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Document of

The World Bank

Report No: ICR00004220

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-52150 AND IDA-53970)

ON A

SERIES OF TWO CREDITS

IN THE TOTAL AMOUNT OF SDR 130.1 MILLION

(US$200 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR THE

FIRST AND SECOND POWER AND GAS SECTOR DPO

December 21, 2017

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of December 21, 2017)

Currency Unit = Tanzania Shilling (T Sh)

T Sh 2,240.00 = US$1.00

US$1.00 = SDR 0.706255

GOVERNMENT FISCAL YEAR

July 1 – June 30

TANESCO FINANCIAL YEAR

Since July 1, 2015: July 1 – June 30

Transition year: January 1, 2014 – June 30, 2015

Until December 31, 2013: January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AfDB African Development Bank

CAS Country Assistance Strategy

DP Development Partner

DPO Development Policy Operation

EPP Emergency Power Producer

ESCBP Energy Sector Capacity Building Project

EWURA Energy and Water Utilities Regulatory Authority

FYDP Five Year Development Plan

GDP Gross Domestic Product

GHG Greenhouse Gas

IMF International Monetary Fund

IPP Independent Power Producer

IPTL Independent Power Tanzania Ltd.

ISR Implementation Status and Results Report

KPI Key Performance Indicator

LNG Liquefied Natural Gas

MEM Ministry of Energy and Minerals

MOF Ministry of Finance and Planning

M&E Monitoring and Evaluation

NAO National Audit Office

NDC Nationally Determined Contribution

NGUMP National Gas Utilization Master Plan

NNGIP National Natural Gas Infrastructure Project

PDO Program Development Objective

PPP Public Private Partnership

PPRA Public Procurement Regulatory Authority

PSMP Power System Master Plan

REA Rural Energy Agency

SCF Standby Credit Facility

TANESCO Tanzania Electric Supply Company

TPDC Tanzania Petroleum Development Corporation

USAID U.S. Agency for International Development

iii

Senior Global Practice Director: Carlos Felipe Jaramillo

Country Director: Bella Bird

Practice Director: Paloma Anos Casero

Task Team Leaders: Jacques Morisset, Yutaka Yoshino

ICR Task Team Leader: Joern Huenteler

ICR Primary Author: Nestor Ntungwanayo

iv

CONTENTS

Data Sheet

A. Basic Information ................................................................................................................... v

B. Key Dates ............................................................................................................................... v

C. Ratings Summary .................................................................................................................. vi

D. Sector and Theme Codes ...................................................................................................... vii

E. Bank Staff ............................................................................................................................ viii

F. Results Framework Analysis .................................................................................................. x

G. Ratings of Program Performance in ISRs ........................................................................... xiii

H. Restructuring (if any) .......................................................................................................... xiii

1. Program Context, Development Objectives, and Design ........................................................... 1

2. Key Factors Affecting Implementation and Outcomes .............................................................. 8

3. Assessment of Outcomes .......................................................................................................... 18

4. Assessment of Risk to Development Outcome ......................................................................... 34

5. Assessment of Bank and Borrower Performance ..................................................................... 36

6. Lessons Learned........................................................................................................................ 39

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........................... 40

Annex 1. Bank Lending and Implementation Support/Supervision Processes ............................. 41

Annex 2. Beneficiary Survey Results ........................................................................................... 43

Annex 3. Stakeholder Workshop Report and Results ................................................................... 44

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ..................................... 45

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ....................................... 46

Annex 6. Supporting Data............................................................................................................. 47

Annex 7. List of Supporting Documents ...................................................................................... 49

Annex 8. Map................................................................................................................................ 50

v

A. Basic Information

Program 1

Country Tanzania Program Name TZ First Power and Gas

Sector DPO

Program ID P143645 L/C/TF Number(s) IDA-52150

ICR Date December 21, 2017 ICR Type Core ICR

Lending Instrument Development Policy

Lending Borrower

Ministry of Finance and

Planning

Original Total

Commitment SDR 64.90 million Disbursed Amount SDR 64.90 million

Implementing Agency: Ministry of Finance and Planning

Cofinanciers and Other External Partners: n.a.

Program 2

Country Tanzania Program Name TZ Second Power and

Gas Sector DPO

Program ID P145254 L/C/TF Number(s) IDA-53970

ICR Date December 21, 2017 ICR Type Core ICR

Lending Instrument DPL Borrower Ministry of Finance and

Planning

Original Total

Commitment SDR 65.20 million Disbursed Amount SDR 65.20 million

Implementing Agency: Ministry of Finance and Planning

Cofinanciers and Other External Partners: n.a.

B. Key Dates

TZ First Power and Gas Sector DPO - P143645

Process Date Process Original Date Revised/Actual

Date(s)

Concept Review: 01/17/2013 Effectiveness: - 06/12/2013

Appraisal: 02/06/2013 Restructuring(s): - -

Approval: 03/26/2013 Mid-term Review: 11/07/2013 11/07/2013

Closing: 06/30/2014 06/30/2014

vi

TZ Second Power and Gas Sector DPO - P145254

Process Date Process Original Date Revised/Actual

Date(s)

Concept Review: 11/07/2013 Effectiveness: - 06/09/2014

Appraisal: 02/03/2014 Restructuring(s): n.a. n.a.

Approval: 03/21/2014 Mid-term Review: 11/07/2013 11/07/2013

Closing: 06/30/2015 06/30/2015

C. Ratings Summary

C.1 Performance Rating by ICR

Overall Program Rating

Outcome Moderately Unsatisfactory

Risk to Development Outcome High

Bank Performance Moderately Satisfactory

Borrower Performance Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Overall Program Rating

Bank Ratings Borrower Ratings

Quality at Entry Moderately Satisfactory Government: n.a.

Quality of

Supervision: Moderately Satisfactory

Implementing

Agency/Agencies: n.a.

Overall Bank

Performance Moderately Satisfactory

Overall Borrower

Performance Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators


Implementation

Performance Indicators

QAG Assessments

(if any) Rating:

Potential Problem Program

at any time (Yes/No): No Quality at Entry (QEA) None

Problem Program at any

time (Yes/No): No

Quality of Supervision

(QSA) None

DO rating before

Closing/Inactive status

Moderately

Satisfactory

vii


Implementation

Performance Indicators

QAG Assessments

(if any) Rating:

Potential Problem Program

at any time (Yes/No): No Quality at Entry (QEA) None

Problem Program at any

time (Yes/No): No

Quality of Supervision

(QSA) None

DO rating before

Closing/Inactive status

Moderately

Satisfactory

D. Sector and Theme Codes


Original Actual

Major Sector

Energy and Extractives

Other Energy and Extractives 57 57

Oil and Gas 43 43

Major Theme/Theme/Sub Theme

Private Sector Development

Business Enabling Environment 28 28

Investment and Business Climate 28 28

Jobs 14 14

Job Creation 14 14

Public Sector Management

Public Administration 15 15

Transparency, Accountability and Good Governance 15 15

Public Finance Management 15 15

Public Expenditure Management 15 15

Urban and Rural Development

Rural Development 14 14

Rural Infrastructure and Service Delivery 14 14

Urban Development 14 14

Urban Infrastructure and Service Delivery 14 14

viii


Original Actual

Major Sector

Energy and Extractives

Other Energy and Extractives 44 44

Energy Transmission and Distribution 11 11

Oil and Gas 45 45

Major Theme/Theme/Sub Theme

Private Sector Development

Jobs 14 14

Job Creation 14 14

Public Private Partnerships 10 10

Public Sector Management

Public Administration 15 15

Transparency, Accountability and Good Governance 15 15

Public Finance Management 15 15

Public Expenditure Management 15 15

Urban and Rural Development

Rural Development 14 14

Rural Infrastructure and service delivery 14 14

Urban Development 14 14

Urban Infrastructure and Service Delivery 14 14

E. Bank Staff


Positions At ICR At Approval

Vice President: Makhtar Diop Makhtar Diop

Country Director: Bella Bird Philippe Dongier

Practice Manager/Manager: Abebe Adugna Dadi Albert Zeufack

Task Team Leader: Jacques Morisset Jacques Morisset

ICR Team Leader: Joern Huenteler




Vice President: Makhtar Diop Makhtar Diop

Country Director: Bella Bird Philippe Dongier

ix



Practice Manager/Manager: Abebe Adugna Dadi Albert Zeufack

Task Team Leader: Yutaka Yoshino Yutaka Yoshino

ICR Team Leader: Joern Huenteler


x

F. Results Framework Analysis

Program Development Objective (from Program Document Loan and Program Summaries)

The PDO of the program was to (a) strengthen the country’s ability to bridge the financial gap in its

power sector, (b) reduce the cost of power supply and promote private sector participation in the power

sector, and (c) strengthen the policy and institutional framework for the management of the country’s

natural gas resources.

Revised Program Development Objectives

The PDO was not revised during the period of implementation of the two operations (DPO-1 and DPO-2).

PDO Indicator(s)

TZ First and Second Power and Gas Sector DPOs (P143645 and P145254).

Indicator Baseline Value

Original Target

Values (from

approval

documents)1

Actual Value

Achieved when the

DPO program

elapsed

Actual Value

Achieved at the

time of the ICR

Pillar 1 Strengthening the country’s ability to bridge the financial gap in its power

sector

Indicator 1: TANESCO operating deficit (US$ million)

Value (quantitative

or qualitative)

240 50 92a (80)

b

(profit)

Date achieved Year to

December 31,

2013

2016 Year to June 30,

2016

Year to June 30,

2017

Comments (including

% achievement)

Overachieved, albeit with delay. Improvements in the operating deficit of the

Tanzania Electric Supply Company (TANESCO) were a result of (a) tariff

reforms, (b) significant cost reductions (Indicator 5), and (c) significant

reductions in technical and non-technical losses (Indicator 3). Results were

achieved despite a major depreciation of the Tanzanian Shilling during FY2015

(8 percent) and FY2016 (24 percent), affecting TANESCO’s fuel cost.

Indicator 2: TANESCO accounts (trade and other) payable (T Sh billion)

Value (quantitative

or qualitative)

707 300 1,187a 1,331

b

Date achieved 2012 2016 June 30, 2016 June 30, 2017

Comments (including

% achievement)

Not achieved, because of (a) pressure on TANESCO’s cash flow as external

financing is insufficient for TANESCO’s investment program, including for new

connections; (b) insufficient surplus cash generated from operations; and (c) a

major depreciation of the T Sh (see Indicator 1) (TANESCO’s arrears are mostly

denominated in U.S. dollars but indicator is in Tanzania Shilling).

Indicator 3: TANESCO technical and non-technical losses in transmission and

1 Indicators and their targets were partially revised during the preparation and approval of the second DPO in

February 2014. The DPO series assesses the Program against the revised indicators.

xi



Original Target

Values (from

approval

documents)1

Actual Value

Achieved when the

DPO program

elapsed

Actual Value

Achieved at the

time of the ICR

distribution (%)

Value (quantitative

or qualitative)

21 18 18.29c 16.44

c

Date achieved 2012 2016 Year to June 30,

2016

Year to June 30,

2017

Comments (including

% achievement)

Achieved and subsequently exceeded, as a result of measures to enhance

transparency in—and accountability for—TANESCO’s operational performance,

as well as investments in grid strengthening.

Pillar 2: Reducing the cost of power supply and promoting private sector

participation in the power sector

Indicator 4: Amount of gas-fired power generation capacity commissioned after 2011

(MW)

Value (quantitative

or qualitative)

105 400 255d 255

d

Date achieved 2012 2016 March 20, 2016 June 30, 2017

Comments (including

% achievement)

Not achieved. The Kinyerezi I gas power plant (150 MW) was fully

commissioned in 2016 and the first unit of Kinyerezi II is expected to be

commissioned by the end of 2017. However, while construction of both power

plants was delayed, the pressure to commission new capacity was less than

anticipated as demand grew much slower than expected (actual sales in 2016

were 17% lower than projected in the Program Document of the first

Development Policy Operation [DPO-1]) and hydrology conditions have been

relatively favorable. However, TANESCO will need to secure additional capacity

soon to be able to withstand another major drought.

Indicator 5: Average unit cost of power sales (US$/kWh)

Value (quantitative

or qualitative)

0.18f 0.15 0.12

a 0.09

b

Date achieved 2012 2016 Year to June 30,

2016

Year to June 30,

2017

Comments (including

% achievement)

Achieved and significantly exceeded, as a result of (a) the phaseout of

emergency power plants, made possible by relatively good hydrological years in

2015 and 2017, new gas-fired generation capacity, and relatively slow demand

growth; (b) a shift from oil products to natural gas in the generation mix; and (c)

significant reductions in technical and non-technical losses (Indicator 3).

Indicator 6: Number of bids for gas IPP power plants launched on a competitive basis

(count)

Value (quantitative

or qualitative)

0 1 0 0


Comments (including

% achievement)

Not achieved. The pressure to secure new capacity has not been as high as

anticipated (see Indicator 4). In addition, a series of major sector governance

controversies relating to independent power producers (IPPs) and emergency

power producers (EPPs) slowed down plans for procurement of privately-owned

xii



Original Target

Values (from

approval

documents)1

Actual Value

Achieved when the

DPO program

elapsed

Actual Value

Achieved at the

time of the ICR

generation capacity during the Program period.

Indicator 7: Ministry of Energy and Minerals (MEM)2 documents on sector reforms

published for public knowledge (count)

Value (quantitative

or qualitative)

0 2 2 2


Comments (including

% achievement)

Achieved. The two major sector reform documents approved by MEM since

2012 are (a) the Electricity Supply Industry Reform Strategy and Roadmap 2014–

2025 (2014) and (b) the National Energy Policy (2015).

Pillar 3 Strengthening the policy and institutional framework for the management of

the country’s natural gas resources

Indicator 8: Volume of gas produced (mmscfd)

Value (quantitative

or qualitative)

78 250 102e 132

e

Date achieved 2012 2016 Year to December

31, 2015

Year to December

31, 2016

Comments (including

% achievement)

Not achieved. Growth in gas production has been much slower than anticipated

at approval of the DPOs, largely due to (a) slow domestic demand growth (see

Indicator 4); (b) the decline in global energy prices; and (c) slow reform progress

in the upstream regulatory and policy framework.

Indicator 9: Amount of onshore proven natural gas reserves (Tcf)

Value (quantitative

or qualitative)

1.0 3.5 1.369e 1.187

e

Date achieved 2012 2016 April 1, 2015c December 31,

2016

Comments (including

% achievement)

Not achieved. Probable reserves are now estimated at 57 Tcf. However,

investment exploration and production (which would probable reserves into

‘proven reserves’) has been subdued, largely due to (a) slow domestic demand

growth (see Indicator 4); (b) the decline in global energy prices; and (c) slow

reform progress in the upstream regulatory and policy framework.

Indicator 10: Annual monitoring under the Natural Resource Charter initiative

Value (quantitative

or qualitative)

No Yes No No


Comments (including

% achievement)

Not achieved. Reform progress in the upstream regulatory and policy framework

has been much slower than anticipated, as a result of a series of sector

governance controversies in the energy and minerals sectors (details in the main

text) in combination with a change in Government and policy priorities and the

decline in global energy prices which made the development of Tanzania’s

2 The ICR was prepared before the Ministry of Energy and Minerals was renamed the Ministry of Energy in late

2017.

xiii



Original Target

Values (from

approval

documents)1

Actual Value

Achieved when the

DPO program

elapsed

Actual Value

Achieved at the

time of the ICR

natural gas resources less lucrative.

a. Source: Audited financial statements of TANESCO. b. Source: Draft unaudited financial statements of

TANESCO. c. Source: TANESCO. d Source: TANESCO.

e. Source: National Bureau of Statistics; Tanzania Petroleum Development Corporation.

Note: f. Updated data suggest that the 2012 baseline was 0.16; the value in 2013 was 0.18.

G. Ratings of Program Performance in ISRs


No. Date ISR

Archived DO IP

Actual Disbursements

(US$, millions)

1 04/16/2014 Moderately Satisfactory Moderately Satisfactory 98.22


No. Date ISR

Archived DO IP

Actual Disbursements

(US$, millions)

1 08/13/2015 Moderately Satisfactory Moderately Unsatisfactory 100.43

H. Restructuring (if any)

There were no program restructurings during the period of implementation of the two operations (DPO-1

and DPO-2). However, results indicators and triggers were revised during the appraisal of DPO-2.

