Document of

The World Bank -

FOR OFFICIAL USE ONLY

Report No. 4050-TA

STAFF APPRAISAL REPORT

TANZANIA

FOURTH POWER PROJECT

June 29, 1983

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Energy DivisionEastern Africa Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

1 Tanzania Shilling (TSh) = US$0.082US$1 = TSh 12.21 TSh = 100 T cents

WEIGHTS AND MEASURES

I liter = 1.057 quarts1 meter (m) = 3.28 feet1 kilometer (km) = 0.621 miles1 square kilometer (km2) = 0.386 square miles1 kilovolt (kV) = 1,000 volts1 kilowatt (kW) = 1,000 watts1 megawatt (MW) = 1,000 kilowatts1 megawatt hour (MWh) = 1,000 kilowatt hours1 megavolt ampere (MVA) = 1,000 kilovolt ampere (kVA)1 gigawatt hour (GWh) = 1 million kilowatt hours1 kilo calorie (kcal) = 3.97 British thermal units (Btu)1 ton of coal equivalent (tce) = 7,000,000 kilocalories1 ton of oil equivalent (toe) = 10,500,000 kilocalories (kcal)

ABBREVIATIONS AND ACRONYMS

Acres = Acres International LimitedAATP = Arusha Appropriate Technology ProjectBADEA = Arab Bank for Economic Development in AfricaCIDA = Canadian International Development AgencyEAPL = East African Power and Lighting Company LimitedKfW = Kreditanstalt fur WiederaufbauMWE = Ministry of Water and EnergyNORAD = Norwegian Agency for DevelopmentOPEC = Organization of Petroleum Exporting CountriesRUBADA = Rufiji Basin Development AuthoritySIDA = Swedish International Development AuthoritySIDO = Small Industries Development OrganizationSWECO = Swedish Consulting GroupTANESCO = Tanzania Electric Supply Company LimitedTARECO = Tanzania Rural Electrification CorporationTTI = Technical Training Institute

TANESCO's Financial Year (FY)

Calendar

This report was prepared by Messrs. J. Besant-Jones (Economist), V.Mastilovic (Engineer) and R. Mitchell (Financial Analyst) and is based onthe findings of the appraisal mission which visited Tanzania in December1981. Mission members included Ihsan Tuncay (Mission Leader), DavidHutchins (Consultant) and Gerd Steinke.

FOR OICIAL USE ONLY

TANZANIA

STAFF APPRAISAL REPORT

FOURTH POWER PROJECT

Table of Contents

Page No.

I. THE ENERGY AND POWER SECTOR

Energy Resources and Planning ...... . ......................... 1Renewable Energy Resources . ............... . 11980 Energy Balance ................................... * ..... 2Energy Prices ........................... 0.... 3Power Sector ................................................ 4Existing TANESCO Facilities ....... .... ....... ..... .. ...... .. 5Access to Service and Electrification of Rural Areas .... .... 6Role of IDA/Bank ........ 0...................... 6Government Strategy in the Power Sector ..................... 7

II. THE BORROWER, BENEFICIARY AND EXECUTING AGENCY

The Borrower .................................. 8The Beneficiary and Executing Agency ........................ 8Accounting and Auditing ..................................... 8Billing and Collection ....................................... o ............. 9Personnel and Training ..................................... 9Insurance ............ ....................................... 10

III. DEVELOPMENT PROGRAM AND THE PROJECT

Demand and Market ..... ........ ................. 10Development Program ................... . ................. 11Project Objectives ...... .. ........... 13Project Description ................... 13Cost Estimates ............................................ 14Project Financing ........................................ 16Engineering Consultants' Services and

Project Implementation ............... . ................... 17Procurement ........................................ 17Disbursement . ........................................ 18Project Monitoring and Evaluation ........................... 18Environmental Aspects . . ...................................... 18

IV. FINANCIAL ASPECTS

TANESCO's Past Financial Performance .... . ......... 19TANESCO Cs 1980 Financial Position ........................... 20

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Page No.

