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NKRA EnergyEnergy Lab Final ReportExecutive Summary
11 April 2013
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission is strictly prohibited
1
The Energy lab devoted 14,112 thinking hours to solving the sector’s key challenges and coming up with high-impact, business-unusual solutions
14,112 thinking
hours from 48 participants
300+ pages of implementation plans
detailed to 3 feet
414 supporting analyses
done using up 87 markers
2
▪ Shaban Kabunga, Attorney General Chambers▪ Barke M.A. Sehel, Attorney General Chambers▪ Mohamed Abdulla Mohamed, Zanzibar▪ Samer al Fayadh, SIDA▪ Charles Stephen Omujuni, EWURA▪ Noel Mwakabungu, EWURA▪ Godfrey Chibulunje, EWURA▪ Msafiri Mtepa, EWURA▪ Deo Onyango, General Electric▪ Hamza Mwapachu, Kilwa Energy▪ Eliakim C. Maswi, Ministry of Energy and Minerals▪ James Andilile, Ministry of Energy and Minerals▪ Innocent Luoga, Ministry of Energy and Minerals▪ Juma Mkobya, Ministry of Energy and Minerals▪ Leonard R. Masanja, Ministry of Energy and Minerals▪ Ebarhart Dilliwa, Ministry of Energy and Minerals▪ Wanja A. Mtawazo, Ministry of Energy and Minerals▪ Godwill G. Wanga, NDC▪ Pascal Malesa, NDC▪ Sospeter Kerefu, NDC▪ Kamugenyi Luteganya, NEMC▪ Glory Bildard, OPHIR / OGAT▪ Benjamin Kisungwe, OSHA▪ Jamidu Katima, University of Dar es Salaam
▪ Bizimana Ntuyabaliwe, PanAfrican▪ David Mwankenja, POPC▪ Nyanzala S. Nkinga, POPC▪ Omari Athumani, POPC▪ Happiness Mgalula, POPC▪ James Kilabuko, POSH▪ Jones Olotu, REA▪ Prosper Msellem, REA▪ Sebastian Kastuli, Songas▪ Dominic Mosha, Sumitomo▪ Theodory F. Bayona, TANESCO▪ John Kabadi, TANESCO▪ Abubakar K. Issa, TANESCO▪ Simon Jilima, TANESCO▪ Gregory Chegere, TANESCO▪ Abdi Kagomba, TIC▪ Modestus Martin Lumato, TPDC▪ George Kibakaya, TPDC▪ Daniel Moore, USAID▪ Steven de Backer, Webber Wentzel▪ Mohd Taufik Abd Mujib, PEMANDU▪ Adam Kendall, McKinsey & Company▪ Mikhail Nikomarov, McKinsey & Company▪ Jemima Peppel, McKinsey & Company
On behalf of 48 participants …
3
… from 25 different institutions …
KilwaEnergy
Occupational Safety & Health Authority
4
… a big Asante Sana! Bring on Big Results Now!
The Big Results Now Energy Delivery Lab –February 22nd to April 5th, 2013
5
Abbreviations
CFL Compact fluorescent lightDiscos Distribution companiesDP Development PartnerDSM Dar es SalaamDx DistributionEMS Energy Management SystemEPC Engineering, Procurement &
ConstructionEPP Emergency Power ProducerEWURA Energy and Water Utilities
Regulatory AuthorityGDP Gross Domestic ProductGencos Generation companiesGoT Government of TanzaniaGSA Gas Supply AgreementGWh Gigawatt hourGx GenerationHFO Heavy fuel oiliMDU Interim Ministerial Delivery UnitiPDB Interim President’s Delivery BureauIPP Independent Power ProducerIPTL Independent Power Tanzania LimitedKPI Key Performance Indicator
kV kilovoltskWh kilowatt hourMDU Ministerial Delivery UnitMEM Ministry of Energy and MineralsMoF Ministry of Financemmscfd Million standard cubic feet per dayMWh Megawatt hourNBS National Bureau of StatisticsPDB President’s Delivery BureauPPA Power Purchase AgreementPPP Private Public PartnershipPSMP Power System Master PlanREA Rural Energy AgencySIDA Swedish International Development
Cooperation AgencyT&D Transmission & DistributionTANESCO Tanzania Electric Supply Company
Limited TPDC Tanzanian Petroleum Development
CorporationTx TransmissionTZS Tanzanian ShillingsWBAs Water Basin Authorities
6
Executive summary for NKRA Energy Lab
▪ Tanzania’s electricity sector lags behind its East African neighbours, with annual kWh consumption of 97 per capita; while sector demand will double in next three years, production and distribution are not currently poised to grow in equal measure, limiting Tanzania’s growth potential
▪ The NKRA Energy Lab recommends achieving results in 3 initiative areas that will result in more than doubling of base capacity and energy delivered by 2015; 1. Achieving 50% increases in energy delivered and TANESCO revenue by
revamping operations of existing assets: delivering new gas to underutilisedplants, upholding water management practices and improving in-dam operations, limiting energy losses in transmission and distribution, launching demand management initiatives and optimising EPP dispatching and fuel supply
2. Growing the sector by prioritizing and delivering against 14 prioritized generation projects and 590,000 new connections, supported by business unusual approaches to delivery; this will involve greater focus on prioritization, M&E, use of alternative sources of funding and fast-tracking approval for current system bottlenecks
3. Redefining the sector strategy and structure, including a gradual restructuring of TANESCO to bring viability to the entire system
▪ The NKRA Energy Lab’s initiatives will be supported by a Ministerial Delivery Unit, chaired by the President and supported by a Steering Committee, POPC, and PDB
▪ Overall budget for the proposed initiatives is roughly TZS 9.8 trillion, with at least 40% being covered by private investment and Development Partners
▪ The NKRA Energy lab is ready to move forward with implementation and the transformation of the Tanzanian energy sector!
