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

Outline  Tanzania Development Vision 2025  Drivers for ESI Reform  ESI Reform Objectives  ESI Reform Strategy &Roadmap  Resources Requirement  Way Forward  Conclusion

Tanzania Development Vision 2025 Middle Income Country  Raise GDP per Capita from USD 640 to USD at least USD 3,000;  Increase Generation Capacity from 1,583 MW to at least 10,000 MW by 2025; and  Increase electricity connection level from 24% to at least 50% by  Economic growth low cost and reliable power Investment Gx, Tx and Dx;

Tanzania Development Vision 2025

Drivers for ESI Reforms Meeting Current & Future Demand for Electricity Reducing Public Expenditure on Electricity Supply Industry Increasing Electricity Connectivity Improving Efficiency and Quality of Service Attracting Private Capital Investments in ESI

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

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

ESI REFORM OBJECTIVES  Main: To improve ESI governance and performance for quality service Delivery.  Specific Objectives: Create ESI to support the National Development Agenda Roadmap & Indicative Budget Establish efficient ESI in environmentally sound and sustainable manner Promote financial and commercial viability of the Sector Attract private investment to the sector Ensure adequate, reliable, affordable and accessible electricity supply

REFORM STRATEGY Gradual unbundling of Gx, Tx and Dx REA current set to be maintained with its functions complementing Semi- autonomous Zonal Offices

REFORM ROADMAP Guide the implementation of the ESI Reform Process

REFORM ROADMAP  Immediate term (July 2014 – June 2015)  Short term ((July 2015 – June 2018)  Medium Term (July 2018 – June 20121)  Long term (July 2021 – June 2025)

Summary of Key Activities of the Reform Roadmap

The Roadmap – Immediate Actions July 2014 – June 2015 Major ActivitiesTimeframeLead Responsibility Establish a Task Force (MEM) and TCMT at TANESCO Jul 2014TANESCO Human Capital Needs Assessment and Capacity Build Programme Prepared Dec 2014 MEM/TANESCO/ EWURA Carry out MIS review and ring fence TANESCO’s SBUs Dec 2014TANESCO Develop standard template Power Purchase Agreement (PPA) models; Jul 2014EWURA TANESCO Turnaround Strategy Dec 2014MEM Designate Grid Control Center as Independent System Operator (ISO); Dec 2014EWURA Reviewing of the Electricity Act, 2008, in particular, Section 41(6) Dec 2014TANESCO Initiate Business process review and TANESCO’s Assets and Liabilities valuation Dec 2014MEM Develop of Grid Codes to guide Tx and Dx operations Dec 2014EWURA

The Roadmap – The Roadmap – Short Term (Jul Jun 2018) Major ActivitiesTimeframeLead Responsibility Unbundle Gx from Tx and Dx Dec 2017TANESCO Generators (IPPs) to sell to bulk off takers Dec 2017MEM Establish market information Desk Mar 2015MEM Designate Independent Market Operator Dec 2015TANESCO Continue with TANESCO turnaround Dec 2016TANESCO Decentralize decision making (Procurement, budget implementation an Business Plans management Dec 2016TANESCO

The Roadmap – The Roadmap – Medium Term (Jul Jun 2021) Major ActivitiesTimeframeLead Responsibility Unbundle Dx from Tx June 2021MEM, Zonal Offices’ Performance Assessment Sept 2020Dx Setting up a mechanism and rules for the operation of a retail market Nov 2018EWURA

The Roadmap – The Roadmap – Long Term (Jul 2021 – Jun 2025) Major ActivitiesTimeframeLead Responsibility Unbundle Dx segment into Zonal Distribution Companies June 2025MEM Establish ESI service standards Jul 2020EWURA Invest in human capital and trading system in preparation to retail market operations Jul 2020MEM Introduce Retail Competition Jul 2023MEM Prepare Gx Company and Dx for listing Jan 2025GenCo and DisCos Reduce losses (technical and non- technical) from 15% to 12% by 2025 Dec 2025Tx and Dx Increase electricity connectivity from 36% to 50% by year 2025 Dec 2025DisCos

The Roadmap – The Roadmap – Long Term (Jul 2021 – Jun 2025 ) Major ActivitiesTimeframeLead Responsibility Unbundle Dx segment into several Zonal Distribution Companies Dec 2023MEM Establish ESI service standards Jul 2020EWURA Invest in human capital and trading system in preparation to retail market operations Jul 2020MEM Introduce Retail Competition Jul 2023MEM Prepare Gx Company and Dx for listing Jan 2025GenCo and DisCos Reduce losses (technical and non- technical) from 15% to 12% by 2025 Dec 2025Tx and Dx Increase electricity connectivity from 36% to 50% by year 2025 Dec 2025DisCos

Electricity Supply Industry Reform Status and Way Forward

Key Risks of ESI Reforms RiskDefinitionMitigation None response from private sector Necessary condition for effective participation of private sector hence competitive power market Review the existing legal and regulatory framework TANESCO turn around not met Expected benefits to stakeholders may not be realized.  Retire EPPs, constructing new gas infrastructure  Adjusting electricity tariffs Unbundling Small power system There is a risky of increasing overhead costs without necessarily improving the quality of services. Unbundling will take place in 2017 when installed will be at least 3,000MW which is above the acceptable level of 1,000 MW Resistance to ChangeSuccessful implementation of ESI reforms is dependent on stakeholders consensus  Participatory approach to reform  Implement change management programme;  Implement awareness campaign; Human Capital NeedsInadequate skilled personnel impairs implementation of reform strategies.  Capacity development programme to be instituted ;  Implement contract management strategies; Nationalization of investment Private sector fear of their investments being expropriated Investors’ risks of nationalization are cushioned by Investment Act of Non implementation of the Roadmap Change in direction will negatively affect the Performance and sustainability of ESI.  GoT is committed to ensure that the Roadmap is timely implemented

RESOURCES REQUIREMENT  Human Resource: New Skills to marshal the reforms implementation will required.  Financial Resource: To implement the reforms USD 1.15 billion will be required to facilitate studies, human capital development and TANESCO Balance Sheet clean up. ◊New Companies to start with clean balance sheet ◊Funds is expected to be contributed by GoT and Partners and TANESCO

Conclusion - Expectations

WAY FORWARD Sub mission to Cabinet Secretariat for comments by 13 June, 2014 Submission to Permanent Secretaries meeting by 20 June, 2014 Submission to the Cabinet by 27 June, 2014 Publication of the ESI Strategy and Roadmap by 30 June, 2014

Conclusion - Expectations Reforms is essentially a process rather than a one time event, the Roadmap shall be reviewed from time to time There is no one size fits all reform model, the proposed reform strategy is tailored to Tanzanian ESI needs Concerted efforts from all stakeholders are required to make the reform a success

Conclusion - Expectations THANK YOU!