Tariff Levels and Rate of Return ........................... 21TANESCO's Financing Plan ...... .............................. 23Future Operations and Financial Performance ................ 25

V. ECONOMIC ANALYSIS

Need for the Project ....................................... 26Least Cost Solution ...... ................................. 26Power System Costs ...................................... ... 27Economic Rate of Return ...... .............................. 29Tariffs .................................................... 29Risks ...................................................... 30

VI. AGREEMENTS REACHED AND RECOMMENDATIONS ................. ... 31

LIST OF ANNEXES

1. TANESCO - Existing Power Facilities2. Statistical Data on TANESCO's Power System3. TANESCO - Organizational Structure4. TANESCO - Future Sales and Maximum Demand5. Project Description6. Project Cost Estimates7. Implementation Schedule8. Disbursement Schedule9. Project Monitoring Guidelines10. TANESCO - Income Statements, 1978-199011. TANESCO - Balance Sheets, 1978-199012. TANESCO - Cash Flow Projections, 1981-199013. Notes and Assumptions for Financial Projections14. Economic Analysis - Least Cost Solution15. Economic Rate of Return16. Selected Documents and Data Available in the Project File

MAP IBRD 16231 TANESCO's Principal Power Facilities and the ProposedProject

I. THE ENERGY AND POWER SECTOR

Energy Resources and Planning

1.01 Tanzania's energy resources are large and diverse but have notyet been exploited systematically. In addition to forestry resources, thecountry has coal deposits in the south-western area estimated atabout 300 million tons of proven reserves. Despite their remoteness fromthe main population centers and harbors, exploitation on a sizeable scaleappears feasible and is being examined under a recently approved I.D.A.assisted coal engineering project. Tanzania has si nificant natural gasdeposits on Songo-Songo island (about 800 billion ftf proven) and possibleadditional reserves at Kimbiji and Mnazi Bay where exploration iscontinuing. The potential for oil is being investigated although nosignificant discovery has yet been made. 1/ Tanzania also has asignificant hydro power potential mostly sited in the basins of variousrivers which drain into the Indian Ocean. The country's geothermal anduranium potential is unexplored. Tanzania has a general energy policy forthe development of various energy forms, giving priority to renewableenergy resources. However, a systematic approach to the development ofexisting resources, supply of fuel and its transportation, maintenance ofequipment and training has yet to be established. A UNDP-Bank joint energyassessment mission is visiting Tanzania in mid 1983.

Renewable Energy Resources

1.02 Tanzania has so far concentrated its efforts on six types ofrenewable energy resources for development, i.e. biomass, hydro power,animal power, wind, solar and geothermal. At present, Tanzania dependsmostly on biomass sources in the form of firewood for heating, cooking andsome industrial processes, and on hydro power for electric energy.

1.03 Firewood and charcoal, which provide about 86% of Tanzania'stotal energy consumption, are the traditional sources of energyparticularly in the rural areas. About 90% of the population lives in thevillages and depends almost exclusively on firewood. Current consumptionis estimated at about 35 million m3 (about 2.1 m3 per capita per annum);and the annual average growth of consumption is about 1.7%. The householduse of firewood as well as by industrial processes (such as tobacco curing,tea drying, fish smoking, heating, brewing, brick-making and pottery) arecausing sources to be fast depleted. The Government has formulatedstrategies to avoid deforestation by introducing simple technologies suchas condensing wood residues into readily transportable briquettes andpellets, improving the design of wood stoves, and by reforesting andcontrolling wood harvesting. Tanzania has also made efforts to developbiogas and gasification by particle combustion projects in recent years.The Small Industries Development Organization (SIDO) and the Arusha

1/ The Bank financed an exploration project in 1980 to assess petroleum atSongo-Songo (IDA Credit 27-TA for US$30 million, June 30, 1980) andoil-gas exploration project for US$20 million (IDA Credit 1199-TA,January 13, 1982).

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Appropriate Technology Project (AATP), both government organizations, haveabout 16 planned projects (comprising the construction of gas tanks with atotal capacity of about 240 m3, at a cost of about US$30,000).