7
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
8
Electricity consumption and economic development are closely linked
SOURCE: World Bank Energy Statistics, Global Insight (WMM)
Electricity consumptionMWh/capita
Economic developmentGDP/capita Trend
6 9 1412117 15 181716
55
90
26
5
3
25
30
20
4035
45
15
Australia
Norway
Italy
UAE
Sweden
21 13
Korea
0
Tanzania10
54 108
50US
EXECUTIVE SUMMARY
9
But today, electricity consumption in Tanzania is very low
Electricity consumption from select countries
kWh/capita/year, 2010
136
320
394
616
795
97Tanzania20121
Nigeria
Ethiopia
Mozambique
India
Kenya
Brazil 2,384
China 2,944
South Africa 4,803
SOURCE: World Bank Energy Statistics, TANESCO; NBS1 An estimated additional 38kWh / capita of constrained demand was unmet in 2012
EXECUTIVE SUMMARY
10
Constrained electricity sector growth
1 Emergency Power Producers
The development of Tanzania’s electricity sector is constrained by a number of challenges
Evolving structure of electricity sector
and TANESCO
Insufficient monitoring and
execution capacityReliance on expensive EPPs1
Over-reliance on hydro generation
High energy losses from aging transmission and distribution system
Rapidly growing demand
Insufficient gas supply
Constraint on government
funding
EXECUTIVE SUMMARY
11
In particular, demand is forecast to grow rapidly, nearly doubling in the next 3 years
2015
+9% p.a.
11,246
47,724
2035
+85%
2025
27,139
2012
6,085
Forecasted electricity demand by Tanzanians1
GWh / year
1 Unconstrained demandSOURCE: Power System Master Plan
EXECUTIVE SUMMARY
12Source: TANESCO
800
1,000
1,200
600
400
200
05,0004,5004,0002,5002,0001,500 3,5001,0005000
SymbionAggreko
Ø 151
3,000
Independent Power Producers (IPPs)TANESCO
Emergency Power Producers (EPPs)
IPTL
High reliance on expensive generation sources that has made the sector financially unviable
Generation cost (excludes transmission and distribution cost)TZS/kWh
GenerationGWh / year
Songas
Hydro plants Gas plants Other fuels, such as jet fuel and Heavy Fuel Oil (HFO)
Current average tariff
In 2012, almost 20% of generated electricity came from EPPs and IPTL, running on expensive fuel, cost 5-8x more than TANESCO or IPP gas plants and 3-4x more than current tariff levels per unit
EXECUTIVE SUMMARY
13
How do we turn on the lights in Tanzania?
Tanzania’s vision for the futureTanzania today
EXECUTIVE SUMMARY
14
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
1. Maximise existing assets
2. Deliver prioritised projects
3. Continue sector evolution
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
15
To turn the lights on, the energy sector will witness big changes over the next 3 years
Complete 14 major Tanzanian power projects
More than double base capacity from 1,010 to 2,260 MW
Provide access to electricity for ~5 million more Tanzanians
Increase annual consumption from 97 to 236 kWh/capita
Install over 3,000 km of high voltage power lines
Increase TANESCOrevenue by 50% (from existing plants)
Replace 3.2 million inefficient light bulbs Eliminate EPP1 reliance
1 Emergency Power Producers
EXECUTIVE SUMMARY
16 16
Realise Energy sector aspirations by making the sector financially viable, creating and publishing a roadmap for sector reform, and gradually restructuring the national utility
Deliver generation, transmission & distri-bution projects by focusing on execution
Deliver more energy from existing assets and phase out EPPs
The Energy Lab recommends achieving Big Results Now through a three-pronged focus
a. Ensure on-time completion of the Mtwara-Dar portion of the pipeline
b. Manage catchment-area water usage and in-dam operations at Mtera
c. Reduce technical and non-technical losses through transmission and distribution upgrades and meter replacement
d. Introduce targeted demand management to reduce evening peak load
e. Reduce EPP costs and reliance by optimising dispatch and fuel procurement
a. Prioritise projects based on ability to complete in 3 years
b. Set up the Ministerial Delivery Unit (MDU) that works with the Presidential Delivery Bureau (PDB) to coordinate and diligently monitor implementation progress and execution
c. Utilise alternative funding models to reduce the Government of Tanzania’s burden to finance projects
d. Streamline critical processes to minimisetimelines and risk of delay
1 2
3
EXECUTIVE SUMMARY
SOURCE: Energy lab
17
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
1. Maximise existing assets
2. Deliver prioritised projects
3. Continue sector evolution
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
18 18
5 business-unusual initiatives will enable Tanzania to make the most of existing assets and transform sector operations and financial viability
1 Figures are annualisedSOURCE: Energy lab
Initiative Primary impact1
Ensure on-time delivery of Mtwara –Dar pipeline
a1,354
more GWhdelivered
Manage water and operate dams sustainably
b40
TZS billion cost reduction
Introduce targeted demand manage-ment initiatives
d67
TZS billion cost reduction
Upgrade transmission and distribution system
c68
TZS billion revenue increase
Optimise EPP and IPPdispatch and fuel supply
