds are adequately preserved in collaboration with the Department of Antiquities and the Archeology Department at the University of Dar es Salaam. EPC contractors will be required to include procedures for chance finds as part of their project-specific Environmental and Social Management Plans (ESMP). 116. The environment and social assessment conducted indicates the affected populations expressed concerns over timeliness and adequacy of compensation for lost assets, lack of access to electricity despite the presence of transmission lines crossing their communities, and the spread of HIV/AIDs as contractors bring outside workers. In order to respond to the communities concerns about access to electricity, the Environmental and Social Impact Assessment recommended use of shield wire technology that will allow small-scale, low-voltage distribution systems to be connected to the line, a recommendation that has been incorporated in the project design. The additional capital cost of the energized shield wire is approximately US$12,000/km of transmission line. TANESCO is preparing a program to provide electricity to the villages along the line, thereby enabling the project-affected people to share directly in project benefits. 117. As a result of the analysis of alternatives in the ESIA, alternate alignments of the transmission line were explored at seven locations. This results in a reduction of the number of households to be resettled by 460 and a decrease in total line length of 13 km, with an associated savings of approximately US$9 million in resettlement compensation and construction cost. 118. TANESCO has recently added a social development specialist to its Research and Environment Unit and has built social impact management capacity through internal and external training. However, the units staff is faced with increasingly expanding investment in the power sector and is required to cover great distances across the country. The ESIA recommends recruitment of a second social development specialist, a second environmental engineer, and several technicians to allow effective implementation and monitoring of the project. Annex 10 provides more details on the projects Environmental and Social Management Plan and the RPF. E. Environment 119. An Environmental and Social Impact Assessment (ESIA) on the 400-kV transmission line was prepared for TANESCO. Bank safeguards staff reviewed the first and second drafts, and the draft final report, with Bank comments addressed, was produced in November 2009. The ESIA (along with RPF)
27

was disclosed in the InfoShop on December 14, 2009. In-country disclosure began at the same time and was completed on December 28, 2009. TANESCO distributed copies of the full report to district council offices in the four regions through which the proposed line would pass Iringa, Dodoma, Singida and Shinyanga and provided Swahili translations of the Executive Summary to all villages along the line. In Dar es Salaam, TANESCO placed copies in the National Library and its own library. Newspaper advertisements informing the public of the locations at which the reports can be accessed were published at the end of the disclosure process. The consultants met with local officials and community representatives in all 93 affected villages, and the comments of the participants are summarized in the draft final report. The National Environmental Management Councils (NEMC) formal review procedure requires interagency consultation, field visits, and consultation with affected communities prior to the decision to approve or disapprove the ESIA. There is no need for TANESCO to duplicate the NEMC process. However, because the NEMC procedure does not specifically include NGOs, TANESCO invited them along with community representatives to a consultation meeting held on January 7, 2010. NEMCs review process and TANESCOs final ESIA report will take the stakeholder comments into account. NEMC approved the ESIA and issued an Environmental Certificate for construction of the transmission line on March 25, 2010. 120. Key Findings of the ESIA. For 92 percent of its length, the 400-kV line runs adjacent to TANESCOs existing 220-kV line. Land cover for 440 km of the 670-km route is a mixture of cultivated farmland, grassland, bush land, and scattered woodland. For 180 km, the land is uncultivated a mixture of bush land, grassland, and open forest. The line passes through forest reserves for 48 km, but these are in community management, hence not undisturbed natural habitat or protected areas in any sense. Settlements occupy 20 km of the right of way. The major potential adverse environmental impacts are those of vegetation clearing and soil disturbance, which would include loss of crops, loss of cover for wildlife, and soil erosion that can be quite severe in locations between Iringa and Dodoma where slope and soil structure make the land erosion-prone. In addition, the line crosses seasonally-inundated wetlands along the Wembere River and at the Singidan Lakes, where collisions with the line (primarily the ground wires) will pose a risk to migratory waterfowl and large terrestrial birds including some that are in threatened status. The transmission line will provide a significant environmental benefit in terms of avoided air pollutant emissions and greenhouse gas generation because the power it will carry to the highdemand area is generated in hydroelectric and gas-fired power plants. The most likely alternative energy source in the area to be served by the new line is diesel fuel.24 121. The main potential negative social impacts besides the resettlement discussed in the previous section are loss of revenue from farming and increase in the incidence of HIV/AIDS and other sexually transmitted diseases as a result of the influx of workers for line installation. The farming losses are largely temporary because cultivation is tolerated beneath power lines (though not officially permitted) except in access roads, as long as plant height does not exceed 3 m. Citizens that were consulted expressed worries about the amount and timeliness of compensation for lost assets and about HIV/AIDS. The paramount issue for the citizens was lack of access to electricity despite the presence of transmission lines crossing their communities. In addition, the ESMP calls for enhanced coordination between communities and local forestry authorities to improve management of the community forests, and technical assistance for this purpose is available under the project through the consultancy that will supervise the ESMP implementation. Temporary employment during construction is a potential positive social impact.

24

Assuming emission rates of 600 kg CO2/MWh for open-cycle gas turbines and zero for existing hydroelectric plants, and the approximate 50:50 mix of gas and hydroelectric that characterizes TANESCOs current generation, the power that will be transmitted bv the Project will have a carbon emission rate of 300 kgCO2/MWh. The low end of the range for large diesel generators is 800 kg CO2/MWh. The Project thus offers the potential to avoid 60 percent of the carbon emissions that would result from diesel power generation to meet the projected additional demand in the mining areas. To the extent that consumers currently using diesel generators choose to switch to grid power when it becomes available, reductions in actual carbon emissions will occur.

28

122. Impact Mitigation Measures. The most important measure, according to the ESIA, is selective clearing of the right of way, followed by revegetation of all areas that do not affect line safety including degraded areas under the existing 220-kV line. This can reduce the extent of cleared area by 90 percent and, in so doing, diminish the effects on animal habitat and movement and the risk of soil erosion (a problem that is evident at several locations along the Iringa-Dodoma section of the existing line). The additional bird collision risk that the new line would add to the existing situation can be reduced or eliminated by use of different towers at the wetland crossings, designed to have all conductors at one elevation and at the same height as those of the existing line. A monitoring program to assess the severity of the bird collision hazard will be implemented under the project. More details on the ESMP can be found in Annex 10. 123. Institutional Capacity for Safeguards Implementation. TANESCOs Research and Environment Unit currently is comprised of one principal environmental engineer, one senior surveyor and two surveyors, one senior environmental engineer and two environmental officers and one sociologist. The sociologist is the newest addition, as a result of recommendation made by the Bank during implementation of the Songo-Songo and TEDAP operations, and rounds out the units capacity to deal with social as well as environmental issues. With this level of staffing, TANESCO has shown that it can keep up with the workload of its present construction program. However, it is the recommendation of the ESIA consultant that the staff be expanded to deal with this project and others in TANESCOs pipeline. The recommended additions are two surveyors/technicians, one environmental engineer, and one social scientist. Other capacity-building recommendations, including equipment and training, are presented in Annex 10. F. Safeguard policies 124. The project is in Category A for environmental assessment. The project was initially classified as Category B, as the potential impacts are not complex, sensitive or irreversible (primarily because the alignment for most of its length is adjacent to the existing 220-kV line and does not pass through or near any protected areas). The environmental category was changed to Category A at Quality Enhancement Review (QER) in order to have a consistent approach to safeguards implementation among the Joint Lenders to the project. The potential impacts that have been identified can be mitigated with measures that are well understood and not complex (see Annex 10 for details). The project triggers the following policies, which are described in more detail in Sections D and E above and in Annex 10. Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)* Projects on International Waterways (OP/BP 7.50) Yes [x] [x] [] [x] [x] [] [] [] [] [] No [] [] [x] [] [] [x] [x] [x] [x] [x]

By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

29

G. Policy Exceptions and Readiness

125.

The proposed project complies with all World Bank policies and no exceptions are necessary. The development partners have begun their processes for approvals of cofinancing loans and it is expected that all cofianciers will make their loans available by October 2010. Common elements of procurement have been agreed and bid documents are under preparation for the transmission line. Procurement is expected to begin subsequent to Board consideration of the Project.

30

Annex 1: Country and Sector Background TANZANIA: Backbone Transmission Investment Project A. Country Background

1. Tanzania has an estimated population of about 42.5 million, growing annually at a rate of 2.9 percent. It has a land area of about 945,087 sq. km and is well endowed with natural resources such as hydropower, tin, iron ore, coal, gemstones, gold, natural gas, geothermal and nickel. Topography and climatic conditions allow cultivation of crops on about 54 percent of the land area. Industry has traditionally featured the processing of agricultural products and light consumer goods and more recently mining. 2. Since the mid 1990s, Tanzania has implemented a comprehensive economic reform program that has produced good macroeconomic performance and stability characterized by relatively high economic growth and low inflation. For the last three years the rate of growth has been close to seven percent. The robust growth rate was driven mainly by a prudent fiscal policy accompanied by a strong growth in tax revenues, large debt relief, and growth in foreign aid. This significant progress over the past two decades to achieve and maintain macro-economic stability has made Tanzania one of the better performers in SubSaharan Africa.
Figure 1: Tanzania and Sub-Saharan Africa: Macroeconomic Performance

3. However, the recent global financial crisis also affected Tanzanias economic performance mainly through the export channeltourism, cash crops, and regional manufacturing exportsas well as through lower capital flowsforeign assistance and private investment flows. Real GDP growth rate fell to 6 percent in 2009 (compared to 7.4 percent in 2008) The most affected sectors have been manufacturing, wholesale and retail trade, transport, and communications services. The economy of Tanzania depends heavily on agriculture, which accounts for around 24.625 percent of GDP and employs two thirds of the work force. Other key growth sectors are mining, construction, manufacturing, and tourismall sectors that strongly depend on a reliable and sustainable electricity supply. Poor electricity infrastructure and limited access to electricity is a major bottleneck to those sectors potential growth. 4. Furthermore, despite its abundant natural resources and strong economic growth, Tanzania remains one of the poorest countries in the world. The macroeconomic growth has not translated into a corresponding reduction in poverty. The 2007 Household Budget Survey (HBS) reveals disappointing results in poverty reduction since 2001. Progress has been very limited in terms of basic-needs income poverty. The poverty headcount ratio dropped only marginally from 35.6 percent points to 33.6 percent points. Given substantial population growth, the absolute number of poor people is estimated to have increased by 1.3 million. Past achievements and the macroeconomic level have been insufficient to cope with growth and to ensure an appropriate infrastructure platform to achieve the Millennium Development Goals or the governments National Development Vision 2025 that aims, among others, at modernizing
25

Based on updates provided by GOT during credit negotiations.

31

the agricultural sector, having a diversified and semi-industrialized economy with a substantial industrial sector, and to develop a strong private sector-led mining industry. 5. The outlook for medium-term growth for Tanzania will be challenging in the years to come. First, the international environment that sustained Tanzanias growth through high public and private capital flows, as well as high trade volumes, might not be as favorable, due to the anticipated gradual recovery of the world economy, and the absorption of some of the large unbalances created before and during the crisis. Second, as the economy gradually recovers from the external shock, the country continues to face the substantial domestic policy challenges. 6. A number of structural weaknesses including infrastructure, human capital, and natural resources, will need to be addressed significantly and quickly if Tanzania is to achieve significant poverty reduction through growth. The shorter-term impacts are likely to depend on improving regimes and policy environment for agricultural and the private sector by removing distortions in the current incentive systems and institutions and establish sound policy frameworks. The longer-term impact will require that Tanzania fills the gaps it has in terms of its long-term assets for sustainable pro-poor growth including improved accessibility and efficiency of basic infrastructure, particularly in the energy, water and transport sector. 7. Infrastructure bottlenecks are still a serious constraint to growth and to attract private investment in Tanzania, and while some sectors, such as energy, are gradually improving their performance and institutional setup, continued improvement in the energy sector and the PPP policy framework will be critical to unlock the situation. The lack of access to modern energy services continues to constrain Tanzanias growth potential, contributes to the poverty and isolation of rural population, and affects provision of other key services, such as clean water supply, health, and education, threatening the achievement of Millennium Development Goals. 8. From the broader development perspective, reliable power supply, especially to the northern energy starved areas will enhance the well-being of the population and the economy in general by: (i) providing relatively inexpensive and higher quality energy; (ii) removing a binding energy supply constraint to continued economic growth in the region; and (iii) increasing the regions competitiveness in terms of industrial and commercial development with related benefits of increasing employment and income. 9. In summary, Tanzanias efforts to implement sound macro-economic policies, have led to strong economic growth thereby achieving one important objective of the countrys National Strategy for Growth and Reduction of Poverty (MKUKUTA). At the same time more efforts need to be done to achieve the second main objective of the MKUKUTA, which is a substantial reduction in poverty. The challenges ahead to deal with the consequences of the global financial crisis will also require enhanced budget discipline to cope with smaller tax revenues and fiscal income. The energy sector, which is dominated by public enterprises, will have to contribute to those new circumstances. The continuous implementation of the financial recovery plan for TANESCO is therefore critical to avoid budgetary pressure, which could result in an increased fiscal deficit of the crowding out of growth and poverty related expenditures. B. The Electricity Sector

Key Sector Characteristics 10. Tanzania is endowed with diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, much of which is untapped. The countrys main installed generation capacities are based on hydropower (56 percent) and natural gas (34 percent). According to TANESCOs short to medium term generation expansion plan (up to 2016) the majority (59 percent) of the planned generation capacity additions are expected to be based on natural gas, biomass, wind and hydropower. Most of the new generation sites are located in the southern regions of the country.
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11. The Government of Tanzania undertook substantial reform measures in the last ten years, which led to the creation of an independent regulator, Energy and Water Utilities Regulatory Authority (EWURA), the Rural Energy Agency (REA) and the related Rural Energy Fund (REF) and also restructured the government owned, vertically integrated utility TANESCO, enforcing its top management structure and creating a Board of Directors with public and private sector stakeholder representations. 12. TANESCO has also made progress on its Financial Recovery Plan (FRP) which was endorsed in 2007 to help the utility to reduce its financial losses with an ultimate objective to make it an efficiently performing and financially sound service provider for the people of Tanzania. In its overall sector expansion strategy, the GOT is also pursuing enhanced private sector participation especially on the generation side and the key parameters for an enhanced involvement have been established with a regulatory framework which is up to international standards and legal reforms which facilitate private sector participation in the field of generation. 13. A detailed description of the key parameters of the sector and its institutions is provided below.

Power Demand and Supply - Generation 14. Current Situation. The existing installed generation capacity of the interconnected grid system is 1,003 MW, and the current available capacity is 854 MW. The hydro capacity is comprised of six TANESCO-owned hydro plants with a total installed capacity of 561 MW. The installed capacity of 26 thermal generating sets within the Tanzania grid is 442 MW (of which 326 MW are currently available ). Some regions, districts, and towns are dependent on isolated diesel-run generators (Kigoma, Mtwara, Bukoba, Sumbawanga, Lindi, Njombe, Mafia, Mpanda, Tunduru, Songea, Liwale, Ludewa, Mbinga, Biharamulo, Ngara, Ikwiriri, Masasi, and Kilwa Masoko). These have an installed capacity of 38.9 MW but they effectively contribute about 18 MW due to aged machinery and lack of spare parts. Those capacities have not been accounted in the above noted total available thermal capacity. 15. 2010. Table 5 below provides an overview of the existing and operating generation capacity as of May
Table 5: Tanzania main existing generation plants (recorded at appraisal in May 2010) Plant
Kidatu (Hydro) Kihansi (Hydro) Mtera (Hydro) New Pangani Falls (Hydro) Hale (Hydro) Nyumba ya Mungu (Hydro) Songas (Gas) Ubungo Gas Plant IPTL (HFO) Tegeta Power Plant (Gas) Diesels (TANESCO)

Total Installed Capacity (MW)

204 180 80 68 21 8 189 102 100 45 6

Total Available Capacity (MW)

195 180 76 64 9 4 178 102 0 42 4

Currently Maximum Recorded Demand MW

Reserve Margin percent

Total

1003

854

769.29

11 percent

26 Until recently the installed capacity also included several diesel generating stations connected to the national grid in Dar es Salaam, Mwanza, Tabora, Dodoma, Musoma and Mbeya with a total capacity of 81MW. However, since all the diesel generators except for a 6MW facility in Dodoma do not produce power since over the year and as their technical status is so dilapidated, TANESCO recently decided to write off all those generation stations except for Dodoma.

33

16. TANESCOs largest hydropower complex, the Mtera and Kidatu complex, is located on the great Ruaha River. The Mtera dam is the most important reservoir in the power system providing over a year of storage capability. In addition, it regulates the outflows to maintain the water level for the downstream Kidatu hydropower plant. Thermal generation relies primarily on indigenous gas (Songo Songo gas infrastructure facilities, supported under Credit 3569-TA) and imports of Heavy Fuel Oil (HFO), and Automotive Gas Oil (Diesel). 17. Two private independent power projects (IPPs) which are connected to TANESCO grid are IPTL (Independent Power Tanzania Ltd) with an installed capacity of 100 MW (HFO) and Songas Ltd. (A Globeleq of UK enterprise and supported through the IDA financed Songo Songo Gas Development and Power Generation Project (Credit 3569-TA) with an installed capacity of 189 MW. TANESCO also imports 10 MW of electric power for Kagera Region from Masaka substation in Uganda while Sumbawanga, Ileje, Tunduma and Mbozi receive about 3 MW from neighboring Zambia. Bulk supply of electricity is made available to Zanzibars own power utility ZECO from Ras Kilomoni substation at the Indian Ocean coast in Dar es Salaam. TANESCO also purchases power from two small power producers (6 MW coal fired power plant and 2.5 MW biomass power plant). 18. Building on the experience from the Songo Songo Project, the GOT awarded a concession to Artumas Group, Inc. of Canada for an 11.5 MW gas to power project in the Mtwara corridor (Mnazi Bay).27 This concession has paved the way for future offgrid developments by including the associated distribution license (offgrid) for sale of power generated by the system. 19. Recent generation shortage crises. Even after accounting for thermal generation additions in the last 10 years, the countrys generation mix is still dominated by its hydropower generation stations. The hydropower based systems security and reliability of supply is, therefore, vulnerable, especially during peak demand periods. Any loss of generating unit(s) due to forced outages or drought, has led to severe load shedding in the past. The most recent generation crises of that kind occurred in the years 2006, 2008 and 2009, when Tanzania experienced periods of exceptional droughts combined with unplanned outages of some generation capacities. 20. In 2006 the sector had adjusted too little and too late to the shock of a prolonged drought, forcing a shift from relatively low-cost hydropower28 to expensive thermal power, where capacity was limited leading to important load shedding. TANESCO subsequently was able to receive additional power from emergency thermal power stations operated by Alstom (40 MW) and Aggreko (40 MW), which helped to end the severe generation shortage crisis. While the company had also leased another 120 MW of gas based power generation from Dowans, which was installed in the country in early 2007, this capacity was never been made available due to contractual issues. 21. The next generation crisis occurred in fall 2008. Despite a good rainy season in spring 2008, which was able to restore full hydro generation capacity, the sectors reserve margin decreased significantly by August 2008. This deterioration in available capacity has occurred due to the contract completion and decommissioning of the earlier leased emergency generation capacities of Alstom and Aggreko29 and delays in the commissioning of new capacities as expected (the Tegeta 45 MW natural gasfired plant was delayed by one year). TANESCO also terminated the emergency lease agreement with Dowans (100 MW) in August 2008. 22. The most recent crisis, which once again was caused by a severe regional drought, occurred in October to November 2009, when Tanzania experienced up to 14 hours of load shedding per day in certain parts of the country. In addition to the restricted hydropower generation forced outages at the
The plant started commercial operations on March 5, 2007. In fall 2006 some 80 MW hydro capacity at the Mtera power station was shut down and during the peak of the crisis the major power station Kidatu (204 MW) had to be shut down as well thus leaving major parts of the country without power. 29 To avoid any negative perceptions regarding governance of emergency procurement and following the new electricity law, the GOT had decided not to renew the emergency contracts. It has further instructed TANESCO not to engage in outright buying of the Dowans assets at Ubungo.
28 27

34

Songas plant (one unit) and the Kihansi and Hale hydropower stations (two units out at each station) added to the already severe generation constraints. This last crisis led to a lot of criticism of TANESCO and the GOT in public since it could have been avoided by using about 220 MW of installed thermal power capacities - IPTL plant and the Dowans gas turbines, both privately owned and under dispute. The 2009 crisis was finally mitigated when most of the thermal and hydropower unplanned outages resumed operation and the delayed 45 MW Tegeta power plant was finally commissioned in December 2009. The High Court30 also allowed an interim operation of the IPTL plant (between November 1st and April 30th, 2010) which further helped to mitigate this crisis. 23. Based on the state of the system today, it is clear that the system is currently vulnerable and will result in load shedding in the near term, if Tanzania faces any draught, shortages of processed gas and/or TANESCOs plants face forced outages due to unplanned outages and maintenance. 24. Future Demand and Supply growth. The Power System Master Plan Update 2009 (PSMP) completed in August 2009 provides a demand and supply assessment for the sector, based on anticipated needs of the population and economy of Tanzania for the period up to 2033. Based on the long-term growth in demand forecasts, and a least cost supply response to demand, the PSMP indicates that the energy sales requirements for Tanzania is expected to be about 9,646 GWh in 2018 and 30,214 GWh in 2033. The long-term growth rate is expected to be an average of 7.9 percent per annum. The national peak installed capacity to meet the demand should be in the range of 1,925 MW in 2018 and 6,047 MW in 2033. The following Table 6 provides a forecast of the anticipated needs of the population and economy of Tanzania for the period to 2033 under base case assumptions.
Table 6: Demand Assessment (2009-2033) 2009 (Actual)
National Sales (GWh) National Losses (GWh) National Generation (GWh) National Cumulative Peak Demand (MW) 3,767 1,127 4,894 755

2018
9,646 1,531 11,177 1,925

2033
30,214 4,297 34,511 6,047

Growth p.a. (percent)

7.9 7.2 7.8 7.9

Source: Cost of Service Study, TANESCO and Power System Master Plan Update 2009, SNC Lavalin

25. In order to meet the electricity demand requirements, in the medium term, TANESCO has launched in 2008 a five-year investment plan of about US$1.3 billion for the expansion of its generation, transmission, and distribution networks. It is also important to note, that the PSMPs load forecast, system expansion plan as well as its least cost expansion plan have taken into account the GOTs new policies and restructuring efforts of the electricity and gas sectors. 26. On a 10-year timeframe, the projections predict a requirement for new capacities of about 2,071 MW until 2020. The proposed generation projects that are currently under consideration by TANESCO up to 2016 are as follows:
Table 7: Planned New Generation Capacity (2010-2016) Year 2010 2011 Plant Tegeta IPTL (commissioned in November 2009) Mwanza Diesel Cogen (Mufindi, TPC and Sao Hill) Fuel HFO HFO Biomass Additional capacity MW 100 60 40 GWh 701 420 280

30

Due to a current local legal dispute between the investors to the IPTL plant, the plant has been put under temporary receivership by the Government Liquidator. The Tanzania High Court in October 2009 allowed TANESCO to operate the IPTL plant for a temporary six months.