1.04 So far more than 70 potential sites for hydro power andirrigation have been identified in Tanzania, mostly by the UN Food andAgricultural Organization. The total hydroelectric potential has beenestimated to be about 19,000 GWh per year production capability, with about3,800 MW capacity, 2/ of which 247 MW 3/ has been developed. In additionto the large hydroelectric power potential, there are also a number ofsites suitable for mini hydro stations mostly in rural areas far from themain power grid and the major population centers. About 20 mini hydrostations operate in Tanzania with a total capacity of 0.9 MW. TheNorwegian Agency for Development (NORAD), Swedish International DevelopmentAuthority (SIDA) and the Federal Republic of Germany - Kreditanstalt furWiederaufbau (KfW) are investigating about 30 sites with a total capacityof about 50 MW in the northern and southern parts of the country.

1.05 There are various geothermal areas mostly located in the north-east and south-west of the country in the Great Rift Valley.Investigations are continuing through SIDA and initial indications arepromising.

1980 Energy Balance

1.06 The Ministry of Water and Energy (MWE) estimates Tanzania's totalgross energy usage in 1980 to be about 5,000 thousand toe. No energy hasbeen exported (except for sales to ships of about 50,000 tons of refinedoil products from the Dar es Salaam refinery (TIPER) in 1980). About 87%of all energy consumed was provided locally (mainly firewood). Coal ispredominantly used in industry and transportation. About 13% of all energyused in 1980 was imported, almost entirely in the form of crude and refinedoil products from the Middle East and North Africa. Details of energyconsumption in 1980 are shown follow:

2/ Estimated hydro power potential of major rivers is: Kagera River 280MW (Rusomo-Kishanda projects); Mara River 89 MW, Wami River 120 MW,Rufiji River 2,100 MW (Stiegler's Gorge project); Kilombero River 550MW (Kingenenas/Shuguri Falls projects); Great Ruaha River 280 MW(Kidatu and Mtera projects); Nkiwe, Rumbila and Rumakali Rivers 160 MW;Songwe River 50 MW; Ntembwe, Kalumbo Rivers 60 MW; and Malagarasi River100 MW.

3/ Wami/Pangani Rivers (Hale station 20 MW, Pangani station 17 MW, NyumbaYa Mungu station 8 MW); Great Ruaha River (Kidatu station 200 MW);Little Ruaha River (Iringa 1 MW); and Songwe River (Mbeya 1 MW).

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Tanzania's Energy Consumption (1980)

Local toe (thousand) c/ %

Firewood 4,300 86Coal 5 -Electricity a/ 55 1

Subtotal 4,360 87

Imported b/

Liquid petroleum gas 6Motor fuel (premium and regular) 110 2Kerosene 73 1Gas oil 249 5Industrial diesel 55 1Fuel oil 126 3Jet oil 67 1

Subtotal 686 13

Total Consumption 5,040 100

Source: Ministry of Water and Energy

a/ Production from hydro stations. Production from diesel stations isincluded in the "Imported". Kilombero sugar estates and othercaptive plants produce some power from bagasse (about 10 GWh perannum), which is included in electricity.

b/ In 1980 616,904 tons of crude oil and 255,203 tons (872 thousandtoe) of refined products were imported.

c/ toe 1.0 = tce 1.5; toe 1.0 = 4,038 kWh

1.07 The Tanzanian Government has made substantial efforts to reduceoil usage in the country since the 1973/74 worldwide energy crisis. Totalimports of crude oil and refined products in 1980 were about 872,000 tons.Some refined products were also exported to neighboring countries directlyby the petroleum companies (i.e. Shell, BP and AGIP). The present level ofnet imports is approximately the same as it was in 1974/75, so thatTanzania has achieved about a zero growth rate in oil consumption (asagainst a GNP growth of 0.8% p.a., and a population growth rate of 3.4%p.a.) over the past six or seven years through conservation measures suchas restriction on weekend travel by car and gas oil rationing. Crude oilis being refined at the TIPER refinery with a current production rate ofabout 500,000 tons per annum.