1

1. Program Context, Development Objectives, and Design

1. This Implementation Completion and Results Report (ICR) assesses the results of the

programmatic series of two Development Policy Operations (DPOs) to the United Republic of

Tanzania. The DPO series aimed to (a) strengthen the country’s ability to bridge the financial gap in its

power sector, (b) reduce the cost of power supply and promote private sector participation in the power

sector, and (c) strengthen the policy and institutional framework for the management of the country’s

natural gas resources. The first operation (DPO-1) of SDR 64.90 million was approved by the World

Bank’s Board of Directors on March 26, 2013. The second operation (DPO-2) of SDR 65.20 million was

approved on March 21, 2014.

2. The series was originally set up to consist of three programmatic DPOs. However, because of

a delay in implementing the prior actions for DPO-3, on March 20, 2016 the programmatic series was

considered to have lapsed because no subsequent operation was presented to the Board within 24 months

after the Board approval of the previous operation in the series. A concept review meeting for a follow-up

series of two operations was held in July 2016, but preparation of the follow-up DPO series was cancelled

at the time of this ICR.

1.1 Context at Appraisal

3. When the DPO reform program was initiated in 2013, only 16 percent of Tanzanians had

access to electricity and the lack of access to affordable and reliable energy was viewed as a major

constraint to Tanzania’s economic growth and diversification. Based on the latest Household Budget

Survey 2011/12 data, only 16 percent of the population had access to electricity. Tanzania had access

rates that were higher than Malawi and Uganda (9 percent) but lower than Kenya and Zambia (over 20

percent) and far lower than developing countries of East Asia (more than 90 percent coverage) and South

Asia (62 percent). Access to the national grid was particularly limited in rural areas and for the poor. Only

1.1 percent of the lowest income quintile in rural areas had access to electricity.3 U.S. Agency for

International Development (USAID) and World Bank studies4 found that poor infrastructure, especially

power and transport, was a key constraint to economic growth and diversification in Tanzania. Managers

of firms and most Tanzanian enterprises considered routine load shedding and power outages to be the

most serious constraint to doing business. The lack of access to cheap and reliable energy was costing

local firms as much as 5 percent of sales and as much as 18 percent for manufacturing firms. This scale

was consistent with other reports in Africa, which suggest that power outages result in significant losses

equivalent to 6–16 percent of turnover. To promote electricity access, in early 2013, the Government

reduced connection fees by 30 percent to 90 percent, and instructed the Tanzania Electric Supply

Company (TANESCO) to increase its customers base to 1,500,000 by 2015 and target 250,000 new

connections per year.

4. Reforms to modernize Tanzania’s power sector had begun in the early 2000s but a

significant sector reorganization, stipulated by the Electricity Act of 2008, still had to be

implemented. TANESCO, the vertically integrated utility, was corporatized in 2002 under the Public

Corporations Act, but is still fully government-owned. The company was under a private management

contract between May 2002 and December 2006, which focused on financial and technical performance

improvements. A Rural Electrification Agency was established through the Rural Energy Act of 2005,

with the mission to promote and facilitate availability and access to modern energy services in rural

3 National Panel Survey, 2010–2011.

4 USAID. 2011. “Tanzania Growth Diagnostics, Partnership for Growth.” and World Bank. 2009. “Investment

Climate Assessment.”

2

mainland Tanzania. An independent Energy and Water Utilities Regulatory Authority (EWURA) became

operational in 2006. This was followed by the adoption of an Electricity Act in 2008, which established a

stronger separation between ownership, policy, and regulatory functions and created a clearer framework

for sector governance, licensing, and tariff regulation. The Act included a mandate for the Ministry of

Energy and Minerals (MEM) to prepare and publish a policy for the reorganization of the electricity

market. The Act also stipulated the strengthening of the governance of TANESCO, reforming its top

management structure and creating a Board of Directors with public and private sector stakeholder

representations. However, implementation of the Electricity Act of 2008 had yet to make significant

progress by the time of the appraisal of DPO-1, and the Government retained strong influence over all

decision-making in the sector.

5. Tanzania was facing a power supply crisis during the appraisal of DPO-1 and DPO-2,

which threatened to derail the country’s industrialization agenda, put severe financial strain on

TANESCO and the Government, and endangered its electricity access targets. In the years leading

up to the DPO series, Tanzania was experiencing declining reserve capacity, triggered by growing

demand and years of underinvestment in new and diversified generation capacity. Out of total of 1,092

MW of installed capacity in 2010, hydropower represented 52 percent, natural gas 33 percent, oil

products 13 percent and imports 1 percent. In FY2010/11, as a result of poor rainfall that reduced

hydropower production, Tanzania started experiencing a series of supply deficit. At the peak of the crisis,

in mid-2011, some parts of the country experienced daily load shedding of up to 12 hours. TANESCO

entered into expensive, short-term contracts with private emergency power producers (EPPs) to provide a

total of 317 MW of generation capacity. These steps eased supply shortages but significantly increased

the cost of supply: In 2012, the share of electricity generation of the EPPs was 11 percent, but their share

of costs was 43 percent, doubling the average unit cost of sales (from US$0.08 per kWh in 2010 to

US$0.165 per kWh in 2012). This turned the power supply crisis into a financial crisis when the regulator

did not pass through the additional costs to consumers. In mid-2012, TANESCO’s financial shortfall was

running at more than US$40 million per month, as the hydrological condition continued to be below

average, while electricity demand kept increasing, requiring continued engagement of the expensive

EPPs. TANESCO accumulated arrears to the EPPs, independent power producers (IPPs), and fuel and

other suppliers, as tariffs and Government transfers to the sector did not keep up with the rising cost of

supply. By the end of 2014, the total cumulative financial gap of the energy sector was expected to be

between US$760 million and US$1 billion (or between 2.9 percent and 3.8 percent of gross domestic

product [GDP]). The reform program prepared by the Government in response to this power supply crisis

(the ‘Program’) was supported by the DPO series (envisioned as programmatic DPO series with three

operations). The Program was also supported by the IMF and the AfDB.

6. To respond to the power sector crisis, the Government had prepared a Program of reforms

that included (a) crisis-response measures to address the short-term fiscal risks; and (b) medium- to

long-term reform measures to prevent a similar crisis from repeating in the future. The Program had

support at the highest levels of the Government and had been developed in close collaboration with

development partners (DPs). It consisted of prior actions under three, interlinked pillars. The short term,

crisis-response elements of the Porgram included measures to close the financial gap in the power sector

through a combination of tariff reforms, transparent Government transfers to TANESCO, and

Government-guaranteed commercial borrowing by TANESCO (Pillar 1). The medium to long-term

reform measures (crisis-prevention) aimed at ensuring that the power and the gas sectors are developed

5 At the time of appraisal, the estimate of the cost of supply in 2012 was US$0.18, which is reflected in the baseline

of Results Indicator 5. However, more recent statistics indicate that the average cost of supply was US$0.16 in

FY2012 and US$0.18 in FY2013.

3

and operated in a more efficient, transparent, and financially sustainable manner. To reduce the cost of

supply and mitigate the risk of supply shocks (such as droughts or oil price increases), the authorities

intended to shift the energy mix away from the expensive emergency supply to more efficient, gas-fired

generation, developed through the private sector (Pillar 2). To ensure sufficient gas supply to the power

sector (and the economy overall), the authorities aimed to develop a framework to attract investment in

upstream natural gas exploration and production (Pillar 3).

7. Increasing gas production in a relatively short period and at relatively low cost required an

adequate investment framework that had the capacity to incentivize investment in gas production.

During 2013–16, the Government’s strategy was to use existing nearshore gas reserves to supply new gas

power plants through the construction of a new pipeline. In the longer term, the authorities planned to

invest in renewable resources and possibly coal and hydroenergy. The development of offshore massive

gas reserves was at the top of the Government’s agenda, but the expected impact on economic growth and

poverty was expected to occur only when production starts in about 7–10 years. The objective of the

strategy was not only to increase power capacity but also to significantly reduce production costs by

lowering the reliance of the energy network on expensive fuel power plants. It could also help diversify

the risks associated with climatic shocks and variations in fuel prices on international markets. The DPO

series was to support this medium-term vision.

8. The proposed series was to complement a larger World Bank portfolio supporting the

energy sector of Tanzania directly or indirectly. Ongoing and planned complementary World Bank

interventions cited in the Program documents included the following: (a) investment lending that intended

to promote access to energy, strengthen the transmission and distribution network, and expand use of

renewable energy6; (b) the Energy Sector Capacity Building Project (ESCBP, P126875)

7; (c) nonlending

analytical work and technical assistance on the multisector gas agenda; (d) a potential policy-based

guarantee operation to increase the capacity of TANESCO to borrow commercially at attractive terms;

and (e) ongoing and future general budget support aimed at improving effectiveness and transparency in

public finance areas including revenue mobilization and public investment management.

9. The country’s macroeconomic performance during the period covered by the DPO

program was broadly positive (Table 1). The real GDP annual growth for Tanzania remained high

during FY2013–17, averaging about 7.0 percent, driven by construction and services. In FY2016/17, the

growth rate is projected to reach 6.6 percent. The inflation rate remained low and stable. The external

balance improved, with the current account deficit falling from14.3 percent in FY2012/13 to an estimated

2.8 percent in FY2016/17. The fiscal deficit improved sharply after FY2012/13 from 6.8 percent of GDP

to around 3 percent of GDP, and remained stable throughout the Program period. However, a looser

monetary policy has yet to translate into a reduced cost of borrowing for the private sector or into

increased private investment, partly because of the continued uncertainty. Going forward, fiscal and

monetary policy challenges remain, with persistently high domestic payment arrears (at around 6 percent

of GDP at the end of FY2016/17) and the low execution rate of the development budget (62 percent in

FY2016/17) threatening the credibility of the budget. The growth outlook is favorable in the short- to

medium-term, with key risks being both mostly domestic and under the Government’s control. In the

medium term, the main risks relate to a further deterioration in business sentiment as a result of increased

policy uncertainty and to a decline in the execution rate of the development budget. The most significant

6 At the time of appraisal, the World Bank was supporting the Government’s access agenda and renewable energy

objectives (Tanzania Energy Development and Access Project [TEDAP], 2008; US$167 million) as well as

investment in transmission grid expansion (Backbone Transmission Project 2010; US$150 million). 7 The ESCBP (2015; US$35 million) provides capacity building to the Government and its institutions.

4

external risks relate to potential rebounds in oil prices, volatile global financial conditions, and a decline

in demand from Tanzania’s main export partners.

Table 1. Key Economic Indicators: FY2012/13–FY2016/17

(in percent unless otherwise indicated)

Government Fiscal Years (July 1–June 30)

2013/14 2014/15 2015/16 2016/17e 2017/18

f 2018/19

f

Real GDP growth, at constant market prices 7.0 7.0 7.0 6.6 6.8 6.9

Private Consumption 4.5 2.3 4.5 4.0 4.0 4.0

Government Consumption -0.5 -4.0 -7.4 2.6 6.3 6.2

Gross Fixed Capital Investment 12.8 11.5 8.0 5.3 10.0 9.7

Exports, Goods and Services 17.7 23.0 -23.2 3.9 2.8 4.7

Imports, Goods and Services 2.9 -2.1 -26.8 -5.3 2.9 3.6

Real GDP growth, at constant factor prices 6.9 8.6 5.7 6.5 6.8 6.9

Agriculture 3.4 2.3 2.1 2.5 2.5 2.7

Industry 10.3 11.3 10.7 10.2 10.7 10.6

Services 7.1 10.3 5.0 6.4 6.6 6.6

CPI 6.0 6.3 5.0 6.4 6.6 6.6

Current Account Balance (% of GDP) -10.3 -8.6 -4.4 -2.8 -3.3 -3.6

Financial and Capital Account (% of GDP) 11.1 9.1 4.5 2.9 3.4 3.7

Net Foreign Direct Investment (% of GDP) 5.1 3.9 2.9 2.9 5.8 9.5

M3 growth (in FY) 15.6 18.8 12.7 6.1 .. ..

Private sector credit growth (in FY) 16.5 18.2 18.5 1.3 .. ..

Revenue (% of GDP) 14.8 17.2 16.7 17.6 18.0 18.3

Expenditure (% of GDP) 17.8 20.6 20.0 20.7 21.6 21.9

Fiscal Balance (% of GDP) -3.0 -3.4 -3.3 -3.1 -3.6 -3.6

Arrears (% of GDP, in FY) 4.3 6.5 6.4 6.3 .. ..

Debt (% of GDP) 33.6 34.5 37.4 37.6 38.2 39.2

Notes: e = estimate, f = forecast.

Source: International Monetary Fund (IMF) Report, World Bank Staff.

Note: a. Net of treasury bills issued for liquidity management.

b. Excludes interest payments due on external debt under negotiation for relief and domestic unpaid claims.

1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)

10. The PDO of the Program supported by DPO-1 and DPO-2 was to (a) strengthen the country’s

ability to bridge the financial gap in its power sector, (b) reduce the cost of power supply and promote

private sector participation in the power sector, and (c) strengthen the policy and institutional framework

for the management of the country’s natural gas resources.”

5

11. The Program’s results indicators are shown in Table 2.

1.3 Revised PDO and Key Indicators, and Reasons/Justification

12. No changes were made to the PDO between DPO-1 and DPO-2.

13. DPO-2 made some changes to selected indicators with the aim to better align with the

interpretation of the original objectives and capture progress toward them. It also added three new results

indicators and revised the target year of all indicators from 2015 to 2016. Table 2 presents the two sets of

indicators indicating the concordance between them. When referring to results indicators of the DPO

series, this ICR refers to the numbering shown in Table 2 (for example, ‘Results Indicator 1’ is

TANESCO’s operating deficit).

14. The revised indicators are used in this ICR to evaluate the DPO series. When assessing the DPO

series’ achievement of its PDOs, this ICR takes into account that the results indicators were designed for a

series of three operations but only two out of three planned DPOs were approved.

Table 2. Original and Adjusted Results Indicators of the Program

# Indicator as Approved under

DPO-1

Indicator as Approved under

DPO-2

Baselinea

(2012) Target

a (2016)

Pillar 1: Strengthening the country’s ability to bridge the financial gap in its power sector

1 TANESCO operating deficit

(US$, millions)

TANESCO operating deficit

(US$, millions)

240

(DPO-1: 244)

50

2 Amount of accumulated arrears

to suppliers by TANESCO (US$,

millions)

TANESCO accounts (trade and

other) payable (T Sh, billions)

T Sh 707

billion

(DPO-1:

US$276

million)

T Sh 300

billion

(DPO-1:

US$50

million)

Pillar 2: Reducing the cost of power supply and promoting private sector participation in the power

sector

3 TANESCO technical and non-

technical losses in transmission

and distribution (%)

21 18

4 New generation capacity added

to the system, cumulative (MW)

Amount of gas-fired power

generation capacity

commissioned after 2011 (MW)

105 400

(DPO-1: >600)

5 Average unit cost of power sales

(US$/kWh)

Average unit cost of power sales

(US$/kWh)

0.18b

(DPO-1: 0.20)

0.15

(DPO-1: 0.13)

6 Number of bids for gas IPP

power plants launched on a

competitive basis

Number of bids for gas IPP


competitive basis

0 1

7 MEM documents on sector

reforms published for public

knowledge

0 2

Pillar 3: Strengthening the policy and institutional framework for the management of the country’s

natural gas resources

8 Volume of gas produced

(mmscfd)

Volume of gas produced

(mmscfd)

78 250

(DPO-1: >290)

6

# Indicator as Approved under

DPO-1

Indicator as Approved under

DPO-2

Baselinea

(2012) Target

a (2016)

9 Amount of onshore proven

natural gas reserves (Tcf)

Amount of onshore proven


1.0 3.5

10 Annual monitoring under the

Natural Resource Charter

initiative

No Yes

Note: MEM = Ministry of Energy and Mining; mmscfd = Million Standard Cubic Feet per Day; Tcf = Trillion

Cubic Feet.

a. Values in brackets are from DPO-1. b. Updated statistics indicate that the baseline cost was 0.16 in 2012 and 0.18

in 2013.