35

Year

Plant Ubungo EPP Singida Wind IPP Kinyerezi Kiwira Coal Rusumo Falls Interconnector ETK Ruhudji Hydro Power IPP Total

Fuel Gas Wind Gas Coal Hydro Import Hydro

Additional capacity MW 100 50 240 200 21 200 358 1,369 GWh 701 217 1,648 1,289 129 1,374 1,333 8,092

2012 2013 2015 2016

Source: TANESCO Expansion Planning

27. While TANESCO is currently making its best efforts to implement the expansion plan,31 it is expected that some of these proposed plants may get delayed.32 If this expansion would materialize in the short term TANESCO would be able to maintain a positive, although very small reserve margin (for most of the years) until 2015.
Table 8: Estimated Generation Reserve Margins (until 2015)33
2009 Act 3,767 24% 4,894 776 1,051 812 36 -164 5% -21% 2010 Est 4,361 23% 5,684 969 1,151 934 -35 -235 -4% -24% 2011 Est 4,913 21% 6,214 1,060 1,351 1,094 34 -166 3% -16% 2012 Est 5,563 20% 6,961 1,187 1,401 1,119 -68 -268 -6% -23% 2013 Est 6,280 18% 7,692 1,312 1,841 1,454 142 -58 11% -4% 2014 Est 6,916 16% 8,270 1,410 1,841 1,454 44 -156 3% -11% 2015 Est 7,319 15% 8,570 1,461 2,062 1,626 164 -36 11% -2%

Year Peak Demand (GWh) Losses (Transmission and Distribution) Required Generation (GWh) after accounting for losses Required Generation (MW) after accounting for losses Average Installed Generation Capacity (MW) Available Average Generation Capacity (MW; average hydrology) Reserve Margins - average hydrology (MW) Reserve Margins - worst case hydrology (MW) Reserve Margins - average hydrology (as a % of Required Generation Capacity) Reserve Margins - worst case hydrology (as a % of Required Generation Capacity) Source: TANESCO Cost of Service Study May 2010

28. Natural Gas for Power: Tanzania, with its oil seeps, seismic and other data, shows strong hydrocarbon potential in its upstream oil industry sector with more than 20 active onshore and offshore Production Sharing Agreements (PSAs). While Tanzanias oil and natural gas prospects have been rated substantial, so far only a limited number of development wells and so called wildcat explorations have been undertaken. Therefore Tanzania is classified as underexplored. Natural Gas reserves at Songo Songo

The company has completed the procurement process of the 100MW gas-fired power plant and award of the lowest evaluated bidder is imminent. The procurement process of the 60MW HFO based generation additions is at bid evaluation stage. 32 The economic and financial assessment of the proposed project includes sensitivities related to the supply side expansion. Annex 9 provides further details. 33 The input parameters based on TANESCOs Cost of Service Study of May 2010. The low hydrology scenario, conservatively assumes a drop of useful capacity to generate hydropower by 200 MW. This calculation assumes the drop to be constant for the period.

31

36

Island are: Proved (P) remaining 681 bcf, Proved and Probable (2P) remaining 902 bcf; Reserves at Mnazi Bay are: P - 332 bcf; 2P - 962 bcf, 3P - 1,542 bcf.

34

Natural Gas

29. The only gas reserves that are already majorly commercialized, are the reserves of the Songo Songo Island gas fields, whose development and related power generation infrastructure were supported by the IDAs Songo Songo Gas Development and Power Generation Project (P002797). This project was developed in the form of a Public Private Partnership with a private company, Songas Ltd. (a subsidiary of Globeleq from UK), assuming most of the infrastructure implementation and operation. Under the projects Gas Agreement, the Production Sharing Agreement, the Gas Processing, and Transportation Agreement, the GOT and PanAfrican Energy, (subsidiary of Orca Petroleum of Canada), and Tanzania Petroleum Development Corporation (TPDC) (as a consortium) have agreed to set aside protected gas for 150 MW of Songas generation (at predetermined price of US$0.55 per mmBtu) and for the Twiga Cement Plant. 30. Although gas sales with third parties have developed, they are a fraction of total current production, Songas and therefore TANESCO is the primary off-taker, and in essence the market maker. Songas fuel price was originally conceived of as part of the initial project concept to offset the capacity charges so that the utility will not shoulder the full weight of developing the countrys gas infrastructure. 31. Extensive gas fields have been identified off the coast at Songo Songo Island and Mnazi Bay and these are in the process of being further developed. A new gas field also has been discovered some 60 kms to the southeast of Dar es Salaam. 32. The current generation expansion projects pursued by TANESCO will require substantial additional gas supplies to the utility in the next five years. About 340 MW of the proposed 1,369 MW of new generation in the medium term (until 2016) will use natural gas as generation fuel thus necessitating a further expansion of Tanzanias natural gas infrastructure. 33. Due to the already existing exploration, processing and transportation infrastructure set up by the Songo Songo Project it is currently likely that additional gas deliveries for the short and medium term may be contracted by TANESCO with Songas/Pan African/TPDC.35 PanAfrican Energy have confirmed that the current wells in the Songo Songo Fields would be able to provide gas to supply the existing plants as well as the proposed 100 MW Ubungo EPP (as per the above expansion plan). However additional natural gas generation capacities beyond the next 100 MW are likely to require an extension of the existing processing facilities. The production of additional gas requires further investment by PanAfrican/TPDC. Such investments are deemed to be recovered from the wellhead price to be paid by the off-takers of such additional gas. 34. The hydrocarbon industry is regulated by the MEM, with upstream activities governed by the Petroleum (Exploration and Production) Act 1980 and the downstream activities by the National Investment (Promotion and Protection) Act 1990. The GOT is currently preparing a new Gas Act which is expected to be submitted to Parliament before the end of 2010. The downstream oil industry is an important sector of Tanzanias economy as it absorbs a substantial part of the country's foreign exchange earnings. Government policies are directed at petroleum product substitution by exploiting indigenous resources. In the upstream oil industry, oil and gas exploration and production is also being encouraged. 35. Current regulatory functions of EWURA do not call for a wellhead price setting by them; and MEM is responsible for providing guidance to the contractual parties in setting such pricing. Under
Those reserves relate to the current Songo Songo gas field. In the adjacent Songo Songo West field, which is not yet explored, the prospective additional reserves are estimated to be around 502 bcf. 35 While there are other potential gas fields currently under an exploration concession in Tanzania, the Songo Songo gas field is the only facility that currently has access to the Dar es Salaam area through a mainland pipeline where most of the new gas-fired generation capacities are expected to be installed in the short term. Therefore the Songo Songo Island gas field seems to be the least cost option to get additional gas in the short term, while in the long term the GOT should also pursue the commercialization of the other important gas fields in the country.
34

37

powers conferred to MEM under the Petroleum Exploration Act, MEM has recently set the real wellhead price of additional gas for power generation at US$1.87 per mm Btu (up to June 2012) and thereafter rising to US$2.76 per mmBtu (in 2012 prices). There have been discussions between TANESCO and PanAfrican/TPDC regarding potential offtake agreements for additional gas regarding forthcoming generation and last year both parties have initialed a suite of offtake agreements, which took into account the MEMs guidance on the wellhead price level. However, while those agreements have been initialed, they will only be concluded once the owner of the gas processing plant on Songo Songo Island, Songas Ltd., has reached an agreement with the GOT and once Songas Ltd. receives an official approval from EWURA to extend the plant by two more processing trains36. Songas is currently in discussions with the MEM, TANESCO and EWURA on the required gas retail tariff increases to finance the planned expansion. Upon successful conclusion of those discussions, Songas could submit a gas tariff application as soon as September of this year, which would allow for an implementation and completion of the expansion works by 2013, coinciding with the expected commissioning date of the next major gas-fired generation capacity37. 36. Renewable Energy: Another important part of the new short to medium term generation additions is expected to come from small to medium size hydropower plants as well as other forms of renewable energy sources, with a cumulative capacity of 469 MW until 2016. 37. Small Hydropower Generation: While medium and large hydropower stations are building the core of Tanzanias energy mix, other new forms of renewable energy are still in their infant stage. New renewable energy sources contribute less than 1 percent of the national energy balance, however, several studies show good potential including the recently completed rural electrification study supported by AfDB. The potential for small hydropower generation is estimated at about 314 MW of which less than 2 percent is developed through private schemes. It is estimated that up to 200 MW could be developed economically in the medium to long term. Other potential sites need additional analysis. 38. Solar: Solar radiation resource is abundantly available throughout the year in Tanzania. The Tanzanian Solar industry has been growing fast over the last six years. The current total installed electricity generation from solar energy is estimated at around 2 MW. More than 20 companies are operating in the industry with some dealers emerging in rural areas. Some of the dealers have established initial strategic partnerships with micro finance organizations and private organizations with rural outreach. A number of promotional projects have been implemented in the country, including projects aimed at removing market barriers i.e, the SIDA/MEM project, UNDP/GEF Mwanza and the GTZ38/MEM renewable energy project. 39. Wind: A moderate potential for larger-scale wind to power development is available based on indicative data from meteorological stations. A few studies indicate site-specific potential in Njombe, Mwanga, Singida and Same Districts. Feasibility studies for Makambako (Njombe) and Kititimo (Singida) have already attracted interest from investors for setting up wind farms for electricity generation. As an example, Wind-EA (a private company) has already held talks with MEM, TANESCO and EWURA to establish a 50 MW farm at Kititimo. Power Pool EA (a private company) is also considering developing a 30 MW wind farm. 40. Biomass: There are considerable biomass resources in the form of agricultural, forest residues and animal wastes in the country for sustainable use. Most of them are not exploited, although 90 percent of Tanzanian energy consumption is wood fuel. There are, however, some emerging positive experiences in this area. For example, improved charcoal stoves have been in use with some success for the past 15
Current gas processing equipment at Songo Songo was designed for the processing of 70 mcf per day. It is currently processing up to 90 mcf per day to serve the increased demand and it is expected that for a limited period (up to 1-2 years) the plant could be operating up to 105 mcf per day to serve the needs of the additional 100MW currently under procurement by TANESCO. 37 This relates to the 240MW Kinyerezi plant. The additional Ubungo EPP 100MW capacity is currently assumed to be supplied by the existing infrastructure, which, according to Pan African and Songas may be feasible on an interim basis. 38 Deutsche Gesellschaft fr Technische Zusammenarbeit.
36

38

years. Recent studies also show that about 4,000 domestic-size biogas plants have been built over the last two decades. This makes Tanzania one of the leading biogas countries in Africa. Biomass for power generation is also available on a small scale TANWAT (2.25 MW), Sao Hill (10 MW), Mufindi Paper Mills (15 MW) and Sugar Industries (38 MW) are typical examples of biomass potential for power generation. Eight developers have been registered by Tanzania Investment Center for biofuel activities. 41. Geothermal: There are indications that significant potential exist for geothermal development (650 MW). Preliminary studies conducted in the southern highlands of the country indicate high temperature fluids beneath the Mbeya and Rungwe volcanoes. Some other areas far from the East African Rift valley are also reported to have hot springs. 42. Through the TEDAP, IDA has contributed to create a favorable environment for the development of small renewable energy projects. Tanzania has adopted a comprehensive regulatory framework supporting small renewable energy projects, which is considered one of the best practices in the region. As a result, eighty potential projects (majorly biomass and small-hydro) have been identified, of which twenty-two are considered priority (with confirmed sponsors and detailed design studies completed or underway) with a cumulative total size of 78 MW. IDA has also recently approved a credit line that would address the financing gap in the country by providing local banks with long-term funds for financing of identified small renewable energy projects. Transmission and Distribution: 43. The Tanzanian national grid consists of 220kV high-voltage transmission lines from the major hydropower plants at Kidatu, Kihansi and Mtera to Mbeya and Dar es Salaam and feeding into the existing north-south Backbone from Iringa to Singida and extending further north to Arusha and Mwanza. In addition, a 132kV transmission system with three power stations on the Pangani River link Arusha, Dar es Salaam, and Morogoro. 44. The national grid does not cover all parts of the country, leaving a significant portion of the population without access to electricity. The national grid consists of 220kV extra high-voltage transmission lines extending south to Mbeya and north to Arusha and Mwanza from Dar es Salaam, the national grid supplies electric power to many of the major cities of the country. The cities in northern Tanzania receive electric power from the 132kV transmission system with three power stations on the Pangani River. This system is linked to the 220kV systems in Arusha, Dar es Salaam, and Morogoro to form the national grid. The national grid also supplies electric power to Zanzibar Island over a 41 km submarine cable. Since the 220kV transmission line between the Kidatu Power Station and the Ubungo substation was put into operation in 1975, several 220kV transmission lines have been constructed. Electric power generated at the power stations is transmitted from the National Grid to the primary substations, where the electric power is stepped down to 33kV or 66kV before it is transmitted to the nearby distribution substation. In Dar es Salaam and other cities, the electric power is stepped down from 33kV to 11kV before it is supplied to factories, etc., over an 11kV feeder. It is also distributed to residential customers after it is further stepped down to 400/240 volts. In rural areas, where customers are sparse, electric power is distributed over a 33kV feeder to reduce transmission losses. 45. The current existing main backbone of TANESCOs interconnected grid network system (see Annex15 for map) comprises of 3,301 km of 220kV, 1,655 km of 132kV and 773 km of 66kV power transmission lines. The 220kV power lines have been constructed using Bison conductors while the 132kV are mostly constructed on Wolf conductors. The distribution network consists of 11,314 km of 33kV, 5,403 km of 11kV and 23,995 km of lower voltages distribution lines. The major load centers are Dar es Salaam and the northwestern part of the country around Lake Victoria. 46. The proposed project will significantly enhance the transmission capacity of the existing northsouth Backbone transmission line between Iringa and Shinyanga. Installed in parallel to the existing transmission line, the proposed new Iringa - Shinyanga transmission line will considerably increase the
39

power transfer capacity from the existing and future generating sources in the south to the load centers in northern Tanzania. As the voltage situation in the northern grid is very poor and the existing line, which is of single circuit type only, is currently operating at its thermal limits, the new line is urgently required to reduce the high transmission losses, enhance the system reliability and improve the voltage situation in order to allow the connection of additional customers. 47. TANESCOs distribution network is dilapidated and has a number of serious problems. With the electrification and urbanization of more and more rural areas, the demand for power has been increasing. Nevertheless, there have been insufficient investments for expansion and maintenance of the existing facilities. There are problems of voltage drop with the 33kV, 11kV, and low-voltage distribution networks. This is due to the use of excessive low voltages and excessively thin conductors relative to the scale of users. In addition, there are voltage problems arising from insufficient number of pole transformers relative to the number of users. More generally, other problems arise due to theft of pole transformer insulating oil, the destruction of electrical equipment and theft of electricity. About 803,000 customers are currently connected to the grid (an annual increase of about 7.6 percent per annum since 2004). This growth is tremendous given that little investment has been made into TANESCO for some time. 48. The TANESCO network is characterized by significant losses at all stages of generation, transmission, and distribution. Table 9 below provides an overview of the system performance in 2009.
Table 9: Power System Performance (2009) Performance Indicators Actual total Energy Generation (GWh) (excl. Imports) Total Energy Sales Annual growth of the total energy generation (%) Transmission losses in the national grid system (GWh) Transmission losses (as a % of Energy fed in the transmission networks) Energy fed into the distribution networks (GWh) Total distribution losses (GWh) Total distribution losses (as a % of Energy fed in the distribution networks) Total number of customers Annual increase of number of customers (%) Cumulative losses (GWh) Cumulative losses (as a % of Actual Total Energy Generation)
Source: TANESCO

Level 4,780 3,767 13% 239 5% 4,541 863 19% 803,000 8% 1,102 24%

49. Under the TEDAP the IDA provided a loan of US$105 million (Cr. 4310) to TANESCO which also finances substantial rehabilitation works of transmission and distribution infrastructure in the two main load growth centers of Tanzania: Arusha and Kilimajaro and Dar es Salaam areas. The credit also supports the financing of major goods deliveries, like pre-paid meters and customer management systems to help the utility improve its cash collection efforts and customer service standards. Substantial parts of the project are now under implementation. Furthermore other Development Partners including AfDB, MCC, JICA, South Korea EDCF and Finland are also supporting TANESCO in the areas of transmission and distribution rehabilitation with individual projects. 50. While TANESCO is receiving this key financial support from the development partners, the improvements of TANESCOs losses has so far been limited mainly due to the fact that most of the rehabilitation works are not yet completed, and in some cases are awaiting completion of procurement. JICAs transmission rehabilitation project in Dar es Salaam is the most advanced, expecting completion by October 2010. The TEDAP transmission rehabilitation component is under implementation and expected to be completed by mid-2012, while the distribution rehabilitation component is still under procurement. The transmission and distribution rehabilitation projects financed by AfDB, South Korea
40

EDCF and MCC are all at procurement stage and implementation is not expected to start before 2011. The rehabilitation project financed by Finland has yet to be approved by the Finnish authorities and project start is currently expected by fall of this year. The current technical and non-technical combined losses stand at 24 percent. The completion of these activities is expected by between 2012 and 2014, upon which significant reduction of technical losses are expected. Access to Electricity 51. Lack of electricity is a key constraint to growth in Tanzania, particularly for businesses and to ensuring healthy, well-educated workforce, and achievement of the MDGs. Per capita electricity consumption in Tanzania, at a mere 61 kilowatt hours, is extremely low even by low-income-country and Sub-Saharan African standards, where consumption averages 391 and 542 kilowatt hours, respectively. Tanzania has one of the lowest electrification rates in Sub-Saharan Africa (SSA) 14 percent compared to a 29 percent SSA average and the SSA low income average of 26 percent. The access rates are particularly low in rural areas (below 2 percent) where most of the population lives and where poverty rates are the highest.
Figure 2: National/Rural Electrification rates in SSA countries 80 70 60 50 40 30 20 10 0
South Africa Ghana Cote d'Ivoire Nigeria Botswana Senegal Zimbabwe Comoros Gabon Namibia Eritrea Sudan Congo, Rep. Swaziland Cameroon Equatorial Guinea Angola Benin Guinea Togo Madagascar Zambia Mauritania Mali Lesotho Ethiopia Kenya Mozambique GuineaBissau Tanzania Burkina Faso Somalia Niger Malawi Uganda Gambia, The Sierra Leone Rwanda Chad Liberia Burundi Source: IEA World Energy Outlook 2009

52. Use of domestic electricity is almost exclusively concentrated in urban areas (municipal areas and towns). In Dar es Salaam access to electricity is the highest, but even there less than 50 percent of all households are connected. Out of the 118 districts identified in the 2002 population census, only in 18 districts more than 20 percent of all households have access to electricity. In 31 districts electricity is such a rare phenomenon that more than 99 percent of all households lack access. 53. Key reasons for the low electricity coverage have included (i) limited reach of TANESCOs grid and low intensity of connections in the grid areas; (ii) lack of financial and implementation capacity at TANESCO to expand the grid and rural connections; (iii) poor targeting of governments scarce financial resources; (iv) regulatory and financing constrains for rural electrification in general and alternative offgrid solutions in particular; and (v) relatively high costs of service provision coupled with low income, calling for alternative low-cost solutions in line with local capacity to pay. 54. The proposed project will also support IDAs efforts aimed at scaling up access in Tanzania. Along the transmission line, 93 villages with a population ranging from 600 to 9,000 inhabitants were identified, of which only 16 have electricity from TANESCO, and 29 have no electricity at all. The remaining 48 villages have diesel, hydro, biomass or solar generated electricity, or some combination of them.
41

C.

Governments Power Sector Reform Program

55. Tanzania began its power sector reform program in the early 1990s. The first National Energy Policy framework was written in 1992, and it emphasized plans to involve the private sector in development of the energy sector. These changes in policy in the early 1990s launched Tanzanias electricity reforms and paved the way for a greater emphasis on commercialization, private sector involvement, and restructuring of the electricity sector. Reforms were catalyzed by economic crisis conditions and macro-economic stabilization initiatives in the 1980s and 1990s and driven by deteriorating electricity services and sector finances. 56. In 2003, the National Energy Policy was adopted, which redefined the role of rural energy access. Following the adoption of the National Energy Policy 2003, the government has committed to develop and implement a new Rural Energy Strategy to address the modern energy needs of over 85 percent of the population and subsequently the Rural Energy Agency was established in 2006. The National Energy Policy (NEP) adopted in 2003 establishes affordable and reliable energy supplies in the whole country as one of the key objectives. It also stresses the importance of the rural energy access through grid and offgrid extension, electrification of rural economic centers, accessible and affordable electricity to lowincome customers, promotion of the private initiatives and use of alternative sources, other than wood fuels. 57. The GOT also developed a Power Sector Reform Strategy (2007) in close cooperation and consultation with development partners. This strategy presented a vision for the power industry in Tanzania over the medium- to long-term and envisages the evolution from a single-buyer market structure, with competition to enter into long-term PPAs with TANESCO, to ongoing wholesale competition, in which the producer sells directly (or through a pool or voluntary electricity exchange) to the distribution companies over the medium to long-term. The strategy also presents a plan of reform activities with implementation dates regarding key institutional, policy, and regulatory reform actions related to procurement of new generation through competitive bidding and creating enabling environment for private sector participation; open access to transmission grid; institutional and legal framework, tariff policy, promoting market based pricing, etc. Furthermore, it provides steps to improve participation of IPPs under the single buyer model, and those needed to move to ongoing wholesale competition. It also covers broad issues and options related to regulation of rural and offgrid electrification with a plan for reform activities, including the development of a rural energy policy. 58. The first outcome of this new strategy was the adoption of a very comprehensive Electricity Act in 2008. The Act takes into account many of the international best practices for electricity sector reform and tailors them to the specific ground level realities of the Tanzanian environment. It further consolidates and strengthens previous sector reform efforts including the formation of the Rural Energy Agency (REA), the Rural Energy Fund (REF) and the regulatory authority Energy and Water Utilities Regulatory Authority (EWURA). The Act also establishes a general framework for the powers of the Minister of Energy. One of the new mandates of the Minister of Energy is the requirement to prepare and publish a policy for the reorganization of the electricity market and to develop a rural electrification plan and database. Both reform steps are currently expected to be implemented by the end of 2010. 59. Following the establishment of the Electricity Act, a comprehensive regulatory framework supporting small power producers has also been developed and adopted by EWURA. The framework includes standardized power purchase agreements (SPPA) and tariffs (SPPT) for small power projects (for those SPPs connected to the main grid and those operating on isolated grids), simplified regulatory rules for small power projects and comprehensive guidelines for the project developers. The framework is considered among the best in the region. The first five SPPAs for 24.4 MW have been signed between TANESCO and SPPs and other four project developers have expressed interest or submitted applications for power generation under SPPAs for additional 27.5 MW. 60. The following Table 10 summarizes the status of Tanzanias electricity reforms.
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Table 10: Elements of Tanzania's Electricity Reforms Reform Elements

Corporatize

Status
Implemented

Policy Elements
1931 Electricity Ordinance forms private companies: DARESCO & TANESCO; 1964 government purchases private shares, merge into TANESCO. Extensive commercialization initiated in 1990s under World Bank Power VI Project to address earlier crisis; accelerated under management contract. Legislation to form Rural Energy Agency and Fund (REA/REF): separates non-commercial electrification from direct utility mandate, commercial (mainly peri-urban) expansion remains under utility. Electricity Act endorsed in 2008 National Energy Policy frameworks in 1992 and 2003 include reform intentions; draft Power Sector Reform Strategy prepared but not approved. Energy and Water Regulatory Authority (EWURA) appointed, operational as of mid-2006. Monopoly in generation lifted 1992; Two larger IPPs: Independent Power Tanzania Ltd (IPTL, 100 MW diesel), Songas (192 MW natural gas). Artumas (11.5 MW) Plans for unbundling of national utility into separate generation, transmission, and distribution companies revised to ring-fencing of separate business areas (internal restructuring) while remaining state-owned. Privatizations plans for utilities announced 1997; Management contract toward privatization 2002; TANESCO de-specified 2005; Increasing emphasis on private sector participation rather than full privatization.

Year
1964 public utility established 1992 initiated 2002 2006 (Mgmt. Contract)

Extensive Commercialize Operations & Service Provision Legislation enacted

2005 Legislation 2008 Legislation

Revise Electricity Law

General policy framework, Law amended Operational as of mid-2006

1992 framework 2003 framework

Establish Regulator

2001 Legislation 2006 Operational 1992 Legislation 2002 IPTL online 2004 Songas online 2007 Artumas online 2009-10 Ruhudji being developed Modified plan underway

Introduce Private Generation (IPPs)

Implemented

Restructure & Unbundle Utility

Modified plan

Privatization of Utility (Private Sector Participation)

In flux & uncertain

1997 specified 2005 de-specified

D.