Energy Prices

1.08 The prices of oil products and other types of energy arecontrolled by the Government.

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Electricity is used mainly in industry and commerce, but it is also usedfor lighting water heating and air conditioning (to a small extent). Otherfuels are used for cooking and water heating. The effect of differentpricing policies on energy consumption and the possible need to change thetariff structure to a more economic basis will be subject of theelectricity tariff study (paras. 5.14 - 5.15). The following tablecompares 1981 average energy prices (all prices as sold in Dar es Salaam):

Retail Retail US$ per(including (including Milliontaxes) Tax taxes) Kcal

-------TSh-------- --------US$--------

Firewood a/ (tonne) 150 - 18 12Coal (tonne) 480 - 57 10Electricity (MWh) 650 - 77 90Liquid petroleum gas (cu ft) 5,265 360 627 60Motor fuel (premium) (thousand liters) 9,350 1,432 1,113 107Motor fuel (regular) 7,250 1,432 863 82Kerosene (regular) 3,350 184 399 38Industrial diesel 2,405 - 286 27Gas oil 3,900 694 464 44Fuel oil 2,134 - 254 24Jet oil 3,849 160 458 44

a/ Firewood is practically "free in the rural areas.

Oil prices are based on the imported cost of crude oil and refined productsplus transportation and tax. There are also subsidies and cross subsidies(e.g. between kerosene, industrial diesel and fuel oil). Price andtaxation will be fully reviewed during the proposed energy assessmentsector work (para. 1.01).

Power Sector

1.09 The total electrical energy consumption of the country in 1980was about 880 GWh, which corresponds to a per capita energy use of about 44kWh/year, and is among the low levels of electricity use in the EasternAfrica Region, reflecting the moderate level of industrial activity.Annual electricity consumption per capita in other East African countriesis approximately as follows: Kenya 90 kWh, Mauritius 573 kWh, Madagascar41 kWh, Ethiopia 22 kWh, Botswana 450 kWh.

1.10 The Tanzania Electricity Supply Company Ltd (TANESCO) is thecountry's main power producer, but a small amount of electrical energy(about 2%) is also generated by parastatals and private organizations whichhave captive power plants on sugar, tea and coffee estates, the oilrefinery, textile factories and large farms. These power plants operateunder license from TANESCO, which has so far issued about 95 licenses fordiesel, steam and small hydro plants, corresponding to a total capacity ofabout 7.5 MW and producing about 20 GWh per annum.

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1.11 Another public organization, the Rufiji Basin DevelopmentAuthority (RUBADA), established under MWE in 1975 to harness themulti-purpose potential of the Rufiji River, also has authority (by itsAct) to plan, construct and generate power facilities in the Basin and tosell electric energy. This situation of confused responsibilities createsconsiderable difficulties and overlap in the planning of power sectoractivities. RUBADA has been concentrating on the preparation of hydropower projects at Stiegler's Gorge, Kingenenas and Shuguri Falls, ratherthan on projects for agricultural, industrial and social development of theRufiji Basin. The result has been costly duplication in power sectorplanning by TANESCO and RUBADA, a situation which Tanzania, with itsconstraints in skilled manpower and finance, can ill afford and which hasdelayed identification and preparation of the proposed project.Furthermore, the Government is planning a new organization, alsoaccountable to MWE, to be responsible for rural electrification, theTanzania Rural Electrification Corporation (TARECO), whose prime objectivewould be the provision of relatively inexpensive power to rural communitiesthroughout the country through renewable resources of energy such asmini-hydro plants (para. 1.16). The Government has already employed aCIDA-financed energy specialist for the establishment of an energy planningunit in the Ministry of Water and Energy. In order to clarify theresponsibilities and duties of each organization in the power sector,during negotiations the Government has agreed to employ consultants whosequalifications, experience and terms of reference shall be satisfactory toIDA to prepare a power sector organization study by December 31, 1984, and,after taking into account comments of IDA, to implement by December 31,1985 all appropriate actions, based on recommendations of that study.Similarly, TANESCO has agreed to employ consultants with qualifications,experience and terms of reference satisfactory to IDA to prepare, byDecember 31, 1984, a long-range power sector development study for thetimely identification of the least cost development alternatives for thecountry.