e137
TZS billion cost reduction
EXECUTIVE SUMMARY1
19
The Mtwara-Dar pipeline must be delivered by Q4 2014, allowing 63% more generation and savings of TZS 25 billion/month in EPP fuel cost
SOURCE: TPDC
Key actions Review potential to
accelerate processing plant completion
Complete GSA negotiations
Ensure temporary port in Ziwani and roads to constru-ction site can handle oversized / heavy equipment
Reinforce project monitoring team
Acquire financing for gas supply metering and surface facilities
Planned additional gas infrastructure
Dar es Salaam
Mnazi Bay
Gas-receiving station
Songo Songo field24“ pipeline
(25km)36“ pipeline (482 km)
Mnazi Bay processing plant: 210 mmscfd Mnazi field
Songo Songo processing plant: 140 mmscfd
Gas infrastructure expansion plans Impact1
+1,354 GWhdelivered
(+63%)
▪ TZS 253 billion revenue increase
▪ TZS 294 billion cost savings
a
Situation: Existing gas infrastructure cannot supply enough gas for gas-fired plants to run at target 90% utilisation
1 Annualised
Success factor: To ensure on-time or even early delivery of the pipelines, a number of potential risks must be addressed proactively and any opportunity to accelerate delivery should be considered
EXECUTIVE SUMMARY
20
Managing dam operations and Mtera catchment area water usage sustainably can increase hydro generation by 24% and save TZS 40 billion
Key actions to be taken
a. Set up task force to ▪ Conduct stake-holder
awareness campaign
▪ Address challenges in implementation of Water Resources Management Act
▪ Facilitate joint associations among water users, WBAsTANESCO and EWURA
b. Operate dams betterand determine strategy and enforcement mechanism to optimisedam operations
Sustainable water usage and dam operations proposal Impact1
Catchment area
Mtera dam
Increased awareness and enforcement of existing water usage regulation
Improved dam operations based on optimal annual generation path
b
a
+418 GWhdelivered
(+24%)
▪ TZS 80 billion revenue increase
▪ TZS 40 billion cost savings
b
Situation: Low dam levels and unsustainable dam operations are constraining generation from hydro plants
1 Annualised
Success factor: Success of the initiative depends on setting the right incentives to encourage behavioural change of both power station operators / managers and the water users and regulators in the Mtera catchment area
SOURCE: Energy lab
EXECUTIVE SUMMARY
21
Key actions to be takenT&D upgrade proposal Impact1
Reinforcing the existing transmission and distribution network to reduce losses to 15% will increase revenue by TZS 68 billion
Rehabilitate 7,722km of high-voltage and 6,586km of low-voltage distribution lines
Replace 288,000 meters with prepaid ones and install 17,700 automatic ones
Rehabilitate 16 overloaded transmission substations +324 GWh
delivered(+7%)
c
TZS 68 billion revenue increase
▪ Secure financing, e.g. AFD▪ Upgrade overloaded
substations, provide additional transformers and install voltage compensation equipment
▪ Extend the EMS to cover entire grid and build operator capabilities
▪ Rehabilitate distribution lines by replacing rotten poles, upgrading conductors, refurbishing distribution transformers and repairing defective switches and upgrade 16 key primary substations
▪ Roll out prepayment meters and install Automatic Meter Reading
Situation: Overloaded lines, transformers and feeders, rotten poles and electricity theft are causing 21% T&D losses
1 Annualised
Success factor: The initiative will pay for itself in less 5 years or less, and is an essential component towards ensuring system stability and sufficient revenue recovery when additional capacity comes online
Extend energy management system (EMS) to cover entire grid
SOURCE: Energy lab
ii
i
iii
iv
EXECUTIVE SUMMARY
22
Demand management can reduce the daily evening peak by 60% and save TZS 67 billion in EPP fuel cost per year
Demand management proposal Impact1 Key actions to be taken
Run pilot to retrofit 3.2 million incandescent light bulbs with CFL in selected areas and assess implementation challenges of a country-wide rollout
Conduct large-scale public awareness campaign about efficient use of electrical household appliances
Conduct round table discussions between TANESCO and the largest industrial power consumers to shift load away from the evening peak
Develop National Energy Efficiency Programme to assess other opportunities
Demand managementEncourage a shift industrial demand away from peak hours to flatten peak and reduce need for EPPs to run during peak hours
Replace incandescent bulbs with more efficient CFL bulbs and develop National Energy Efficiency Programme
Energy efficiency60% lower
evening demand spike
TZS 67 billion cost savings
d
Situation: The evening spike in daily demand is 100MW above average and requires expensive EPPs to kick in to cover it
1 Annualised
Success factor: After having been detailed in the Lab process, SIDA committed to support the activity of replacing incandescent lightbulbs, which will facilitate running the pilot and gives momentum to the whole initiative
Funded during Lab
SOURCE: Energy lab