Key Sector Stakeholders

Tanzania Electric Supply Company Limited (TANESCO) the Vertically Integrated Power Utility 61. TANESCO is a parastatal organization that was established in 1964 and is wholly owned by the Government of the United Republic of Tanzania. The MEM sets and oversees policies and strategies while EWURA regulates the operations of TANESCO. The Company's core business is generation, transmission, distribution, and sale of electricity to the Tanzania Mainland and bulk power supply to the island of Zanzibar. Distribution of electricity in Zanzibar and Pemba is the responsibility of the Zanzibar Electricity Company Limited (ZECO). TANESCO has a workforce of 5,550 staff, largely employed in the regional offices. The current Board of Directors consists of nine members from the government, public and private sectors. Apart from the Chairman, the MEM appoints all members of the Board of Directors. The President of the United Republic of Tanzania appoints the Chairman. 62. TANESCO has undergone reorganization (approved by its Board on March 28, 2007), including a leaner HQ, and empowered decentralized staff. More importantly, this strategy has reorganized TANESCO to include a Chief Financial Officer. Over the last three years the new management of TANESCO has improved the overall financial and operational health of the company. A new electricity
43

law has been passed by the parliament in 2007, a new board has been instituted including two members from the private sector. An independent regulator has issued a major tariff increase order in January 2008 and TANESCO has submitted (on May 28, 2010) its next multi-year tariff increase application to EWURA. These positive actions have therefore increased the overall comfort level of the donor agencies in supporting the Tanzanian power sector. Over and above the continued engagement of IDA, SIDA, NORAD, and AfDB in the sector, continuing improvements in the management of TANESCO has been able to draw additional donor interest from MCC, EIB, Finland, JICA, and South Korea EDCF. 63. While those changes have helped to substantially improve the utilitys situation, TANESCO still is facing multiple challenges in providing reliable power to expanding number of households, institutions and businesses. To meet these challenges, in the past three years, TANESCO successfully procured and commissioned several power plants. In July 2008 the utility successfully commissioned a new 102 MW gas-fired power plant at its headquarters in Ubungo, Dar es Salaam and in December 2009 another TANESCO owned power plant of 45 MW (gas fired) started its operations in Tegeta, a suburb of Dar es Salaam. While those generation additions helped TANESCO to cope with the strong demand growth, further generation additions are needed in the coming years. The utility has therefore launched a public procurement for two additional power stations with a aggregated capacity of 160 MW. One 60 MW Heavy Fuel Oil (HFO) power station will be installed in the city of Mwanza and another 100 MW gasfired capacity is proposed for the Dar es Salaam area, both plants are currently expected to be commissioned by the end of 2011. 64. TANESCO has also put into operation two new transmission lines. One 220kV transmission line linking Shinyanga to Buzwagi was commissioned and became operational in February 2009 and another 132kV transmission line from Musoma to Tarime became operational in September 2009. 65. As already mentioned earlier, the TEDAP is supporting TANESCO with an important number of Technical Assistances and goods procurements to enhance the utilitys business systems and human capacity. Furthermore the MCC is currently supporting a management consultancy that will help TANESCO to identify further advisory and capacity building needs which subsequently will be considered by various donors for financing. Rural Energy Agency and Rural Energy Fund 66. The Rural Energy Act of 2005 establishes the Rural Energy Board (REB), Rural Energy Fund (REF), and Rural Energy Agency (REA) to be responsible for promotion of improved access to modern energy services in the rural areas of Mainland Tanzania and through a Fund within the Agency Board to provide for grants and subsidies to developers of rural energy projects and for related and consequential matters. The Act sets out the principles of rural energy development, procedures for establishment of the REB, the REA, and the REF, as well as guidelines for management of the fund. REA and REF are now fully staffed and operational. 67. REAs key functions designated by the Rural Energy Act are to promote, stimulate and facilitate rural energy development in Tanzania; to promote rational and efficient production and use of energy in rural areas; to utilize the REF to finance eligible rural energy projects that result in improvement in the livelihoods of rural people, their access to clean, modern energy, and their production of clean, modern energy; and to facilitate activities of key stakeholders with an interest in rural energy, including local and national government agencies, the private sector, community based groups, non-governmental organizations (NGOs), and financial intermediaries. 68. REA Board is functional and a Director General and a Chief Financial Officer have been appointed. As a new institution, two key challenges are faced by REA, namely to develop a robust rural access strategy which combines currently fragmented elements of grid and offgrid expansion, and to demonstrate rapid increase in access to electricity on the ground. REA has financed several grid extension projects implemented by TANESCO and through IDAs TEDAP it supported small renewable power and
44

offgrid projects. Taking into consideration the high distribution cost reflected in high, often unaffordable connection charges, REA is taking the lead with regard to the implementation of a low cost distribution pilot partially financed under TEDAP Additional Financing. 69. The REF aims at providing capital subsidies to rural energy projects to stimulate the increased provision of modern energy services to social services, enterprises, and households in rural areas. The sources of funding for the REF include: Annual budget allocation from government; contributions from international financial organizations, multilateral and bilateral agencies and other development partners; levies of three percent on the commercial generation of electricity from the national grid; fees in respect of programs, publications, seminars, consultancy services and other services provided by the REA; and interest on return on investment. The Rural Energy Fund became operational in September 2008. 70. A competitively selected Trust Agent is responsible for disbursement of grant payments from the Fund and ensuring that any pre-conditions set by the REB/REA are met by the developer. It is envisaged that different subsidy rates will apply for different types of investment. Social energy projects may be subsidized in full. 71. REA/REF may play a role in the implementation of the electrification of the villages along the ROW of the proposed project. The Energy and Water Utilities Regulatory Authority (EWURA) 72. The Energy and Water Utilities Regulatory Authority (EWURA) is an autonomous multi-sectoral regulatory authority established in 2001 by the EWURA Act, Cap 414 of the laws of Tanzania. EWURA is responsible for technical and economic regulation of the electricity, petroleum, natural gas and water sectors in Tanzania. It became operational in June 2006 and the first management employed in September 2006. EWURA is governed by a Board of Directors. The functions of EWURA include among others, licensing, tariff review, monitoring performance and standards with regards to quality, safety, health and environment. EWURA is also responsible for promoting effective competition and economic efficiency, protecting the interests of consumers and promoting the availability of regulated services to all consumers including low income, rural and disadvantaged consumers in the regulated sectors. 73. EWURA is responsible for issuing and cancelling licences for (i) generation, transmission, distribution, supply and system operation; (ii) cross border electricity trading; and (iii) physical and financial electricity trading. EWURA monitors performance of regulated sectors in relation to level of investments, availability, quantity and standards, and cost of service. It regulates rates and charges and approves and enforces tariffs. 74. EWURAs tariff regulation principles are efficient business operation or cost reflective tariff, not including subsidies and grants; fair returns on investment; price stability; enhanced efficiency in consumption and adequate supply to satisfy demand. The approved tariffs may include automatic adjustments for changes in cost of fuel, power purchases and fluctuations in exchange rates. 75. Tariff Approval procedures. Upon the receipt of a tariff increase application, EWURA acknowledges the receipt of the application as soon as possible and then has fourteen days to conduct a preliminary review approving or rejecting the request and to send feedback on the application. If the tariff is rejected, EWURA informs the applicant the reasons for rejection. If accepted, a timeline to conduct a detailed review and consultations is prepared (no more than 6 months). A public notice on inquiry is posted on EWURAs website together with the tariff application. Comments can be submitted by the public within fourteen days of the date of inquiry. EWURAs own analysis and the public comments are then synchronized. Once EWURA has made a decision on the application and the tariff increase a drafting of the Order and Exit Conference are held. This is followed by EWURAs Board Approval of the Tariff, and gazetting of the Order. Parties aggrieved by EWURAs decision can appeal to the Fair Competition Tribunal (FCT).
45

76. Table 11 below summarizes recent electricity tariffs in Tanzania. While tariff levels were increased in line with general inflation in 2006 and 2007, those have been more drastically increased in 2008 because of financial pressures on the cost of service, which included a reduced hydroelectric availability and increased reliance on high-cost thermal rental capacity due to a severe drought as well as rapid increases in world oil prices. The electricity tariff of 2009 remained unchanged. 77. Each class has been assigned almost same rate of increase, with on adjustment with respect to class tariff rebalancing to reflect changing cost structure.
Table 11: Electricity Sales & Tariff by Consumer Category (2005-2009) Tariff Class
Domestic Low Usage

Component
Basic Charge Energy < 50 kWh Energy > 50 kWh Basic Charge Energy Charge (kWh) Basic Charge Energy (kWh) Demand Charge (kVA) Basic Charge Energy (kWh) Demand (kVA)

2005
38 115 1,700 95 38 121

2006

2007
40 5.3 percent 128 5.8 percent 1,892 6.0 percent 106 6.0 percent

2008 & 2009

49 22.5 percent 156 21.9 percent 2,303 21.7 percent 129 21.7 percent

5.2 percent

General Use

1,785 5.0 percent 100 5.3 percent

Low Voltage Supply

6,300 63 6,900

6,615 5.0 percent 66 4.8 percent 7,245 5.0 percent

7,012 6.0 percent 70 6.1 percent 7,680 6.0 percent

8,534 21.7 percent 85 21.4 percent 9,347 21.7 percent

High Voltage Supply

6,300 59 6,400

6,615 5.0 percent 61 4.3 percent 6,720 5.0 percent

7,012 6.0 percent 65 6.6 percent 7,123 6.0 percent

8,534 21.7 percent 79 21.5 percent 8,669 21.7 percent

Zanzibar Supply

Basic Charge Energy (kWh) Demand (kVA)

6,300 24 3,510

6,615 5.0 percent 26 7.0 percent 3,686 5.0 percent

7,012 6.0 percent 28 7.7 percent 3,907 6.0 percent

8,534 21.7 percent 75 167.9 percent 4,755 21.7 percent

46

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies TANZANIA: Backbone Transmission Investment Project
Ratings (Bank-financed projects only)
IEG Ratings Completed Projects Financing of incremental power supply (kWh) to avoid severe load shedding. Emergency Power Supply Project (Cr. 3916-TA) Outcome Risk to Development Outcome High OED Ratings Outcome Rehabilitation of generation, transmission and distribution (T&D), engineering services, training, energy-efficient stoves. Engineering studies/bid documents for the lower Kihansi hydropower scheme, billing, and accounting systems. Power Rehabilitation Project (Cr. 1687-TA) Power Engineering and Technical Assistance Project (Cr. 2330-TA) Moderately Satisfactory Sustainability ID Impact Borrower Performance Moderately Satisfactory

Sector Issue

Project

Moderately Satisfactory

Uncertain

Modest

Satisfactory

Likely

Substantial

Ongoing Projects Quality and efficiency of the electricity service provision. Energy access expansion. Development of small renewable/rural energy generation. Power generation from natural gas reserves. Promotion of private ownership/investment. Rural electrification. Reform, restructuring, and privatization. Other Development Agencies Distribution Systems Rehabilitation and Extension to unserved areas benefiting the Mwanza, Tanga, Morogoro, Iringa, Dodoma, and Mbeya regions. Zanzibar Submarine Interconnector. Tanzania Energy Development and Access Expansion Project TEDAP (Cr.4370-TA) TEDAP Additional Financing (Cr. 4726-TZ), approved by the Board on April 6, 2010 Songo Songo Gas Development and Power Generation Project (Credit 3569-TA) Privatization and Private Sector Development Project (Cr. 3304-TA)

Latest Supervision (ISR) Ratings Development Implementation Progress (IP) Objective (DO) Moderately Unsatisfactory Moderately Satisfactory

Satisfactory

Satisfactory

Moderately Satisfactory

Moderately Satisfactory

Millennium Challenge Corporation (MCC)

Millennium Challenge Corporation (MCC)

47

Ongoing Projects The Project for Capacity Development of Efficient Distribution and Transmission Systems. The Reinforcement of Transmission and Distribution Facilities in Oyster Bay Substation. Pemba Submarine Cable Twinning arrangement between TANESCO and Statnett on capacity building on transmission. Electrification Zanzibar Rural Electrification Pahse IV Extension. Emergency and Back- up Capacity Zanzibar. Makambako-Songea Transmission Line and Electrification of districts in Ruvuma and Iringa regions. Power Supply to Ukerewe Principal Centres and Simanjiro District. Tegeta 45 MW Gas Fired Plant. Kilimanjaro-Arusha Transmission Line Project. BEST RAY - Bringing Energy Services to Tanzania Rural Areas, in Meru and Arusha districts. Mwenga 3 MW Hydro Power Project. Improving the Electric Power Supply Reliability in the City of Dar es Salaam. Transformation of Rural Photovoltaic Market in Tanzania. Joint Programme on Environment.

Implementation Progress (IP) Japan International Cooperation Agency (JICA)

Development Objective (DO)

Japan International Cooperation Agency (JICA) Norway Norway

Norway Norway

Sweden/Sida

Sweden/Sida Netherlands (ORET) South Korea EDCF

European Union

European Union

Finland

UNDP UNDP

48

Annex 3: Results Framework and Monitoring TANZANIA: Backbone Transmission Investment Project 1. The monitoring and impact evaluation for the overall project will be the responsibility of TANESCO. For result evaluation, a mid-term evaluation and a final evaluation will be carried out by external consultants, terms of reference for which will be provided by the respective implementation teams for the two components. TANESCO will submit the report to the government, MEM, IDA, AfDB, EIB, JICA and South Korea EDCF. 2. The proposed project will support and enhance the Subsystem within the whole transmission network in place. This Subsystem is comprised of the existing 220kV transmission line from IringaDodoma-Singida-Shinyaga and the proposed 400kV from Iringa-Dodoma-Singida-Shinyaga. This Subsystem will supply electricity at high voltage levels to private and public high voltage consumers, including mines. Therefore, tangible improvements that are measurable in normal operation of this Subsystem are being proposed. Data collection and any survey exercises needed for monitoring of results are proposed to be the primary responsibility of the implementing agency, TANESCO, which will be done through normal regional operational reports. TANESCO has proven monitoring capacity as shown by previous IDA funded projects. Overall monitoring and coordination of project activities will be the responsibility of Senior Manager, Strategic Planning and Projects. 3. Monitoring Indicators and Results Framework will also be provided in the Operating Guidelines for the project, which have been agreed amongst all lenders to the project before the execution of the project.
Table 12: Results Framework PDO outcomes
PDO: To increase availability, reliability and quality of grid based power supply to northern regions of Tanzania. Increased availability of power supply to northern Tanzania. 1.Maximum transmission capacity in the Subsystem (MW). TANESCO will use this information to attract grid based new business enterprises, households and large industrial consumers by increasing the capacity of the transmission system to supply power to northern Tanzania.

Project Outcome Indicators39

Use of Project Outcome Information

Improved reliability of power supply. Improved quality of electricity services to northern Tanzania.

2. Reduction in transmission losses in the Subsystem (percent). 3. Cumulative power outages that are linked to malfunctions in the Subsystem (days). 4. Reduction in the number of power outages that are linked to malfunctions in the Subsystem (number).

Direct and indirect beneficiaries, of which X percent are women (Bank CORE indicator) do not apply to the proposed transmission investment project. This CORE indicator for IDA support cannot be ascertained for this project since the proposed project does not include a distribution component. The transmission line will indeed supply electricity to various entities, including high voltage supply to industries, and will be connected through multiple substations to lower voltage level which will be provided to TANESCO consumers, thus increasing the supply and availability of electricity to SMEs, residential and commercial consumers. Benefits of the Project are attributed to the population as a whole and are difficult to attribute to specific beneficiaries.

39

49

Intermediate Outcomes
Component 1: 1.a. Construction of new transmission backbone including FOCL from: x Iringa to Dodoma (225 kms)

Intermediate Outcome Indicators

Use of Intermediate Outcome Monitoring

1.1. Transmission line from Iringa to Dodoma including FOCL constructed (kms). 1.2 .Transmission line from Dodoma to Singida including FOCL constructed (kms) . 1.3. Transmission line from Singida to Shinyanga including FOCL constructed (kms). 1.4. Substations upgraded (number). Transmission readiness to evacuate power to northern Tanzania.

Dodoma to Singida (217 kms)

Singida to Shinyanga (225 kms)

1.b. Substations at Iringa, Dodoma, Singida and Shinyanga upgraded. Component 2: 2.a.Enhanced technical capacity to implement the project .

2.1. Timely and satisfactory implementation support provided during the construction of the transmission line. Creates market confidence in Tanzania, thereby increasing the attractiveness of the sector to private participation and continued donor support.

2.b. (i) Enhanced Environmental and Social Capacity of TANECSO. 2.b. (ii) Technical Feasibility for Hydropower project. 2.b. (iii) Legal, technical and financial advisory support for public and private generation and projects.

2.2. Staff trained in Environmental & Social issues (number). 2.3. Technical Feasibility study for hydropower project completed. 2.4. Power generation projects developed (number).

50

Table 13: Arrangements for results monitoring

Data Collection and Reporting

Project Outcome Indicators

Baseline

YR140 YR2 YR3 Frequency and Reports Data Collection Instruments

YR441

Responsibility for Data Collection

200 6%42 3%

200

200

200

1200

7 Annual

7.5

8.5

OISF Reports and TANESCO Operational Reports

TANESCO

1.Maximum transmission capacity in the Subsystem (MW). 2. Reduction in transmission losses in the Subsystem (in percent). 3. Cumulative power outages that are linked to malfunctions in the Subsystem (days).43 4. Reduction in the number of power outages that are linked to malfunctions in the Subsystem (in absolute numbers). 30 33 36 39 10

Intermediate Outcome Indicators

none 75 150 225 kms

1.1.Transmission line from Iringa to Dodoma including FOCL constructed (kms). none 150 75

1.2. Transmission line from Dodoma to Singida including FOCL constructed (kms).

217 kms Quarterly OISF Reports TANESCO

none

75

150

225 kms

1.3. Electricity transmission line from Singida to Shinyanga including FOCL constructed (kms). 1.4. Substations upgraded (number). 0 n/a44

n/a

40

Year1 covers the period from Effectiveness to December 2011. Year 4 covers the period from January 1, 2014 to Closing Date (March 31, 2015) 42 The minutes of Negotiations recorded this baseline as 5%. TANESCO later confirmed that the current baseline is about six percent. 43 Estimates based on TANESCOs Reports. For Yr 2-4, data is based on current trends of increased loads. 44 Substations upgrades at all of the four locations are expected to begin and end at the same time.

41

51

Data Collection and Reporting

Project Outcome Indicators

Baseline

YR140 YR2 YR3 Frequency and Reports Data Collection Instruments

YR441

Responsibility for Data Collection

2.1. Timely and satisfactory implementation support provided during the construction of the transmission line. Quarterly OISF Reports

None

Consultants procured

Satisfactory completion of activities in TORs in the period

Satisfactory completion of activities in TORs in the period

Satisfactori ly completion of the transmissio n line 10 Annual

TANESCO

None

Human Resource Division Reports

TANESCO

2.2. Staff trained in environmental and social issues (number). 2.3. Technical feasibility study for hydropower project completed. None Annual Consultants procured Feasibility study completed

TANESCOs procurement reports and specific project reports

TANESCO

2.4. Power generation projects developed (number).

None

Technical Advisors Procured

Satisfactory completion of activities in TORs in the period Legal and Financial Advisors Procured Satisfactory progress in developme nt and financing of generation projects Annual

TANESCOs procurement reports and specific project reports

TANESCO

52

Annex 4: Detailed Project Description TANZANIA: Backbone Transmission Investment Project Background 1. Unreliable power supply is a potential constraint to further improvement in increasing energy access in northern Tanzania, including for current and new mining investments and other anticipated economic activities - frequent power interruptions damage industrial equipment and unreliable supplies from the south thus hamper economic development. In response to the lack of reliable energy, the GOT has been investing in generation, transmission and distribution over the last years, and increasing transmission capacity has been identified as one of the highest priority in TANESCOs Capital Investment Plan (CIP). 2. The northern parts of Tanzania have been experiencing increasing investment opportunities in mining resulting in an increase of demand for power. However, the existing 220kV transmission line between Iringa and Shinyanga will not be able to handle future increase in demand due to the growing economic activities. Insufficient transmission capacity and rapid demand growth have resulted in deterioration in the quality of service due to repeated and prolonged outages and frequency fluctuations. The maximum capacity of the existing line is about 244 MW, but with the current grid profile, the lines can only carry up to about 198 MW. Most of the existing power lines suffer from brownouts, surges and sometimes total power outages. The lines are currently carrying a maximum load of 155 MW. Additional transmission capacity is therefore urgently needed to avoid a transmission constraint crisis, to stem increases in losses, and prevent the further deterioration of the quality and reliability of the electricity service. 3. The situation calls for upgrading and reinforcement of the power transmission lines to improve reliability and quality of power. Fichtner Power Consultants of Germany has carried out an alternative/comparative analysis for Iringa Singida- Shinyanga backbone transmission line. Due to the long distance of the backbone transmission line (667 km), as a first step, a technology comparison analysis was required to determine the appropriate technology of the line to be able to evacuate the forecasted energy from the south to the forecasted demand along Iringa Dodoma Singida Shinyanga. The options analyzed were: (i) High Voltage Alternating Current (HVAC), (ii) High Voltage Direct Current (HVDC), and (iii) a combination thereof (Irringa-Singida section is HVDC, and SingidaShinyanga section is HVAC). 4. The comparison analysis also took into account future generation, demand growth, mining loads, and imports from Kenya (200 MW) to assess the economic simulations. The technical parameters evaluated were: load flow, short circuit, stability, losses, N-1 steady state criteria, and outage probability. The results of the technical and economic analysis recommended the implementation of a full HVAC 400kV line option over the complete length with drop off and connection to the existing 220kV Iringa, Dodoma, Singida and Shinyanga substations (400 to 220kV). 5. Based on the technology evaluation, a detail configuration analysis of the 400kV line was carried out in order to optimize the initial investments to meet the demand. The analysis considers two implementation phases and load forecast from 2010 to 2020. These alternatives analyzed include:

x (Alternative A.1) Phase 1: Construction of a 400kV double Circuit Line, with one circuit strung, operated at 400kV; Phase 2: 2nd circuit strung and installation of additional transformer capacity. x x
(Alternative A.2) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 400kV; Phase 2: Installation of additional transformer capacity. (Alternative A.3) Phase 1: Construction of a 400kV double circuit line with one circuit strung, operated at 220kV; Phase 2: Stringing of 2nd circuit, operation on 220kV and system upgrade to 400kV.
53

x x

(Alternative A.4) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 220kV; Phase 2: System upgrade to 400kV. (Alternative A.5) Phase 1: Construction of a 400kV double circuit line with both circuits strung, operated at 220kV on line section Iringa Singida and Construction of a 400kV double circuit line with one circuit strung, operated at 220kV on line section Singida Shinyanga; Phase 2: Stringing of 2nd circuit on Singida Shinyanga transmission line section and System upgrade to 400kV.