1.4 Original Policy Areas Supported by the Program

15. The DPO series supported three main policy areas, which also formed the elements of the

PDO: (a) strengthening the country’s ability to bridge the financial gap in the power sector, (b) reducing

the cost of power supply and promoting private sector participation in the power sector, and (c)

strengthening the policy and institutional framework for the management of the country’s natural gas

resources. Below is a description of the expected outcome, the prior actions completed under the two first

operations, and the triggers that were to set the stage for the third operation.


16. Expected outcomes. Pillar 1 aimed to restore the financial sustainability of the sector by (a)

raising TANESCO’s collected revenues close to a cost-reflective8 level and (b) arresting and eventually

reversing the buildup of arrears. These outcomes, measured by the size of TANESCO’s operating deficit

and the level of its arrears, were expected to be affected by measures under Pillar 1 (which focused on the

revenue side of TANESCO’s income statement) as well as Pillars 2 and 3 (which tackled the cost of

electricity supply).

17. Prior actions and triggers. Under DPO-1 and DPO-2, the Government implemented measures to

(a) increase tariffs and improve bill collection, including from Government consumers and (b) ensure

fiscal transfers to TANESCO are determined based on TANESCO’s needs as well as transparent and

consistent with an adequate macroeconomic policy framework. Triggers for DPO-3 (as approved under

DPO-2) were a comprehensive national subsidy policy with principles for subsidizing the energy sector

and a commitment to reduce the level of transfers to TANESCO in FY2014/15 to the level of not more

than 2 percent of controlled total public expenditure.9


sector

18. Expected outcomes. Pillar 2 aimed to reduce the cost and risks related to power supply by (a)

reducing system losses; (b) promoting private investment to overcome the supply shortage and ending the

dependence on EPPs; (c) replacing costly and polluting oil-fired power generation with natural gas-based

8 ‘Cost-reflective’ revenues are understood for this ICR as revenues that are sufficient to cover TANESCO’s cost.

The cost incurred by the Government of servicing debt on behalf of TANESCO is not included in this definition.

9 Controlled total expenditure = total expenditure − consolidated funds service − wage − foreign development

expenditure.

7

generation in Tanzania’s power mix; and (d) enhancing sector governance and performance through

closer monitoring, enhanced access to information for all stakeholders, and the adoption of a participative

and consultative approach to problem solving and policy formulation. These outcomes were to be

measured by newly installed generation capacity, loss reduction, unit cost of power sales; launched

tenders for private sector-owned generation capacity; and sector reform documents published by the

MEM. Expected outcomes of Pillar 2 were interlinked with those of Pillars 1 and 3, in two main ways:

First, as mentioned earlier, prior actions under this pillar were also expected to contribute to the outcomes

of Pillar 1. Second, the additional upstream gas investments required for additional gas-fired power plants

(Results Indicator 2) were to be enabled through measures under Pillar 3.

19. Prior actions and triggers. Under DPO-1 and DPO-2, the Government adopted, and took

measures to implement, a new strategic power sector policy. Implementation measures included (a) a

performance contract between TANESCO and the MEM; (b) period publication of performance reports,

financial audits, and procurement audits; and (c) launching a capacity-building program. The Government

also prepared a road map for structural reforms, which was to be approved under DPO-3. Triggers for

DPO-3 (as approved under DPO-2) were for (a) TANESCO to continue improving and reporting publicly

on collection performance and on operational losses, (b) the Government to phase out 150 MW of EPPs,

(c) TANESCO to implement the 2013 policy to promote private sector participation in power generation

by launching at least one competitive bidding process for new gas-based generation capacity to diversify

power generation sources in the country toward lower cost structure of the power sector, and (d) the

Government to approve the road map for structural reforms of the energy sector (including the power and

gas subsectors).



20. Expected outcomes. Pillar 3 aimed to expand gas supply to the sector by strengthening the policy

and institutional framework of the upstream gas sector. This expected outcome was likely to contribute to

the objectives of the other two pillars, as secure gas supply for its planned gas-fired generation capacity

was critical to reduce costs (Pillar 2) and restore the balance of revenues and costs in the sector (Pillar 1).

21. Prior actions and triggers. Under DPO-1 and DPO-2, the Government has put in place the first

building blocks of the policy and institutional framework. The Government (a) adopted a Natural Gas

Policy, based on a consultative process; (b) launched a program to adopt a Tanzania Natural Resource

Charter; (c) elevated the natural gas agenda by including natural gas development in the mandate of the

Cabinet committee on economic affairs and creating an interministerial senior task force; (d) cleared

arrears with gas developers; (e) verified the amount of natural gas reserves in the United Republic of

Tanzania’s territory; and (f) mandated the Tanzania Petroleum Development Company (TPDC) to publish

its audited financial statements; its latest procurement audit reports, and its key performance indicators

(KPIs). Triggers for DPO-3 (as approved under DPO-2) foresaw the completion of the major building

blocks of the policy and institutional framework by (a) adopting a National Gas Utilization Master Plan,

(b) preparing new natural gas legislation, and (c) and adopting a Petroleum Policy.

Distinction between crisis response elements and medium- to long-term reform elements of the

Policy and Results Matrix in this ICR

22. In the narrative and assessment, this ICR distinguishes crisis-response elements of the

Policy and Results Matrix on the one side and medium- to long-term reform elements on the other.

The three pillars group prior actions of the DPO series according to the objectives. However, for the

purpose of the assessment carried out in this ICR it was considered useful to distinguish between short-

term (crisis response) measures that yielded immediate results and reforms to the energy sector structure,

8

sector policy framework, and sector institutions that could be expected to translate into tangible outcomes

only in the medium to long term. The former includes measures on tariffs, arrears clearance, and fiscal

transfers under Pillar 1 and also measures relating to performance contracts and performance audits under

Pillar 2 and arrears clearance under Pillar 3. The latter includes most reform measures under both Pillar 2

and Pillar 3. This distinction was made because as laid out in sections 2–6 of this ICR, the assessment of

adequacy of design and objectives of the DPO series was found to differ significantly between these two

elements of the Policy and Results Matrix.

1.5 Revised Policy Areas

23. The policy areas for the PDO program were not revised. The Policy and Results Matrix

approved with DPO-2 included only relatively small changes to the prior actions of DPO-2 compared to

the triggers approved with DPO-1, as summarized in Table 5 in section 2.1.

1.6 Other Significant Changes

24. The Government and IDA did not proceed with the proposed third operation in the series

because of delays in the implementation of the Program. On March 20, 2016, the programmatic series

was considered lapsed because no subsequent operation was presented to the Board within 24 months

after the Board approval of the previous operation in the series (in this case, DPO-2). A concept review

meeting for a follow-up series of two operations (DPO-3 and DPO-4) was held in July 2016, but

preparation of the follow-up DPO series was cancelled at the time of the ICR. Details on the reasons for

the delays and the status of triggers for DPO-3 are provided in section 2.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance

25. The programmatic series consisted of two single-tranche DPOs, disbursed in full upon

effectiveness, in the total amount of SDR 130.1 million. Key dates of the two operations are provided

in Table 3.

Table 3. Key Dates of the DPO Series

Operation Disbursed Amount Approval Effectiveness

Date Closing

DPO-1 SDR 64.9 million March 26, 2013 June 12, 2013 June 30, 2014

DPO-2 SDR 65.2 million March 21, 2014 June 9, 2014 June 30, 2015

26. All prior actions were completed by the Government before the Board presentation of

DPO-1 and DPO-2. Table 4 shows the key objectives pursued and all prior actions completed ahead of

the approval of each operation. None of the prior actions was reversed after Board approval. However,

progress on some reform areas tackled by the prior actions either slowed down or was partially reversed

in subsequent years (see section 3.2 for details).

Table 4. Policy Matrix and Status of Prior Actions

Prior Action Status


Prior action #1.1: TANESCO has increased its collection of revenues by 30% between Completed

9

Prior Action Status

CY2011 and CY2012, through tariff increase and improved collections of bills. ahead of

DPO-1 Prior action #1.2: To improve the financial conditions of TANESCO in FY2013, (a)

EWURA reviewed the current electricity tariffs; (b) the Government has identified the

amount of subsidies to be transferred from the Government budget to TANESCO based on,

among others, the abovementioned tariff review; and (c) the Government has paid T Sh 67

billion by June 2012 to clear its arrears to TANESCO for electricity consumed by

governmental entities.

Prior action #2.1: TANESCO has implemented new tariffs, approved by EWURA in

December 2013 in order to increase its revenue.

Completed

ahead of

DPO-2 Prior action #2.2: The Government had created in its approved FY2013/14 budget a

specific code with funds for transfers to TANESCO to improve fiscal transparency.

Prior action #2.3: The Government has taken actions to reduce the level of transfers to

TANESCO from the level of FY2012/13 and has committed that the level will not exceed

2.5 percent of controlled total expenditure in FY2013/14.


sector

Prior action #1.3: The Government adopted a policy aiming to reduce the cost of power

supply, improve the operational efficiency of the power sector, and promote the

participation of the private sector in power generation through a competitive and

transparent bidding process that respects the national laws and the best practices of

international environmental and social standards.

Completed

ahead of

DPO-1

Prior action #1.4: TANESCO and the Ministry of Energy and Mining signed a

performance contract, which includes measurable key performance indicators for

TANESCO to enhance its efficiency in CY2013.

Prior action #1.5: TANESCO published (a) periodic performance reports prepared by

TANESCO against the key performance indicators set out in the abovementioned

performance contract between TANESCO and MEM; (b) its latest annual audit report

issued by NAO; and (c) its latest annual performance report issued by PPRA.

Prior action #2.4: The Government and TANESCO have implemented the initial phase of

the 2013 Policy for Private Sector Participation in Power Generation through Competitive

Processes by launching PPP capacity-building programs for (a) screening and conducting

due diligence; (b) financial structuring; (c) structuring processes for selecting developers

and implementing transactions; (d) preparing legal and regulatory documents; and (e)

managing government and public corporation fiscal risks.

Completed

ahead of

DPO-2

Prior action #2.5: The Government has adopted the recommendations of the Presidential

Big Results Now (BRN) Initiative to develop a road map for structural reforms of the

energy sector and has established a Ministry Delivery Unit within MEM to oversee the

implementation of the recommendations.



Prior action #1.6: The Government completed a nationwide public consultation process

for adopting its Natural Gas Policy.

Completed

ahead of

DPO-1 Prior action #1.7: The Government adopted measures, including clearing arrears with gas

developers by paying them US$106.9 million by December 2012 and verifying the amount

of natural gas reserves in the United Republic of Tanzania’s territory, which will enable

higher production of natural gas and its use in power generation after CY2014.

Prior action #2.6: The Government has adopted the Natural Gas Policy. Completed

10

Prior Action Status

Prior action #2.7: The Government has launched a program to adopt a Tanzania Natural

Resource Charter and has established an expert panel to oversee the program.

ahead of

DPO-2

Prior action #2.8: The Government has established a top-level institutional mechanism to

enhance interministerial coordination by mandating the Cabinet committee on economic

affairs to handle the natural gas agenda and creating an interministerial senior task force on

natural gas.

Prior action #2.9: TPDC has published on its website its latest audited financial statement,

latest procurement audit report, and key performance indicators.

Note: EWURA = Energy and Water Utilities Regulatory Authority; NAO = National Audit Office; PPP = Public-

Private Partnership; PPRA = Public Procurement Regulatory Authority.

27. Minor adjustments were made to the DPO series’ Policy and Results Matrix during

preparation and appraisal of DPO-2. The Government had made progress on all results indicators

approved with DPO-1 (listed in Table 2), and showed continued resolve to address the crisis in the power

sector. Reflecting the continuity of the implementation of the Program, the Policy and Results Matrix

approved with DPO-2 included only relatively small changes to the prior actions of DPO-2 compared to

the triggers approved with DPO-1, as summarized in Table 5 below. Changes to the results indicators

were summarized in Table 2 above.

Table 5. Prior Actions for DPO-2 Compared to Triggers for DPO-2 as Approved under DPO-1

# Trigger for DPO-2, as

Approved under DPO-1 Prior Action for DPO-2 Comment


2.1 TANESCO to increase revenues

through a combination of better

bills collection, reduction in

losses, and, if necessary,

requesting EWURA to adjust

tariffs.

TANESCO has implemented

new tariffs, approved by

EWURA in December 2013

in order to increase its

revenue.

Trigger modified to capture

the stronger action taken by

the Government (approved

tariff increase) and edited for

clarity.

2.2 To improve fiscal transparency,

the Government has provisioned

in the FY2014 budget

contingency funds that can be

used to address the financing gap

in TANESCO.

The Government had created

in its approved FY2013/14

budget a specific code with

funds for transfers to

TANESCO to improve fiscal

transparency.

Substance strengthened

(specific budget line instead

of contingency fund) and

trigger language edited for

clarity.

2.3 In FY2014, Government shall use

a combination of tariff increases,

commercial borrowing, and

government subsidies to cover the

financing gap in TANESCO.

Government subsidies shall not

exceed 2.5 percent of total

expenditures (excluding

consolidated funds services,

wages, and development foreign).

The Government has taken

actions to reduce the level of

transfers to TANESCO from

the level of FY2012/13 and

has committed that the level

will not exceed 2.5 percent

of controlled total

expenditure in FY2013/14.

Substance maintained, but


clarity.

Pillar 2: Reducing the cost of power supply and promoting private sector participation in the

power sector

11



2.4 The Government, and TANESCO

as appropriate, have adopted

concrete measures (including

training, hiring transaction

advisers if necessary, and

completing necessary studies) to

improve its technical and

commercial capacity to develop

PPP projects in the energy sector

through transparent and

competitive process, as well as to

evaluate unsolicited proposals

(where they have merits),

including subjecting them to a

competitive process.

The Government and

TANESCO have

implemented the initial phase

of the 2013 Policy for

Private Sector Participation

in Power Generation through

Competitive Processes by

launching PPP capacity-

building programs for (a)

screening and conducting

due diligence; (b) financial

structuring; (c) structuring

processes for selecting

developers and

implementing transactions;

(d) preparing legal and

regulatory documents; and

(e) managing government

and public corporation fiscal

risks.

Substance maintained, but


clarity.

2.5 The Government has completed

an Energy Sector Review whose

objective is to recommend

structural reforms aimed at

improving power sector

performance (including efficiency

and accountability), to comply

with the Electricity Act (2008,

including part viii), and has

approved its recommendations.

The Government has adopted

the recommendations of the

Presidential Big Results

Now (BRN) Initiative to

develop a road map for

structural reforms of the

energy sector and has

established a Ministry

Delivery Unit within MEM

to oversee the

implementation of the

recommendations.

Substance maintained and

strengthened (establishment

of delivery unit) and trigger

language edited for clarity.

Pillar 3: Strengthening the policy and institutional framework for the management of the

country’s natural gas resources

2.6 The Government approves the

Natural Gas Policy.

The Government has adopted

the Natural Gas Policy.

Trigger language edited for

clarity.

2.7 Gas Act to be submitted to

Parliament after participative

public consultations, including (a)

transparent and participative

regulatory practices and (b)

access to information and

participative monitoring by

stakeholders.

The Government has

launched a program to adopt

a Tanzania Natural Resource

Charter and has established

an expert panel to oversee

the program.

Trigger was replaced. The

Gas Act was moved to DPO-

3 because by the time of

DPO-2 it had not been

submitted to the Parliament

as an extended period was

required to conduct public

consultations. At the same

time, the Government

implemented an equally

significant action in

strengthening the policy and

institutional framework for

the management of the

natural gas resources by

12



launching the Natural

Resource Charter initiative.

This replacement was to

accommodate those latest

developments while

maintaining the strength of

the overall program under

DPO-2.

2.8 The Government establishes a

top-level institutional mechanism

to enhance intersectoral

cooperation on the gas policy

agenda.

The Government has

established a top-level

institutional mechanism to

enhance interministerial

coordination by mandating

the Cabinet committee on

economic affairs to handle

the natural gas agenda and

creating an interministerial

senior task force on natural

gas.

Trigger edited for clarity.

2.9 TPDC publishes (on its website

and in print) its internal periodic

performance reports, latest audit

annual report of the NAO and

latest annual performance report

of the PPRA.

TPDC has published on its

website its latest audited

financial statement, latest

procurement audit report,

and key performance

indicators.

Trigger edited for clarity.