EXECUTIVE SUMMARY
23
Improve dispatching and fuel supply to run IPTL moreGWh, 2012
Monitor fuel consumption and financial flowsTZS per kWh, 2012
Impact1EPP and IPP dispatch enhancement proposal
EPP fuel expenditure can be cut by up to TZS 137 billion through least-cost dispatching and timely fuel delivery to the cheapest plants
0
50
100
150
Mar
Ø31%
DecSeptJun
Expected cost3
703+29%
Effective price paid2
907
Part IPTL could have covered EPP generation
1 Annualised 2 Based on actual expenditure to EPPs from June to December 2012 3 Given contractual agreement and actual MWh generation from June to December 2012
TZS 137 billion cost savings
Key actions to be taken
Implement efficient dispatching so that cheaper plants are run first and that fuel supply is sufficient to allow for this prioritisaion
Install fuel metering systems to monitor fuel consumed by EPPs and IPPs
Publically publish EPP and IPP fuel consumption and payment data
Convert IPTL 100MW HFO to natural gas (dual fuel) in 2014, when gas becomes available
e
Situation: Fuel supply issues mean that dispatching is not based on lowest cost, exacerbating the financial strain EPPs cause
Success factor: EPPs are here to stay until 2014 – but in the meantime, it makes financial sense to optimise their operations
SOURCE: Energy lab
42 billion TZS from
better dispatching 95 billion
TZS from monitoring
EXECUTIVE SUMMARY
24
Business unusual in operating existing assets will create significant impact before 2015
Expected impact of business unusual, 2013-2015, GWh, TZS million
SOURCE: Energy lab
2,000
1,500
22
Additional energy deliveredGWh/annum
Additional revenueTZS million / annum
Cost savingsTZS million / annum
400,000
225,000
3,500
2013 2014 2015 2013 2014 2015 2013 2014 2015
500,000
310,000
72,000
EXECUTIVE SUMMARY1
25
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
1. Maximise existing assets
2. Deliver prioritised projects
3. Continue sector evolution
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
26
In ensuring delivery against Tanzania’s energy needs, the lab recommends 4 business unusual approaches
4 business unusual approaches must be utilised to ensure that new energy projects are implemented
▪ Prioritize to focus only on feasible projects
▪ Monitor and execute projects using a new governance model
▪ Reduce Government of Tanzania’s financing burden
▪ Streamline critical processes to reduce delays
a
b
c
d
Generation 7 new plants 1,310 MW in new
capacity
Transmission 7 new lines >3000 km of new
high voltage lines
Distribution 590,000 new connections ~5 million more with
access to electricity 30% electrification rate
EXECUTIVE SUMMARY
SOURCE: Energy lab
2
27
Prioritization: 7 generation projects will deliver1,310 MW in the next 3 years
Prioritized Projects MW potential
Gas Coal Hydro Wind Other technologies
a
Tim
ing
Big
Impact of results
1310
Biomass potential
Kinyerezi I
Kilwa Energy, Phase 1
Kinyerezi II
Kinyerezi III
Kiwira Power
Singida Geo Wind Phase 1
Mchuchuma coalNgakacoal
Singida Geo Wind Phase II
Solar potential
Kinyerezi IV
Geothermal potential
Mapembasi
Mbamgamao
Stiegler's Gorge
Kilwa Energy, Phase 2
Somanga Fungu JV
Mwanza (HFO)
PPP funding
Private sector funding
GoT funding
3000Singida Wind East Africa
Now
-201
5/16
Afte
r 201
5/16
Small
Prioritization for generation projects was based on
▪ Size of generation impact (MW)
▪ Timing for completion (before versus after 2015/16 target)
EXECUTIVE SUMMARY
SOURCE: Energy lab
28
Dar Es Salaam
Kilimanjaro
Mbeya
Dodoma
ShinyangaArusha
Ruvuma
Kihansi
Kilwa
Kagera
Mwanza
12
3
4
5
6a7
6b
Prioritization: 7 transmission projects will evacuate power from new plants and extend grid coverage
x Priority
1Based on 220kV analysis
Backbone1Dar-Arusha2
Singida-Arusha3
Somanga-Kinyerezi4
Makambako-Songea5
North West Grid Ph.16
Dar-Dodoma7
Cost (TZS)Projects Size400kV400kV
400kV
220kV
220kV
400kV1
400kV
481 Bil1,232 Bil
391 Bil
136 Bil
146 Bil
218 Bil1
325 Bil
New 400 kV line
New 220 kV line
a
Prioritization for transmission projects was based on
▪ Criticality of the transmission line to evacuate or deliver energy
▪ Timing for completion (before versus after 2015/16 target)
EXECUTIVE SUMMARY
SOURCE: Energy lab
29
Prioritization: distribution projects will provide electricity access to nearly 5 million more Tanzanians by 2015/16
a
Prioritization for distribution electrification projects was based on
▪ Feasibility to complete projects by 2015/16
▪ Availability of funding for the project
▪ Average cost per connection
EXECUTIVE SUMMARY
SOURCE: Energy lab
30
The new monitoring and escalation structure will eliminate bottlenecking of inter-ministerial and inter-institutional issues
b
Fast-track pathNormal pathInformation only
Ministry Delivery Unit
HE President
Inter-Ministries/ Inter-Institutions
President Delivery Bureau
Contractor
Minister of Energy
& Minerals
Developer/ Project Manager
Most common source of bottlenecks
MDU monitor prioritized projects daily, to escalate any unresolved issues to MEM / PDB
PDB escalates issues to HE President on request from MDU
New fast track path available for prioritized projects