6. The results showed as the most cost effective technical-economic option, the development of a first phase by year 2012 consisting of a double circuit line with both circuits strung operated at 220kV, and a second phase to be completed by year 2020, consisting of upgrading the system to 400kV when the power transfer is forecasted to reach 2,000 MW (100 MW per circuit). The dynamic studies showed that this configuration (A.4) will meet the technical requirements of load peak flow, short circuit, stability, losses, N-1 steady state criteria, and outage probability to meet the demand and to be able to evacuate the energy from the supply centers. 7. Cost saving for Phase 1 will arise mainly from the 400kV switchgear (transformers, bays, protection, compensation, etc.) that will only be installed for Phase 2 (those costs are not part of the proposed project). No upgrade will be required in the lines since they will be constructed and designed to operate on 400kV, but initially operate on 220kV. The 400kV double circuits transmission lines will have a total power transfer capacity of 2,000 MW (1,000 MW per circuit) after completion of both phases. The proposed project will finance only the development of the first phase. Detailed Project Description 8. The project consists of the following two Components:

9. Component 1: Construction of Backbone Transmission Line between Iringa and Shinyanga. This component will finance one section of the proposed overhead 400kV double-circuit backbone transmission interconnection between the towns of Iringa and Shinyanga, and the expansion of the associated 220kV substations at Iringa, Dodoma, Singida and Shinyanga. The proposed transmission line will be equipped with Fiber Optic Communication Line (FOCL) and it has been designed with Shield Wire System (SWS) for electrification of villages along the transmission line; and the expansion of the associated 220kV substations at Iringa, Dodoma, Singida and Shinyanga. This component is estimated to cost about US$434.77 million (including contingencies, but excluding taxes and duties). Specifically, the IDA credit will finance one of the three section of this transmission line, namely from Iringa to Dodoma. The proposed IDA-financed section of the transmission line will consist of one supply & install contract related to the construction of transmission line along with FOCL line. The other two sections of the transmission line (including FOCL and SWS) and the upgrade of associated substations are proposed to be financed by AfDB /JICA, EIB, and South Korea EDCF, respectively. 10. Component 1(a). The IDA financed OHL section (including FOCL and the SWS) from Iringa to Dodoma is about 225 km long and is expected to cost US$134.50 million (including contingencies, but excluding taxes and duties). The AfDB /JICA financed (under AfDB procurement procedures) OHL (including FOCL and the SWS) section from Dodoma to Singida is about 217 kms and is expected to cost US$129.71 million (including contingencies, but excluding taxes and duties). The EIB financed OHL (including FOCL and the SWS) section from Singida to Shinyanga is about 225 kms and is estimated to cost US$134.50 million (including contingencies, but excluding taxes and duties). 11. As indicated above, this OHL will also include the installation of Fiber Optical Communication System (FOCS) and Shield Wires System (SWS) for electrification of villages along the transmission line ROW. 12. Fiber Optical Communication System (FOCS). The FOCS allows communications to control the power system and generating units, which will lead into a more reliable operating system. TANESCO has currently in service about 2,050 kms FOPC Network, equipped with Dense Wavelength Division
54

Multiplexing (DWDM) and a service layer with Synchronous Digital Hierarchy (SDH). The FOPC Network covers the northern ring of Tanzania, from Dar es Salaam, Morogoro, Kidatu, Kihansi, Iringa, Dodoma, Singida, Arusha, Moshi, Tanga to Chalinze. The FOPC Network is used for high-speed transmission of data for TANESCOs voice and data communication purposes and control of the transmission line.45 The network is currently in service connecting ten substations, three hydro power plants, two international airports and 27 town offices and other TANESCOs facilities for communication purposes. TANESCO intends to lease the remaining capacity to third parties to serve as a high-speed fiber interconnection network. In line with the technical requirements and industry practice for such transmission lines, it is proposed that this subcomponent supports the installation of Optical fiber Composite Overhead Ground Wire (OPGW)46 on the proposed line, including an optical terminal and access equipment at Shinyanga. 13. Shield Wires System (SWS). It is common to find unelectrified towns and villages along HV transmission lines as those lines mostly serve to transfer electricity to the larger towns only. This is also the case along the existing Iringa - Shinyanga transmission line. This situation leaves limited options for providing electricity services alone the line routing. In order to prevent this situation, the proposed project contemplates in the design of the transmission line, electrical interconnection schemes to provide electricity in the future to village located along the line. As described in Annex 10, the electrification of villages along the ROW of the proposed project is one of the key mitigation measures agreed on the ESMP. 14. In order to find the best technical-economical solution for connecting the villages along the transmission line ROW, various technical schemes where preliminary explored as part of the Feasibility study prepared by Fichtner. TANESCO has also initiated a detailed Technical and Socio-Economic Assessment that will further analyze the technical options for the rural electrification program, including the best schemes for grid extension associated with the existing 220kV line.47 15. Three alternative options were identified by the preliminary analysis of the Feasibility study: (i) Single Wire Earth Return System (SWER); (ii) Shield Wires System (SWS); and (iii) Single Phase Voltage Transformer, to a conventional 3-phase MV distribution system. The cost of each system was estimated using 3 unit prices: (i) costs depending on the distance of the further point to supply with energy to the next substation; (ii) costs at the in-feeding end; and (iii) costs at each receiving end. 16. The SWS has been found as the least-cost solution based on the preliminary estimates. The SWS is an electrical interconnection scheme that facilitates the provision of electricity to small villages along the construction of commonly new HV transmission lines as a least-cost solution. The SWS technology is a further development of the Single Wire Earth Return System (SWER) and consists of insulating the shield wire at the top of the HV transmission line. The purpose is two-fold. First, the shield wire is normally grounded to provide lighting protection to the main HV transmission line. Second, the shield wire can also transport power from the HV transmission line to lower voltage level with no additional substation requirement on the HV level.

45

TANESCO has mainly used All- Dielectric Self-Supporting Cable (ADSS), which is a self-supporting optical cable, with no metal component, and which can be installed on live lines with no outages. It was installed at the center of the existing pylons and some of the ADSS cable has been tampered with, resulting in interruptions of the services. 46 OPGW cables are run between the tops of the high-voltage electricity pylons. When building a new transmission line and shield wires must be installed, the incremental cost of installing optical ground wire versus standard shield wire is minimal while the benefits of a fiber optic network for internal communications, grid management, etc. are profound. The Technical and Socio-Economic Assessment will determine the financial costs and economic/developmental impacts of providing electricity to areas along the new transmission line between Iringa and Shinyanga. The study will go into detail on the socio-economics of the villages to be served by electricity services and will determine the wiliness to pay for such services, including a prioritization of the villages to be served. On the technical side, the study will determine the best scheme for grid extension for each village that is currently not connected to the grid. Additionally, the study will propose a cost recovery mechanism including relevant sensitivity analyses.

47

55

17. The preliminary estimates and comparison analysis regarding the electrical scheme for rural electrification indicate that the SWS has the maximum in-feed capacity into conventional MV lines and facilities to interconnect villages that are further apart from the transmission line when compared with the other alternatives analyzed. This scheme reduces the transmission losses due to voltage drop depending on the distance of the loads, the connection of villages alone the ROW can be done by three or two phases increasing the supply capacity, and this option lower the cost when compared with conventional HV/MV substations or conventional distribution when implementing the construction of a new transmission line. 18. The SWS was chosen by the GOT as the preferred technology for rural electrification along the proposed Iringa-Shinyanga transmission line. The project costs therefore include the installation of SWS along the transmission line for the future electrification along the ROW. The technical requirements for the electrification program along the transmission line will be identified in the ongoing Technical and Socio-Economic Assessment and will be incorporated in the bid documents of the proposed project. 19. Component 1(b): This component will finance the upgrade of 220kV substations at Iringa , Dodoma , Singida and Shinyanga , including additional feeders, reactive and capacity compensation equipment and disconnections. It is estimated to cost US$36.06 million (including contingencies, but excluding taxes and duties) to be financed by South Korea EDCF under tied concessional financing. 20. Component 2: Technical Assistance to TANESCO. It is proposed that about US$10.0 million is allocated to project technical assistance to the Implementing Agency for the project (TANESCO). Upon a careful review of TANESCOs requirements for urgent technical assistance, this component will support the Implementing Agency through consultancy contracts related to: (i) engineering/safeguard supervision and monitoring consultant for implementation support for the proposed backbone transmission line; and (ii) improve technical, legal, financial, and safeguards capacity of TANESCO in preparing and managing projects. 21. Component 2(a): Implementation Support: Under this subcomponent, an engineering consultant will be procured using Bank consultant guidelines to assist TANESCO with (i) project management and supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations) undertaken in Component 1 (including certifications for contractor payment, supervision during construction/implementation, preparation of reports required by the Lenders and TANESCO, expertise transfer and training for staff and other related issues); and (ii) supervision and monitoring of the implementation of the Environmental and Social Management Plan (ESMP) and Resettlement Action Plan (RAP). It is expected that this implementation contract would cost about US$6 million. The services will include certifications for contractor payment, supervision during construction/implementation and preparation of reports required by IDA and TANESCO, expertise transfer and training for staff and other related matters. 22. Component 2(b): Under this subcomponent that supports capacity building for TANESCO, US$4 million will be allocated to support TANESCO in the following activities:

x Enhancing its Environmental and Social Capacity to implement this and other projects US$0.5 million. The project will support social and environmental training and capacity building activities for TANESCO environmental and social staff to improve the skills required to supervise and monitor the implementation of the ESMPs and RAPs for ongoing and future projects. Specifically, will provide training on Bank requirements regarding the implementation and the monitoring of the ESMP and RAPs in line with the country legal requirements and OP 4.12. The support could include the involvement of international consultants on both training and monitoring of the ESMPs and RAPs implementation and proper documentation. x
Carrying out the feasibility analysis of the Rumakali Hydropower Project US$1 million. The Rumakali River is part of Lake Nyasa drainage basin. The Rumakali Hydropower stations capacity is estimated at 222 MW and the plant is expected the operation from 2021 according to the PSMP Update. This component will support a feasibility study to assess Rumakalis technical, economic and financial viability while at the same time determine how a possible development of the
56

hydropower project could be undertaken with adequate safeguards and solutions concerning the environment and social/resettlement impacts. Feasibility study work is to include updating previous studies of the project and collecting topographic, hydrological, climatic, geological, and hydrogeologic information, prepare preliminary design and cost estimates, in addition to carrying out economic and financial analysis of the proposed project. Supporting TANESCOs capacity to develop public and private generation projects through the provision of legal, technical, financial, environmental, and social advisory services. US$2.5 million. This component will provide international support to TANESCO to support the development of public and private generation projects. This component will provide TANESCO high quality legal, financial, technical, environmental and social advice. In house capacity to negotiate key project agreements is limited in Tanzania, and often for lack of resources, no or limited advice has been made available to governments in developing such projects. Development of a fair and equitable transaction requires high quality legal, financial, technical, environmental and social advice to developing countries. In house capacity to negotiate key project agreements is limited in Tanzania, and often for lack of resources, no or limited advice has been made available to in developing such projects. Development of large public and especially private generation projects, and particularly hydropower, in developing countries is a challenge; there are a handful of such hydro projects in the developing world that have reached financial close. In all of these cases, high quality advisors were made available to the government to enable a fair transaction and most importantly timely close of the financial transaction.

57

Annex 5: Project Costs TANZANIA: Backbone Transmission Investment Project

Table 14: Project Cost by Component Financing Plan (US$ millions) Cost Local Component 1 - 400 KV Transmission Line
117.45 11.74 5.31 2.18 136.68 113.27 11.33 5.11 1.43 131.14 117.45 11.75 5.30 13.60 148.10 415.92 15.33 119.17 13.08 116.63 0.00 0.00 13.08 0.00 0.00 116.63 0.00 11.75 1.17 0.65 0.00 13.57 13.57 0.00 105.71 10.57 4.65 0.00 120.93 120.93 0.00 0.00 0.62 4.49 1.13 10.19 11.33 101.95 13.57 119.17 0.00 0.00 0.73 4.58 1.17 10.57 13.43 104.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.18 2.18 0.00 0.00 0.00 1.43 1.43 0.00 0.00 0.00 13.60 13.60 17.21

Project Component Foreign Local Foreign Local Foreign Local

IDA

AfDB & JICA

EIB

KEXIM EDCF Foreign

Borrower Local Foreign

Component 1. a. Transmission Line

Component 1. a. i: OHL Section Iringa to Dodoma

Physical Contingency (10%)

Price Contingency (F/C 4%, L/C 5%) Interest During Construction including other financing cost (for IDA Loan)

Subtotal of Component 1. a. i Component 1. a. ii: OHL Section Dodoma to Singida Physical Contingency (10%)

Price Contingency (F/C 4%, L/C 5%) Interest During Construction including other financing cost (for AfDB & JICA Loan)

Subtotal of Component 1. a. ii Component 1. a. iii: OHL Section Singida to Shinyanda Physical Contingency (10%)

Price Contingency (F/C 4%, L/C 5%) Interest During Construction including other financing cost (for EIB Loan)

Subtotal of Component 1. a. iii

Component 1. a: Subtotal Cost

58

Financing Plan (US$ millions) Cost Local

0.95 0.09 0.05 0.00 1.09 15.33 119.17 13.08 116.63 13.57 120.93 1.09 3.06 1.35 0.00 34.97 34.97 30.57

Project Component Foreign Local Foreign Local Foreign Local Foreign

IDA Local
0.00 0.00 0.00 0.00 0.00 0.00

AfDB & JICA

EIB

KEXIM EDCF

Borrower Foreign
0.00 0.00 0.00 0.06 0.06 17.28

Component 1. b. Substations Expansion Component 1. b. Substations Expansion (Iringa, Dodoma, Singida and Shinyanga S/S) Physical Contingency (10%) 31.52 3.15 1.40 0.06 36.13 452.05

Price Contingency (F/C 4%, L/C 5%) Interest During Construction including other financing cost (for KEXIM EDCF)

Component 1. b: Subtotal Cost

Component 1: Total Cost

Component 2 - Technical Assistance

6.00 4.00 10.00 7.82 6.82 2.68 0.87 18.18 462.95 17.28 5.50 485.73 485.73 15.33 0.00 0.00 15.33 129.17 0.00 5.50 136.67 150.00 13.08 0.00 0.00 13.08 116.63 0.00 0.00 116.63 129.71 13.57 0.00 0.00 13.57 120.93 0.00 0.00 120.93 134.50 1.09 0.00 0.00 1.09 36.06 34.97 0.00 0.00 34.97 0.00 10.00 7.82 6.82 2.68 0.87 18.18 18.18 0.00 0.00 18.18 35.46 0.00 0.00 0.00 0.00 0.00 0.00 17.28 0.00 17.28 0.00 4.00 0.00 6.00

Component 2. a: Consultancy Services provided to TANESCO Component 2. b: Capacity Building to TANESCO

Component 2: Total Cost

Other costs - Environment & Social

Mitigation Measures

Compensation

Land Acquisition

Price Contingency (F/C 4%, L/C 5%)

Other costs: Total Cost

Total Costs

Total IDC

Unallocated

Total Project Costs

Financing Amount

*Excludes taxes and duties on goods and works, but includes taxes on consultant services

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Annex 6: Implementation Arrangements

TANZANIA: Backbone Transmission Investment Project Implementation Agency 1. TANESCO, the wholly-owned government entity, will be solely responsible for implementation of the two components of the project and the sole beneficiary of the credit. TANESCO will be individually responsible for financial, procurement and physical monitoring reports on implemented activities. 2. The lenders to the proposed project have jointly agreed on implementation arrangements for the project. The implementation of the project will be under the overall responsibility of TANESCOs General Manager for Transmission. A Project Coordinator reporting to the General Manager of Transmission will be appointed and assisted by three transmission engineers and one substation engineer responsible for each construction lot of the project. In addition, a dedicated (i) Project Accountant; (ii) Environmental including one environmental specialist for each line segment and two social specialists; and (iii) Procurement team will assist the Project Coordinator. The Project Accountant will report to the Chief Financial Officer, who will report directly to the Managing Director; the Environmental Group will also report to the Senior Manager of Strategic Planning and Projects, and the Procurement Unit will also report to the Senior Manager, Procurement. Additional supervisors counterpart staff to the Supervision Engineer will also be assigned by TANESCO, as required. A detailed organization scheme for the implementation of the project is shown in Figure 3 below.
Figure 3: TANESCO's Organizational Scheme for Implementation of the BTIP

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Implementation Support 3. The Technical Assistance Component of the proposed project will finance an Owners Implementation Support Firm (OISF) engineering and safeguards consultants to assist TANESCO with: (i) overall project management and supervision of design, construction and preparation for operation and maintenance of the complete investment (the full transmission line and the upgrade of substations); and (ii) supervision and monitoring of the implementation of the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAP), based on an agreed monitoring plan. In addition, the OISF will supervise the implementation of an HIV/AIDS awareness and prevention plan in the project areas to mitigate the possible spread of HIV/AIDS as contractors bring outside workers to the area. The terms of reference for this critical OISF will be agreed to jointly by the Lenders. TANESCO has agreed that the proposed OISF will be responsible for submitting quarterly reports, through TANESCO, to all financiers of the project and will be required to organize its duties in a way that ensures close supervision of the execution of all lots. In addition, the AfDB will recruit external auditors for auditing all the project accounts. Procurement arrangements 4. The procurement of works and services for the project will be divided into five packages: (i) construction of transmission lines separated in three lots; (ii) expansion of four substations; and (iii) Owners engineer consultancy. The RAP and ESIA implementation will be monitored as part of the Owners Engineer (OE) consultancy. The construction of transmission lines will be procured on a supply and installation basis through International Competitive Bidding (ICB). The expansion of the substation will be undertaken on a competitive basis among Korean firms. 5. A procurement strategy workshop amongst all donors was carried out to agree on salient features of the procurement strategy that TANESCO would undertake for the project. It was agreed that all procurement of goods, works and services financed by the AfDB /JICA, WB, EIB and South Korea EDCF, will be conducted in consideration of the relevant financing institutions procurement guidelines the principle of parallel co-financing of the project would be adopted. However to make the procurement for the project relatively less complicated, for the transmission line (Component 1.a), it has been agreed that the World Banks Standard Bidding Document for works will be used, however bidding will be carried out using the relevant institutions procurement procedures and guidelines. For the Substations package, (Component 1.b), South Korea EDCF documents and guidelines will be used. In the case of the transmission line segment between Dodoma to Singida being jointly financed by AfDB and JICA, the procurement rules of the AfDB will apply (based on the principles of an AfDB-JICA Memorandum of Understanding). 6. The bidding documents will contemplate the line sections basic design for each lot whereas the detailed design will be provided by the selected EPC contractors. Project co-financiers (AfDB, JICA, EIB) have agreed to use the World Bank standard bidding documents to facilitate the procurement process. For the substations expansion lot, a separate consultant will be procured and financed by South Korea EDCF to review Fichtners outputs related to the substation expansion package to ensure that South Korea EDCF tied-financing requirements have been appropriately included in the bidding package. To facilitate completion of the project at the same time all four bids for construction of transmission lines and substations will be issued in parallel. 7. For the transmission line sections, it is proposed that TANESCO will issue an expression of interest prior to issuance of the Pre-Qualification Document. This will allow TANESCO to review the pool of interested partiesand thus identifying any eligibility issues for the financing from various lenders. Based on this, an informed decision would be taken to reaffirm that successful bidding could be concluded using single or multiple SBDs. A common pre-qualification determination is also envisaged. 8. A joint evaluation of the bidding will be undertaken for the transmission line packages to allow for maximum efficiencies to be generated in the interest of the Borrower. The project would be implemented according to internationally accepted technical criteria and standards. These joint lender and
61

borrower agreements related to Procurement will be provided for in the Operating Guidelines for the project, which will be agreed amongst all lenders to the project before the execution of the project. Operating Guidelines 9. TANESCO will prepare a set of Operating Guidelines for the project. These guidelines would provide the detailed arrangements and procedures for the implementation of the project, including: (i) institutional coordination and day-to-day execution of the Project; (ii) budgeting, disbursement and financial management; (iii) procurement; (iv) environmental and social safeguard guidelines; (v) monitoring, evaluation, reporting and communication; and (vi) such other administrative, financial, technical and organizational arrangements required for the Project. 10. The proposed Operating Guidelines will be prepared by TANESCO, and will be agreed amongst all lenders to the project thereby allowing for a smoother implementation of the project. The preparation of these Operating Guidelines is a condition of effectiveness of the credit for the project. Implementation Schedule 11. TANESCO has already employed an international consultant - Fichtner of Germany - for the preparation of the bidding documents up to construction contract award. The bidding documents will contemplate the line sections basic design for each lot whereas the detailed design will be provided by the selected EPC contractor. For the substations expansion lot, a separate consultant will be procured and financed by South Korea EDCF to review Fichtners outputs related to the substation expansion package to ensure that South Korea EDCF requirements have been appropriately included in the bidding package. To facilitate completion of the project at the same time all four bids for construction of transmission lines and substations will be issued in parallel. 12. It is expected that preparation of tender documents for the three transmission line lots and the substations expansion lot will be completed by mid-2011 and contracts for the four construction lots are awarded in parallel by October 2011. Completion of construction of the transmission line and expansion of substations is expected by March 2014, according to the following implementation schedule (Figure 4):
Figure 4: Project Implementation Schedule

Commissioning and Testing 13. Before commissioning, several tests will be performed in order to ensure the proper functioning of the line. The following critical points regarding compliance of the transmission line to a certain voltage level will be verified before commissioning: x Tower Design: The tower has to be designed in order to ensure the required distances between the conductors and between the hot electrical line components (conductors, lower arcing horns of
62

insulator strings) and the earthed tower parts. The tower design is thoroughly checked during design approval. x Tower Spotting: The longitudinal line profile has to show that the towers chosen have sufficient height in order to meet the required clearances for a 400kV line to ground, roads and other obstacles to be crossed, considering the appropriate conductor sag curves. The profile plans are also thoroughly checked during design approval. Insulators: In general, the insulators and complete insulator strings are tested in the factory regarding their electrical and mechanical properties. The factory tests ensure that the insulators comply to the required voltage level requirements. Conductor stringing and sagging: A stringing table corresponding to the assumptions for the profile plans and tower spotting has to be submitted for approval. The clearance of the conductor to ground/crossed objects is subject of inspections and independent check measurement during site supervision. Jumpers: The jumper connections at the tension/angle towers have to be designed in order to ensure sufficient clearance to the tower cross-arms. The jumpers and are checked on site by measurements of the clearance.

14. The final testing for commissioning after the final erection checks, is usually made in order to ensure absence of deficient connections. This is verified by resistance measurements (earthing and impedance). However this test is independent of the voltage level. Maintenance Arrangements 15. Monitoring of the transmission line maintenance will be the responsibility of TANESCOs Head Office. TANESCOs zonal workshops at Iringa, Moshi and Mwanza and regional transmission crews will be responsible for the day-to-day maintenance of the transmission line. Due to the expansion of the transmission network, the zonal workshop at Iringa will be strengthened with additional staff and maintenance equipment. Live line works will be enhanced by providing additional training to the staff responsible for live line maintenance. TANESCO has procured a Transmission Line Maintenance Software to improve the companys maintenance practices. In addition, JICA and TANESCO have entered into a contract for capacity development of efficient distribution and transmission systems. All maintenance works will adhere to IEC and IEEE standards. Implementation Support from the Lenders 16. Even though the project is relatively simple from an engineering perspective, it is deemed critical that project execution be undertaken in a coordinated fashion. To maximize collaboration amongst the lenders during project implementation, the Lenders have agreed to undertake two Joint Lenders supervision missions during the first year of project implementation (after credit approval). This will allow close supervision of all of project activities, including those related to safeguards across the complete line. After the first year of project implementation, the Joint Lenders will conduct at least one joint supervision mission every year.

63

Annex 7: Financial Management and Disbursement Arrangements TANZANIA: Backbone Transmission Investment Project

1.

TANESCO will be responsible for the overall implementation of the project and will be the operational link to the IDA and GOT and will also be responsible for the procurement and financial management of the project. In this regard, TANESCOs financial management assessment was conducted in accordance with the Financial Management Manual issued on March 1, 2010. The assessment concluded that the overall mitigated risk rating for TANESCO is moderate which satisfies the Banks minimum requirements under OP/BP10.02 and it is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by the World Bank. The implementing entity is compliant with the Banks financial management requirements; and there are no overdue audit reports and interim financial reports from this entity. The proposed project will consist of two components which are presented in Section II.C of the Acceptable FM arrangements require that: x x x funds are used for the intended purposes in an efficient and economical way, all transactions and balances are correctly recorded to support preparation of regular and reliable financial statements that are subject to auditing arrangements acceptable to the Bank, and internal controls are considered capable of safeguarding the entitys assets.

2. 3.

PAD.

4.