28. Progress toward implementing triggers for DPO-3 was delayed during 2014–2016 and fell

short of the expectations in some areas, causing the series to lapse in early 2016. Completion of all

triggers and Board approval of DPO-3 was originally envisioned by early 2015. However, only one

trigger (#3.2) was met by then. Several others were met during 2015 and 2016, as summarized in Table 6,

while four triggers were not met by the time of the ICR. Consequently, the series lapsed 24 months after

Board approval of DPO-2, on March 24, 2016.

Table 6. Status of Triggers of DPO-3 (as approved with DPO-2) at the time of the ICR

Trigger for DPO-3 Status

Trigger #3.1: The Government adopts

a comprehensive national subsidy

policy, which defines principles for

providing subsidies in the energy

sector.

Not met. No national subsidy policy has been adopted. Meanwhile,

the Government has eliminated subsidies for capacity charges, fuels,

and other operating expenses but continues to fund TANESCO’s

capital expenses.

Trigger #3.2: The Government has

committed to reduce the level of

transfers to TANESCO in FY2014/15

to the level not more than 2 percent of

controlled total public expenditure.

Met, without delay. In FY2014/15 the Government provided transfers

of US$33 million (net of taxes) to TANESCO, which is equivalent to

around 1 percent of controlled total public expenditures. Net transfers

in FY2015/16 and FY2016/17 were US$7 and US$3 million,

respectively.

Trigger #3.3: TANESCO continues to

improve and report publicly on

collection performance and on

Met, albeit with delay. Bill collection increased from 90% in

FY2014/15 to 101% in FY2015/16 and 96% in FY2016/17.

Technical and non-technical losses in the distribution grid fell from

13

Trigger for DPO-3 Status

operational losses and develops a plan

to meet the targets set by the EWURA

order in December 2013.

19% in 2012 to 12.3% in FY2015/16 and 10.4% in FY2016/17,

meeting the 2013 EWURA order target of 15.1%.

Trigger #3.4: The Government phases

out Emergency Power Projects by 150

MW without lowering the reliability of

power supply delivery.

Met, albeit with delay. EPP capacity in use declined from 317 MW in

2012 and 2013 to 162 in FY2015/16 and 0 in FY2016/17. This has

been achieved without lowering the reliability of power supply

delivery but the sector remains highly exposed to supply shortages in

the case of technical failures or a major drought.

Trigger #3.5: TANESCO implements

the 2013 policy to promote private

sector participation in power

generation by launching at least one

competitive bidding process for new

gas-based power project(s) to diversify

power generation sources in the

country toward lower cost structure of

the power sector.

Not met. The Government chose to implement Kinyerezi I (including

extension) and Kinyerezi II as public projects. The Government’s

policy toward private sector participation in future generation

projects is unclear.

Trigger #3.6: The Government

approves the road map for structural

reforms of the energy sector (including

the power and gas subsectors), which

includes specific structural measures

aimed at improving its governance and

overall efficiency and time-bound

implementation schedule, and initiates

its implementation.

Partially met. The MEM adopted and published on its website the

Electricity Supply Industry Reform Strategy and Roadmap in June

2014, which is consistent with recommendations of the energy lab of

Big Results Now. However, it excludes the natural gas subsector and

implementation of the road map has not proceeded as per the

envisioned implementation schedule. The Government’s policy

toward implementation of the road map is unclear.

Trigger #3.7: The Government adopts

a National Gas Utilization Master Plan

(NGUMP).

Not met. The Government has prepared the draft NGUMP that has

not been shared widely by energy sector stakeholders.


prepares a Gas Bill to the Parliament.

Met, albeit with delay. The Oil and Gas Revenue Management Act

2015 and the Petroleum Act were passed by the Parliament in June

2015 following the adoption of the Natural Gas Revenue

Management Policy adopted by the Cabinet in May 2015.


prepares and adopts a Petroleum

Policy.

Met, albeit with delay. The Petroleum Policy was adopted by the

Cabinet in 2014. Following the adoption of the Petroleum Policy, the

Petroleum Act 2015 was passed by the Parliament in June 2015,

signed by the President in October 2015, and gazetted thereafter. The

substance of the act still needs to be supplemented with the

establishment of an effective sector institutional framework and the

gradual introduction of an internationally benchmarked, prioritized

body of regulations to implement the act. The act was amended in

July 2017 following the parliamentary inquiry into mining contracts.

2.2 Major Factors Affecting Implementation

Design Factors Affecting Program Implementation and Outcomes

29. The Government was highly committed to resolve the 2011–2013 electricity supply crisis

and associated financial difficulties of TANESCO, leading to strong implementation performance

up to Board approval of DPO-2. The objectives, prior actions, and results indicators were very closely

14

aligned with the Government’s response to the electricity supply crisis. Major tariff hikes, which raised

per-unit revenues of TANESCO by 35 percent in 2012 and 30 percent in 201410

, underscored the

Government’s commitment to implement difficult reforms.

30. The World Bank’s DPO series was part of a concerted donor effort to support the

Government’s response to the fiscal and macroeconomic implications of the electricity supply crisis,

reducing the risk of reform slippage, especially during 2012–2014. The Government’s reform

response was developed in close consultation with stakeholders including the energy sector donor

consultation group. A Standby Credit Facility (SCF) arrangement of the IMF (2012–2014; SDR 149

million) included structural benchmarks on TANESCO’s financial recovery—complementary to the DPO

series—and closely monitored fiscal transfers and domestic borrowing for the electricity sector. While

overall program performance was ‘mixed’, the third and final SCF review noted that “[s]ignificant

progress was achieved in addressing financial difficulties of the energy sector” (p. 9). The Government’s

power sector reform program also received support from the African Development Bank (AfDB) in the

form of a three-phase budget support operation (2015–2017; SDR 100 million in total).

31. The crisis-response elements of the Policy and Results Matrix was informed by recent

analytical work and global experience and had a clear line of sight between prior actions and

results indicators. The short-term reform elements supported by the DPO series, which included tariff

reforms, fiscal transfers, and performance agreements between the MEM and TANESCO, were informed

by extensive, up-to-date analysis, and lessons learned from the World Bank’s reform and crisis-response

experience in the power sector. Relevant analytical work included (a) the Power System Master Plan

(PSMP 2012), (b) a short-term financial assessment (2012–2015) of TANESCO, (c) the Big Results Now

Energy Lab Report (2013), and (d) the Government of Tanzania-Energy Development Partner Group—

Joint Energy Sector Review (2013). Prior actions and objectives were clearly aligned and there was a

clear line of sight between prior actions and results indicators.

32. In contrast, the medium- to long-term reform elements of the Policy and Results Matrix

carried high implementation risks because they were backloaded, heavy on commitments and light

on implementation, and missed a clear line of sight between prior actions and results indicators. Prior actions and triggers under Pillars 2 and 3 called for fundamental reforms to the power and gas

sectors but envisioned that the analytical foundations and buy-in of stakeholders would be established, to

a large extent, during implementation. The program also envisioned that Government commitments—in

the form of policies, plans, and road maps—would be followed by reform implementation measures

above and beyond the measures laid out in the DPO Policy and Results Matrix. As outlined in more detail

in section 3, Program progress stalled on several fronts after the immediate pressure of the crisis eased in

2015.

33. The World Bank took an informed risk by engaging with the Government on natural gas

reforms (supported by Pillar 3) without significant prior sector dialogue, because of the strategic

importance of a strong upstream natural gas policy framework for the development of Tanzania’s

energy sector. Unlike in the power sector pillars, Pillar 3 of the DPO series could not build on solid

analytical foundations and an established sector dialogue. Only after initiation of the preparation of the

DPO series did the World Bank engage in deeper sector dialogue through a natural gas ‘scoping mission’,

10 EWURA’s tariff orders refer to increases of 39.19 percent and 40.29 percent in 2012 and 2014, respectively.

Relative changes in per-unit revenues differ from relative changes in tariffs because of changes in the composition

of consumption and parallel changes in fixed charges for consumers. Data on per-unit revenues was taken from

TANESCO’s financial statements.

15

co-led by the World Bank and including six other DPs, which developed the policy and institutional

actions to be undertaken by the authorities. However, the World Bank’s senior management assessed the

risk of not engaging on such an important sector as higher than the Program’s risks.

34. The technical risk assessment was adequate but important governance risks were missed;

the political economy of power sector reform in particular was poorly reflected in the design of the

medium- to long-term reform measures in the Program. The most important technical risks that

materialized had been correctly identified, including hydrology, global energy prices, and exchange rate

volatility, and the appraisal documents rightly noted that these risks could not be fully mitigated within

the Program. However, risks relating to the governance of the Program and the political economy of

power sector reform could have been better reflected in the length, scope and ambition of the DPO series.

Specifically, these risks included (a) the Government’s reform commitment beyond the immediate crisis,

(b) insufficient stakeholder consensus on structural sector reforms (the exact nature of which was to be

determined under the Program), and (c) the risks associated with designing a reform program that spans

election cycles.

External Factors Affecting Program Implementation and Outcomes

35. During implementation, progress toward the envisioned outcomes was affected by a

number of external factors, including major macroeconomic and governance risks that

materialized. The main external factors of the Program that affected implementation are summarized in

Table 7, grouped by (a) sector developments outside of the Program, (b) governance factors, and (c)

macroeconomic factors.

Table 7. Major External Factors of the Program Affecting Implementation

Factors Impact on Program Implementation

Sector developments outside of the Program

Access agenda becoming priority: To promote

access, in early 2013, the Government reduced

connection fees by 30% to 90%, and instructed

TANESCO to increase its customers base to

1,500,000 by 2015 and target 250,000 new

connections per year.

Investments in new connections and related

distribution grid strengthening were

financed mainly from TANESCO’s internal

cash funds, limiting the company’s ability

to pay off arrears (thus affecting Results

Indicator 2)

Electricity demand growth slowdown: Slower than

expected, demand growth in FY2012–17 averaged

7.6%, below the 10% growth per year estimated

during appraisal of DPO-1.

Improved balance between demand and

supply and lessened pressure to commission

new gas power plants (Results Indicator 4)

Hydrology improvements. Hydrology improved

after drought in FY2011–13 and was above average in

FY2015 and FY2017. FY2016 hydrology was at

similar level as FY2011–13.

Decrease in TANESCO’s generation cost

during FY2015 and FY2017 (Results

Indicator 5)

Improved balance between demand and

supply and lessened pressure to commission

new gas power plants (Results Indicator 4)

Global energy price decline. Global oil and liquefied

natural gas (LNG) prices declined after mid-2014,

subsequently remained subdued through the end of

2017.

Slowdown in investor interest in natural gas

exploration and production, especially

offshore (Results Indicator 8)

Impact on TANESCO’s generation cost was

favorable but more than cancelled out by

exchange rate depreciation from FY2015

onwards (Results Indicators 1 and 5)

16

Factors Impact on Program Implementation

Gas pipeline delay. Completion of the National

Natural Gas Infrastructure Project (NNGIP), a core

element of the Government strategy to increase

natural gas-fired power generation, was delayed by

one year (completed October 2015)

Delay in the availability of gas for new

power plants (especially Kinyerezi I) and

fuel switching of existing power plants

(Results Indicator 4)

Governance factors

Legal controversies. The inquiry into the sale of the

Independent Power Tanzania Ltd (IPTL) plant in

2014, controversies surrounding the structure of

payments to IPPs and EPPs, and the mining sector

inquiry in 2017 both led to removal or suspension of

prolonged periods of time of MEM officials including

key leadership positions.

Delay in implementation of sector reform

program under Pillar 2 (especially Results

Indicators 6 and 7) as well as difficulties in

maintaining the strategic policy dialogue for

DPO-3 in the absence of the MEM

leadership team

2015 election. Parliamentary and presidential

elections held in October 2015 led to change in the

Government.

Reorientation of priorities for sector reform

program under Pillar 2 (especially Results

Indicators 6 and 7)

Macroeconomic factors

Growth and inflation: GDP growth remained

favorable at around 7 percent throughout the

implementation period. Inflation declined after

FY2012 and remained around 5–6 percent in

FY2013–FY2016/17.

Improvements in households’ available

income, cushioning the impact of tariff

increases (indirectly affecting Results

Indicator 1)

Exchange rate depreciation: Major exchange rate

depreciation during FY2015 (8 percent) and FY2016

(24 percent). Relatively stable before and after.

Increase in value of TANESCO’s arrears to

suppliers (which are mostly denominated in

U.S. dollars) by around 30 percent (Results

Indicator 2)

Impact on TANESCO’s generation cost was

unfavorable and only partially cancelled out

by decline in global energy prices from

FY2015 onwards (Results Indicators 1 and

5)

Fiscal consolidation: The Central Government’s

overall fiscal consolidation, as a result of lower-than-

expected domestic revenue collection, diminishing aid

disbursements, and higher investment in infrastructure

projects, posed a challenge for the energy sector in

receiving sufficient public funds to scale up necessary

investments. Arrears to contractors, suppliers and

pension funds by the Government reached over 6

percent of GDP at the end of FY2015/16.

The Central Government’s fiscal

consolidation slowed down investment

financing from the Ministry of Finance and

Planning (MOF) for TANESCO’s capital

investment program

Phaseout of direct budget transfers to

TANESCO even though TANESCO’s net

income remained negative.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

36. M&E design:

Results Framework. The Program’s results indicators and target values, identified at

appraisal of DPO-1 and revised at DPO-2, were adequately linked to the PDO. The Results

Framework included more outcome indicators (for example, Results Indicators 1–5 and 8–9)

than output indicators (Results Indicators 6, 7, and 10). The focus on outcomes was

adequate for the crisis-response elements of the Program (for example, tariff reforms and

17

phase-out of EPPs) but less appropriate for the medium- to long-term elements of the

Program. In the case of the latter, the emphasis on outcomes blurred the line of sight

between prior actions and results indicators (for example, the link between the natural gas

policy framework and the volumes of proven gas reserves and gas produced). Output

indicators would have been more adequate for these prior actions. Results indicators were

appropriately defined,11

measurable, and did not require data collection efforts beyond the

financial and performance reporting of the MEM and TANESCO, ensuring that (a)

monitoring of the indicators relied on and further built capacity of country systems (b) it

could continue beyond the Program period, and (c) this ICR had access to reliable

information on all results indicators.

Roles and responsibilities. The MOF was notionally responsible for overseeing the M&E

of the Program, but was to draw on the assistance of the MEM, TANESCO, and the energy

sector regulator, EWURA. This setup was adequate in view of the selected results

indicators. Key Program results indicators were also included in (a) the budget support

framework used by the Government and DPs over the past decade in Tanzania, (b) the IMF

program, and (c) the World Bank-led annual Public Expenditure Review process. This close

integration of M&E efforts across the World Bank’s and other DPs’ engagement benefited

M&E implementation.

37. M&E implementation:

Results monitoring. The Government and the World Bank continuously monitored

progress against the main financial and performance indicators of the power sector, which

included the results indicators of the DPO series, although information on reform progress is

not always reflected on time. Financial monitoring of TANESCO in particular still needs to

become more timely. On the World Bank side, two Implementation Status and Results

Reports (ISRs) were filed, in April 2014 and August 2015, but they did not give a thorough

account of the reasons for delays and postponement of the DPO-3, in part reflecting the fact

that the M&E framework’s choice of outcome indicators over output indicators was

inadequate for monitoring the progress of medium- to long-term reforms (see above).

However, overall, monitoring of the Results Framework was implemented adequately and at

the time of ICR, data on all indicators were readily available.

Change in financial year affecting M&E implementation. The M&E framework was set

up to measure progress in TANESCO’s financial years, which were equal to calendar years

at the time of appraisal. However, TANESCO soon switched to a new financial year from

July 1 to June 30 to align with the Government’s fiscal year, starting in FY2015/16. The

transition year FY2014/15 was an 18-month period. This ICR adopts TANESCO’s financial

years for the measurement of the results indicators.

38. M&E utilization. The M&E framework was used in the implementation of the Program and

decisions on the World Bank’s DPO series in an adequate manner. On the Government side, financial

indicators informed Government decisions, including tariff reforms. On the World Bank side, a midterm

review in June 2015 came to the conclusion that—at that time—only three out of the nine triggers were

11 The results indicators included two minor errors—the unit of Results Indicator 5 should have been listed as

US¢/kWh and Results Indicator 6 should have referred to ‘tenders’, rather than ‘bids’—but these were

inconsequential for the quality of the M&E framework.