▪ Improved monitoring and execution(M&E) of the prioritisedprojects is a critical element of the new governance model
▪ Addition of an escalation process all the way to the HE President, will streamline removal of bottlenecks
EXECUTIVE SUMMARY
SOURCE: Energy lab
31
In generation, private sector funding through two PPP options will reduce GoT’s financing burden
2. Direct negotiation with ready investor (i.e. “closed tender”)
Negotiate between committee and identified PPP investor
Awarding of contract and finalize financing arrangements
Close deals and form Joint Venture company
Start project construction and commission plant
Obtain approval for project’s proposal by PPP committee
Shorter lead time to project commencement but likely more expensive
Obtain approval for project’s feasibility study by PPP unit
1. Open bidding by TANESCO through PPP unit in Ministry of Finance
Float bid documents and evaluate proposals
Awarding of contract and finalize financing arrangements
Close deals and form Joint Venture company
Start project construction and commission plant
Longer lead time through current PPP process but likely the cheaper option
c
▪ Reducing the government’s funding burden can be done via a Public-Private Partnership (PPP) model for generation projects
▪ Kinyerezi III and IV are two projects recommended for PPP
EXECUTIVE SUMMARY
SOURCE: Energy lab
32
On Transmission, the cost of the Dar-Arusha 400 kV transmission line can be reduced to match benchmarks for similar projects
Cost/km Benchmark cost/km Expected new costUSD770mil /TZS1,312.85bil
USD1.10 mil/km ▪ Backbone line: USD 0.6 mil/km
▪ Mombasa-Nairobi: USD 0.47 mil/km
▪ USD 0.5 mil/km ▪ USD 351 mil total
(TZS 600,000 bil)
Current cost
Option 2
I. TANESCO and current EPC do not agree. TANESCO waits for expiry of current contract and tenders for new proposals.
II. New proposals are evaluated and the new EPC is awarded upon expiry of current contract (in 2014)
III. New contractor commences project construction. This option would delay construction by around 12 months
Option 1
I. TANESCO and current EPC agree on a better, more cost-reflective contract value
II. TANESCO and current EPC sign new contact
III. Current EPC commences project construction, as per current timelines
Two options are available to reduce the cost
government’s Reducing the government’s funding burden on transmission could be possible on the Dar-Arusha line, through renegotiating the existing EPC contract or allowing it to expire (and retendering)
Potential cost reduction by
up to 50%
Cost/km Benchmark cost/km Expected new cost
EXECUTIVE SUMMARYc
33
Proactively fast-tracking potential roadblocks is key to ensuring project implementation timeliness
35 weeks 16 weeksEnvironmental & Social Impact Assessment
Proposed timelineto be enforced
Transmission Line Agreement & Gas Supply Agreement
24 weeks 5 weeks
Power Purchase Agreement 10 weeks22 weeks
Land Title Deed 25 weeks46 weeks
Project Financing – Loan Agreement 60 weeks 25 weeks
Transport and Communication 15 weeks 7 weeks
Tariff Approval Process 26 weeks 10 weeks
Initial Public Offer (IPO) 15 Months 6 Months
Current timeline
Public Private Partnership (PPP) 3 years 2 years
d
Streamlining critical processes where bottlenecks are likely to occur is a proactive method to reduce delays
EXECUTIVE SUMMARY
SOURCE: Energy lab
34
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
1. Maximise existing assets
2. Deliver prioritised projects
3. Continue sector evolution
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
35
The electricity sector must continue to evolve to increase the reliability and affordability of electricity while enhancing development of private investment
By 2015/16
Next 12-18 months
Through 2020
Split structureExisting structure New structureTanescostructure
▪ Split TANESCO into 2-3 companies
▪ Perform operational improvement in each company
▪ Create an independent system operator
▪ Adopt cost reflective tariff
▪ Divide TANESCO among 3 profit & cost centers
▪ Create and publish sector roadmap
▪ Create and publish subsidy policy
▪ Restructure TANESCOinto Gencos and Discos, as per MEM roadmap
▪ Commercialise, as per MEM roadmap
▪ Eliminate GoT subsidy
Key actions
▪ TANESCO consists of 2-3 companies
▪ Tariff is cost reflective (after subsidy)
▪ Each TANESCO company is profitable
▪ All non-capital TANESCOdebts paid
▪ TANESCO Generation, Transmission and Distribution ringfenced
▪ Roadmap and subsidy reports published
▪ TANESCO debts reduced
▪ Zero government subsidy of electricity utilities
▪ Restructured Generation and Distribution
Mile-stones
EXECUTIVE SUMMARY
SOURCE: Energy lab
3
36
The Lab proposes an evolution of TANESCO structure that is to be implemented gradually over time
TANESCO step-by-step structure evolution
TANESCOIPPsEPPs
TODAY
IPPsEPPs
Next 12-18 months TANESCO DxTANESCO Gx TANESCO Tx
IPPsBy 2015/16TANESCO DxTANESCO Gx TANESCO Tx SO
IPPsBy 2020 Dx1
Dxn
Dx2
Gxn
Gx2
Gx1Public Tx SO1
Exact number of resulting Generation and Distribution companies will depend on sector demands in 2020