Project Implementation Arrangements 5. Annex 6 provides a complete overview of the project implementation arrangements. All of the project components will be implemented by TANESCO. The company has adequately qualified and experienced accounting personnel, most of whom have been trained in World Bank financial management and disbursement guidelines. TANESCO also has a well qualified and experienced Internal Audit Department whose reports are discussed by the Audit, Finance and Administrative Committee quarterly. TANESCO has received unqualified audit opinions for World Bank projects; and the new energy sector legislation accompanied by electricity tariff increases has led to some improvements in TANESCOs financial situation. 6. However, some challenges remain. The financial management manual is outdated and is yet to be updated. For the past three years, TANESCO has submitted audited accounts to the Bank, but not within the stipulated time frame of six months after the end of the financial year. Its 2008 audited financial statements included an emphasis of matter that because of its significant accumulated losses, there is a material uncertainty on the ability of the company to continue as a going concern and its future operations depended upon government financial support. 7. The proposed project will follow TANESCOs budgeting system. An adequate and thorough consultative process is in use for the generation of budgets, using a bottom up process, starting with regional/zonal/ business units plans, costing of activities, and consolidation at TANESCO Head Office level. The Annual Work Plans and Budgets (AWPB) will be prepared and approved based on the policy guidelines as per the Public Finance Regulations of 2001 (revised 2004) and the Strategy of Planning and Budgetary Manual issued by the Ministry of Finance in 2005. TANESCO has qualified and experienced staff to prepare the budget. TANESCO prepares its budget in Microsoft Excel which is manually input into iScala, the current software. 8. The following accounting arrangements have been agreed for the implementation of the project: a. Accounting Information System: TANESCO has two main accounting softwares. iScala which is the general ledger system and Hi-Affinity which handles customers billing and related customers accounts. There are plans to have an enhanced version of iScala (2.3) and to have a software which is fully integrated with the various softwares in TANESCO. TANESCO will
64

maintain proper book of accounts for projects and keep all records and vouchers for a minimum of five years. b. Staffing: The Chief Finance Officer will take full fiduciary responsibility of the project while the day-to-day financial operations will be overseen by the Senior Manager Finance. The existing finance function has several staff members who are well versed with the Banks financial management and disbursement procedures. c. Fixed assets register: A fixed asset register will be maintained by TANESCO during the life of the project. d. Financial Management Manual. The existing financial manual is outdated. A consultant to update this manual is included in the 2010 budget and this has to be updated within six months after effectiveness. Internal Controls including policies and procedures 9. Internal Controls and Financial Management Manual. In view of the significant organizational structural changes that have taken place in the recent past, the financial regulations manual needs to be updated by TANESCO and reviewed by the Bank to ensure that it reflect the changes and covers all the relevant sections of financial management. The 2010 budget includes this activity and it is expected that the revised manual will be ready within six months after effectiveness. 10. Internal Audit: The internal audit unit in TANESCO is well staffed with 28 staff. The internal audit unit has an audit strategy and plan. The unit is currently working on the implementation of a risk based approach.The internal audit is centralized with all the staff stationed at the head office and deployed to the regions as and when need be. The report of the internal audit is submitted to the Audit, Finance and Administrative Committee who meet on a quarterly basis to discuss the issues raised and follow up on the agreed audit actions. A review of the latest available audit report did not indicate any material financial management issues. Risk Assessment and Mitigation 11. Table 15 below show some perceived risks to the implementation of the project from the financial management side and suggested mitigation measures:
Table 15: Financial Management Risks and Mitigation Measures Condition for Effective ness (Y/N)?
N

Risk

Risk Rating

Risk Mitigating Measures

Residual Risk Rating

Inherent Risk Country Level- Risk arising out of CPIA ratings on Question 13 (Quality of Budgetary and Financial Management) and Question 16 (Transparency, Accountability and Corruption in the Public Sector). Entity Level-TANESCO has significant accumulated losses and its health as a going concern depends upon government financial support. S GOT has a Public Financial Management Program that is aimed at improving its systems to have an impact on the CPIA ratings. S48

The new energy sector legislation accompanied by electricity tariff increases has led to some improvements in TANESCOs financial situation.

The Residual Rating is not reflective of the Risk Mitigation Measure. The next CPIA rating in FY11 will reflect the impact of the Risk Mitigation Measure.

48

65

Risk

Risk Rating
M

Risk Mitigating Measures

Residual Risk Rating

L

Condition for Effective ness (Y/N)?

N

Project LevelPayments will be made on a claim based on a degree of completion which can be difficult to measure with accuracy. Overall Inherent Risk Control Risk Budgeting The budgeting process requires input from regions/ zones and head office business units. This could result in delays in the preparation of the budget.

The degree of completion will be reviewed by a consultant before submission to TANESCO. TANESCO will also have to review the claim before making payment. M The Bank team and project staff will work closely to establish comprehensive project cost tables, detailed work projects, and quarterly budgeting for the first 12 months of the project. The budget will provide funding for additional training for project staff in preparing budgets consistent with disbursement plans. Training will be provided to the fiduciary staff in financial planning and budget preparation by the Bank team. Regular review /monitoring of project budget performance including timely release of project funds will be part of the quarterly IFRs to be reviewed by the WB and project Implementation Team.

S M

Accounting TANESCO uses two key softwares; iScala, the general ledger system and the Hi-Affinity customer billing system. There are plans to have an enhanced version of iScala (2.3) and to eventually have a software which is fully integrated with the various softwares in TANESCO. The changeover to new software may create problems in accounting for the project. Internal Control- TANESCO has recently undergone significant organizational structural changes and this has rendered the current financial regulations and accounting procedural manual out of date.

Management will ensure that before a change is made to new software, the two softwares will be run on a parallel basis until the new software has been tried and tested before replacement. Provision will also be made for support from the software provider and training provided to the users.

The engagement of a consultant to update this manual is included in the 2010 budget. This however has to be completed within six months after effectiveness. The Internal audit department of TANESCO is adequately staffed with 28 staff members who are adequately qualified. The Internal Audit Department will incorporate the project in their annual work plans. The report of the internal audit is submitted to the Audit, Finance and Administrative Committee who discuss the issues and follow up with the audit action plan to address the issues raised.

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Risk

Risk Rating
S

Risk Mitigating Measures

Residual Risk Rating

M

Condition for Effective ness (Y/N)?

N

Fund Flow There are delays in transferring funds from the Bank of Tanzania

The Designated Account will be opened with the Bank of Tanzania. However, the project account will be opened in a commercial bank acceptable to the IDA.

Financial ReportingThe Software used by TANESCO is not configured to produce interim financial reports for projects. The report has to be exported into excel and manually prepared. There is a risk of completeness and accuracy of the report . Auditing- In the past three years, the audited financial statements of TANESCO have been delayed beyond the six months statutory deadline.

The report generated from the software will be exported to Microsoft Excel and the IFR format has been agreed with the Bank. The report will be reviewed by a supervisor before submitting to the Bank. Training will be given by the Bank on preparation of IFRs.

The external audit for 2009 accounts is currently underway and the final audited account is expected to be submitted to TANESCOs board on time. Audit ToR has been agreed with the Bank. Under the Public Finance Act- the NAO will be appointed the external auditors. There is full disclosure as audit reports are made available to the public through the NAO website.

Overall Control Risk Overall Project risk rating

S S

M M

12. Considering the above risk assessment and suggested mitigation measures in the table above, the overall residual financial management risk rating of the project is Moderate. Funds Flow & Banking arrangements 13. MEM will open a designated bank account denominated in United States Dollars to be operated by TANESCO, authorized by MoFEA in the Bank of Tanzania (BoT). An operations account denominated in local currency will be opened in a bank acceptable to IDA to make payments made in local currency. A communication in regard to opening these bank accounts and the account signatories should be sent to the Bank before disbursements are made. Bank signatories to the Designated Account will be operated under the existing Government Financial Procedures and Regulations issued by Treasury. Figure 5 provides the flow of funds.

67

Figure 5: BTIP Funds Flow Chart

IDA

Direct Payments on behalf of TANESCO

Accountability

Designated Account (US$) - BoT

Project Operations Account (TSh)-

Counterpart fund from the GOT (TSh)

Transactions paid in either foreign currency or Tsh

Disbursement Arrangements 14. The TANESCO will use the report based method of disbursement where six months cash flow forecast based on work plans and project budget will be submitted semi annually to withdraw funds along with an unaudited interim financial report (IFR) within 45 days after the end of the calendar year six months period. In compliance with the report based guidelines, the project is expected to: (i) achieve and sustain satisfactory financial management rating during project supervision; (ii) submit unaudited Interim Financial Reports (IFR) consistent with the agreed form and content within 45 days after the end of the calendar year quarterly period; and (iii) submit a project audit report by the due date. It will initially submit a cash flow forecast projection for 6 months to receive the initial deposit in the designated bank account. Subsequently, withdrawal requests will be made after the end of every six months following the calendar year system. The withdrawal request will comprise of a cash flow forecast projection for six months and un-audited Interim Financial Report (IFR) for a three month period. The IFR will show the accountability of funds utilized during the three month period. These withdrawal requests and IFR have to be submitted to the IDA by the due date. The cash flow projections have to be supported by work plans and the procurement plan. 15. Apart from the advance methods of payment described above, reimbursements, direct payment and Letters of Credit can be requested from the IDA for eligible costs incurred by the TANESCO. 16. If ineligible expenditures are found to have been made from the designated and/or operating bank accounts, the TANESCO will be obligated to refund the same. If the designated account remains inactive for more than six months, the TANESCO may be requested to refund to IDA amounts advanced to the designated account. The Bank will have the right, as reflected in the credit agreement, to suspend disbursement of the funds, if reporting requirements are not complied with.
Table 16: Allocation of Proceeds (IDA Credit) Category Amount of the Credit Allocated (US$ millions)
140.00

Percentage of Expenditures to be Financed

100%

(1) Works, and Goods, including supply and installation, and services other than Consultants services under Component 1 of the project. (2) Consultants services, including Training and Workshops under Component 2 of the project.

10.00

100%

TOTAL AMOUNT 68

150.00

Financial Reporting Arrangements 17. The unaudited IFR has to be prepared and submitted to the Bank within 45 days after the end of the calendar quarter in a format agreed with the Bank before negotiation. The annual financial statements will be audited by the NAO with an audit ToR agreed with Bank. The financial statement will be prepared in accordance with International Financial Reporting Standards (IFRs). External Audit Arrangements 18. The National Audit Office (NAO) of Tanzania is the statutory auditor of all government entities including projects. However, the law permits the NAO to sub contract some of his statutory responsibilities to private audit firms, while retaining overall responsibility for the final audit report submitted to the Bank. Audit arrangements for active IDA projects in TANESCO are satisfactory. However, the 2008 statutory audited financial statements of TANESCO included an emphasis of matter that because of its significant accumulated losses, there is a material uncertainty on the ability of the company to continue as a going concern and its future operations depended upon government financial support. New energy sector legislation accompanied by electricity tariff increases has led to some improvements in TANESCOs financial situation. 19. It is expected that the project will be audited by auditors acceptable to the Bank with an agreed (ToR). Audited financial statements for the project will be sent to the Bank within six months of the end of the TANESCOs financial year in December, accompanied by a management letter detailing the auditors assessment of the internal controls, accounting system and compliance with financial covenants in the Financing Agreement. The audit will be conducted based on International Standards on Auditing (IFAC/INTOSAI pronouncements). TANESCO is required to disclose the audited financial statements in a manner acceptable to the Bank. Following the Banks formal receipt of these statements from TANESCO, the Bank makes them available to the public in accordance with The World Bank Policy on Access to Information. 20. For the past three years, TANESCO has not submitted its statutory audited accounts within the stipulated time frame of six months after the end the financial year. TANESCOs management has assured the Bank that the causes for the delays have been addressed and that the 2009 audit will be completed within the six months deadline. The 2009 year audit is currently being conducted by PricewaterhouseCoopers (PwC) and is expected to be completed on time. Financial Management Action Plan 21. Table 17 below indicates the actions to be taken for the project to strengthen its financial management system and their expected completion dates.
Table 17: Financial Management Action Plan Action
1. Update of financial regulations manual.

Date due by
Within six months after Effectiveness Within six months after Effectiveness

Responsible
TANESCO

2.

Incorporate project activities into Internal Audit work plans of the TANESCO for quarterly reviews.

TANESCO

Supervision Arrangements 22. A supervision mission will be conducted at least once every year based on the current risk assessment of the project. The main mission objective is to ensure that strong financial management systems are maintained for the project throughout its life. A review will be carried out regularly to ensure
69

that expenditures incurred by the project remain eligible for funding. The Implementation Status Report (ISR) will include a financial management rating for the project that will be arrived at by the Financial Management Specialist after an appropriate review. Based on the outcome of the financial management risk assessment, the following implementation support plan is proposed (Table 18):
Table 18: Financial Management Implementation Support FM Activity
Desk reviews Interim financial reports review (IFRs) Project audit report review Review of other relevant information such as systems audit reports On site visits Review of overall operation of the FM system Monitoring of actions taken on issues highlighted in audit reports, auditors management letters, systems audit report and other reviews Transaction reviews Capacity building support FM training sessions As needed Once a year based on the residual risk rating. As needed As needed Quarterly Annually As these become available

Frequency

Conclusion 23. The conclusion of the assessment is that, although financial management arrangements for the project have an overall residual risk rating of Moderate which satisfies the Banks minimum requirements under OP/BP10.02, the mitigation measures and the FM action plan have to be undertaken to further strengthen the project FM systems within the TANESCO.

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Annex 8: Procurement Arrangements TANZANIA: Backbone Transmission Investment Project A. General

1. Procurement for the proposed project would be carried out in accordance with the World Banks "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 revised October 2006 and May 2010; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 revised October 2006 and May 2010; Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006; and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the procurement plan. The procurement plan for the project will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Legal Framework: A procurement law, the Public Procurement Act 2004, Act No. 21 of 2004, was enacted in 2004 repealing the first Public Procurement Act of 2001 which had been noted to have deficiencies. The Act became operational in May 2005 upon issuance of the associated regulations. This followed the 2003 Country Procurement Assessment Report (CPAR), which among others things, recommended decentralization of the procurement functions to ministries, departments, and government agencies (MDAs) and the establishment of Public Procurement Regulatory Authority (PPRA) as an oversight body for public procurement. The PPRA was established on May 1, 2005, and is now fully staffed discharging its oversight functions. PPRA is also responsible for capacity building of procuring entities and in collaboration with relevant professional bodies for capacity building of the private sector. The PPRA has already prepared a system for checking and monitoring procurement activities in the procuring entities. A three-level complaint mechanism has also been established following the 2003 CPAR recommendations. The complaint mechanism consists of the Accounting Officer of a procuring entity, the PPRA, and the Public Procurement Appeals Authority (PPAA). The PPAA has been operational since July 2005 and its composition includes private sector representatives. 3. Banks Standard Bidding Documents will be used for procurement of works and goods under International Competitive Bidding. National Bidding Documents may be used for procurement of works and goods under National Competitive Bidding subject to the exceptions indicated below. Furthermore, in accordance with para.1.14 (e) of the Procurement Guidelines each bidding document and contract financed out of the proceeds of the financing shall provide that: (i) the bidders, suppliers, contractors and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the Association; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor, of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines. 4. Procurement of Works: Works procured under this project would include: (i) construction of a new 670 km backbone transmission line between Iringa and Shinyanga including the Optical Fiber Overhead Ground Wire and associated communication equipment at the respective substations; and (ii) construction of 220kV substations expansion in Iringa, Dodoma, Singida and Shinyanga. The construction of the backbone transmission line including the Fiber Optic Overhead line will be carried out in three sections, namely the 225 km line section from Iringa to Dodoma; the 217 km line section from Dodoma to Singida and the 225 km line section from Singida to Shinyanga. Under the project, the Bank will only finance works for the 225 km line section between Iringa and Dodoma. The remaining works will be financed by other financing agencies using their respective procurement guidelines. In the event that TANESCO requests IDA and other financiers to consider harmonization of packaging and procurement of 670 km OHL, then all parties involved in financing this work should agree on the procurement strategy and the standard bidding documents to be used. The procurement of the contractor
71

for the Iringa to Dodoma section will be done using the World Banks current Standard Bidding Documents (SBD) and Standard Bid Evaluation Forms for all ICB. The government has prepared SBDs for procurement of works which are acceptable to the World Bank, except for the provisions for Domestic Preference given to domestic contractors which are not as per World Bank Guidelines. TANESCO may use these documents when carrying out procurement of works through NCB procedures with the exception of the provisions for Domestic Preference. Works estimated to cost US $ 5,000,000 and above equivalent per contract would be procured through ICB. Works estimated to cost less than US$ 5,000,000 equivalent per contract would be procured through NCB procedures. Works contracts estimated to cost less than US$ 100,000 equivalent per contract would be procured using Shopping method. Direct contracting may be used when it can be justified that a competitive selection is not advantageous and meets the requirements of paragraph 3.6 of the Procurement Guidelines after consultation with the World Bank. The prior review threshold for works contracts would be US $ 5,000,000 equivalent per contract. 5. Selection of Consultants: The consulting services would include: (i) supervision of the civil works contracts for the 670 km Backbone transmission line including fiber optic communication line (FOCL) and the four 220kV substations expansion; and (ii) Technical Assistance for capacity building for TANESCO. The consulting contracts will as far as possible be awarded under the Quality and Cost Based Selection (QCBS). Other methods of selection will be determined for each assignment depending on the type of assignment and the provisions of the Consultant Guidelines and will be indicated in the procurement plan. Quality-Based Selection (QBS) would be followed for assignments which meet the requirements of paragraph 3.2 of the Consultant Guidelines; Fixed Budget (FBS) would be followed for assignments which meet the requirements of paragraph 3.5 of the Consultant Guidelines; Consulting firms for carrying out standard or routine nature assignments such as audits would be selected through Least Cost (LCS) in accordance with paragraph 3.6 of the Consultant Guidelines; and Single-Source Selection (SSS) would be followed for assignments which meet the requirements of paragraphs 3.9 - 3.12 of the Consultant Guidelines and will always require the World Banks prior review regardless of the amount. Consulting services estimated to cost less than US $ 200,000 equivalent per contract would be procured following the procedures of Selection Based on Consultants Qualifications (CQS) in accordance with paragraphs 3.7 and 3.8 of the Consultant Guidelines. Shortlists for consultants services for contracts estimated to cost less than US $ 200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Individual Consultants (IC) would be selected on the basis of their qualifications in accordance with Section V of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of Section V of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis. Consultancy services estimated to cost US $ 200,000 and above equivalent per contract for firms, US $ 100,000 and above equivalent per contract for Individual Consultants and Single Source Selection of consultants will be subject to prior review by the World Bank. The contracts to be prior reviewed will be identified in the procurement plan. 6. Training and Workshops: Training and workshops will be based on capacity needs assessment. Detailed training plans and workshops activities will be developed by TANESCO during project implementation, and included in the project annual work plan and budget for the World Banks review and approval. B. Procurement Assessment of TANESCO

7. Procurement activities will be carried out by the Procurement Management Unit established within TANESCO. According to the Public Procurement Act, Act No. 21 of 2004, each Procuring Entity is required to establish a Procurement Management Unit to manage all procurement and disposal activities except adjudication and award of contracts. The Procurement Management Unit has been established in accordance with the Act and is headed by the Senior Manager, Procurement. 8. An assessment of the capacity of TANESCO to implement procurement actions for the project was carried out in January, 2010. The assessment reviewed the organizational structure for implementing
72

the project and the interaction between the projects staff responsible for procurement and TANESCOs relevant central units for administration and finance. The key issues and risks concerning procurement for implementation of the project have been identified and include staffing and records keeping. The corrective measures which have been agreed include: i. Organization Structure: TANESCO has been reorganized since the last assessment carried out in 2007 for TEDAP. Following the re-organization the new structure has three Core Functional Business Units and six Support Services Business Units, all reporting directly to the Managing Director. The procurement function is under one of the six Support Services Business Units and is headed by the Senior Manager Procurement. Other Business Units have the responsibility of providing inputs such as technical specifications and terms of references to bidding and request for proposals documents as well as providing staff to participate in the evaluation of bids and proposals. TANESCO operations are governed by Annual Performance Targets set for each staff in the Business Units. The setting of Annual Performance Targets for staff in other Business Units is yet to recognize the roles played by these Units in the procurement activities. TANESCO will need to revisit the setting of Annual Performance Targets for its staff so as to ensure that procurement responsibilities are adequately covered. Staffing: The Procurement Management Unit has a total of 25 staff out of whom 20 are professionals and 5 are supporting staff. The assessment revealed that most of the staff dealing with procurement have inadequate experience in procurement of works and goods through International Competitive Bidding procedures as well as in selection of large value consultancy contracts using World Bank Guidelines and procedures. Only four out of the 20 professionals have experience in procurement of works and goods through ICB procedures as well as in selection of large value consultancy contracts. In addition to the PMU staff, TANESCO is also using staff from the other Business Units in the evaluation of bids and proposals depending on the expertise required. All these staff need to be knowledgeable of the World Bank procurement procedures. Training: Training in basic and advance procurement will be required to most of the staff in order to ensure that all procurement staff in the PMU are knowledgeable on the Bank and government procurement procedures. Training will also be required for the staff in the other Business Units, specifically for those who are involved in the evaluation of bids and proposals. Record Keeping: Procurement records in TANESCO are kept in files separately for each contract. Except for minor improvements required for perfection, the system of records keeping was found to be acceptable.

ii.

iii.

iv.

9. The project risk for procurement is Substantial. After implementation of the mitigation measures, the residual risk is expected to be Moderate. The proposed actions to mitigate the risk are summarized in Table 19 below.
Table 19: Procurement - Risk and Mitigation Risk
Inadequate skills in procurement of works and goods through ICB procedures as well as in selection of large value consultancy contracts using World Bank Guidelines and procedures for PMU and User Department staff. Annual Performance Targets for Other Business Units give low priority to roles played by the Units in procurement

Action
Carryout training in basic and advanced procurement to staff involved in procurement Include procurement activities in the Annual Performance Target for other Business Units

Timeframe
During implementation of the project

Responsibility
TANESCO and IDA

From January, 2011 and onwards

TANESCO

73

C.

Procurement Plan

10. The Borrower, at appraisal, developed a procurement plan for project implementation which will provide the basis for the procurement methods. The plan will be agreed between the Borrower and the Project Team by the negotiation date and will be available at TANESCO. It will also be available in the projects database and in the Banks external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequency of Procurement Supervision 11. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended two supervision missions to visit the field to carry out post review of procurement actions. E. 12.
Ref. No.

Details of the Procurement Arrangements Involving International Competition 1. Goods, Works, and Non Consulting Services List of contract packages to be procured following ICB and other methods:
Contract (Description) Estimated Cost (US$ m)
134.5

Procurement Method

PQ

Domestic Preference (Yes/No)

No

Review by Bank (Prior/Post)

Prior

Expected BidOpening Date

March 2011

Comments

W1

Construction of the 225 km OHL including fiber optic from Dodoma to Iringa

ICB

Yes

Current Estimates subject to change

(b) ICB contracts estimated to cost US$5,000,000 and above for works and US$500,000 and above for goods per contract and all direct contracting will be subject to prior review by the Bank. 2. Consulting Services 13.
Ref. No.

List of consulting assignments with shortlist of international firms and other selection methods.
Description of Assignment Estimated Cost (US$ m)
6.0

Selection Method

Review by Bank (Prior/Post)

Prior

Expected Proposals Submission Date

October 2010

Comments

C1

C2 C3 C4 C5 C6

Consulting services for the supervision of the works and E&S Safeguards (OHL and S/S) Feasibility Study for Rumakali HPP Legal advisors Technical Advisors Financial Advisors Environmental and Social advisory services

QCBS

Current Estimates Current Estimates Current Estimates Current Estimates Current Estimates Current Estimates

1.0 0.8 0.5 0.7 0.5

QCBS QCBS QCBS QCBS QCBS

Prior Prior Prior Prior Prior

December 2010 March 2011 March 2011 March 2011 October 2010

(a) Contracts Subject to Prior review: Consultancy services estimated to cost US$200,000 and above per contract for firms, US$100,000 and above per contract for Individual Consultants and all single source selection of consultants will be subject to prior review by the Bank.