Existing TANESCO Facilities

1.12 TANESCO has an extensive grid system in the eastern part of thecountry which serves the coastal strip including the Dar es Salaam,Morogoro, Tanga, Arusha, Moshi regions and, through submarine cable,Zanzibar. TANESCO also has 15 isolated service areas scattered throughoutthe country, but mostly located in the northwestern, southwestern andsoutheastern zones of Tanzania. The total installed capacity of TANESCO'spower plants is about 380 MW, of which 247 MW is hydro (interconnectedsystem only) and 133 MW is diesel (mostly isolated systems). TANESCO hasabout 4,840 km of powerlines of various voltages and cables throughout thecountry.

1.13 TANESCO is organized into the coastal grid system (para. 1.12)and into zones: the Northwest (NW) zone comprises the towns of Dodoma,Singida, Iringa, Shinyanga, Musoma, Mwanza, Sumbawanga, Tabora, Bukoba andKigoma; the Southwest (SW) zone, Iringa, Mbeya, Songea and Tukuyu; theSoutheast (SE) zone, Mtwara, Lindi and Nachingwea. Detailed informationregarding TANESCO's existing facilities is given in Annex 1 and shown on

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the map (IBRD 16231). The total system losses are about 13%, includingdistribution system losses and station use, which appears to be reasonablewhen the scattered power plant locations and long distances of powertransportation are taken into account (Annex 2). TANESCO routinelyconducts studies to identify further economic reductions of system loss.

1.14 The following table shows TANESCO's installed and availablecapacity of power plants, lengths of powerlines, number of consumers andpeak demands in various zones of the country in 1981:

Installed Available Length ofCapacity Capacity Powerlines (km) Number of Peak

Zones MW MW and Voltages Connections Demand (MW)

Grid 313.0 260.4 3,961 (220, 132, 66, 81,556 122.033, 11-kV)

North-West 44.1 28.0 551 (33, 11-kV) 19,261 20.0South-West 7.1 6.0 163 (33, 11-kV) 6,634 5.7South-East 5.5 2.0 165 (33, 11-kV) 3,472 2.0

Total 369.7 296.4 a/ 4,840 110,923 149.7

a/ The difference between installed and available capacities is mainly due toderating diesel stations (para. 3.08)

Access to Service and Electrification of Rural Areas

1.15 The Government has given high priority to industrial and urbanelectrification for many years. Only about 1.2 million (less than 7% oftotal population) have access to electricity. This is in the high rangefor East African countries. Comparative percentages of population suppliedwith electricity are: Kenya 6%; Lesotho 3.5%; Malawi 2%; Sudan 8.5%.

1.16 The Government's program for the electrification of rural areascovers the electrification of villages and small towns. TANESCO has so farelectrified a few villages and small towns through government grants andsoft loans through bilateral assistance. Since this operation is generallyexpected to be unprofitable, the Government has decided, on the basis of aMWE study, to establish a rural electrification corporation in order toaccelerate development of village electrification. Where possible thiswill be by renewable resources - for example, small hydro schemes in theKigoma, Rukwa and Ruvuma regions.

Role of IDA/Bank

1.17 This would be the Bank Group's fourth lending operation inTanzania's power sector. The first was Loan 518-TA for US$5.2 million tocover part of TANESCO's development program for the years 1967 through

1970; the second was Loan 715-TA for US$30 million and a supplementary loanfor US$5 million to cover part of construction of the First Stage of theKidatu Hydroelectric Scheme which was completed in 1975 (ProjectPerformance Audit Report, December 19, 1979); and the third was for theSecond Stage of the Kidatu Hydroelectric Project with Loan 306-T-TA forUS$30 million and a Supplementary Special Action Credit of US$7.0 million,which was completed in 1981 and for which the project completion report hasalready been issued.