Sector evolution should be gradual, following step-by-step timeline
Evol
utio
n
EXECUTIVE SUMMARY
SOURCE: Energy lab1 System Operator
3
37
In the next year, MEM will need to develop and publish 2 documents to outline its vision for the electricity sector
SOURCE: Energy lab
Roadmap for sector reform Subsidy policy
▪ Outlines the government’s plans to subsidise the electricity market annual through 2020– Describes the level of the
subsidy, including target tariff level and subsidised consumers
– Describes the process of subsidy provision (i.e. to utility or directly to consumers)
To be published by 31 December 2013
▪ Details the medium and long term structure and policy plan for the sector (e.g. structure of national utility, private sector participation, privatisation)
▪ Matches the objectives and targets of the PSMP
▪ Details expected electricity sector state in 2015, 2020 and 2035
To be published by 30 June 2014
EXECUTIVE SUMMARY3
38
The energy lab proposes 3 additional initiatives that could not be detailed and fully evaluated during the lab process
▪ Development of 100 MW wind-powered plant in Singida
▪ Wind East Africa consortium (Six Telecom Ltd, Aldwych International and International Finance Corporation) is planning to invest USD 89 million into this USD 285 million project
▪ The project has the potential to enhance power supply reliability, increase diversification of power sources and help fight climate change
▪ 100 MW of wind powered generation
▪ TZS 485 billion worth of investment (private + development partner)
▪ Could be on-line prior to June 2016
SingidaWind East Africa project
Initiative description Impact expectedEnhance effectiveness of plant maintenance by Ensuring timely procurement and availability of
spare parts and tools through framework contracts
Entering into training contracts to enhance repair skills and effectiveness
▪ 123 additional GWhdelivered per annum
▪ TZS 21 billion additional revenue per annum
Mainte-nancestrategy
Rental solar farms
Replacing Diesel / HFO generation with a rental solar plant with up to 100 MW capacity and a lead time of 6 months
Per-unit price is 30-50% less than that of Diesel / HFO generators
▪ Up to 100 MW of solar powered generation
▪ Reduction in generation cost
SOURCE: Energy lab
39
Contents
▪ Sector context and case for change
▪ Vision and overview of initiatives
▪ Funding requirement, governance structure, KPIs and quick wins
EXECUTIVE SUMMARY
40
More than 40% of the cost for Lab recommendations will be covered by the private sector and Development Partners
610521
Optimisingexisting assets
Sector structure
Development - GoT1
5,502
Development - DPs
1,868
Recurring - GoT
196
2,147
Total required investment through Jun’16
9,793
2,268
3,139
3,255
NewDistribution
Recurring - DPs
Private setor(including PPPs)
80NewGeneration
NewTransmission
TZS billion
1 Excludes TZS 170 billion minimum Government equity contribution to PPPsSOURCE: Energy lab
Includes Kinyerezi III and IV generation projects that were previously dependant exclusively on GoT funding
A further TZS 500-650 million could be removed from the budget by renegotiating the Dar-Arusha EPC contract
EXECUTIVE SUMMARY
Total required investment through Jun’16
41
Detailed budget request for Energy Lab initiativesTZS billion
No Initiatives / Projects RE DE TOTAL1 Ensure on-time completion of Mtwara-Dar pipeline 0 133.616 133.616 2 Manage water and operate dams sustainably 0.046 0.361 0.407 3 Strengthen transmission and distribution network 26.632 391.978 418.610 4 Introduce targeted demand management initiatives 1.007 23.188 24.195 5 Optimise EPP and IPP dispatch and fuel supply 111 32.710 32.821
15 Energy industry reform 0.567 0 0.56716 Enhance TANESCO’s financial viability & accountability 40.977 480.000 520.977
Private-sector contribution 0 2,147.453 2,147.453Total 275.557 9,517.713 9,793.270
Ener
gy
Del
iver
yPr
ojec
t Del
iver
ySe
ctor
st
ruct
ure
6 Kinyerezi I and II 0 1,107.989 1,107.989 7 Backbone Transmission Investment Project 0 481.803 481.803 8 Dar-Chalinze-Tanga-Arusha 0 1,312.850 1,312.850 9 Dar-Morogoro-Dodoma 0 368.195 368.195 10 Singida-Arusha 0 412.746 412.746 11 Somanga-Kinyerezi 0 144.925 144.925 12 Makambako-Songea 0 146.360 146.360 13 North West Grid Phase 1 0 271.820 271.820 14 Execute electrification distribution projects 206,217 2,062.172 2,268.389
Lab recommends attempting to revise/replace contract to reduce cost by 35-50%
SOURCE: Energy lab
EXECUTIVE SUMMARY
42
Overview of KPIs for the Ministry of Energy and Minerals (1/3)
SOURCE: Energy lab
EXECUTIVE SUMMARY
ENERGY KPIKPI description Unit Dec 2012
value30 June 2014 Target 30 June 2015 Target 30 June 2016 Target
Top Line indicatorIncrease annual energy delivery to Tanzania (consumption) (Annual energy produced ‐ losses) / population fof Tanzania (as per NBS)
kWh/capita
97 102 165 236
(1) Energy deliveryGWh produced from existing power plants (excluding EPP plants)
GWh 5498 5800 7350 7600
% of energy lost during transmission and distribution
% of total units sent out
21% 19% 17% 15%
CFL light bulb replacement and energy efficiency standards and lebels prepared .