74

(b) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. (c) Advertising: Consultancy services for contracts estimated to cost US$200,000 and above equivalent per contract shall be advertised in UNDB online and dgMarket in addition to advertising in national newspapers of wide circulation 3. Thresholds for Procurement Methods and Prior Review
Expenditure Category
Works

Contract Value Threshold (US$)

5,000,000 <5,000,000 <100,000 All values 500,000 <500,000 <100,000 All values 200,000 < 200,000 All values

Procurement/ Selection Method

ICB NCB Shopping Direct Contracting ICB NCB Shopping Direct Contracting QCBS/ Other2 (QBS/FBS/LCS) CQS/ Other2 (QBS/FBS/LCS) SSS IC - Qualification IC - Qualification IC - SSS

Contracts Subject to Prior Review

All None (Post review) unless specified in the PP None (Post review) All All None (Post review) unless specified in the PP None (Post review) All All None (Post Review) All All None (Post review) All

Goods

Consulting Services Firms1

Consulting Services Individuals (IC)

100,000 <100,000 All Values

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Annex 9: Economic and Financial Analysis TANZANIA: Backbone Transmission Investment Project Economic Analysis of the Transmission Line technical options 1. This section provides the economic justification for the transmission line investment. The assessment of the economic aspects of the project is based on a comprehensive economic and financial analysis carried out by the project team and includes work carried out by the project consultants Fichtner and Decon (consulting firms from Germany) who also carried out the overall project feasibility study. Relevant economic assumptions on the power sector are based on the 2008 Power System Master Plan (PSMP) and the 2009 PSMP update prepared TANESCO in consultations with SNC Lavalin, a consulting firm from Canada (financed by the World Bank). General Methodology 2. As per the 2009 PSMP update (and the 2008 PSMP), a large portion of the future load growth will take place in northern Tanzania. Section 1 of this document sets out the various alternatives for delivering power to this region: (i) building a new power plant in northern Tanzania; (ii) importing power from Kenya; (iii) using offgrid electrification and (iv) generating power in the south of Tanzania and transmitting it to the north using this backbone infrastructure. As discussed in detail in section 1, there are limited options for development of power generation in the north. A 100 MW windfarm at Singida would deliver only intermittent power (about 25-30 percent load factor and that too not on a base-load basis). The only other domestic alternative would be to install large diesel/HFO generation sets. Only very limited power or transmission capacity from Kenya exists to make (option ii) importing power from Kenya - a technical viable option. However, given the current power availability in Kenya and the early stage of development of the Kenya-Tanzania interconnection, this option does not fulfill the requirements of TANESCO. Offgrid options suggested by (option iii) have very limited energy output compared with power demand which is expected to grow to over 1,000 MW in northern Tanzania. Most generating options are in southern Tanzania, and therefore the proposed project (option (iv) above) is seen as the only technically viable option of supplying power to the north, and especially to the northwest of Tanzania. 3. The economic value of the proposed transmission project is twofold. Firstly, it allows power to be generated using lower cost sources in the south relative to higher cost sources in the north (possible HFO/diesel generating sets). This differential is significant even taking account of the cost of transmission, and constitutes the key economic value of this project. Secondly, generation in the south will have significantly lower CO2 emissions relative to the north (fuel sources in the south are predominantly hydro- and gas-based technologies relative to what would be diesel technology in the north), and thus the project also benefits from significant economic value from avoidance of CO2 emissions. These economic benefits have also been assessed and are noted below. 4. As Tanzanias least cost new generation is located in the south, the long run marginal cost (LRMC) of the Tanzanian power system as determined in the PSMP represents the costs of generating electricity in the south. In addition to costs of generating in the south, costs of transmission need to be included i.e., the estimated construction and operating and maintenance costs of the transmission line as well as the costs of losses and outages (measured by the value of Energy Not Served). The Net Present Value (NPV) of the project is derived from these net costs and how they compare with the valuation of power in the north. If the costs are lower than the value of power in the north, the project will have a positive NPV. 5. As several technical alternatives had been identified for this project, the economic analysis was carried out in two consecutive steps: (i) the least-cost alternative amongst the various options for the transmission line design was determined. This was done on the basis of each options levelized costs (defined as the present value of cost divided by the present value of transported energy); (ii) subsequently the economic viability of the least cost alternative is shown by computing the economic net present value
76

(NPV) and the economic internal rate of return (ERR). These values are also subsequently also calculated incorporating the value of avoided carbon emissions. Assumptions 6. The analysis was carried out using a discount rate of 10 percent. This is the rate that has been used by the World Bank for a number of project assessments in recent times. Exchange rate US Dollar Euro is assumed to be 1.4. The exchange rate Tanzania Shilling - US Dollar is assumed to be 1,311 TSh/US$.49 7. The assessment period used was 30 years the underlying timeframe for the project being 2010 to 2039. The respective investment periods are for Phase I the years 2010 to 2013, and for Phase II the year of investment is 2020. The assumed lifetime of the investment is 30. The investment disbursement period (mobilization and construction period) is assumed to be four years. For Phase II only a one-year construction period is considered. The investment costs for Phase I are disbursed according to the following schedule: 10 percent in 2010; 40 percent in 2011; 30 percent in 2012; 20 percent in 2013. Investment costs used in the economic analysis exclude price contingencies and interest during construction. The underlying feasibility study assumed the O&M costs to be 1 percent of the investment costs which is customary for such analyses. 8. Energy transported is assumed to be 30,688 - 31,187 GWh. The energy transported from Iringa to Shinyanga for the Period 2013 until 2039 was calculated using the results of the load flow calculations performed for the years 2013, 2016 and 2020. The values for the remaining years were estimated by extrapolation. The indicated value span represents the Present Value of the GWh transported over the Assessment period and depending on the chosen Technical Alternative. Development of electricity losses: Min. 1,661 GWh to Max. 2,401 GWh. The values represent the PV of the accumulated GWh losses on the power flow from 2013 till 2039. The losses depend on the considered transmission alternative with the lowest (Min.) value achieved by TA 1.2 and the highest (Max.) by TA 1.3. Least cost assessment 9. The technical appraisal summary and Annex 4 explain that the proposed project considered several technical alternatives for the construction of the 400kV line with an Alternative Current (AC) technology. The main criteria applied for the technical assessment were to ensure the future demand growth of the base case of demand growth could be serviced by the new line while minimizing the initial investment requirements. Consequently, five different 400kV AC line configurations were proposed and all configurations were taken into account for this analysis. 10. The selected technical alternative proposes an implementation in two phases. While the proposed IDA financing only covers Phase I, the economic analysis has been carried out over both phases to ensure that the technical concept is economically viable for both phases. The base case has been calculated taking into account the earlier explained assumptions.
Table 20: Least Cost Assessment of Technical Alternatives (in US Dollars)50 Evaluation criteria
Present value of cost Present value of energy Levelized costs

Unit
T US$ GWh US$-cents/kWh

TA1.1
951,295 30,688 3.10

TA1.2
841,021 31,187 2.70

TA1.3
950,387 27,913 3.40

TA1.4
887,946 30,400 2.92

TA1.5
905,430 29,492 3.07

11. The results of the least cost assessment show that TA 1.2 has the lowest levelized cost followed by TA 1.4 and these two are the most attractive options from the perspective of cost per kWh of energy delivered. Economic viability of both TA 1.2 and TA 1.4 are assessed in the following section.
The TSh has depreciated over the last few months, since completion of Banks appraisal. The calculations have been done in Euros and the results have been converted into US Dollars at an exchange rate of 1.4 US Dollar/Euro.
50 49

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Assessment of Economic Viability of the Least Cost Option 12. Economic value of power in the north: The new transmission line will end the current overloading of the existing 220kV line and double TANESCOs capacities for power transfer to the northern grid which will be able to use more power and connect more customers to the grid. A high demand for electricity is assumed in the north (based on expected developments of power demand in the Tanzania PSMP) and the value of power can be assumed at the least cost alternative to transmission from the south i.e., self-generation in the north which would be done using a medium speed diesel HFO. The value of power in the north is therefore represented by the costs of this form of power, USc 17.95/ kWh. It is worth bearing in mind that our sensitivity assessment tests out significantly lower valuations. 13. Net Economic benefits from generating power in the south and transmitting to the north: The net economic benefits of the Backbone Transmission line are derived by deducting the cost of electricity generated in the south and transmitted through the Backbone Line from the value of power in the north. The cost of generating power in the south is valued by applying the long-run marginal costs (LRMC) for generation determined by the PSMP. The value applied is USc 6.45/kWh which represents the average LRMCs for the period 2009-18 and 2019-33. 14. In addition to the cost of generation in the south, the economic cost of transmission has been added, which includes the investment costs of the chosen transmission line option, O&M costs, costs of outages (or energy not served) and the costs of transmission losses. 15. The analysis assumes a value of 110 US cents/kWh (or 80 Euro Cents/ kWh) for the costs of energy not served (ENS) across all customer categories. This value is identical with the value used for ENS in the PSMP which reflects the need for a high level of reliability in the generation and transmission system expansion planning. 16. The economic value applied for transmission losses has been derived from the costs of alternative generation used to compensate for those losses at the consumer level. This principle of valuation has also been adopted in line with the 2008 PSMP which assumes a medium-speed diesel unit as alternative generation. The unit costs as provided in the PSMP are assumed to be USc 17.95 / kWh, with 80 percent availability. 17. Based on the above framework, and using assumptions and parameters set out in Table 21, all viable technical alternatives were assessed. Two options were found to have significant Economic Net Present Value (ENPV) and Economic Rate of Return (ERR).
Table 21: Economic Assessment of Technical Alternatives Technical Alternatives
TA 1.2 (400kV line operated at 220kV in the first instance and then upgraded as demand picks up) TA 1.4 (400kV line operated at 400kV)

ENPV (in US$ billion; @ 10 percent )

+2.75 + 2.61

ERR
38.7 percent 42.7 percent

18. As shown above, both technical alternatives were found to be economical viable. Alternative TA 1.2 was found to have a marginally lower levelized cost and ENPV primarily because under TA 1.2, the line operates at higher voltages and thus technical losses are less. However, given that TA 1.4 had significant lower financing requirement today (about US$162 million lower) and considerable uncertainty is still present around the generation expansion plans, TANESCO and its consultants have recommended the development of the TA 1.4 at the present time, and the line being upgraded to run at 400kV as and when demand/supply situation allows for such expansion. Also both projects, when evaluated individually were found to have significant economic benefits (over 42.7 percent for the chosen option) thus making the decision to opt for the highest ERR and the most-certain technical option TA 1.4 as the optimal decision. As noted above in Table 21, the ERR for the proposed project is expected to be 42.7 percent and an ENPV of US$2.61 billion (at a discount rate of 10 percent).
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19. The economic analysis carried out assumes that about 80 percent of electricity generated in the south will be from clean sources of energy hydropower in the medium to long-term. This is based on the understanding that hydro, gas and only limited amounts of coal will be used to generate power in the country. A displacement factor for CO2 emissions in the north of 0.91 tons of CO2/MWh avoided.51. 20. A carbon value of US$29/ton of CO2 avoided has been used. The research on the social cost of carbon is large and growing; with a large range from a small net benefit to several hundred dollars a ton. Tols 2007 meta-analysis of the peer-reviewed literature which updated an earlier 2005 meta-analysis52, cites 211 studies, with a mean of US$120/ton of carbon (US$33/ton CO2 for studies published in 19962001), and US$88/ton of carbon (US$24/ton CO2 for studies published since 2001).53 The US$29/ton CO2 used in this analysis is based on the Stern Review,54 which states that the mean value of the estimates of the (2005) study by Tol was about US$29/ton CO2 through the current social cost of carbon might be around US$85/ton CO2. 21. Using the above assumptions for CO2 avoided, the ENPV of the project rises to US$3.25 billion and the ERR rises to 47.8 percent. Sensitivity and Scenario Analysis 22. The robustness of the base case results were further tested through a sensitivity analysis which varied the following input criteria: (i) valuation of power in north; (ii) value of power to cover transmission losses; (iii) project discount rate; (iv) investment costs; and (v) variation of the Euro/US$ Exchange Rate. For all sensitivities the variation of the input values were modified at several value levels. The following Table 22 illustrates the results for the sensitivity calculations and shows that the project remains viable in all cases.
Table 22: Sensitivities to variation in selected parameters Sensitivities
Value of power in the north or Demand for power in the north Value of power to cover transmission losses Discount rate N/A Investment costs -20 percent +20 percent

Base value
0.1795 US$/kWh 0.1795 US$/kWh 10 percent

Percentage variation
-40 percent +20 percent -20 percent +20 percent

Variation in values
0.11 US$/kWh 0.22 US$/kWh 0.14 US$/kWh 0.22 US$/kWh 6 percent 16 percent N/A

NPV in US$ Millions

+425.3 +3,699,350 +2,690,420 +2,525,590 +4,927,000 +1,116,970 +2,687,860 +2,528,140

ERR (percent)
+18.3 +51.2 +43.4 +42.0 N/A N/A +48.7 +38.2

Conclusions from Economic Assessment 23. The assessment finds that the option TA 1.4 has the highest rate of return and is thus the most viable economic option for deliver power to the north of Tanzania. This result is found to be robust as it holds under all sensitivities tested out. In particular, it is robust to significantly lower valuations of power in the north.

Value for Diesel/HFO taken from CD4CDM Tanzania (www.cd4cdm.org/sub-Saharan percent 20Africa/Tanzania/GridEmissionFactor_Tanzania.xls accessed on 5/11/2010). 52 R. Tol, The marginal damage costs of carbon dioxide emissions: An Assessment of the Uncertainties, Energy Policy, 33, 2064-2074. 53 R. Tol, The social cost of carbon: trends, outliers and catastrophes, Economics e-Journal, 2008-25. 54 Stern, Nicholas. 2007. The economics of climate change: The Stern Review. Cambridge: Cambridge University Press.

51

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Financial Analysis of the Projects Investment Components 24. Capital Costs and Financing Plan: The projects base capital-costs are expected to be US$434.78 million (including physical and price contingencies) in nominal terms, and about US$18.18 million are expected to be spent on environment and social mitigation measures directly associated with the project.55 The total project cost for investment activities is estimated at about US$475.73 million including interest during construction (excludes Component 2, Technical Assistance). 25. It is expected that the project will be funded through a specific investment loan from IDA, concessional loan from AfDB and JICA (US$129.71 million), debt facility from EIB (US$134.5 million), and tied concessional financing from South Koreas EDCF (US$36.06 million). These loans are expected to begin disbursement in early 2011. Lenders to the project will not finance interest during construction (IDC) for their respective debt tranches. Costs associated with environmental and social mitigation will be financed by TANESCO. Table 23 provides details of the terms of the loans provided by the lenders to the project.
Table 23: Terms and Conditions of Project Debt Facilities Lender Type of Loan Amount (US$ mil.) Maturity (Years) Grace Period (Years) Expected Interest Rates (per annum, payable
semi-annually) IDA AfDB JICA South Korea EDCF EIB Concessional Concessional Concessional Tied Concessional Nonconcessional 134.50 64.855 64.855 36.06 134.50 40 40 40 40 25 10 10 10 15 Construction Period 0.75% 0.75% 0.01% 0.01% 6.00% Same as to GOT Same as to GOT Same as to GOT Same as to GOT Same as to GOT

Onlending Terms

26. The following key project and operating assumptions have been made to undertake the financial analysis of the project: A discount rate of 12 percent has been applied; Revenues become effective the year following implementation of investments; Service life of equipment and project life are considered to be 30 years; The long run marginal cost (LRMC) of generation of 6.45 US-Cents/kWh, which represents the average LRMCs for the period 2009-18 and 2019-33,56 has been used in the financial analysis; e. The expected transport tariff of 4.86 US-Cents/kWh has been applied:57 f. Operation & Maintenance costs are assumed to be 1 percent of total EPC cost; g. Foreign exchange rate is assumed to be TSh 1,268/US$; h. Construction period of three years has been applied; i. The income tax is assumed to be 30 percent; and j. Capital cost is assumed to be actual expenditure. 27. Projected Project Cashflow: Total revenues of the project during its 30 years of operation period are expected at US$7.8 billion and total operating costs of the project are estimated about US$590 million. Projected total EBITDA of the project is around US$7.6 billion. a. b. c. d.

Electrification of the villages along the ROW will be undertaken separately by TANESCO. Power Sector Master Plan update, 2009. 57 The expected transport tariff is calculated with High Voltage (HV) retail tariff minus Long Run Marginal Cost (LRMC) of generation. The expected HV retail tariff is calculated on reflecting the proposed multi-year tariff increase rates (from 2011 to 2014) to the current HV retail rate. The LRMC for generation was determined by the 2008 PSMP.
56

55

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28. Financial Internal Rate of Return (FIRR) and Net Present Value (NPV): The projects financial analysis indicates that the investment project is financially viable. Based on the above noted assumptions, the analysis indicates a FIRR of 19.6 percent and a NPV of US$381 million. The FIRR from TANESCOs perspective, based on its equity investment to this project (toward E&S mitigation costs) is estimated to be 81.9 percent.58 29. Sensitivity Analysis: The robustness of the project has been tested for sensitivities to various key assumptions considered in the base case. Figure 6 shows the results of the sensitivity tests on the Project FIRR, and 30. Figure 7 shows the results of the sensitivity tests on the project financial NPV. These sensitivity analyses were carried out to assess the financial viability of the new investments under various scenarios: (i) a 10 percent increase/decrease; (ii) a 20 percent increase/decrease; and (iii) a 30 percent increase/decrease in transport tariffs, O&M costs and income tax, respectively. The NPV continues to be positive in almost all sensitivities cases, with the IRR exceeding a discount rate of 12 percent. The biggest financial impact on the project would be if the transport tariff were decreased by 30 percent. Tariff trajectory for high voltage consumers is therefore considered critical to the financial success of the investment.
Figure 6: Results of the Sensitivity Test on Project FIRR

Figure 7: Results of the Sensitivity Test on Project NPV

TANESCO enjoys a significant return on its investment capital, because when its investment is only about 4 percent of the total project costs.

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TANESCOs Financial Sustainability 31. TANESCO has been suffering from poor performance for several years. A combination of high level of network losses, low electricity tariffs, low network voltages and most importantly, lack of hard investments had paralyzed the utility for several years. Below, are some of the critical challenges faced by TANESCO: a. Inability to meet national demand: The supply has not been able to keep up for the last few years to meet the average 7.6 percent per annum increase in electricity demand in previous years. In addition, the utility is also bogged down by heavy network losses of about 24 percent; b. Low tariff levels: At average tariffs of TSh 83.8/kWh (in 2006), TSh 91.6/kWh (in 2007), TSh 112.4/kWh (in 2008) and TSh 112.4/kWh (in 2009), the current tariff levels are one of the lowest in the region and have not been enough to meet operational expenses or long-term capital investment needs. TANESCO tariffs seem to be very competitive. With the exception of some domestic tariffs in Kenya, rates for all tariff classes are lower in Tanzania than in both in Kenya and Uganda (see Figure 8 below); and
Figure 8: Regional Electricity Tariffs (Year 2009)

c. Inadequate business systems and processes: TANESCO lacks good resource management and technical management systems, which has had an adverse effect on the overall operational efficiency of the utility. Under the TEDAP project (approved by IDA in 2007), the Bank is providing financing for such technical assistance and procurement of software and hardware required to improve utility operations. These consulting contracts are under procurement. Financial Recovery Plan 32. In order to achieve complete financial sustainability of TANESCO, the Government of Tanzania has developed a Financial Recovery Plan (FRP) for TANESCO which was endorsed by the Cabinet on February 3, 2007. The FRP aimed to restore TANESCOs financial integrity by: (i) reducing transmission & distribution losses; (ii) reducing operating expenditures; (iii) increasing available generation capacity; and (iv) increasing revenues by enlarging its customer base and increasing tariffs. TANESCOs financial health has started to improve gradually from 2008. The 2008 financial statements show an increase of operating revenue by 27 percent compared to the previous fiscal year. With the increased revenue, the utility has been able to improve from the net loss of TSh 67,234 million in 2007 to the net loss of TSh 21,605 million in 2008 and TSh 47,658 million in 2009. The positive trend in overall improvement of TANESCOs financial situation is expected to continue in the coming years. The overall collection rates have remained high (at 94 percent on average), while energy losses also remain high (at 24 percent on average) underlying the urgent need for the transmission and distribution rehabilitation works to be implemented at the earliest.
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(a) The proposed measures for loss reduction on the technical side consist of major rehabilitation works of substations, transmission and distribution lines, implementation of High Voltage Distribution Systems and various voltage improvement efforts throughout the regions. These measures were largely expected to be completed by now; however due to procurement delays implementation has only recently started and is expected to last until 2014. Financing is not a constraint for such projects as these are being supported by IDA (TEDAP), AfDB, MCC, AfDB, Finland, South Korea EDCF and JICA funded projects. On the other hand, the following efforts are ongoing and are expected to show results in addressing non-technical losses: (i) replacement of all large and medium power users with smart meters; (ii) the process of establishment of a GIS database which will be able to geographically identify location of all customers is in progress; (iii) revenue protection units have been formed in all regions; and (iv) routine audit being carried out twice a year. (b) TANESCOs costs of operating its own assets are not high, when reviewed in the context of availability of limited funding for rehabilitation and the policy efforts to grow the customer base. However, a significant portion of its cost structure is related to payment of fixed charges to IPPs. To this extent, IDA supported TANESCO by using the savings in the Songo Songo Gas Development and Power Generation project (restructured in 2008 to include this activity) in reducing the burden of capacity charges on TANESCO. IDA supported TANESCO by buying down private equity to industry standards of 20 percent. After effecting this transaction in 2009, TANESCO has now reduced its cost structure by about US$1 million every month. (c) Since 2007, TANESCO has increased its net generation59 capacity by 147 MW. However, generation continues to remain an ongoing concern in the sector. Its impact on financials of the company is tremendous as demand continues to grow and TANESCOs inability to supply this demand reduces its ability to generate revenues. (d) At the same time, there was a significant growth in sales from 2006 through 2009, mainly due to the large increase in new customer connections. Figure 9 below shows the tremendous success that TANESCO has achieved in the last few years in adding new connections. Most of these new connections are being connected using prepaid meters thus reducing the level of non-technical losses in the system.
Figure 9: Customer Connections (2006-2009)

TANESCOs Financial Performance 33. Sale of electricity in 2007 increased by 26 percent compared to year 2006, which enabled TANESCO to improve its overall gross margin from -60 percent in 2006 to -32 percent in 2007 as a percentage of sales. In 2007, TANESCO made a net loss of TSh 67.2 billion. During the year 2008, TANESCO could meet most of its operating expenditures due to the 21.7 percent tariff increase and good
While TANESCO had contracted certain emergency thermal capacities in 2007 and 2008, most of those capacities have by now been decommissioned.
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hydrology that reduced its dependence on relatively expensive fuels. The company therefore made an operating profit of TSh 2.70 billion. 34. The inability of TANESCO to submit another tariff application in 2008 and 2009, and the drought in 2009, resulted in an operating loss of TSh 3.17 billion in 2009. It must be noted that during this time, the companys revenues increased from TSh 371 billion in 2008 to TSh 413 billion in 2009 due to amongst other factors the impact of increase in significantly large number of new customer connections. The recently submitted multi-year tariff application is expected to improve TANESCOs financial condition significantly, especially if the collection rates continue to remain high at 94 percent, and system losses begin reducing from the current 24 percent. Figure 10 provides an overview of TANESCOs financial performance to date.
Figure 10: TANESCO's Financial Performance

35. Electricity Sales and Revenues: From 2006 to 2009 TANESCOs electricity sales increased by 36 percent and reached 3,767 GWh in 2009. At the same time, the revenue realized from electricity sales increased by 27 percent from TSh 292,006 million in 2007 to TSh 371,257 million in 2008 due to 21.7 percent average tariff increase approved by EWURA in 2008 (based on 2007 application), and by 11 percent to TSh 413,582 million in 2009 without any increase of tariff. 36. Historical Operating Costs. The growth of TANESCOs operating costs has been much lower than the growth of revenues during the past several years. The companys operational expenses increased by only 4 percent in 2007, reduced by 5 percent in 2008 and subsequently increased by 5 percent in 2009. The main driver of the decrease in 2008 was the sharp drop in the cost of other administration costs and of provision of impairment of trade receivables. However, the growth in 2009 was due to the rise in the cost of generating electricity including the purchase of fuels and more expenses in distribution systems. Table 24 shows the operating costs incurred by TANESCO in 2006-2009. The operating costs are divided into cost of sales and other operating costs including staff and maintenance costs.
Table 24: TANESCO's Operating Costs (Year 2006 to Year 2009, TSh million) Year
Cost of Sales Own Generation Purchased Electricity Distribution Expenses Depreciation Other Operation Expenses Total Operating Costs Year to Year Increase

2006
370,818 56,748 241,998 44,260 27,812 116,900 487,718

2007
384,327 59,204 243,503 51,271 30,349 123,080 507,407 4%

2008
367,024 71,438 193,433 67,121 35,032 114,199 481,223 -5%

2009
430,518 105,194 186,625 95,137 43,562 75,417 505,925 5%

37. Cash Flow Analysis: The wild fluctuations in cash flow situation as noted from 2006-2009 in Figure 11 can be expected to continue until the following important issues are properly addressed:
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a. Adequate amount of generation capacity is added and IPTL capacity is converted to gas to meet the expected load forecast demand and long run marginal cost projections thereby reducing cost of generating electricity; b. Critical transmission and distribution investments in the networks are targeted to reduce technical and nontechnical losses; and c. The expected revenue requirements are met with an increase in electricity tariffs, increased operational efficiencies and GOT/donor assistance with long-term investment plan.
Figure 11: TANESCO's Historical Cash Flow (TSh million)