18

met (#3.2, #3.8 and #3.9), leading to the decision of not proceeding with DPO-3 until after the general

elections in October 2015.

2.4 Expected Next Phase/Follow-up Operation

39. For IDA18 (FY2018–20), the Government and the World Bank are in dialogue on a follow-

up operation to continue support in specific policy areas of the Program, in particular TANESCO’s

financial recovery, complemented by lending in other areas of the Government’s energy sector

development program. As of November 2017, a particular emphasis of the operation will be on

resolving the problem of the legacy payment arrears. Other ongoing and pipeline operations of IDA in the

sector include financing for access, transmission (including interconnections with neighboring countries),

and capacity building.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Overall Rating: Substantial

(a) Relevance of Objectives: Substantial

40. The objectives of the crisis-response elements of the Policy and Results Matrix—to restore

TANESCO’s financial viability and reduce fiscal risks—were core to the Government’s and the

World Bank’s strategy in the energy sector. From initial approval through to closing of the series, the

objectives of improving the financial situation of the power sector and phasing out EPPs to reduce the

cost of energy supply (that is, Pillar 1 and parts of Pillar 2) were closely aligned with (a) Tanzania’s

National Strategy for Growth and Poverty Reduction 2025 (Mkakati wa Kukuza Uchumi na Kupunguza

Umaskini Tanzania [MKUKUTA] II), (b) Tanzania’s five-year development plans (FYDP I 2011/12–

2015/16 and FYDP II 2015/16–2020/21), (c) the World Bank’s Country Assistance Strategy (CAS) for

FY2012–FY2015,12

and (d) the World Bank’s energy sector strategy.13

41. Initially, the objectives of the medium- to long-term reform elements of the Policy and

Results Matrix reflected shared priorities between the Government and the World Bank, but their

relevance to the Government was less clear at the time of the ICR. At the time of appraisal, there was

strong Government commitment to the objectives of promoting private sector participation in power

generation (Pillar 2) and strengthening the policy and institutional framework for natural gas utilization

(Pillar 3). These objectives were translated into concrete policy commitments and action plans with the

Electricity Supply Industry Reform Strategy and Roadmap 2014–2025 of 2014 and the National Energy

Policy of 2015. However, reform implementation toward these two objectives slowed down after 2014—

in part due to the IPTL inquiry, skepticism within the Government about the structure of payments to

IPPs and EPPs14

, and preparations for the election of 2015—and has not picked up since then. FYDP II,

prepared by the new Government, strongly emphasizes energy infrastructure development and includes

certain elements of the Electricity Supply Industry Reform Strategy and Roadmap 2014–2025, but puts

12 The objectives are also aligned with the draft CPF for FY2017–FY2022, which is currently under preparation.

13 As captured in the World Bank. 2013. “Toward a Sustainable Energy Future for All: Directions for the World

Bank Group’s Energy Sector.” Washington, DC.

14 Specifically, there is skepticism within the Government about the adequacy of capacity payments to IPPs and

EPPs (fixed annual payments to cover capital costs).

19

less emphasis on the objectives of private sector participation and strengthening the policy and

institutional framework for natural gas. At the time of the ICR, new controversies surrounding the IPTL

power plant and contracts in the mining industry have introduced additional uncertainty about the ways in

which the Government handles contracts with private investors on large investments, including in the

power and natural gas sectors, thus potentially affecting the relevance of the DPO series’ objectives

relating to the private sector.

42. The DPO series’ objectives were aligned with Tanzania’s Nationally Determined

Contribution (NDC) to the Paris Agreement. Tanzania’s NDC, submitted in 2015, builds on the reform

directions of the Program, including in the following two priority mitigation measures specified in the

NDC: (a) investing in energy diversification to ensure overall energy security for economic development

through enhanced availability, affordability, and reliability while contributing toward energy emissions

intensity reduction over time and (b) expanding the use of natural gas for power production, cooking,

transport, and thermal services through improvement of natural gas supply systems throughout the

country.

43. Acceleration of TANESCO’s electrification program became a core objective for the

Government in the power sector from 2013 onwards and would have to be part of any

comprehensive energy sector reform program initiated at the time of the ICR, but was not reflected

in the objectives and design of the evaluated DPO series. To promote electricity access, in early 2013,

the Government reduced connection fees by 30 percent to 90 percent, and instructed TANESCO to

increase its customers base to 1,500,000 by 2015 and target 250,000 new connections per year. While the

Rural Energy Agency (REA) was to finance rural and peri-urban connections; a substantial share of new

connections was to be financed from TANESCO’s own funds. This put pressure on TANESCO’s cash

flow and limited the company’s ability to pay back arrears. However, this scale-up in access investment

was not sufficiently considered in the design of the DPO, especially its measures and targets relating to

arrears.

(b) Relevance of Design: Substantial

44. The choice of a programmatic DPO series and the selection of prior actions were adequate

for the crisis-response elements of the Program. The electricity supply crisis required the Government

to take difficult decisions in a short time and follow up and avoid reversal over a period of several years.

The programmatic DPO was the right instrument to support such reforms.

45. Through careful design of the prior actions, the DPO series enabled the Government to

internalize difficult policy trade-offs. Enough flexibility was built into the design of the Policy and

Results Matrix to allow the Government’s deliberation on important but difficult policy decisions to

follow due course. This was achieved by agreeing with the Government on the objective and desired

outcomes of the prior actions and triggers, while leaving the resolution of policy trade-offs to the

Government. For instance, the Triggers for DPO-2 under Pillar 1 specified the fiscal reform objective (a

cap on transfers to TANESCO), which but left the exact nature of policy actions. During preparation of

DPO-2 the language of Prior Action 2.1 was then adjusted to account for the outcomes of the

Government’s deliberation.

46. However, the DPO series’ approach to bringing arrears under control would be inadequate

at the time of the ICR. The design of the DPO series was based on a careful analysis of TANESCO’s

profitability (net income) under different scenarios. Beyond immediate measures (for example, clearance

of Government arrears to TANESCO), less attention was paid in the analysis and the design of the Policy

and Results Matrix to TANESCO’s cash flow and potential impacts on arrears from reduced Government

transfers, the changes in Government subsidies for connections and connection targets (see above), or

20

policy slippage in the shift toward private sector-owned generation. While there was consistent logic

behind the Program’s strategy to reduce arrears, the DPO series would have benefited from separate

analysis and risk mitigation measures in this regard. More careful analysis of TANESCO’s cash flow

under different scenarios would be needed to inform renewed support by DPs to resolve TANESCO’s

arrears.

47. The medium- to long-term reform elements of the Program would have benefited from less

backloading and a clearer line of sight between prior actions and results indicators. As outlined in

more detail in section 3, Program progress stalled on several fronts after the immediate pressure of the

crisis eased in 2015. This hindered achievement of the Program’s results indicators even where outputs of

the prior actions were achieved.

48. The design of the DPO series could have been more resilient to changes in the Government

priorities if the PDO of the series had solely focused on ends (for example, security of supply or

financial sustainability), rather than means (for example, private sector participation). Reference in

the PDO to private sector participation in particular limited the World Bank’s ability to adjust to changes

in the Government’s priorities after the completion of the second DPO.

(c) Relevance of Implementation: High

49. Implementation arrangements were highly relevant in that they emphasized ongoing

dialogue and the mobilization of technical support, which were critical in view of the complexity of

attempted power sector and natural gas upstream reforms. The ongoing technical assistance

engagement, including several activities for which the World Bank team raised trust fund resources,

helped maintain the technical dialogue despite a transition in Government and several changes in sector

leadership during the implementation of the DPO series.

50. The decision not to proceed with the third operation in the series within the two years after

Board approval of DPO-2 was adequate. The decision reflected an adequate adjustment to changing

context and Government priorities.

51. Close alignment of the DPO series with DPs’ programs was critical for the success achieved

during implementation and parallel technical assistance by the World Bank provided much-needed

capacity-building support to implement the Program. The close alignment with the parallel IMF

program (2012–2014) and the World Bank’s ESCBP were essential for achieving the results of the

Program.

3.2 Achievement of Program Development Objectives

Rating: Modest

52. Achievement of the PDO is assessed as Moderately Unsatisfactory on the basis of the

progress on key indicators. The PDO of the program was to (a) strengthen the country’s ability to bridge

the financial gap in its power sector, (b) reduce the cost of power supply and promote private sector

participation in the power sector, and (c) strengthen the policy and institutional framework for the

management of the country’s natural gas resources. As laid out below in detail and summarized in Table

8, the DPO series performed well on Results Indicators 1, 3, and 5, which relate to TANESCO’s

operating deficit, technical losses, and cost of supply. The DPO series also achieved Results Indicator 7

(documents published on sector reforms). However, the series only made partial progress toward

Indicators 4, 8, and 9, and did not make any progress (or even reversed progress) on Results indicators 2,

6, and 10.

22

Table 8. Performance of Program against DPO Target Indicators

# Indicator 2012

(Baseline)

Target

set in

2013

Target

set in

2014

Actual

FY2015/16

Actual

FY2016/17

1 TANESCO operating

deficit/(profit) (US$ million)

240 50 50 92 (82)a

2 TANESCO accounts (trade

and other) payable (T Sh

billion)

707 — 300 1,187 1,331a

3 TANESCO technical and

non-technical losses in

transmission and distribution

21 — 18 18.3 16.4

4 Amount (in MW) of gas-

fired power generation

capacity commissioned

105 >600 400 255 255

5 Average unit cost of power

sales (US$/MWh)

0.18 0.13 0.15 0.12 0.09a

6 Number of bids for gas IPP


competitive basis

0 1 1 0 0

7 MEM documents on sector

reforms published for public

knowledge

0 — 2 2 2

8 Volume of gas produced

(mmscfd)

78 >290 250 102b 132

c

9 Amount of onshore proven


1.0 3.5 3.5 1.4d 1.2

e

10 Annual monitoring under the

Natural Resource Charter

initiative

No — Yes No No

Note: In 2014, TANESCO’s financial year was changed from January–December (until FY2013) to June–

June. (starting FY2016). The transition fiscal year had 18 months (January 2014 to June 2015). a Based on

unaudited draft financial statements of TANESCO. b year to December 31, 2015;

d year to December 31,

2016; d as of April 2015;

e as of December 31, 2016.

53. An ex post analysis of the results chain of the Program is presented in Table 9. The table

presents, for each pillar, a summary of the implemented prior actions and their immediate outputs; other

factors affecting the results indicators; and the Program’s performance toward the results indicators. The

results chain for each pillar is discussed below in details.

23

Table 9: Efficacy and Causal Chain of the Series Reform Program

Prior Actions and Outputs

(DPO-1 and DPO-2)

Other Factors Affecting Results

Indicators

Performance toward Results

Indicators

Objective 1: Strengthening the country’s ability to bridge the financial gap in its power sector

(Efficacy Rating: Modest)

Two tariff increases in

January 2012 and January

2014

Improvements in bill

collection from

conventional meters and

increased use of prepaid

meters

Reduction of Government

arrears to TANESCO

Improved transparency

and reduction of

Government transfers to

TANESCO

During the Program period, the

Government pursued fiscal

consolidation amid lower-than-

expected domestic revenues and slow

aid disbursements, reducing the fiscal

resources available to support

TANESCO’s investment program

Major exchange rate depreciation

during FY2015 (8 percent) and

FY2016 (24 percent) increased the

value of TANESCO’s arrears to

suppliers (which are mostly

denominated in U.S. dollars) and its

fuel cost

Hydrology improved after the drought

in FY2011–FY2013 and was above

average in FY2015 and FY2017

(FY2016 hydrology was poor again),

leading to decrease in TANESCO’s

generation cost

Access agenda became priority after

2013 for the Government, which

reduced connection fees and instructed

TANESCO to increase its customers

base to 1,500,000 by 2015 and target

250,000 new connections per year, to

be financed mainly from TANESCO’s

internal cash funds, limiting the

company’s ability to pay off arrears

TANESCO turned around

its operating results,

improving its operating

margin from −21% in

FY2012 and −41% in

FY2013 to 13% in FY2015,

−14% in FY2016, and 12%

in FY2017

Arrears continued to

increase: trade and other

payables surged from a total

of T Sh 472 billion (US$298

million at that time) at the

end of FY2011 to T Sh 980

billion (US$565 million) in

FY2015, T Sh 1,187 billion

(US$538 million) in

FY2016, and T Sh 1,331

billion (US$605 million) at

the end of FY2017

Objective 2: Reducing the cost of power supply and promoting private sector participation in the

power sector


New strategic power

sector policy

Road map for structural

reforms

Capacity-building

program

Performance contract

between TANESCO and

the MEM

Regular publication of

performance reports

(including bill collection

and technical/non-

technical losses), financial

audits, and procurement

audits

Parliamentary and presidential

elections held in October 2015 led to

change in Government, reorientation

of priorities and delay in

implementation of sector reform

program under Pillar 2

The inquiry into the sale of IPTL

private power plant in 2014 and the

mining sector inquiry in 2017 both led

to removal or suspension of prolonged

periods of time of MEM officials

including key leadership positions,

causing delays in implementation of

sector reform program under Pillars 2

and 3

Completion of the NNGIP pipeline, a

Technical and non-technical

losses in transmission and

distribution fell from

22.4%in FY2011 and 24.7%

in FY2013 to 16.4% in

FY2017

Installed gas-fired

generation capacity

increased by 150 MW in

2016 and another 425 MW

are under construction, out

of which 30MW are

expected to be

commissioned by the end of

2017

Average cost of supply has

24

Prior Actions and Outputs

(DPO-1 and DPO-2)

Other Factors Affecting Results

Indicators

Performance toward Results

Indicators

core element of the Government

strategy to increase natural gas-fired

power generation, was delayed by

about one year, which delayed the

availability of gas for new power

plants (especially Kinyerezi I) and fuel

switching of existing power plants

Good hydrology in FY2015 and

FY2017 as well as slower-than-

expected demand growth (7.6%

compared to estimated 10% per year])

improved balance between demand

and supply and lessened pressure to

commission new gas power plants

fallen back at pre-crisis

level (US¢9.2 per kWh in

FY2017 compared to

US¢8.4 per kWh in FY2010

and US¢18.4 per kWh in

FY2013)

No new tenders for private

sector-owned generation

capacity were issued

Objective 3: Strengthening the policy and institutional framework for the management of the



Adoption of Natural Gas

Policy

Launch of a program to

adopt a Tanzania Natural

Resource Charter

Inclusion of natural gas in

the mandate of the

Cabinet committee on

economic affairs and

creation of an

interministerial senior task

force

Clearing of arrears with

gas developers

Verification of the amount

of natural gas reserves

Publication of TPDC’s

audited financial

statements, its latest

procurement audit reports,

and its key performance

indicators

New natural gas

legislation

New Petroleum Policy

and legislation

Global oil and LNG prices declined

after mid-2014, subsequently

remained subdued through the end of

2017, leading to a slowdown in

investor interest in natural gas

exploration and production, especially

offshore

The inquiry into the sale of IPTL

private power plant in 2014 and the

mining sector inquiry in 2017 both led

to removal or suspension of prolonged

periods of time of MEM officials

including key leadership positions,

causing delays in implementation of

sector reform program under Pillars 2

and 3

Volume of gas produced

increased from 78 mmscfd

in 2012 to 102 mmscfd in

2015 and 132 mmscfd in

2016

Amount of onshore proven

natural gas reserves

increased from 1.0 Tcf in

2012 to 1.4 Tcf in 2015 and

1.2 Tcf in 2016

Annual monitoring under

the Natural Resource

Charter initiative was not

implemented

Source: Data from TANESCO, TPDC, and MEM; analysis by World Bank staff.

Objective 1: Strengthen the country’s ability to bridge the financial gap in its power sector

Rating: Modest

54. TANESCO’s profitability recovered from the 2011–2013 crisis, buoyed by tariff increases,

improved hydrology, and the phase-out of EPPs. As a result of the measures taken under the DPO

25

series, average tariff per unit sold increased from T Sh 136 per kWh in FY2011 to T Sh 249 per kWh in

FY2016 and T Sh 238 per kWh in FY2017. GDP growth remained favorable during the same period, at

around 7 percent and inflation declined after to around 5–6 percent in FY2013–FY2016/17, cushioning

the impact of tariff increases and avoiding erosion of tariffs in real terms. In parallel, changes in the fuel

mix (discussed under Pillar 2 below) and the phase-out of 317 MW of expensive EPPs reduced the cost of

power generation.