1.18 The most important lesson related to previous Bank operations inTanzania is related to project cost overrun. In order to prepare realisticcost estimates and a corresponding financing plan, cost estimates should bereviewed by an independent cost consultant as early as possible in thepreparation of the project, preferably before the appraisal of theproject. This is now a standard recommendation for any project withsubstantial civil works. The Bank's requirement of a panel of experts indam construction has been particularly valued by TANESCO. Retention offull-time advisors for construction supervision has also been a positivefeature of previous projects. The Bank's concern for the environment hasresulted in detailed studies on various aspects, and TANESCO hassatisfactorily implemented recommendations directly related to the project,though implementation of certain recommendations will be long term. TheBank has systematically guided and encouraged TANESCO's comprehensivetraining program, and the program's successful achievement of objectivesshows the effects of cooperation between the implementation agency and theBank. The Bank has played and continues to play a constructive andcatalytic role in the preparation of projects and in coordinatingcofinanciers' efforts.

1.19 The Bank's intentions for future lending for the power sectorwill be formulated on the basis of the long-range power development study(paras. 1.11 and 3.11). To ensure that proper consideration can be givenin the study to the major options for power development in Tanzania, theBank is also financing studies into energy natural resources in Tanzaniathat will provide major inputs to the long-range power development study.These studies cover natural gas exploration and utilization and preliminarystudies for hydroelectric resources (IDA Credit 1060-TA, August 8, 1980).Development of coal is presently under investigation (para. 1.01). TheBank has also recommended study of the feasibility of installing thermalgeneration capacity (para. 3.07) that would consider the potential for theuse of domestic natural gas resources for power generation.

Government Strategy in the Power Sector

1.20 The Government continues to give high priority to the developmentof the power sector in view of its importance for the overall economicdevelopment of the country, emphasizing its essential role inindustrialization. With bilateral aid the Government hopes to pursue arural electrification program (para. 1.16). Recognizing the need to

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formulate a comprehensive national energy development plan, the Governmentintends to set up an energy planning unit in the Ministry of Water andEnergy (para. 1.11).

II. THE BORROWER, BENEFICIARY AND EXECUTING AGENCY

The Borrower

2.01 The Government of Tanzania would be the borrower. The proceedsof the proposed IDA credit would be onlent to TANESCO.

The Beneficiary and Executing Agency

2.02 The beneficiary and executing agency would be TANESCO, aparastatal limited liability company accountable to the MWE, andresponsible for public power supplies throughout mainland Tanzania.TANESCO supplies about 130,000 consumers (connections) or about 4% of thetotal population. It was established in 1931 as a private company and in1964 the Government bought all the issued shares not already owned, fromthe East African Power and Lighting Company, Limited (EAPL). UnderTANESCO's license, 4/ which expires in 2012, TANESCO has the right tofirst refusal of any additional areas of public supply of electricity inTanzania, and is required to operate in accordance with sound commercialprinciples, which it does. TANESCO's board of directors is appointed bythe Government and the managing director is a presidential appointee. Thepresent incumbent is a professional power specialist who was appointed in1980 from within the ranks of the organization. TANESCO's organizationalstructure is shown in Annex 3. Further improvements are needed inTANESCO's organization and management practices in order to improve thequality of services and company efficiency. Therefore, TANESCO has agreed(i) to employ consultants with qualifications and terms of referencesatisfactory to IDA to prepare TANESCO's management study by June 30, 1985;and (ii) after taking into account IDA's comments to implement agreedrecommendations of the study by January 1, 1986.

Accounting and Auditing

2.03 TANESCO's accounting staff are competent and procedures are good,so that information has been readily available and financial controlreasonably effective. TANESCO has in the past maintained adequate recordsand submitted audited accounts regularly. However, since 1980 the computerwhich TANESCO uses to maintain its records has been operating onlyintermittently. As a result, TANESCO's audited accounts for 1980 weresubmitted to the Bank later than required under the existing projectagreement. Billing and other accounting procedures are also severelyaffected and the accounts for 1981 have only recently been finalized.TANESCO has purchased a new computer, which is being tested. When in fulloperation, it will enable audited accounts to be presented regularly in thefuture, and will also help TANESCO to bill promptly, control overdue

4/ Issued in 1957 under Electricity Ordinance No. 3 of 1957.