38. Table 25 below provides a snap shot of the overall historical financial performance of TANESCO.
Table 25: Historical Performance of TANESCO (in TSh million) 2006
Actual Income Items Electricity Sales Cost of Sales* Margin (as a percent of sales) Other operating Expenses Operating Income Profit/Loss (before tax) Average Tariff Balance Sheet Items Total Assets Current Liabilities Term Liabilities Total Equity Cash Flow Items Cash/ Cash Equivalent at year end Cash Debt Service Coverage Ratio** Per Unit Data Unit Sales Unit Generation GWh GWh 232,146 370,818 (60 percent ) 116,900 (165,633) (183,343) 83.84 1,310,890 223,296 112,171 975,423 (18,543) (18.44) 2,769 3,397

2007
Actual 292,006 384,327 (32 percent ) 123,080 (63,259) (67,234) 91.61 1,501,937 184,081 260,746 1,057,110 38.026 (2.29) 3,187 3,882

2008
Actual 371,257 367,024 1 percent 114,199 2,706 (21,605) 112.44 1,710,315 211,152 591,320 907,843 159,646 0.08 3,301 4,090

2009
Actual 413,582 430,518 (4 percent ) 75,417 (3,173) (47,658) 109.78 1,878,002 342,043 674,354 861,606 139,572 (0.11) 3,767 4,894

TSh/kWh

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2006
Per Unit Sales Cost Per Unit Generation Cost TSh/kWh TSh/kWh 175.8 143.3

2007
159.2 130.7

2008
145.7 117.6

2009
134.3 103.4

*Cost of Sales include cost of electricity generation, cost of purchase electricity, distribution expense and depreciation **Cashflow from Operations/(Loan repayment + Interest Expense)

Financial Projections for TANESCO 39. These projections have been prepared based on TANESCO's COSS and the following key assumptions: x It is assumed (in the absence of a regulatory approval by EWURA), that the proposed COSS tariffs required are 159.9 TSh/kWh for 2011, 181.9 TSh/kWh for 2012, 207.3 TSh/kWh for 2013 and 227.4 TSh/kWh for 2014, under the current average tariff of about 118.8 TSh/kWh; Network (Distribution and Transmission) losses are assumed to be 21 percent for 2011, 20 percent for 2012, 18 percent for 2013 and 16 percent for 2014; Provision for doubtful debts is forecast to be 4 percent of all billings; A minimum DSCR (Debt Service Coverage Ratio) of 1.15 should be maintained in order to satisfy the conditions of the Syndicated Loan Agreement; GOT contributions are forecast to be TSh 150,977 mil. in 2011 and TSh 70,543 mil. in 2012, largely to pay for thermal generation plants (Mwanza Thermal Plant 60 MW, Ubungo Gas Fired Plant 100 MW, etc.), transmission lines (400 kV Singida-Arusha-Nairobi, 400 kV Iringa-Mbeya, etc.) and distribution systems (Magindu Power Supply, Mbwewe Power Supply, etc.); Depreciation is calculated from projected Regulatory Asset Base; Repair and Maintenance cost is assumed to be an industry standard of 12 percent of sales The dollar exchange rate is assumed to be TSh 1,318.4 in 2010. It is assumed that TSh will depreciate by 6 percent per annum; and Annual US inflation is assumed to be 2.7 percent per annum and local inflation is assumed to be 8.7 percent per annum.

x x x x

x x x x

40. Capital Investment Program: TANESCO is planning to spend around TSh 4,040,890 million on capital investment over the next five years. About TSh 962,166 million or 24 percent of the total amount will be spent on generation and TSh 1,982,346 million or 49 percent on transmission. Investments in distribution (TSh 1,039,024 or 26 percent) will be aimed at strengthening and refurbishment of existing networks. Table 26 below provides a summary of TANESCOs planned capital expenditures in 2010 to 2014.
Table 26: TANESCO's Capital Expenditure Program (in TSh million) Capital Expenditure
Generation Transmission Distribution Other Total

2010
39,144 68,090 313,039 22,299 422,571

2011
134,617 335,457 322,327 7,055 799,455

2012
276,046 617,954 236,554 8,000 1,138,554

2013
313,895 578,562 145,115 9,000 1,046,573

2014
198,464 382,284 21,990 11,000 613,737

41. TANESCOs current debts. TANESCOs current debt is about TSh 435 billion. This represents largely the commercial syndicated loan was agreed in January 2007 with a committed amount of up to TSh 300 billion. The purpose of the loan was to refinance and consolidate existing debt and make funding available for capital expenditure. The loan is based on a six year term at the six months Treasury bill yield rate with a repayment grace period of one and half years. In May 2010, the syndicated loan had an outstanding balance of TSh 235 billion. TANESCO has two other debt facilities for about TSh 141 billion from the GOT (the first facility of TSh 65 billion and the second facility of TSh 76 billion with a 15 year
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term at 6.5 percent per annum). TANESCO also has a TSh 22.9 billion loan from ING Bank for FOCL related to grid networks including all the major hydro generation plants, grid substations and some regional offices, and a TSh 36.2 billion loan from ING Bank for Tegata 45 MW Plant based on a nineyear repayment period at 5 percent per annum. 42. TANESCO will generate operating revenues from electricity sales of TSh 785 billion in 2011. The revenue from electricity sales is expected to gradually increase and reach TSh 1,566 billion in 2014 under the assumed COSS tariffs. The projected unit sales will increase from 4,913 GWh in 2011 to 6,916 GWh in 2014 supporting an increase in demand from the existing customers. Including the support from the government and other sources of revenue, TANESCO is expected to generate gross revenues of TSh 890 billion in 2011, gradually increasing to TSh 1,701 billion in 2014. The average revenue growth rate in the next 4 years is expected to be 32 percent. 43. The base case financial projections under the assumptions above indicate that the facility will be able to maintain reasonable profitability and generate sufficient cash flows to implement its capital investments program and service the debt throughout the year 2014. Table 27 provides an overview of the TANESCOs projected financial performance.
Table 27: TANESCO - Highlights of Projected Financial Performance (2010-2014) 2010
(in TSh million) Income Items Electricity Sales Cost of Sales* Gross Margin ( percent of Sales) Other Operating Expenses Operating Income Net Loss/Income Tariff (TSh/kWh) Tariff increase Balance Sheet Items Total Assets Total Term Liabilities Total Equity Current Ratio Cash Flow Items Cash Flow from Operations Cash Flow from Investing Cash Flow from Financing Cash Debt Service Coverage Ratio** Per Unit Data Unit Sales (GWh) Unit Generation Required (GWh) Per Unit Sales Cost (TSh/kWh) Per Unit Generation Cost (TSh/kWh) EBITDA Margin (%)*** Budget

2011
Projection

2012
Projection

2013
Projection

2014
Projection

518,099 316,012 39% 210,041 89,643 (36,119) 118.8

785,542 388,791 51% 236,985 264,256 131,054 159.9 34.6%

1,012,045 567,937 44% 299,172 256,913 92,095 181.9 13.8%

1,301,506 625,211 52% 408,016 388,393 149,860 207.3 13.9%

1,566,621 741,764 52% 475,073 484,888 184,849 227.4 9.7%

2,118,821 639,426 1,165,451

2,871,002 891,298 1,665,761 0.26

3,943,522 1,645,800 1,983,780 0.26

4,976,124 2,568,113 2,094,068 0.26

5,590,231 3,045,120 2,231,168 0.26

64,758 (300,899) 222,621

197,830 (818,957) 621,127 1.90

183,478 (1,163,903) 980,425 1.85

130,732 (1,058,432) 927,700 2.78

129,395 (614,107) 484,712 2.27

4,361 5,684 120.6 93.9 17

4,913 6,214 127.4 100.7 34

5,563 6,961 155.8 124.6 25

6,280 7,692 164.5 134.3 30

6,916 8,270 175.9 147.1 31

*Cost of Sales include cost of electricity generation, cost of purchase electricity, distribution R&M expense and provision for doubtful debts **Cashflow from Operations/(Loan repayment + Interest Expense) *** EBITDA (aggregate of net income, depreciation, taxes, amortization and interest expenses)/Aggregate revenues from the sale of electricity

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Electricity Tariffs and Cost of Service Assessment 44. TANESCOs revenues are regulated by tariffs set by the EWURA, The facilitys profitability and financial sustainability are therefore dependent on EWURAs approvals of future multi-year tariff application to cover the cost of operation and improvements in operational efficiency of the utility. 45. Under the FRP, the first 6 percent tariff increase was implemented in 2007. That tariff increase was to cover inflation. The second tariff application requested an increase of 40 percent in 2008. Notwithstanding the 21.7 percent increase authorized by EWURA in 2008, the electricity tariffs barely meet operational expenditures, but provide about 60-65 percent of full electricity supply costs. The sustainability of new investments and commercial viability of TANESCO will be at risk, until the levels of electricity tariff levels become reasonable. The current situation is largely caused by the fact that until 2007 tariffs had not been adjusted for rising power generation costs or domestic inflation for some time. As noted earlier, TANESCO has submitted an application for multi-year tariff increase to cover its full cost of operations. This submission is based on a Cost of Service Study (COSS) which has also been submitted to the regulator, EWURA. To assure TANESCOs continued positive net income up to 2013, TANESCOs application requests EWURA to authorize a multi-year tariff increase of 34.6 percent in 2011, 13.8 percent in 2012 and 13.9 percent in 2013.
Table 28: Summary of Cost of Service Study Year
COSS Tariff Required GWh Sold Tariff Revenue Required Annual Year on Year Increase EBITDA TSh per kWh DSCR

2011
159.9 4,913 785,597 34.6% 53.8 1.90

2012
181.9 5,564 1,012,154 13.8% 46.2 1.85

2013
207.3 6,280 1,301,614 13.9% 61.9 2.78

2014
227.4 6,916 1,572,769 9.7% 70.1 2.27

46. TANESCO is proposing a methodology in its tariff application that establishes a formula for tariff adjustment over the next three years (2011 through 2013). With the proposed multi-year tariff increase, TANESCO is expected to make significant progress to remedy the critical challenges mentioned above. This will allow the company to operate on stronger financial foundations as it moves to a situation where it recovers its cost of service and becomes a commercially viable utility. Sensitivity Analysis: 47. The aforementioned Financial Analysis of the utility has been carried out with the assumption that the tariff increases will be granted by EWURA. Figure 12 shows the sensitivity of the cumulative EBITDA and net profit over four-year period of 2011 2014. In the base case, the cumulative EBITDA and net profit, as per financial projections, are about TSh 1,394 billion and TSh 1,054 billion. 48. Without the assumption that such a tariff application has already been made, i.e.tariffs remain at about TSh 118.8/kWh (current average tariffs); the cumulative EBITDA and net profit are expected to decrease from the base case to about TSh -216 billion and TSh -556 billion. On the other hand, if the cost of sales continue to increase by 35 percent (as projected), EBITDA and Net Profit decreases substantially from the base case to TSh 484 billion and TSh 144 billion over the four-year, respectively. Given the high sensitivity of cumulative EBITDA and net profit to tariffs, financial sustainability of TANESCO is driven largely for the requested tariffs increases under the proposed multi-year full cost recovery tariff application. Improvements in operational efficiency will improve financial health of the utility, however bringing these to par with international standards will not allow TANESCO to return back to profitability tariff increases remain a must to be implemented to ensure profitability of the company.

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Figure 12: TANESCO - Financial Analysis - Sensitivity Analysis

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Annex 10: Safeguard Policy Issues TANZANIA: Backbone Transmission Investment Project Social Safeguards 1. The project is intended to have positive impacts for the overall development and growth of the country. In particular it will alleviate the increased demands of electricity in the northwest part of Tanzania due to increased mining and other economic activities in this area. It is anticipated that the project will stimulated economic growth and social development. An immediate concern the communities along the corridor have expressed during the consultation process is their access to electricity and the need to benefit directly from the investments being made in their region. 2. The design of the project is taking these concerns into account. In the first quarter of project implementation, the plan is to undertake a socio-economic baseline survey and social assessment (SA) to ensure that the project activities are enhancing benefit sharing and takes into account the communities concerns. This will be followed by a Social Impact Assessment (SIA) during the mid-term review. It is also important to highlight this project is part of a broader investment by GOT in the energy sector and its activities are complimentary to the activities in other ongoing World Bank/GOT energy projects (TEDAP and Rural Electrification), which also aim to enhance communities access to electricity. During these assessments TANESCO will coordinate with MEM and REA. 3. A Resettlement Policy Framework (RPF) has been prepared as condition for appraisal and disclosed in the country and info shop on December 28, 2009 and December 14, 2009 respectively. An RPF rather than a RAP was selected to comply with the OP 4.12 requirements for appraisal for the following reasons. x x While the transmission line corridor is known, the final alignment of the line has not been established, and it will not possible to establish it until the final design is completed. Even when the design consultant has completed the basic design, the final alignment is likely to be adjusted in the field in response to local conditions, for example to avoid cemeteries or structures. Final alignment is the responsibility of the EPC contractors. The census and socio-economic surveys and the asset valuation necessary for a RAP cannot be conducted until the final alignment is determined, and completing those tasks will require approximately six months. Although the Bank could accelerate the process by having the survey work proceed on the section of the line IDA is financing, this would be inconsistent with the coordinated approach agreed by the participating donors, under which a single RAP will be prepared for the entire transmission line and reviewed and cleared by each donor. Under Tanzanian law, once the census is completed and amounts of compensation are calculated, the government has a six-month period in which it must compensate the affected persons. If it fails to do so, it is required to pay interest at a rate of 6 percent. TANESCO is reluctant to have the six months begin in advance of Board approval.

4. The RPF is going to be the basis for the RAP, which will be prepared once the details of land acquisition are known. The RPF includes the entitlements for each category of impact. According to the RPF, about 840 structures (800 households) will be affected. The majority of affected people reside in the 93 villages along the right-of-way. Despite this, it is expected that no major threats will be posed to livelihoods, as most people in the project area will be able to continue with farming and livestock keeping activities within their villages. Land is not so scarce in the villages along the right of way. However; land scarcity might be a problem in settlements that are within or adjacent to urban areas. Villages such as Mkonze in Dodoma Municipality and Misuna in Singida Municipality have land shortage, and affected households might be forced to relocate outside the village but within the district. In addition, some land, crops, public properties such as schools and some businesses are also affected.
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5. As part of the preparation of the RPF, the affected people have been consulted. During the consultation, the affected populations expressed concerns over timeliness of compensation for lost assets, lack of access to electricity despite the presence of transmission lines crossing their communities, and the spread of HIV/AIDs as contractors bring outside workers. 6. With regard to community access to electricity, the Environment and Social Impact Assessment (ESIA) recommended the use of shield wire technology to provide electricity in these rural areas, a recommendation that has been taken into account. TANESCO has recently initiated a study to evaluate the best options to provide electricity to those villages along the ROW. Various donors have expressed interest in financing this program including SIDA, NORAD and AfDB. This electrification is one of the mitigation measures agreed under the ESMP and its implementation will be one of the project covenants. The ESIA also highlighted the need for an effective implementation and monitoring of the HIV/AIDs plan in collaboration with the Ministry of Health and the relevant municipalities. 7. To reduce impact, alternative alignments were explored at seven locations, which resulted in a reduction of households to be resettlement by 460, a decrease in total line length of 13 km at an associated cost savings of approximately US$9 million (resettlement compensation and construction cost). 8. As the ESIA indicates, the only physical cultural property that has been identified in the transmission corridor is a few small cemeteries that could be affected, depending on the final alignment of the line. Several options exist: adjustment of the right of way to avoid a cemetery; allowing it to remain in place under the line (if acceptable to the community and the concerned families) but locating towers so as not to disturb it; or relocating it in a culturally acceptable manner, in coordination with the community and families. Decisions on the approach to each cemetery will be made in connection with the physical survey of the right of way. The project will also develop a Physical Cultural Assets Management Plan to ensure that any chance finds are adequately preserved in collaboration with the Department of Antiquities and the Archeology Department at the University of Dar es Salaam. EPC contractors will be required to include procedures for chance finds as part of their project-specific Environmental and Social Management Plans (ESMP). 9. While TANESCO has increased its social staff in the past few years and their capacity built, through internal and external training, theres a need for more staff to meet the effective implementation and monitoring requirement of the project as staff is faced with an increasingly expanding investment in the sector and are required to cover great distances across the country. Environmental and Social Management Plan (ESMP) 10. The ESIA consultant prepared the ESMP in three parts that are summarized in this annex mitigation plan, monitoring plan, and capacity-building. Table 29, extracted from the ESIA, is a summary of the mitigation measures for the potential impacts identified in the ESIA. It provides for the each impact the recommended action(s), the responsible institution, the timing and estimated cost.
Table 29: Environmental and Social Mitigation Measures Impact on / by No.
1 2 Vegetation cover, protected areas, habitat diversity 3 4 5 6

Mitigation / enhancement measures

Selective clearing of vegetation in the way-leave Manual clearing instead using heavy machinery One single common way for inspection / maintenance with the old 220kV line Reforest/replant areas not needed anymore after end of construction work Compensate permanent loss of vegetation by planting/forestation other areas nearby Apply measures 1, 2 and 3 also in the old way-leave where crossing valuable / undisturbed habitats

Responsible institution
Contractor

Project phase (*)

Estimate d costs ()
25,000

2, 3 nil 3 2, 3 2 open open open

TANESCO, Contractor

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Impact on / by

No.
7 8 9

Mitigation / enhancement measures

Forest authorities and communities shall communicate for better protection of forests Protect re-forestated/replanted areas and areas with natural succession against (over-) exploitation Sensitive planning, construction and mitigation of access ways Use gabions instead of stone walls Apply measures 1 - 8 Plant suitable sediment binding grasses in areas prone to soil erosion, charge people for surveillance Measures 1 - 8 will be mandatory Prevent poaching by workers Minimize number of conductor levels Shield wire should be a low as possible Fit flapper devices on the shield wire Oil resistant sealing of all surfaces where hydro-carbons are permanently handled and stored; shelter these areas and protect against storm water In the field, store hydrocarbons in oil resistant containments, use collection pans when refueling Use well-maintained equipment & good environ-mental practices during construction and operation Collect & re-use / recycle suitable materials, collect & dispose remaining waste properly Hazardous materials to be handled properly and far away from water bodies Compensation of all assets and grievances to PAP and villages concerned Compensation paid early to allow construction and commissioning of alternative prior to demolition Participatory procedures for valuation, compensation and reallocation Clarify that any use of way-leave will be allowed if compliance with security and maintenance issues Compensate individuals whose properties will be sandwiched Compensate fairly and timely the households loosing land Work camps no more used should be cleaned and transferred to village administration Compensation of graves to be removed should include all expenses related to the relocation Respect believes and traditions at grave relocation Report relevant observations during exploration & construction instantly to Antiquity Department In case of chance findings interrupt work at once, don't restart without consent by Antiquity Dep.

Responsible institution
Forest auth. Communities TANESCO, Communities Consultant, Contractor Contractor see No. 1 Contractor, TANESCO see No. 1 Contractor Consultant, TANESCO Contractor

Project phase (*)

1, 2, 3 3

Estimate d costs ()
nil 5,000 p.a. nil

Soil erosion

10 11 12

1, 2

nil open open open g.p.(**) 1,000,000 10,000

2, 3 2, 3 2 1 1, 2 2

Valuable habitats Bird collision (in wetlands)

13 14 15 16 17 18

Hydrocarbons

19 20 21

2 Contractor 2 2 2 1 1 1 TANESCO 1 1 1 2 nil RAP RAP g.p . RAP g.p.

Waste 22 Houses & resettlement Public infrastructures 23 24 25 26 27 Land use 28 29 30 Cultural heritage 31 32 33

TANESCO

RAP

2 Contractor 2

nil open

92

Impact on / by
Employment

No.
34 35

Mitigation / enhancement measures

Raise the rate of local people in the workforces as high as possible Rural electrification of villages affected using energized shield wires or other techniques Village government should exercise open and transparent use of payments from TANESCO Simple, understandable and fair Memorandum of Understanding between TANESCO and communities Apply the best practices regarding health and safety for workers and population Potentially dangerous construction sites shall be fenced off and guarded Provide safety gears as helmets, gloves, protective boots, goggles and hearing protection Warning signs shall be put up around the construction sites Moisturize open surfaces when and where high dust emissions are observed Select sites for work camps in close cooperation with villages and district authorities Camps shall have reliable supply of safe drinking water and proper sanitary facilities; look for alternative water sources in areas with limited water Establish mobile hospital services open for workers on site First aid and referral system to stabilize patients and transport them to hospital Periodic medical examination for all workers Training of drivers to careful driving behaviour Preparation of a Health, Safety, Environmental and Social Plan for approval by TANESCO Provide + share social services with communities Raise payments to local people for provision of security services Districts shall improve existing social services in villages with work camps Test all workers periodically on HIV/AIDS and offer them condoms for free Perform awareness and information campaigns with priority for the group of workers Continue to sensitize workers and local communities on HIV/AIDS pathways Establish and support voluntary counseling and testing centers for HIV/AIDS Information materials on HIV/AIDS be posted at all work sites and villages along the way-leave

Responsible institution
Consultant, TANESCO Consultant, TANESCO Communities Consultant, TANESCO

Project phase (*)

2, 3 1 1, 2, 3 1, 2, 3

Estimate d costs ()
nil 1,500,000 nil nil

Other complaints

36 37 38 39 40 41 42 43

Contractor

Safety & Health

44

45 46 47 48 49 50 51 52 53 54 HIV / AIDS 55 56 57

10,000 TANESCO TANESCO District Councils open open open

District Health Authorities, NGOs, TANESCO, Contractor

100,000

(*) 1 Planning Phase; 2: Construction Phase; 3: Operation Phase (**) good practice, additional budget not required

93

11. Monitoring measures are summarized in Table 31 at the end of this annex. This table, extracted from the ESIA, identifies for each activity to be monitored the monitoring task, the timing and frequency, the indicators or parameters, the responsible institution, and the estimated cost. 12. Capacity-building to ensure that the mitigation and monitoring activities are properly implemented involves staffing, training, and equipment. TANESCO will require four additional staff for its Research and Environment Unit, primarily for management of this project but also looking ahead to additional projects in the utilitys pipeline: two technician/surveyors, one environmental engineer, and one social scientist. Training requirements consist of : x x for TANESCO officers Environmental and Social Impact Assessment, project monitoring, review techniques (sociologist) and the operation of monitoring equipment (environmental officers); for surveyors the operation of hard- and software for the field work as well as for office work with the Geographical Information System ArcView.