55. Results Indicator 1 was achieved and TANESCO reached operating cost recovery despite

the phase-out of operating subsidies from the Government and a major depreciation in FY2015/16. As a result, TANESCO’s profitability improved significantly, as shown in Figure 1, turning its operating

deficit of US$239 million in FY2013 into an operating surplus of US$149 million in FY2014/15 and

US$80 million in FY2016/17 (FY2015/16 showed an operating deficit of US$92 million because of poor

hydrology conditions). This was achieved amid a period of fiscal consolidation and reduction of budget

transfers to TANESCO as well as major exchange rate depreciation during FY2015 (8 percent) and

FY2016 (24 percent), which translated into higher fuel cost.

Figure 1. Gross Profit Margin (before Government subsidies and other cost and revenues) and Operating

Profit Margina of TANESCO during FY2008–FY2016/17

Note:

a The operating profit margin is defined here as income before financing cost and taxes; * 18-

month period; ** based on TANESCO’s unaudited draft financial statements.

Source: TANESCO.

56. Government subsidies to cover TANESCO’s operating expenses were phased out as

profitability improved. TANESCO had since the mid-2000s benefited from Government subsidies to

cover its operating expenses. These subsidies escalated during the crisis of 2011–2013, reaching US$139

million in FY2013. As a result of the measures taken under the DPO series, Government transfers (net of

taxes) to cover operating costs of TANESCO became more transparent and decreased from US$117

million in FY2012 and US$139 million in FY2013 to US$3 million in FY2016 and 0 in FY2017. The

Government continues to contribute to financing investment projects in the sector (capital expenses),

consistent with the subsidy policies adopted in the National Energy Policy 2015.

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

2008 2009 2010 2011 2012 2013 2014/15* 2015/16 2016/17**

TANESCO profitability

Gross profit margin % Operating profit margin (EBIT) %

26

Figure 2. Development of TANESCO’s Trade and Other Payables

Source: World Bank staff estimates based on TANESCO data; 2017 data based on unaudited draft

financial statements.

57. Cash collected per year by TANESCO more than doubled between FY2011 and FY2015/16

as a result of measures taken under the DPO series. Between FY2011 and FY2015/16, revenues per

kWh increased by 82 percent. Average bill collection increased from 82 percent in FY2012 to 101 percent

in FY2016 and 96 percent in FY2017.

Figure 3: Impact of acceleration of electrification program on TANESCO’s cash needs for investment

Source: World Bank staff estimates based on TANESCO data.

58. Arrears continued to climb, however, as measures taken under the DPO series were

insufficient to counterbalance other factors that put pressure on TANESCO’s arrears balance.

These factors included in particular the acceleration of the electrification program, insufficient

Government transfers for investment, and the exchange rate depreciation:

The sharp depreciation of the local currency between 2015 and 2016 raised the nominal

value of TANESCO arrears to suppliers by almost 30 percent in local currency.

-

50

100

150

200

250

300

350

400

450

500

-

200,000

400,000

600,000

800,000

1,000,000

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1,400,000

2009 2010 2011 2012 2013 2015 2016 2017

Da

ys o

f co

st o

f sa

les

TzSh

bil

lio

n

TANESCO trade & other payables (FY2015 adjusted for longer period)

Trade and other payables TSh million Creditor days

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

-

100,000

200,000

300,000

400,000

500,000

600,000

2008 2009 2010 2011 2012 2013 2014/15* 2015/16 TAN

ESCO

's s

elf-

finan

ced

inve

stm

ents

(fin

ance

d

fro

m c

as

h f

low

an

d b

orr

ow

ing

) in

T S

h m

illio

n

No

. of a

nn

ua

l co

nn

ect

ion

s

* 18-month period

TANESCO's self-financed investments compared to growth in new connections

27

Government support for TANESCO’s investment program fell short of cash needs as the

Government underwent a period of expenditure consolidation in 2014/15 and 2015/16 to

maintain its fiscal deficit target.

Except for two small commercial loans in the total amount of around T Sh 60 billion,

TANESCO’s access to commercial borrowing to repay arrears was restricted by the

Government after FY2014/15.

After the 2015 election, the new Government put a strong emphasis on a rigorous

verification process before clearing outstanding payments/arrears to the private sector,

which slowed down payment of outstanding arrears across the public sector.

At the same time, TANESCO’s cash used for investment increased sharply after the

Government in January 2013 reduced the cost of new connections by 29 percent to 75

percent and instructed TANESCO to increase its customers base to 1,500,000 by 2015 and

target 250,000 new connections per year (see Figure 3).

59. Results indicator 2 (trade and other payables) was therefore missed by a wide margin,

despite the significant increase in cash collected. As shown in Figure 2, trade and other payables surged

from a total of T Sh 472 billion (US$298 million) at the end of FY2011 to T Sh 980 billion (US$565

million) in FY2015, T Sh 1,187 billion (US$538 million) in FY2016, and T Sh 1,331 billion (US$605

million) at the end of FY2017. If measured in creditor days, trade and other payables fell in FY2012 and

FY2013 but increased thereafter. That is, while operational performance of TANESCO significantly

improved, the burden of the historical payment arrears has gotten worse. Most of these payables are due

to the electricity and fuel suppliers and some are interest carrying. Resolving them is of critical

importance for TANESCO’s financial sustainability, supply security, and investment environment.

Objective 2: Reduce the cost of power supply and promote private sector participation in the power

sector

Rating: Modest

60. Measures to improve transparency and accountability on TANESCO's operational

performance contributed to reducing system losses and improving bill collection. Technical and non-

technical losses in transmission and distribution fell from 22.4 percent in FY2011 and 24.7 percent in

FY2013 to 16.4 percent in FY2017 (compared to a target of 18 percent under Results Indicator 3, see

Figure 4). Average bill collection increased from 82 percent in FY2012 to 101 percent15

in FY2016 and

96 percent in FY2017. Prior actions under the DPO series contributed to this improvement, including the

performance contract between TANESCO and the MEM and the publication of performance reports,

financial audits, and procurement audits, which enhanced transparency and accountability at TANESCO.

15 The collection rate exceeded 100 percent because the Government made two large, one-off payments to

TANESCO to pay off outstanding arrears, and as a result the total cash collected during the year exceeded the total

amount billed.

28

Figure 4. Decline in Technical and Non-Technical Losses during FY2009–FY2016/17

Note: * 18-month period; ** based on TANESCO’s management accounts.

Source: TANESCO.

61. Newly commissioned gas-fired generation capacity improved supply security and helped

phase out oil-fired generation and EPPs. The target of Results Indicator 4, the commissioning of 400

MW of new gas-fired generation capacity, was not met but significant progress has been made as of the

time of the ICR. The Kinyerezi I gas power plant (150 MW) was fully commissioned in 2016 and the first

unit of Kinyerezi II is expected to be commissioned by the end of 2017. As a result, the share of liquid

fuels (diesel and heavy fuel oil) in the generation mix fell from 18 percent in FY2013 to 4 percent in

FY2017 (see Figure 5), leading to lower costs and lower per unit emissions. Together with improved

hydrology and lower-than-expected demand growth (see below) allowed TANESCO to phase-out 317

MW of oil-fired EPPs.

Figure 5. Tanzania’s Power Generation Mix

Source: TANESCO.

62. Delays in the commissioning of gas-fired generation capacity (Results Indicator 4) can be

explained by infrastructure bottlenecks as well as a lower-than-anticipated need for additional

capacity. Completion of the NNGIP pipeline, a core element of the Government strategy to increase

natural gas-fired power generation, was delayed by about one year, which delayed the availability of gas

for new power plants (especially Kinyerezi I) and fuel switching of existing power plants. At the same

time, good hydrology in FY2015 and FY2017 as well as slower-than-expected demand growth (7.6

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013 2014/15* 2015/16 2016/17**

Total transmission & distribution losses (%)

2,502 2,635 2,626 2,687 1,977 2,040 1,948

2,587

1,321 2,025 2,428

1,402 1,572 1,982

2,356

2,568 2,802 3,172 2,723

1,273

3,664

4,178

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Jun Jul-Jun Jul-Jun

2007 2008 2009 2010 2011 2012 2013 2014 2015* 2015/16 2016/17

GW

h

Power generation by source (2009-2017)

Hydro Gas Diesel HFO Biomass Imports

29

percent compared to an estimated 10 percent per year) improved balance between demand and supply and

lessened pressure to commission new gas power plants.

Figure 6. Revenues and Cost of Supply of TANESCO FY2009–FY2016/17

Note: * 18-month period; ** based on TANESCO’s unaudited draft financial statements.


63. The switch from oil to gas-fired generation and the phaseout of EPPs contributed to a sharp

reduction in the cost of supply, leading to overachievement on Results Indicator 5. The average cost

of supply (Results Indicator 5; see Figure 6) fell by half and returned to pre-crisis levels (US¢9.2 per kWh

in FY2017, which compares to US¢8.4 per kWh in FY2010 and US¢18.4 per kWh in FY2013). The main

factors were better hydrology (about one-third of the reduction) and the replacement of oil-fired

generation and EPPs with natural gas (two-thirds of the reduction).

64. Implementation of the reform policy and road map developed under the Program stalled

soon after they were published, and the private sector participation agenda did not advance under

the DPO series. Results Indicator 7 was met when the MEM published a road map for structural reforms

and a new strategic power sector policy.16

Both documents strongly emphasized the need to attract private

sector investment into the sector. To facilitate implementation, the Government initiated a capacity-

building program. However, the inquiry into the sale of the IPTL private power plant in 2014 led to

removal or suspension for prolonged periods of MEM officials including key leadership positions, putting

reform implementation on hold. The preparation for the parliamentary and presidential elections held in

October 2015 further stalled implementation and under the new Government the reform agenda laid out in

2014–2015 did not pick up significant momentum again, despite the issuance in October 2016 of “The

Electricity (Market Re-organization and Promotion of Competition) Regulations, 2016” 2016, pursuant to

the Electricity Act of 2008. The regulations stipulated that the power sector would be unbundled along the

functional lines (generation, transmission, distribution), market liberalized, and procurement of generation

projects competitively done. The regulations also established an Electricity Infrastructure Procurement

Committee. The FYDP-II, too, calls for a more significant role for the private sector in generation and

emphasizes the need for independence in decision-making in determining power purchasing tariffs,

management of the power master plan, and power transmission. However, the October 2016 regulations

are yet to be implemented, the Government however retains strong influence over decision-making in the

sector, and its medium- to long-term vision for sector reforms remains to be articulated. Results

16 These documents are the (a) the Electricity Supply Industry Reform Strategy and Roadmap 2014–2025 (2014) and

(b) the National Energy Policy (2015).

-

0.05

0.10

0.15

0.20

2009 2010 2011 2012 2013 2014/15* 2015/16 2016/17**

US$

/kW

h

Revenues and cost of supply (per kWh)

Own generation US$/kWh Transmission US$/kWhPurchased electricity US$/kWh Distribution expenses US$/kWhDepreciation US$/kWh Revenues from electricity sales US$/kWh

30

Indicator 6, which aimed to capture the first competitive auction for private sector-owned generation

capacity, was not met as the Government is yet to proceed with such a tender.

Objective 3: Strengthen the policy and institutional framework for the management of the


Rating: Modest

65. Under Pillar 3 of the Program, the Government established a policy framework for the

upstream natural gas sector and laid the groundwork for subsequent legislative reforms. Under

DPO-1 and DPO-2, the Government (a) approved a Natural Gas Policy and a Petroleum Policy in 2014;

(b) cleared arrears with developers; (c) initiated an independent verification of Tanzania’s natural gas

reserves; (d) took measures to make TPDC more transparent and improve accountability, and (e)

established a top-level institutional mechanism to enhance policy coordination by mandating the Cabinet

committee on economic affairs to handle the natural gas agenda and creating an interministerial senior

task force on natural gas. These measures—in particular the two policies and the coordination

mechanism—laid the foundations for subsequent legislative reforms (see below). The Government also

initiated a benchmarking exercise of the natural gas sector in close partnership with the Natural Resource

Charter.

66. The Government maintained the reform momentum in the natural gas sector after approval

of DPO-2 and implemented legislation that reformed sector governance. The Parliament passed the

Petroleum Act of 2015, the Oil & Gas Revenue Management Act of 2015, and the Tanzania Extractive

Industries Transparency Initiative Act of 2015. Taken together, these measures established a unified legal

framework for investment in upstream natural gas in Tanzania, by (a) tasking two agencies to regulate the

upstream and midstream,/downstream segments (the Petroleum Upstream Regulatory Agency and the

Energy and Water Utilities Regulatory Agency); (b) mandating the regulatory agencies to establish and

maintain a transparent licensing and contracting framework; (c) tasking the Government to establish a

transparent fiscal regime; and (d) mandating the establishment of an Oil and Gas Fund for maintaining

fiscal and macroeconomic stability, enhancing social and economic development, and safeguarding

resources for future generations. However, the legal framework suffered from a series of conceptual

contradictions—on the one hand introducing a regulatory structure and regulatory procedures favoring

free market principles, transparency and competition, while on the other opening space for Government

interference in due process—and introduced elements in its institutional framework that may discourage

prospective investors. Further, follow-up on the legislative reforms has been slower than anticipated, in

part due to a slump in global energy prices and the resulting downturn in global capital investment in the

oil and gas industry. The Natural Resource Charter initiative has not yet been implemented (Results

Indicator 10).

67. Investments in gas production by established private sector partners increased but fell short

of expected levels. The gas-to-power investment program is a core in the FYDP II and in the Electricity

Supply Industry Reform Strategy and Roadmap, which establish ambitious targets for the expansion of

power generation capacity. During the Program period, the volume of gas produced increased from 78

mmscfd in 2012 to 102 mmscfd in 2015 and 132 mmscfd in 2016 (Results Indicator 8). Information

provided by the private sector suggests that these numbers underestimate investment as additional

production capacity is ready for ramp-up (possibly up to 200 mmscfd). However, even when accounting

for these uncounted investments, private sector interest fell short of expected levels, and may lead to

shortages in gas supply if gas-fired generation capacity is scaled up rapidly (current Government plans

calling for the trebling of gas-based generation capacity by FY2020/21 will require an equally ambitious

expansion of natural gas production to over 300 mmscfd).

31

68. Investments in new exploration also fell short of expectations, at least partially because of

the decline in global energy prices. Global oil and LNG prices declined after mid-2014 and

subsequently remained subdued through the end of 2017, leading to a slowdown in investor interest in

natural gas exploration. As a result, the amount of onshore proven natural gas reserves increased only

slightly, from 1.0 Tcf in 2012 to 1.4 Tcf in 2015 and 1.2 Tcf in 2016 (Results Indicator 9).17

In

consequence, the development of Tanzania’s offshore resources is also unlikely to proceed in the short to

medium term.

3.3 Justification of Overall Outcome Rating

Rating: Moderately Unsatisfactory

69. The DPO series is rated Moderately Unsatisfactory because, despite significant

achievements in the crisis-response elements of the Policy and Results Matrix, the Program did not

make sufficient progress towards its objectives (efficacy). The relevance of objectives was Substantial

but efficacy was Modest (4 out of 10 results indicators were achieved). The outcome rating compares to a

rating of Moderately Satisfactory in the latest ISR for ‘Progress toward achievement of PDO’. The

rating’s justification is that measures taken under the DPO series:

Enabled the Program to achieve 4 out of 10 indicators (and overachieve on two of them),

even though the results indicators were designed for a series of three operations but only

two out of three planned DPOs were approved;

Led to major rebalancing of cost and revenues in the power sector, bringing TANESCO’s

profitability back to pre-crisis levels (Results Indicators 1 and 5);

Contributed to significant improvements in TANESCO’s operational performance,

including a one-fourth reduction in technical and non-technical losses and achievement of

good practice benchmark levels of bill collection;

Scaled up the power-to-gas supply chain in Tanzania and established a legislative

framework for upstream natural gas development, but did not achieve the envisioned

medium-term supply security of natural gas and gas-fired power;

Laid the conceptual groundwork for a power sector reform policy and road map, but could

not facilitate significant progress toward reform implementation.