Milestone 0 By 30 June 2014,‐ 3.2 million flurescent lightbulbs replaced in pilot phase and impact of pilot evaluated‐ Industrial roundtable conducted
Energy efficiency programme report published by 30 June 2015
Energy efficiency standards and lebels in place by 30 June 2016
Number of connections added (grid and offgrid) during the year
Electricity connections
125.000 150.000 175.000 265.000
Energy generated in GWh by EPPs phaseout (annual)
GWh 617 520 120 0
43
Overview of KPIs for the Ministry of Energy and Minerals (2/3)
SOURCE: Energy lab
EXECUTIVE SUMMARY
ENERGY KPIKPI description Unit Dec 2012
value30 June 2014 Target 30 June 2015 Target 30 June 2016 Target
(2) Project deliveryMtwara‐ DSM pipeline constructed and commissioned by November 2014
Milestone Not started To be confirmed Completion of on‐shore pipeline construction by 30 June 2014
N/A
Kinyerezi I gas fired power plant constructed and commissioned by 2015/16
Milestone Not started Mechanical erection and installation completed by 30 June 2014
Commisioned by 30 September 2014 N/A
Kinyerezi II gas fired power plant constructed
Milestone Not started Site construction started 4 GTGs (112MW) attain COD Commisioned by 31 January 2016
Kinyerezi III gas fired power plantconstructed and commissioned by 2015/16
Milestone Not started 100% of funding secured by 31 October 2013
Commisioned by 31 January 2015 N/A
Kinyerezi IV constructed and commissioned by 2015/16
Milestone Not started 100% of funding secured by 31 October 2013
Commisioned by 31 January 2015 N/A
Singida GeoWind Phase I constructed and commissioned by 2015/16
Milestone Not started Turbines delivered to site by 30 June 2014
Commisioned by 31 December 2014 N/A
Kilwa Energy Phase I gas fired power plant constructed and commissioned by 2015/16
Milestone Not started Site construction started by 30 June 2014
Phase 1 commisioned by 30 June 2015 N/A
44
Overview of KPIs for the Ministry of Energy and Minerals (3/3)
ENERGY KPIKPI description Unit Dec 2012
value30 June 2014 Target 30 June 2015 Target 30 June 2016 Target
(2) Project delivery (continued)“Backbone:” Iringa – Dodoma‐Singida –Shinyanga line implementation progress
Milestone In tender review
Foundation construction commenced by 30 June 2014
300 km of stinging completed by 30 June 2015
657 km completed and commisioned by 28 February 2016
Makambako – Songea transmission line implementation progress
Milestone In EPC procurement
All wayleave cleared and first construction started by 30 June 2014
250 km of stinging completed by 30 June 2015
300 km completed and commisioned by 30 October 2015
Dar – Chalinze‐Tanga‐ Arusha transmission line implementation progress
Milestone Not started All wayleave cleared by 30 June 2014
350 km of stinging completed by 30 June 2015
702 km completed and commisioned by june 2016
Somanga – Kinyerezi transmission line implementation progress
Milestone Not started Site construction started by 30 June 2014
203 km completed and commissioned by June 2015
N/A
North West Grid Phase 1 and north extensions implementation progress
Milestone Not started All procurement completed by 30 June 2014 (for all portions)
250 km of stinging completed by 30 June 2015 for NW Grid‐Bulyanhulu line (55km) commisioned by 30 June 2016
340 km completed and Bulyanhulu‐Geita line commisioned by 30 September 2015
Dar –Morogoro‐ Dodoma transmission line implementation progress
Milestone Not started 100% of procurement completed 30 May 2014
Dar‐Morogoro phase of lline completed by 30 June 2015
431 km completed and commisioned by June 2016
Singida‐Arusha (Kenya connector) transmission line implementation progress
Milestone Not started EPC contractor award completed by 30 June 2014
414 km completed and commisioned by June 2015
N/A
(3) Sector structureReduce TANESCO's debt level TZS at
budget year end
344 billion 230 billion 150 billion 50 billion
MEM documents on sector reform published for public knowledge
Published papers
In process Roadmap for sector reform published by 30 June 2014
Sector subsidy policy published by September 30, 2014
N/A
EXECUTIVE SUMMARY
45
Five projects and initiatives will realise impact in the first 12 months