13. The training will take place generally in Dar es Salaam, but there may be opportunities for staff to take courses that are offered by training companies from time to time in other East African cities. Some of the training measures on environmental and social impact assessments, project monitoring and review techniques regarding the ESMP may also be performed in the field. The training costs for TANESCO are assumed to total about 70,000 EUR. 14. District officers who, under Tanzanian law, are responsible for monitoring and reporting on the implementation of ESMPs once approved by NEMC, will receive on the job training in the field from the engineering consultant engaged to assist TANESCO with project management. The definition and performance of this training will be included in the consultants scope of work, and the costs will be included in the contract price. 15. Table 30 below is a summary of equipment that should be included in the capacity-building program for TANESCOs Research and Environment Unit.
Table 30: Equipment required for Environmental and Social Impact Management Item
1 2 3 4 5 6 7 8 9 10 11

Description
Leica GPS 1200 Base Station Rover Station Leica TCA1205 Station Leica Geo-office software ArcView software Plotter for software hp design jet 500 series software GARMIN GPSMAP 60CSx Satellite telephone equipment Digital Camera Video Camera 4 WD vehicles

Intended use

Price/unit
28,000 28,000 20,000

Units
1 3 1 1 1 1 3 6 3 1 3 Total

Price 1)
28,000 84,000 20,000 6,000 2,500 3,000 750 9,000 600 200 139,500 293,550

Topographical survey

Processing of survey data Presentation of mapped information Production of hard copies from mapped information Site location Remote communication

6,000 2,500 3,000 250 1,500 200

Documentation of field situation Monitoring ESMP in field

200 46,500

1)

VAT and import taxes excluded

94

Table 31: Environmental and Social Monitoring Measures Project Phase Time and frequency Responsibility Cost EUR
once area (ha) / vegetation type mapping scale 1:5.000 (way-leave) TANESCO Consultant 30,000

Operation / activity
1

Monitoring tasks

Parameter / indicators

after cutting

Clearance of wayleave and other areas 2 twice during activity area (ha) where misuse stated contentedness of Authorities percent completed Contractor Communities

area (ha) cleared / area exceeding technical requirements Contractor Consultant

5,000

5,000

end of activity

nil Forest Auth., Communities 5,000

end of activity

once

mapping scale 1:10.000, area adapted to local situation observation size of area, gullies

TANESCO Consultant

10,000

Soil erosion prevention 2 2.3 annual end of activity

TANESCO TANESCO

5,000 10,000

Valuable habitats, wildlife 1 once

literature, Internet publications, wildlife NGO's, Authorities

Consultant

once in rainy season

observation

Consultant

40,000

Bird collision prevention 1 2 2

end of activity end of activity quarterly

check plans observation observation

Consultant NGO TANESCO Consultant

nil nil nil

Pollution prevention

Detailed documentation of actual vegetation cover of areas concerned (mapping) Cutting of vegetation restricted to technical requirements? Heavy machinery not used in sensitive areas ? Forest authorities and communities involved? Replanting / reforestation completed ? Detailed documentation of sensitive areas and erosion damages (mapping) Measures complied as proposed? Development of erosion, update of maps Documentation of available information on wildlife in valuable habitats concerned Monitoring of bird population / movements in / near the wetlands concerned * Planning in compliance with proposed measures? Flappers fitted? Measures complied as proposed?

95

Houses and resettlement 1.2 1.2 1.2 1.2 end of activities TANESCO Distr. Council Communities Distr. Council Communities nil nil nil end of activities end of activities nil end of activities rate of people resettled

TANESCO Distr. Council Communities

nil

Houses and resettlement Infrastructure

Social services

rate of houses removed value of infrastructures employees per 1,000 inhabitants visits per 1,000 inhabitants allocation, type and value of objects discovered no. of objects relocated/ compensated/secured rate of assets compensated rate of compensations paid (value) Distr. Council Communities Contractor, Distr. Council, Communities, Antiquities A. 10,000

Social services Cultural Heritage

Measures complied as proposed? Measures complied as proposed? Measures complied as proposed? Measures complied as proposed? Measures complied as proposed? Documentation of cultural assets / sites within or nearby the way-leave 1.2 1, 2 end of activities ongoing 2 quarterly nil

Cultural Heritage Compensation of houses and assets 1.2 end of activities

Measures complied as proposed?

Contractor, Distr. Council, Communities, Antiquities A. TANESCO Distr. Council Communities

nil

nil TANESCO Distr. Council Communities Communities nil nil Contractor Communities nil nil nil nil nil Police Auth. nil

Compensation of houses and assets Employment, income 1.2 1.2 end of activities annual

Compensation implemented in compliance with measures ? Compensation implemented in compliance with measures ? Statistics on employment and income ** rate of compensations paid (value) employees per 1,000 inhabitants

Employment, income Complaints of people concerned 1.2 2

Statistics on employment and income ** Measures complied as proposed? annual end of activities, annual updating 2 2.3 2.3 2.3 2.3 before 2, annual during 3 for 10 years end of activities, annual updating before 2, annual during 3 for 10 years

Complaints of people concerned Electrocution and other accidents

TANESCO Communities TANESCO Communities Contractor Communities

Crimes

10.000 10.000

HIV/AIDS and other STD's HIV/AIDS and other STD's

Measures complied as proposed? Statistics on cases by types of accidents Statistics on crimes by type of crimes ** Evaluation of statistics of incidents ** Evaluation of statistics of incidents **

Man-month of local workers income per 1,000 inhabitants rate of complains total/per household. rate of complains attended accidents per 1,000 inhabitants crimes per 1,000 inhabitants incidences per 1,000 inhabitants incidences per 1,000 inhabitants

TANESCO, Min. of Health TANESCO, Min. of Health

nil obligation of Public Authorities or contractor/current work of TANESCO Phase 1: Planning ; Phase 2: Construction ; Phase 3: Operations

96

Annex 11: Project Preparation and Supervision TANZANIA: Backbone Transmission Investment Project Planned 02/02/2009 02/05/2009 02/05/2009 07/12/2010 07/15/2010 08/24/2010 12/31/2010 01/07/2012 03/31/2015 Actual 02/02/2009 02/11/2009 02/12/2009 04/19/201060 07/19/2010

PCN review Initial PID to PIC Initial ISDS to PIC Appraisal Negotiations Board/RVP approval Planned date of effectiveness Planned date of mid-term review Planned closing date

Key institutions responsible for preparation of the project: Tanzania Electricity Supply Company (TANESCO), and its consultants, Fichtner A.G of Germany. Bank staff and consultants who worked on the project included: Name Pankaj Gupta Robert Schlotterer Maria-Alexandra Planas Hiroshi Sumiyoshi Ju-Sung Park Mustafa Zakir Hussain Zayra Romo Rene Mendonca Raluca Golumbeanu Helen Shahriari Thomas E. Walton Philip Beauregard Luis M. Schwarz Vildan Verbeek-Demiraydin Bella Lelouma Diallo Gisbert Kinyero Alexander Birikorang Lu T. Ha Ruth Selegebu Leah Mukuta Title TTL, Lead Financial Specialist Financial Analyst Senior Energy Specialist (Consultant) Senior Operations Officer Financial Analyst Inf. Finance Specialist Young Professional Power Engineer (Consultant) Energy Analyst (Extended Term Consultant) Sr. Social Scientist Environmental Specialist, (Consultant) Sr. Counsel Sr, Finance Officer Senior Economist Sr. Financial Management Procurement Specialist Financial Management Specialist Sr. Program Assistant Program Assistant Program Assistant Unit AFTEG AFTEG AFTEG AFTEG AFTEG FEUFG AFTEG AFTEG AFTEG AFTCS AFTEG LEGAF CTRFC AFTRL AFTFM AFTPC AFTFM AFTEG AFCE1 AFCE1

Bank funds expended to date on project preparation: 1. Bank resources: $527,722 2. Trust funds: 0 3. Total: $527,722 Estimated Approval and Supervision costs: 1. Remaining costs to approval: $40,000 2. Estimated annual supervision cost: $110,000
60

Pre-Appraisal was upgraded to Appraisal at the Decision Meeting.

97

Annex 12: Documents in the Project File TANZANIA: Backbone Transmission Investment Project A. Project Implementation Plan / Feasibility Studies 1. Final Feasibility Study Report, New Iringa-Shinyanga Transmission Line Project, Fichner, May 2010 2. Environmental and Social Impact Assessments (ESIA) for the Proposed 400kV Power Transmission Line Irringa-Dodoma-Singida Shinyanga, Draft Final Report, MVV Decon, November 2009 3. Draft Resetlement Action Plan (RAP) for 400kV Power Transmission Line Project, Irringa-Dodoma-Singida Shinyanga, Resettlement Policy Framework (RPF), November 2009 4. Basic Data for Feasibility Study, New Iringa-Shinyanga Transmission Line Project, Fichner, February 2009

B. Other Reports 5. Power System Master Plan , SNC Lavalin International, Sep 2008 6. Power System Master Plan 2009 Updated, SNC Lavalin International, August 2009 7. Zambia-Tanzania-Kenya Interconnector and Reinforcement of the Tanzania Transmission System, Scott Wilson Piesold, February 2004 8. Final Report on Joint Energy Sector Review For 2009, Ministry of Energy and Minerals, October 2009

98

Annex 13: Statement of Loans and Credits TANZANIA: Backbone Transmission Investment Project

Original Amount in US$ Millions

Difference between expected and actual disbursements

Cancel. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Undisb. 38.87 135.88 52.86 75.97 21.07 102.79 122.52 110.76 41.38 13.88 0.97 44.73 32.81 27.25 16.26 49.06 30.83 29.32 2.97 0.00 33.02 1.55 6.62 991.37 Orig. 0.68 9.89 1.34 9.34 -0.87 28.04 77.77 60.18 7.30 9.80 0.00 -15.19 -3.94 -3.22 8.85 -56.58 -7.24 -73.42 -2.79 -6.33 2.34 -2.94 4.45 47.46 Frm. Revd 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.42 2.76 -13.43 -3.25 0.00 49.81 -0.13 0.00 41.18

Project ID P117242 P114291 P096302 P098496 P092898 P101645 P103633 P087154 P102262 P099231 P100314 P085752 P085009 P070544 P082492 P070736 P085786 P082335 P059073 P067103 P002797 P073397 P069982

FY 2010 2009 2009 2008 2008 2008 2008 2007 2007 2006 2006 2006 2006 2006 2006 2005 2005 2004 2003 2003 2002 2002 2001

Purpose TZ - Housing Finance Project TZ : Accelerated Food Security Project TZ-Sustainable Mgt of Min.Resources TAL TZ-Sci.&Tech. High Educ. Prog-Ph.1 (FY08 TZ-Performance Results & Accountability TZ-Energy Development & Access Expansion TZ Second Central Transport Corridor TZ-Water Sector Support SIL TZ-Zanzibar Basic Educ. SIL (FY07) Financial Sector Support TZ-Tax Modernization Project TZ-Agr Sec Dev (FY06) TZ-Private Sector/MSME Competitiveness TZAccountability,Transparency&Integrity TZ-Marine & Coastal Env Mgmt SIL (FY06) TZ-Loc Govt Supt SIL (FY05) TZ-Soc Action Fund 2 SIL (FY05) TZ-Health Sector Development II (FY04) TZ-Dar Water Supply & Sanitation (FY03) TZ-Partic Agr Dev & Empowerment SIL (FY03) TZ-Songo Gas Dev & Power Gen (FY02) TZ-Lower Kihansi Env Mgmt TAL (FY02) Regional Trade Fac. Proj. - Tanzania Total:

IBRD 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

IDA 40.00 160.00 50.00 100.00 40.00 130.00 190.00 200.00 42.00 15.00 12.00 120.00 95.00 40.00 51.00 150.00 180.00 165.00 61.50 56.58 183.00 9.80 15.00 2,105.88

SF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

GEF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

99

TANZANIA STATEMENT OF IFCs Held and Disbursed Portfolio In Millions of US Dollars

Committed
IFC FY Approval 2001 2005 2002 2000 2000 1994 Company AEF Boundary Hil BBL Exim Bank IOH NBC Tanzania Brewery Total portfolio: Loan 0.20 10.00 0.83 2.10 0.00 0.00 13.13 Equity 0.00 0.00 0.00 0.00 10.00 3.43 13.43 Quasi 0.00 0.00 1.00 0.00 0.00 0.00 1.00 Partic. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Loan 0.20 10.00 0.83 2.10 0.00 0.00 13.13

Disbursed
IFC Equity 0.00 0.00 0.00 0.00 4.00 3.43 7.43 Quasi 0.00 0.00 1.00 0.00 0.00 0.00 1.00 Partic. 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic.

Total pending commitment:

26.86

2.00

0.00

26.26

100

Annex 14: Country at a Glance TANZANIA: Backbone Transmission Investment Project

Tanzania at a glance
P O V E R T Y a nd S O C IA L T a nza nia 2008 P o pulatio n, mid-year (millio ns) GNI per capita (A tlas metho d, US$ ) GNI (A tlas metho d, US$ billio ns) A v e ra ge a nnua l gro wt h, 2 0 0 2 - 0 8 P o pulatio n (%) Labo r fo rce (%) 2.8 2.7 2.5 2.8 2.1 2.7 GNI per capita 42.5 440 1 8.3 S ubS a ha ra n A f ric a 81 8 1 ,082 885 Lo winc o m e 973 524 51 0 Development diamond* Life expectancy

1 2/9/09

M o s t re c e nt e s t im a t e ( la t e s t ye a r a v a ila ble , 2 0 0 2 - 0 8 ) P o verty (% o f po pulatio n belo w natio nal po verty line) Urban po pulatio n (% o f to tal po pulatio n) Life expectancy at birth (years) Infant mo rtality (per 1 ,000 live births) Child malnutritio n (% o f children under 5) A ccess to an impro ved water so urce (% o f po pulatio n) Literacy (% o f po pulatio n age 1 5+) Gro ss primary enro llment (% o f scho o l-age po pulatio n) M ale Female .. 24 56 67 1 7 55 72 1 1 0 1 1 1 1 09 .. 36 52 89 27 58 62 98 1 03 93 .. 29 59 78 28 67 64 98 1 02 95

Gross primary enrollment

Access to improved water source

Tanzania

Low-income group

KE Y E C O N O M IC R A T IO S a nd LO N G - T E R M T R E N D S 19 8 8 GDP (US$ billio ns) Gro ss capital fo rmatio n/GDP Expo rts o f go o ds and services/GDP Gro ss do mestic savings/GDP Gro ss natio nal savings/GDP Current acco unt balance/GDP Interest payments/GDP To tal debt/GDP To tal debt service/expo rts P resent value o f debt/GDP P resent value o f debt/expo rts 5.1 .. .. .. .. -1 1 .6 1 .5 1 1 7.7 36.3 .. .. 19 8 8 - 9 8 19 9 8 - 0 8 (average annual gro wth) GDP GDP per capita Expo rts o f go o ds and services 2.8 -0.3 1 2.4 6.5 3.6 1 1 .0 19 9 8 8.4 1 6.2 1 4.5 1 .4 0.3 -1 6.0 1 .2 89.5 1 9.8 .. .. 2007 7.1 4.1 .. 2007 1 6.8 .. .. .. .. .. 0.3 29.6 .. 1 3.0 .. 2008 7.5 4.4 .. 2008 20.5 .. .. .. .. .. 0.2 29.0 .. 1 1 .5 .. 2 0 0 8 - 12 .. .. .. Domestic savings Trade Economic ratios*

Capital formation

Indebtedness

Tanzania

Low-income group

S T R UC T UR E o f t he E C O N O M Y 19 8 8 (% o f GDP ) A griculture Industry M anufacturing Services Ho useho ld final co nsumptio n expenditure General go v't final co nsumptio n expenditure Impo rts o f go o ds and services .. .. .. .. .. .. .. 19 9 8 44.8 1 5.4 7.4 39.8 90.8 7.8 29.3 2007 .. .. .. .. .. .. .. 2007 .. .. .. .. .. .. .. .. 2008 .. .. .. .. .. .. .. 2008 .. .. .. .. .. .. .. .. Growth of capital and GDP (%)
20 15 10 5 0 03 04 GCF 05 06 07 GDP 08

19 8 8 - 9 8 19 9 8 - 0 8 (average annual gro wth) A griculture Industry M anufacturing Services Ho useho ld final co nsumptio n expenditure General go v't final co nsumptio n expenditure Gro ss capital fo rmatio n Impo rts o f go o ds and services 3.2 1 .8 1 .8 2.1 4.7 -9.9 -3.2 3.1 4.7 8.8 7.1 6.1 2.0 1 8.7 6.9 3.4

Growth of exports and imports (%)

25 20 15 10 5 0 -5

03

04 Exports

05

06

07 Imports

08

No te: 2008 data are preliminary estimates. This table was pro duced fro m the Develo pment Eco no mics LDB database. * The diamo nds sho w fo ur key indicato rs in the co untry (in bo ld) co mpared with its inco me-gro up average. If data are missing, the diamo nd will be inco mplete.

101

Tanzania
P R IC E S a nd G O V E R N M E N T F IN A N C E 19 8 8 D o m e s t ic pric e s (% change) Co nsumer prices Implicit GDP deflato r G o v e rnm e nt f ina nc e (% o f GDP , includes current grants) Current revenue Current budget balance Overall surplus/deficit TRADE 19 8 8 (US$ millio ns) To tal expo rts (fo b) Co ffee Co tto n M anufactures To tal impo rts (cif) Fo o d Fuel and energy Capital go o ds Expo rt price index (2000=1 00) Impo rt price index (2000=1 00) Terms o f trade (2000=1 00) B A LA N C E o f P A Y M E N T S 19 8 8 (US$ millio ns) Expo rts o f go o ds and services Impo rts o f go o ds and services Reso urce balance Net inco me Net current transfers Current acco unt balance Financing items (net) Changes in net reserves M emo : Reserves including go ld (US$ millio ns) Co nversio n rate (DEC, lo cal/US$ ) 446 1 ,376 -930 -1 81 51 9 -591 652 -61 .. 99.3 19 9 8 1 ,1 27 2,371 -1 ,244 -1 05 6 -1 ,342 1 ,346 -4 .. 664.7 2007 .. .. .. .. .. .. .. .. .. 1 ,245.0 2008 .. .. .. .. .. .. .. .. .. 1 ,1 96.3 Current account balance to GDP (%)
0 02 -3 -6 -9 -12 03 04 05 06 07 08

19 9 8

2007

2008

Inflation (%)
25 20 15 10 5 0

31 .2 ..

1 3.2 1 4.2

5.4 9.0

5.4 8.9

9.2 -1 .7 -5.9

1 1 .1 0.9 -2.6

1 1 .9 -6.6 -1 3.7

1 2.4 -4.8 -1 1 .6

03

04

05

06

07 CPI

08

GDP deflator

19 9 8 588 1 09 48 36 1 ,569 21 6 97 734 92 1 1 0 84

2007 1 ,981 73 1 26 1 55 4,321 21 7 1 ,224 1 ,232 1 26 1 67 75

2008 2,1 41 79 1 36 1 69 4,598 21 3 1 ,242 1 ,339 1 27 1 66 77

Export and import levels (US$ mill.)

5,000 4,000 3,000 2,000 1,000 0 02 03 04 05 06 07 08

373 97 75 73 1 ,1 71 91 1 58 508 82 1 23 67

Exports

Imports

E X T E R N A L D E B T a nd R E S O UR C E F LO WS 19 8 8 (US$ millio ns) To tal debt o utstanding and disbursed 6,003 IB RD 279 IDA 91 4 To tal debt service IB RD IDA Co mpo sitio n o f net reso urce flo ws Official grants Official credito rs P rivate credito rs Fo reign direct investment (net inflo ws) P o rtfo lio equity (net inflo ws) Wo rld B ank pro gram Co mmitments Disbursements P rincipal repayments Net flo ws Interest payments Net transfers 1 62 46 1 1 600 254 27 4 0 21 7 1 38 28 1 1 0 29 82

19 9 8 7,503 22 2,463 232 1 4 33 650 1 37 -1 3 1 72 0 24 1 02 29 73 1 9 54

2007 4,974 0 1 ,585 64 0 1 1 2,053 627 2 647 3 536 475 1 474 1 0 464

2008 5,938 0 1 ,971 65 0 1 4 1 ,658 51 0 -9 744 3 555 394 1 393 1 3 379

Composition of 2008 debt (US$ mill.)

G: 1,322 B: 1,971

F: 977 C: 17 D: 706 E: 945

A - IBRD B - IDA C - IMF

D - Other multilateral

E - Bilateral F - Private G - Short-term

No te: This table was pro duced fro m the Develo pment Eco no mics LDB database.

1 2/9/09

102

Annex 15: Maps

TANZANIA: Backbone Transmission Investment Project

Page Intentionally Left Blank

103

IBRD 37839

To Masaka

32

UGANDA
TA N ZAN IA
Shirati Sirari Tarime Kiabakari Butiama

36 40

To Nairobi

Kagera Sugar

Kyaka

Bukoba Musoma

Lake Victoria

Kayanga

BACKBONE TRANSMISSION INVESTMENT PROJECT K

To Nairobi

RWANDA
Bunda

Myuleba

PROPOSED 400 kV TRANSMISSION LINE IRINGASHINYANGA PROPOSED SIDA FINANCED 132 kV PROPOSED REGIONAL INTERCONNECTIONS (220 kV) PROPOSED REGIONAL INTERCONNECTIONS (132 kV)

Mwanza
Sengerema Ngudu Maswa Ngorongoro Mtowa Mbu Monduli Sanya Juu Meatu
Lake Eyasi

Nasa Magu Nyambiti Bariadi Luguru Mkuu

Longido

POWER STATIONS: HYDRO THERMAL

To Voi

Geita Misungwi Manawa Bulyanhulu Malampaka Mwadui

BURUNDI
Oldean
Karatu
Lake Manyara Kia

Arusha
Ugweno

Moshi
Arusha Chini
Mwanga
4

SUBSTATIONS TRANSMISSION LINES: 220 kV 132 kV 66 kV 33 kV

Moa
Pemba Island

Kibondo
Tinde Shinyanga Kiomboi
Lake Hanang Kitangiri Wheat Farms

Shinyanga
Muhunze Mbulu Magugu

Kahama Mwadukani
Usangi Nata Nzega Lusu C/Nkola

Mererani

Nyumba Yamungu

Same
Gonja Mwembe Ndungu Kihurio Lushoto Mazinde To Mombasa Makanya

Nzega
Lgunga Iguguno Singida Katesh Kinampanda

Kiru Valley Endesaki

Babati

Kasulu

Kigoma Singida Tabora

Itigi Manyoni

Mgori Kondoa Kalema Korogwe Kijungu Handeni Hale

Pangani Falls Mombo Korogwe Muheza

Ujiji

Uvinza Pangani

Malagarasi

Urambo

MAIN CITIES AND TOWNS PROVINCE CAPITALS NATIONAL CAPITAL MAIN ROADS

Malagarasi

Kaliua

Tanga Mkoani

Wete

La

ke

Sikonge Nala Chigongwe

Turiani Kongwa Dodoma Mpwapwa Msata Mtibwa Mandera Chamwino Hombolo

Mkata

Mkokotoni Zanzibar Koani

Bagamoyo
Kunduchi Mlandizi Tegeta Ubungo
Zanzibar Island

RAILROADS PROVINCE BOUNDARIES (INSET ONLY) INTERNATIONAL BOUNDARIES

To Manyoni To Kundoa

DODOMA
Kigwe

D E M . R E P. O F C O N G O

Mpanda Mloda Manzase Fufu

Wami

Morogoro
Kilosa
Kimamba

Chalinze
Ilala Mkuranga

Dar es Salaam

s Kiny a

Run

gwa

Rungwa
Migoli

INDIAN
Kisiju

Kasanga Chunya
Mufindi Tea Estate Kapunga

Chiona
Kizig o

Mufindi
Makambako

Mahenge

To Mbala

Vwawa Mbozi
Tunduma Ileje Kiwira
Luw

Mbeya
Makete

Kilwa Masoko

Kilwa Kivinje

Z A M B I A
Mwakaleli Kyela Uwemba

Tukuyu Njombe
egu

Tanwat
be om Nj
Kizigo
Mtera Reservoir

Bu

bu

Matinga

Kihansi

Ifakara

Sumbawanga
Ru
Iringa

izi

aha
Ihemi

Ikwiriri

Kibiti

go

T
Nyangolo Ndolela Izazi
Ilula

400 kV TRANSMISSION LINE Bahi IRINGA DODOMA PORTION FINANCED BY THE WORLD BANK
Lake Sulunga

To Morogoro

g an
Mikumi Kidatu
Rufiji
u Ruv

Kisima Mtera Migoli Nduli

Buigiri

an
Lake Rukwa

yi
Kipembawe
Tosamaganga

Namanyere

OCEAN
Mafia Island

Iringa

DODOMA SUBSTATION

DODOMA
Mpwapwa

ka
To Isoka To Karonga
M bw

SINGIDA

To Nakonde

DODOMA
Liwale
o ur mk u
Great Rua ha

Ruangwa

Lindi
Mnazi Mmoja

Mbinga Tunduru Mbamba Bay

Newala

Ruv

um

a Tandahimba

Little Ru

Lake Nyasa

Songea

Masasi

Mahula

IRINGA

Gr

at

Ru ah a

aha

100

200

300

400 KILOMETERS

Nachingwea
Mtama

Mikindani

Mtwara

Salali

u ng bu

IRINGA
a

Mbuyuni
Gr To Mikumi e at Ru aha

M ALAWI
36

12

32

MOZAMBIQUE

a Gre

tR

ua

IRINGA SUBSTATION
h

40

12

MBEYA

To Mufindi
JUNE 2010

L uko si

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

Iringa