3.4 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

70. Poverty impacts of the electricity tariff reforms under the Program were mitigated through

cross-subsidies between consumer groups. As shown in the tariff schedule in annex 6, electricity tariffs

in Tanzania are differentiated by consumer groups. Small household consumers (category D1; defined as

average consumption below 75 kWh per month) have been and continue to be subsidized. As of FY2017,

the tariff applied to this consumer group is T Sh 100 per kWh, compared to a general use tariff of T Sh

17 The Government statistic of 57 Tcf of natural gas reserves corresponds to a gross approximation of ‘gas in place’,

which has not been independently assessed and does not correspond to the internationally recognized meaning of

‘reserves’.

32

292 per kWh (category T1). In relative terms, tariffs for D1 increased by 67 percent between FY2012–

2017 (28 percent in real terms), the highest value among the five categories, but in absolute terms the

increase of D1 tariffs (T Sh 40 per kWh) was the second lowest among the categories (see annex 6). Thus,

cross-subsidies mitigated the poverty impact of the reforms under the DPO series.

71. Growth in real household income from strong GDP growth and contained inflation also

mitigated the poverty impacts of the tariff reforms under the DPO series. GDP growth remained

favorable at around 7 percent throughout the implementation period. Inflation declined after FY2012 and

remained around 5–6 percent in FY2013–FY2016/17.

72. A review of household spending on electricity tariffs in over 20 Sub-Saharan African

countries found that, after the tariff reforms, the share of household spending on electricity in

Tanzania was still not above average in the region (1.9–5.8 percent among the poor and 3.0–3.3

percent among all households).18

This is in line with the finding that the tariff reforms under the Program

did not have significant negative impacts on poverty in Tanzania.

73. The tariff increases enabled TANESCO to significantly expand its electrification program

from 2013 onward, with the associated positive social and gender impacts. Providing households,

social institutions, and enterprises with new energy access and improved energy services has the potential

to promote gender equality, create employment and business opportunities, and contribute to a broad

range of human development outcomes. As shown in Figure 7, TANESCO and REA accelerated the

implementation of Tanzania’s electrification program. Between them, the two institutions more than

tripled the number of new connections completed per year between FY2012 and FY2015/16.

TANESCO’s contribution to this expansion was largely financed from its own resources and thus

benefited significantly from increased revenues due to the tariff reforms under the Program.

Figure 7. New Electricity Connections Completed by TANESCO and REA in FY2004–FY2016/17

Source: TANESCO.

74. Reduced budget transfers to the power sector contributed to fiscal consolidation and

provided fiscal space for spending on other priorities, including spending on social development.

18 Kojima, M., X. Zhou, J. J. Han, J. de Wit, R. Bacon, and C. Trimble. 2016. “Who Uses Electricity in Sub-Saharan

Africa?” World Bank Policy Research Working Paper 7889. World Bank, Washington, DC.

http://documents.worldbank.org/curated/en/967821470756082684/pdf/WPS7789.pdf.

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015* 2016 2017

New connections per year (incl. REA)

33

During the Program period, fiscal consolidation remained a major challenge for the Government due to

lower-than-expected domestic revenue collection, diminishing aid disbursements, and higher investment

in infrastructure projects. As a result of the Program, Government transfers to the power sector (net of

taxes) decreased from US$117 million in FY2012 and US$139 million in FY2013 to US$3 million in

FY2016 and 0 in FY2017. This provided fiscal space and reduced the pressure on fiscal consolidation in

other sectors.

(b) Institutional Change/Strengthening

75. TANESCO and the MEM took several measures under the Program to strengthen

TANESCO’s governance and operational capacity, but the long-term impact of these measures has

been marginal. The key institutional change brought in by the DPO program was the signing of a

performance contract for FY2013 between TANESCO and the MEM, which included measurable KPIs

for TANESCO. However, follow-up on areas of underperformance has been limited. TANESCO’s

institutional independence and its accountability for performance have not changed significantly since the

beginning of the Program. Other governance measures included the publication of financial reports and

performance audits, but publication of these documents has since been irregular and the scope of

reporting could be improved.

76. The Government has put in place a comprehensive reform road map for institutional

restructuring and strengthening in the power sector, but implementation of the road map has been

limited. Under the Program, the Government adopted the recommendations of the Presidential Big

Results Now Initiative to develop a road map for structural reforms of the energy sector, developed the

Electricity Supply Industry Reform Strategy and Roadmap 2014–2025 in 2014, and established a

Ministry Delivery Unit within the MEM to oversee the implementation of the road map. However,

implementation of the roadmap has been limited19

.

77. Significant institutional reforms in the natural gas sector were initiated with the adoption of

new gas sector legislation in 2015. The legislative reforms under the Program established the basic

elements of its legal and institutional framework for the proper development of its natural gas sector.

(c) Other Unintended Outcomes and Impacts (positive or negative)

78. Implementation of the Program halted the increase in specific greenhouse gas (GHG)

emissions of Tanzania’s power sector. Per unit GHG emissions in the sector increased by 78 percent,

from 228 gCO2/kWh to 408 gCO2/kWh, between 2008 and 2013. This trend was due to increased reliance

on oil-fired generation while hydropower output remained stable and was expected to continue in the

absence of larger utilization of natural gas. By promoting hydropower and natural gas over oil-fired

generation, the Program reversed this trend and specific emissions fell to an average of 361 gCO2/kWh

during FY2014–FY2016/2017.

19 Reforms envisioned in the roadmap to be completed by the end of FY2017/18 included the unbundling of

generation from transmission and distribution; direct trading between generators and bulk off-takers; the creation of

a designated independent market operator; and a mechanism and rules for the operation of a retail market for

electricity by the regulator. None of these reforms were under way at the time of the ICR, and whether or not they

will be implemented in the future was uncertain.

34

Figure 8. Impact of the Program on GHG Emissions in the Sector


79. The ICR identified no other unintended outcomes or impacts.

3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

80. No beneficiary survey or stakeholder workshop was held.

4. Assessment of Risk to Development Outcome

Overall Rating: High

81. The risk to the development outcome is assessed as High, for six main reasons: (a) the tight

balance between supply and demand in the power sector; (b) continued pressure on TANESCO’s cash

flow; (c) changes in the priorities and reform direction of the new Government in the power sector; (d)

recent reforms in the upstream natural gas policy framework and potential impacts on the investment

climate; (e) there is a risk that the Government is learning the wrong lessons from private sector

investments in the power sector; and (f) macroeconomic risks, including exchange rate risks, constraints

on fiscal space limiting the Government’s ability to contribute to TANESCO’s investment program and

arrears repayment, and global energy price volatility.

82. First, the supply-demand balance in Tanzania’s power sector is still precarious and

TANESCO may fall back into financial difficulties—e.g., in case of a drought or power plant failure

before additional gas-fired generation capacity comes online and the interconnection to Ethiopia is

commissioned. Tanzania has experienced periodic financial crises in the power sector (last in 2011–

2013), largely due to a lack of sufficient supply capacity to withstand droughts. As of end-2017, the

supply-demand balance remains tight, even at the current level of connectivity, as evidenced by the major

10-hour power outage in late October 2017. Two major gas power plant investments (Kinyerezi I

Extension and Kinyerezi II) are expected to be completed in 2018/19, adding 425 MW in total20

. In

addition, a new grid interconnection with Kenya/Ethiopia is expected to be completed in phases starting

in 2019, eventually allowing up to 400 MW of imports. However, utilizing the new gas plants will require

20 Kinyerezi II (240 MW) will be gradually commissioned by August 2018. The Kinyerezi I Extension (185 MW) is

expected to be fully operational by the beginning of 2019.

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100

200

300

400

500

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Jun Jul-Jun Jul-Jun

2008 2009 2010 2011 2012 2013 2014 2015 2015/16 2016/17

gCO

2/k

Wh

Specific GHG emissions of the power sector in Tanzania FY2008-FY2016/2017

35

securing gas supplies, which are at risk of falling short of quantities needed for the new gas-fired

generation plants; and until the investments are completed, the system remains vulnerable to outages in

case of failures of individual power plants. Improved system expansion planning and execution, including

supply diversification by utilizing Tanzania’s solar and wind resources, will be important to further

reduce vulnerability to droughts and other supply side risks.

83. Second, plans for major public investment in the power sector will continue to put pressure

on cash flow, limiting TANESCO’s ability to repay its arrears. The 2016 PSMP update implies major

public investment in generation and transmission. The same is true for the Government’s access targets

(connecting 50 percent of the population by 2020 and over 75 percent by 2030, up from 33 percent in

2016), which imply a major scale-up of investment in new connections. World Bank estimates suggest

that achieving the targets would require 600,000–800,000 new household connections per year, up from

around 250,000 per year in recent years. TANESCO is already at the limits of its financing capacity and

access to commercial borrowing is restricted. Pressure on TANESCO’s liquidity is therefore expected to

continue.

84. Third, the Government has at least partially shifted direction in the reform program in the

power sector, potentially reversing or stalling some of the outputs and outcomes under the

Program. The new Government has charted out a new course of action with regard to key economic

policy directions, but its priorities in the energy sector are still being worked out. An ongoing consulting

assignment on the financial situation of TANESCO is an illustration of the Government’s intent to

understand the prevailing situation before embarking on a new reform program. Whether or not the

Government intends to continue implementation of the reform program laid out under Pillar 2—including

the reform road map laid out in the documents that contributed to Results Indicator 7—is currently

unclear. Nonetheless, it is clear that the current Government is putting less emphasis on private sector-

funded infrastructure development in the energy sector than the Program laid out under this DPO series,

meaning that some of the outputs and outcomes of the Program may be reversed or stalled in the future.

The Government also retains strong direct influence over decision-making in the sector and has weakened

EWURA’s ability to make independent regulatory decisions.21

85. Fourth, there is a risk that the Government is learning the wrong lessons from past private

sector investments in the power sector. While the Government and TANESCO implemented the initial

phase of the 2013 Policy for Private Sector Participation in Power Generation through Competitive

Processes by launching PPP capacity-building programs, the DPO series was not able to demonstrate the

benefits of well-executed private sector investments in the power sector. Therefore, a small number of

controversial and poorly executed contracts continue to cast a shadow on the outlook for privately-owned

generation in Tanzania in general. In the absence of a clearly articulated rationale and shared vision

among sector stakeholders, the Government’s policy toward private sector participation in future

generation projects is unclear. The risk to the development outcome is that the Government concludes

from these poorly executed investments that private sector investments are not worth pursuing at all,

rather than that private sector investments have to be done right.

86. Fifth, recent amendments to the Petroleum Act in mid-2017, passed in response to the

outcomes of a parliamentary inquiry into mining contracts with the private sector, may affect the

natural gas investment framework. Shortly before the ICR was prepared, in July 2017, the Government

amended the Petroleum Act of 2015. Potential impacts of the reforms include (a) negatively affecting the

21 In December 2016, the Minister of Energy and Minerals suspended EWURA tariff order. In June 2017, the Prime

Minister suspended the Director General of EWURA after EWURA initiated the license renewal process for IPTL.

EWURA then declined to renew the operating license for IPTL in August 2017.

36

stability of existing Production Sharing Agreements; and (b) clouding the prospects for future private

investment in the sector. Therefore, although the impact of the amendments on the attractiveness of

investment in natural gas exploration and production was not fully clear at the time of the ICR, the

amendments increased the risks to the development outcome.

87. Sixth, while the macroeconomic outlook is relatively stable, macroeconomic risks to the

development outcome include TANESCO’s exposure to exchange rate risks; constrained fiscal

space limiting the Government’s ability to adequately fund TANESCO’s investment program or

contribute to repayment of arrears; and global energy price volatility. Tanzania’s economy remains

one of the highest performers in the region, exceeded in 2016 only by Côte D’Ivoire and Ethiopia. Real

GDP expanded at a slower rate of 6.8 percent in the first half of 2017 compared to 7.7 percent over the

same period in 2016. The inflation rate has remained low and stable and reserves are at a healthy level.

The outlook remains favorable with the main downside risks of a domestic nature and largely under

Government control. However, TANESCO’s arrears remain exposed to exchange rate risks as much of it

is denominated in US$. Furthermore, in view of continued fiscal constraints for the Central Government,

such as persistently high arrears22

and underexecution of the development budget, it is unclear to what

extent the Government can contribute to funding TANESCO’s investment program or the repayment of

arrears. Lastly, macroeconomic risks to the sustainability to the development outcome also include global

energy price volatility, especially the potential negative impact of sustained low energy prices on

investments in the development of Tanzania’s natural gas resources.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Moderately Satisfactory

88. World Bank performance in ensuring quality at entry is rated Moderately Satisfactory for the

following reasons:

The World Bank ensured that the DPO series was part of a concerted donor effort to support

the Government’s response to the fiscal and macroeconomic implications of the electricity

supply crisis during 2012–2014.

The objectives of the crisis-response elements of the Policy and Results Matrix—to restore

TANESCO’s financial viability and reduce fiscal risks—were core to the Government’s and

the World Bank’s strategy in the energy sector.

The crisis-response elements of the Policy and Results Matrix was informed by recent

analytical work and global experience and had a clear line of sight between prior actions and

results indicators.

Enough flexibility was built into the design of the Policy and Results Matrix to allow the

Government’s deliberation on important but difficult policy decisions to follow due course.

For instance, the Triggers for DPO-2 under Pillar 1 specified the fiscal reform objective (a

22 Arrears to contractors, suppliers, and pension funds by the Government reached over 6 percent of GDP at the end

of FY2015/16.

37

cap on transfers to TANESCO), but left the exact nature of policy actions open. During

preparation of DPO-2 the language of Prior Action 2.1 was then adjusted to account for the

outcomes of the Government’s deliberation.

The medium- to long-term reform elements of the Policy and Results Matrix were risky

because they were backloaded; heavy on commitments and light on implementation; and

missed a clear line of sight between prior actions and results indicators. Some of these risks

were informed risks and thus do not represent shortcomings in the performance of the World

Bank, but important governance risks were missed; the political economy of power sector

reform in particular was poorly reflected in the design of the medium- to long-term reform

measures in the Program.

(b) Quality of Supervision


89. World Bank performance in ensuring quality at supervision is rated Moderately Satisfactory for

the following reasons.

Continued close alignment of the DPO series with DPs’ programs was critical for the

success achieved during implementation.

Throughout the implementation of the Program, the World Bank provided close

implementation support by an experienced core team as part of regular supervision missions

and additional support missions as needed.

The parallel technical assistance under the World Bank’s ESCBP provided much-needed

capacity-building support to implement the Program.

The World Bank continuously monitored progress against the main financial and

performance indicators of the power sector and the M&E framework was used in the

implementation of the Program and decisions on the World Bank’s DPO series in an

adequate manner.

The decision not to proceed with the third operation in the series within the two years after

Board approval of DPO-2 reflected an adequate adjustment to changing context and

Government priorities and was based on in-depth dialogue with the Government during

three missions in September and then in November and December 2016.

However, the World Bank’s implementation support is considered to have had moderate

shortcomings, because it did not reflect a complete understanding of the political economy

of power sector reform in Tanzania and the World Bank team was not always able to

respond to implementation challenges on time. For instance:

i. The major change in the Government’s policy for connection charges in early

2013 and its impact on TANESCO’s finances were not recognized in the

preparation of DPO-2 and thus not reflected in the design of the operation.

ii. The fact that arrears continued to mount in FY2014/15 despite positive income

could have led the Bank team to adjust course in the reform dialogue.

38

iii. In hindsight, more could have been done to disseminate global best practices in

structuring and executing private-sector participation in the power sector, and the

potential benefits for Tanzania’s development.

iv. The DPO series’ results framework was not adjusted when it became clear that

the third DPO would not be not approved within 24 months.

(c) Justification of Rating for Overall Bank Performance


90. This rating combines the ratings for Quality at Entry and Quality of Supervision.

5.2 Borrower Performance


91. While the MOF was the official implementing agency of DPO series, the ICR considers the MOF

and the MEM as the key implementers of the program, as both represented the Government in the

implementation of the Program. Government performance is rated Moderately Unsatisfactory because of

significant shortcomings despite strong performance in some areas of the Policy and Results Matrix:

Government commitment to and leadership in the crisis-response elements of the Policy and

Results Matrix was strong and the Government successfully managed the fiscal impacts of

the power sector crisis in 2011–2013. Service and performance improvements facilitated

under the leadership of the MEM contributed to the social acceptability of tariff reforms.