Initiative Impact Timing of impact
SOURCE: Energy lab
Sep 2013
Jun2014
Jun2014
Jun2014
Jun2014
Optimise EPP usage TANESCO cost reduction of TZS 11.4 billion/month
Deliver year-1 prioritisedelectrification projects
150.000 new connections 1.2 million Tanzanians with electricity access
Demand management 3.2 million florescent bulbs replaced Evening peak demand reduced by 85
MWh
Strengthen Transmission and Distribution grid
T&D losses reduced from 21% to 19%
Optimise dam operations Enhance in-dam operations to follow optimal path and adapt to demand profile
EXECUTIVE SUMMARY
46
Post-lab : Governance Structure
Proposed Members:▪ MEM▪ TANESCO▪ REA▪ TPDC▪ EWURA▪ Private sector (TBD)▪ Ministry of Water (rep)▪ Ministry of Agriculture (rep)
Proposed Members:▪ MEM▪ TANESCO▪ REA▪ TPDC▪ EWURA▪ Private sector (TBD)▪ Ministry of Water (rep)▪ Ministry of Agriculture (rep)
NKRA Steering CommitteeChair: PresidentDeputy Chair: Minister of Energy & Minerals
NKRA Steering Committee level: Meet once a month▪ Workstream / initiative
owners to provide progress updates
▪ Make decisions and provides guidance / direction to the team
▪ Resolves conflicts▪ Oversees all other matters
related to NKRA
Working level:Meet more frequently (i.e. fortnightly)▪ Liaise directly with
Ministry’s Delivery Unit and respective PDBdirectors
▪ Permanent secretary of Ministry of Finance
▪ Confederation of Tanzanian Industry
▪ Exec Secretary of POPC▪ Other members TBD
Owners:TANESCO
Secretariat:Ministry Delivery Unit (supported by PDB)
Secretariat:Ministry Delivery Unit (supported by PDB)
Owners:Kilwa Energy
Owners:NDC
Owners:TPDC
Project Manager Kinyerezi I, II, III, IV (incl. Tx)
Project Manager Kilwa (incl. Tx)
Project Manager Singida
Project ManagerMtwara-Dar
Owners:TANESCO
Project ManagerNW Grid
Owners:TANESCO
Project Manager Backbone
Owners:TANESCO
Project Manager• Dar-Arusha• Somanga-Kinyerezi• Singida-Arusha• Dar-Dodoma
Owners:TANESCO
Project ManagerMakambako-Songea
Owners:REA/ TANESCO
Project ManagerElectrification Urban & rural
Owners:TANESCO
Project ManagersTx/Dx Upgrades
Owners:TANESCO
Project ManagerWater Management
Owners:MEM
Project ManagerEPPs Operations
EXECUTIVE SUMMARY
Owners:TANESCO
Project ManagerDemand Management
47
Initiatives Stakeholder 1 Stakeholder 2 Stakeholder 3 Stakeholder 4 Stakeholder 5
Increase utilisation of existing gas plants bydelivering Mtwara pipeline
Manage catchment area water usage at Mtera and in-dam operations at all hydro plants
Reduce technical and non-technical losses through transmission and distribution upgrades and meter replacement
Introduce targeted demand management to reduce evening peak load
Reduce EPP costs and reliance by optimisingdispatch and installing meters
NKRA Energy Lab ReportBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFFBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFF
I hereby affirm my support for the findings of the NKRA Energy Lab (conducted between February 22, 2013 – April 12, 2013) and endorse the lab’s recommended initiatives and implementation programme. I also hereby pledge the efforts of my
ministry/department/agency/organization to achieving the initiatives and outcomes detailed in this report
Page 1 of 2
48
Initiatives Stakeholder 1 Stakeholder 2 Stakeholder 3 Stakeholder 4 Stakeholder 5
Prioritise projects based on feasibility of completion in 3 years
Monitor and execute projects using a new governance model
Utilise alternative funding models to reduce the Government of Tanzania’s burden to finance projects
Streamline critical processes to minimisetimelines and risk of delay
Evolution of sector strucutre
NKRA Energy Lab ReportBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFFBIGRESULTSNOWLAB:STAKEHOLDERSIGN‐OFF
I hereby affirm my support for the findings of the NKRA Energy Lab (conducted between February 22, 2013 – April 12, 2013) and endorse the lab’s recommended initiatives and implementation programme. I also hereby pledge the efforts of my
ministry/department/agency/organization to achieving the initiatives and outcomes detailed in this report
Page 2 of 2
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