The MOF, in coordination with the MEM, TANESCO, and EWURA took ownership in

selecting and implementing the prior actions and the borrower’ commitment was reflected in

the timely approval of DPO-1 and DPO-2.

The Government established a policy framework for upstream natural gas development,

maintained momentum after approval of DPO-2 and adopted legislation that reformed

natural gas sector governance.

Government commitment to the medium- to long-term power sector reforms—including

private sector participation, structural reforms of the power sector, good governance and

financial sustainability of TANESCO and an independent regulatory function—in the Policy

and Results Matrix was less clear from the start.

The Government’s reform efforts in the energy sector and engagement with the World Bank

lost momentum when the IPTL controversy led to removal or suspension of prolonged

periods of time of MEM officials including key leadership positions. Despite progress in

some areas, reform efforts are yet to regain momentum, causing major delays in

implementation of the Program. DPO-3 was cancelled as a result.

Insufficient Government funding for TANESCO’s investment program after approval of

DPO-2 led to a cash shortfall at TANESCO and contributed to the buildup of arrears. Under

DPO-2, the Government and TANESCO committed to finance any remaining financing gap

in the power sector (after tariff reforms) from Government subsidies and commercial

39

borrowing. However, actual Government measures fell short of this commitment, especially

with regard to cash needs for investment.

6. Lessons Learned


92. A sectoral DPO series can be an effective crisis response when it is closely aligned with an

IMF program, complements fiscal consolidation with service improvements, and has a clear line of

sight between prior actions and expected outcomes. The Power and Gas Sector DPO series was

successful in the first two years and in (most of) the crisis-response elements relating to financial

sustainability and fiscal risks of the power sector, for three main reasons. First, close coordination and

parallel support by several DPs, especially the IMF, was critical for sustained implementation of these

difficult reforms. Second, the major tariff reforms between FY2011 and FY2014/15 which, cumulatively,

more than doubled tariffs for some categories, were acceptable to consumers only because they were

accompanied by significant reductions in outages and improvements in quality of service. This further

underpins recent global experience, which suggests that consumers are willing to pay more if they in turn

receive better service. Third, the crisis-response elements of the Policy and Results Matrix—especially

measures relating to TANESCO’s revenues and costs such as tariff reforms and the phase-out of EPPs—

had a clear line of sight between prior actions and expected outcomes.

93. Improving liquidity and profitability of utilities are related objectives but require separate

analyses and risk mitigation measures. The DPO series implicitly assumed that achieving profitability

and reducing arrears—the two subobjectives under Pillar 1—could be achieved largely through the same

measures (the term ‘financing gap’ in the PDO was meant to capture both cash needs and net income).

However, trends in profitability and arrears diverged widely during the Program period because

TANESCO’s investment program was inadequately funded, underscoring the need for separate analyses

and risk mitigation measures in the design of operations targeting both.

94. Engaging in the natural gas agenda was a risk worth taking, even if outcomes as measured

by the results indicators were only Modest. The Bank used this DPO series as an opportunity to

establish an engagement with the Government in the natural gas sector, which was and remains critical

for the development of Tanzania’s energy sector. This decision enabled the DPO series to support a

comprehensive reform program that tackled the whole energy supply chain. While the reform momentum

in the natural gas sector slowed down when global energy prices declined in 2015, significant progress

was made towards a modern upstream natural gas policy framework that would not have been possible

without the DPO series. Thus, despite weak performance on indicators under Pillar 3, engagement in the

gas sector reform proved to be risk worth taking.

95. World Bank-supported power sector reform programs in Sub-Saharan Africa need to take

into account the full breadth of utility investment obligations—including investments to deliver on

the electricity access agenda—and their impacts on sector fundamentals. The Government’s efforts

to expand electricity access were recognized in the design of the Program, but not fully integrated into the

financial modeling that underpinned the Program’s Results Framework. The impact of the access agenda

on sector financials was therefore not anticipated, even in DPO-2, which was approved after the

Government significantly expanded financial obligations for TANESCO in financing new connections

(because of the delays in TANESCO’s financial reporting, the full impact of these reforms was not yet

visible in the performance indicators by the time of appraisal of DPO-2). As a result, TANESCO’s arrears

continued to rise despite significant improvement and, in fact, overachievement, on TANESCO’s income

statement (see section 3.2 for more details). In view of the prominence of the access agenda in the

Sustainable Development Goals and the sector development programs of Sub-Saharan African

40

governments, the lesson from this DPO series is that future energy DPOs in Sub-Saharan Africa—

including in Tanzania—need to take access investments and related policy frameworks more explicitly

into account into the design of the operation.

96. Where the promotion of private sector participation is part of a World Bank-supported

reform program, program design needs to be informed by a political economy analysis and global

best-practices as well as associated benefits need to be clearly articulated. The series was

underpinned by comprehensive economic and financial analysis and informed by the World Bank’s

global experience with energy sector reform. However, no systematic stakeholder mapping and political

economy analysis were undertaken. Therefore, the political economy risks of power sector reform in

Tanzania were insufficiently reflected in the design and implementation of the program, which

contributed to the underperformance of the DPO series (see sections 2 and 3 for details). For instance, in

hindsight, the DPO series’ expectations about the pace and momentum of reforms (beyond immediate

crisis-response measures) appear overambitious, and the results framework should have been adjusted

once it became clear that DPO-3 would not be approved. Further, more could have been done to articulate

and share with the Government global best practices in structuring and executing private-sector

participation in the power sector (e.g., best practice in risk sharing in PPP models), and the potential

benefits for Tanzania’s development. In the absence of a clearly articulated rationale and shared vision

among sector stakeholders, a small number of controversial and poorly executed contracts cast a shadow

on the outlook for PPPs in Tanzania’s power sector in general. This lesson learned is in line with

emerging findings from a currently ongoing review of the global power sector reform agenda by the

World Bank’s Energy and Extractives Global Practice (‘Rethinking Power Sector Reform’; P157376),

which will lay out an agenda for more closely integrating political economy considerations into power

sector reform programs.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/Implementing agencies

97. Not applicable.

(b) Cofinanciers

98. Not applicable.

(c) Other partners and stakeholders (for example, NGOs/private sector/civil society)

99. Not applicable.

41

Annex 1. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team Members

P143645 – TZ First Power and Gas Sector DPO

Names Title Unit Responsibility/

Specialty

Lending

Jacques Morisset Program Leader AFCF2 Task Team Leader

Vladislav Vucetic Lead Energy Specialist GEE01 Team Member

Nazaneen Ismail Ali Senior Procurement Specialist GGO05 Procurement

Mona El-Chami Senior Financial Management

Specialist GGO23 Financial Management

Mustafa Zakir Hussain Operations Adviser: OPSPQ Team Member

Robert Schlotterer Lead Infrastructure Finance Specialist GEEFS Team Member

Yutaka Yoshino Program Leader AFCE1 Team Member

Emmanuel Mungunasi Senior Economist GMF07 Team Member

Sanjeev Ahluwalia n.a. n.a. Team Member

Zhengjia Meng Young Professional GEEFS Team Member

Alexander Huurdeman Senior Gas Specialist GEEX1 Team Member

Goodluck Mosha n.a. n.a. Team Member

Waly Wane Senior Economist GED07 Team Member

Chiara Bronchi Practice Manager GGO13 Team Member

Katherine Bain Consultant GGODR Team Member

Victoria Cunningham n.a. n.a. Team Member

Agnes Mganga Program Assistant AFCE1 Team Member

Leah Mukuta n.a. n.a. Team Member

Mercy Sabai Sr Financial Management Specialist GGO31 Team Member

Donald Mneney Consultant GGO01 Team Member

Ann Jeannette Glauber Lead Environmental Specialist GEN2A Team Member

Charles Feinstein n.a. n.a. Peer reviewer

Francisco Carneiro Program Leader LCC3C Peer reviewer

P145254 - TZ Second Power and Gas Sector DPO


Specialty

Lending

Yutaka Yoshino Program Leader AFCE1 Task Team leader

Vladislav Vucetic Lead Energy Specialist GEE01 Team Member

Natalyia Kulichenko Senior Energy Specialist GEE07 Team Member

Mustafa Zakir Hussain Operations Adviser: OPSPQ Team Member

Jacques Morisset Program Leader AFCF2 Team Member

Emmanuel Mungunasi Senior Economist GMF07 Team Member

Victoria Cunningham n.a. n.a. Team Member

Nicola Woodroffe n.a. n.a. Team Member

Lydie Ahodehou Program Assistant GMF07 Team Member

Zhengjia Meng Young Professional GEEFS Team Member

Alexander Huurdeman Senior Gas Specialist GEEX1 Team Member

Justina Kajange Operations Analyst GTI11 Team Member

Zoe Kolovou Lead Counsel LEGAM Team Member

42

P145254 - TZ Second Power and Gas Sector DPO


Specialty

Luis Schwarz Senior Finance Specialist WFALN Team Member

Roy Sudharshan Canagarajah Manager ECADE Team Member

Hilda Emeruwa Operations Analyst GMFDR Team Member

Oliver Braedt Program Leader LCC6C Team Member

Ann Jeannette Glauber Lead Environmental Specialist GEN2A Team Member

Amy Faust Consultant GSU13 Team Member

Helen Shahriari Senior Social Scientist GSU05 Team Member

Alexandra C. Bezeredi Lead Social Development Specialist GSU01 Team Member

Hanneke Van Tilburg Senior Social Development Specialist OPSPF Team Member

Leah Mukuta n.a. n.a. Team Member

Isis Gaddis Senior Economist GCGDR Team Member

Nadia Belhaj Hassine Senior Economist GPV01 Team Member

Mercy Sabai Senior Financial Management

Specialist GGO31 Financial Management

Donald Mneney Consultant GGO01 Team Member

Milan Brahmbhatt n.a. n.a. Peer reviewer

Charles Feinstein n.a. n.a. Peer reviewer

Havard Halland Senior Economist GGOPS Peer reviewer

(b) Staff Time and Cost

P143645 – Tanzania First Power and Gas Sector DPO

Stage

Staff Time and Cost (Bank Budget Only)

No. of Staff Weeks US$, thousands (including travel and

consultant costs)

Lending and Supervision

FY13 35.40 170,101.33

TOTAL 35.40 170,101.33

P145254 – Tanzania Second Power and Gas Sector DPO

Stage

Staff Time and Cost (Bank Budget Only)

No. of Staff Weeks US$, thousands (including travel and

consultant costs)

Lending and Supervision

FY14 43.62 175,965.66

TOTAL 43.62 175,965.66

43

Annex 2. Beneficiary Survey Results

Not applicable.

44

Annex 3. Stakeholder Workshop Report and Results

Not applicable.

45

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR

No comments from the Borrower were received by the time of the submission of this ICR.

46

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable.

47

Annex 6. Supporting Data

Table 6.1. Results Indicators

No. Pillar 1 Unit 2008 2009 2010 2011 2012 2013 2015 2016 2017

1 TANESCO operating deficit US$

million (3) (20) (3) 22 109 239 (149) 92 (80)

2 TANESCO accounts (trade and other)

payable

T Sh

million 202,236 321,883

428,9

61

472,21

3 707,012

824,0

33

979,9

18

1,187,

238

1,330,

931

3 TANESCO technical and non-technical

losses in transmission and distribution (%) % 25.18 24.98 22.81 22.42 21.87 24.70 17.81 18.29 16.44

Pillar 2 Unit 2008 2009 2010 2011 2012 2013 2015 2016 2017

4 Amount of gas-fired power generation

capacity commissioned after 2011 (MW) MW n.a. n.a. n.a. n.a. 105 105 105 255 285

5 Average unit cost of power sales

(US$/MWh) US¢/kWh 9.28 9.21 8.35 11.89 16.50 18.36 12.90 12.21 9.19

6 Number of bids for gas IPP power plants

launched on a competitive basis (count) n.a. n.a. n.a. n.a. n.a. n.a. 0 0 0 0

7 MEM documents on sector reforms

published for public knowledge (count) n.a. n.a. n.a. n.a. n.a. n.a. 0 2 2 2

Pillar 3 Unit 2008 2009 2010 2011 2012 2013 2015 2016 2017

8 Volume of gas produced (mmscfd) mmscfd n.a. n.a. n.a. n.a. 78 n.a. 102 132 n.a.

9 Amount of onshore proven natural gas

reserves (Tcf) Tcf n.a. n.a. n.a. n.a. 1.000 n.a. 1.369 1.187 n.a.

10 Annual monitoring under the Natural

Resource Charter initiative n.a. No No No No No No No No No

48

Table 6.2. Electricity Tariffs by Category FY2008–FY2017

Electricity Tariffs Category Unit FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2015 FY2016 FY2017

Change

FY2012–

FY2017

D1

Consumers

who consume

on average

below 75 kWh

Service charge T Sh/Month — — — — — — — — — —

Energy charge

(0–75 kWh) T Sh/kWh 49 49 49 60 60 60 100 100 100 67%

Energy charge

(>75 kWh) T Sh/kWh 156 156 156 195 273 273 350 350 350 28%

T1 General usage

tariff

Service charge T Sh/Month 2,303 2,303 2,303 2,738 3,841 3,841 5,520 0 0 −100%

Energy charge T Sh/kWh 129 129 129 157 221 221 298 292 292 32%

Maximum

demand charge T Sh/kVA/Month — — — — — — — — — —

T2

Consumers at

400 V and

above and

>7,500

kWh/month

Service charge T Sh/Month 8,534 8,534 8,534 10,146 14,233 14,233 14,233 14,233 14,233 0%


Maximum

demand charge T Sh/kVA/Month 9,347 9,347 9,347 12,078 16,944 16,944 15,004 15,004 15,004 −11%

T3 Medium

voltage

Service charge T Sh/Month 8,534 8,534 8,534 10,146 14,233 13,233 16,769 16,769 16,769 18%


Maximum

demand charge T Sh/kVA/Month

8,669 10,350 14,520 13,200 13,200 13,200 28%

T5 High voltage

Service charge T Sh/Month 8,534 8,534 8,534 10,146 14,233 15,233 0 0 0 −100%


Maximum

demand charge T Sh/kVA/Month 4,775 4,775 4,775 8,610 12,079 12,079 16,550 16,550 16,550 37%

49

Annex 7. List of Supporting Documents

Title Date Reference Number

2016 Power System Master Plan Update December 2016 n.a.

AfDB Power Sector Reforms and Governance

Support Program (PSRGSP) Phases I–III

2015, 2016 n.a.

Aide Memoires for the Project’s Supervision Missions Multiple Multiple

Development of Electricity Tariff-Setting

Methodology and Carrying Out Cost of Service Study

(Mercados Study)

August 2012 n.a.

DPO Program Documents February 2013,

February 2014

74994-TZ, 84028 -TZ

Electricity Supply Industry Reform Strategy and

Roadmap 2014–2025

June 2014 n.a.

IMF Staff Reports on Article IV Consultations and

Reviews under the Standby Credit Facility

Arrangement

2012–2014 Multiple

Program Implementation Status and Results Reports

(ISRs)

Multiple Multiple

TANESCO Audited Financial Statements and

Management Accounts

2008–2016 n.a.

TANESCO Short-term Financial Assessment 2012–

2015

June, 2012 n.a.

TANESCO Tariff Applications 2012–2016 n.a.

TANESCO Turnaround Study (MCC) 2016 n.a.

Tanzania Development Vision 2025 1999 n.a.

Tanzania Economic Update 10: Managing Water

Wisely

November 2017 n.a.

Tanzania National Energy Policy December, 2015 n.a.

Tanzania Rural Electrification Expansion Program—

Program for Results

May, 2016 103827-TZ

Tanzania: Intended Nationally Determined

Contribution (INDC) under the UNFCCC

September 2015 n.a.

The Tanzania Five-Year Development Plan 2011/12–

2015/16

June 2011 n.a.

The Tanzania Five-Year Development Plan 2016/17–

2020/21

June 2016 n.a.

World Bank Tanzania CAS for FY2012/15 May, 2011 60269-TZ

Note: MCC = Millennium Challenge Corporation; UNFCCC = United Nations Framework Convention on

Climate Change.

50

Annex 8. Map

Source: The World Bank.