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accounts more effectively (para. 4.03), and generally bring accountingrecords up to date.

2.04 The government-owned Tanzania Audit Corporation (TAC) has beenauditing TANESCO's accounts since 1971. The audit covenant under Loan1306-TA requires TANESCO to have its financial statements audited byindependent auditors acceptable to the Bank and to submit its auditedfinancial statements to the Bank within five months after the close of thefiscal year has been substantially met, except in FY80 and FY81 when theaudited statements were received by the Bank as much as one year late. Itis anticipated that in the future with the new computer operative, TANESCOwill be able to have its accounts ready for audit on a more timely basis.The performance of the auditors has been satisfactory. The convenant hasbeen repeated in the proposed Credit Agreement.

Billing and Collection

2.05 Meters are read monthly and the readings are sent to Dar esSalaam from the branch offices for processing on the computer, whichprepares the bills. These are then distributed to the consumers by therespective branch offices. Computer breakdowns have disrupted this processso that outstanding accounts are excessive. The steps proposed to remedythis situation are described in para. 4.03.

Personnel and Training

2.06 The Bank Group has a long-standing involvement in TANESCO'straining program and manpower development. Dating from the appraisal ofthe first power project in 1967, TANESCO's progress in manpower developmentgives cause for satisfaction. TANESCO established a training school andtraining program in the mid-sixties and later with the help of the SIDA andthe Bank, TANESCO has developed a long-term and sound training program withappropriate objectives for manpower development. TANESCO has an activemanpower development and training unit and the Technical Institute (TTI) atKidatu, where at technician level, electricians, general mechanics anddiesel mechanics are being trained. The TTI workshops and laboratories arereasonably equipped and include a hydro power plant control boardsimulator. Expatriate trainers on 3-year contracts, equipment and teachingmaterials were provided by SIDA on a grant basis at the time of theestablishment of the TTI (1974). At present, almost all trainers areTanzanians, who are supported by TANESCO's operational staff for specifictechnical courses. Through comprehensive management training programs,which were components of previous Bank power projects, since 1975 TANESCOhas reduced expatriate staff at headquarters and major power plants from 50to 6. At present, all managerial positions are capably held by Tanzaniansand this is a remarkable achievement. The expatriates are specialists andadvisors employed mainly in the planning, design and constructiondepartments and for the overhaul of special equipment such as large dieselengines and hydroelectric units. The ratio of 18 consumers per employee isreasonable due to the scattered power facilities covering the entirecountry. TANESCO has a total staff of about 6,300.

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2.07 TANESCO's demand for engineers and technicians is growing as itspower facilities expand. Although the TTI and Bank/SIDA training programshave met the requirements for technicians and administrative personnel,there is a shortage of engineers and some management staff. The projecttherefore includes a training component, consisting of the training of fourengineers to be employed in the operation of the proposed Mtera powerplant. The project also includes provision for a continuation of the powermanagement training program included under Loan 1306-T-TA to upgrade middleand top management staff, particularly for planning, construction andsystem control activities. Combined with the ongoing training programs,TANESCO will be able to train about 125 individuals between 1982 and 1986,to meet TANESCO's manpower needs, which is adequate.

2.08 TANESCO is expected to prepare its next training program in 1983and to implement it in the period 1984-87. About 75 people of variouscategories would be involved in the project's related training program.

Insurance

2.09 Insurance of TANESCO's major assets is considered adequate. Itis effected through the National Insurance Corporation, the solegovernment-owned insurance company, which in turn re-insures through theEuropean insurance market for plant and equipment, including thermal powersets.

III. DEVELOPMENT PROGRAM AND THE PROJECT

Demand and Market

3.01 TANESCO's electricity sales growth has been rapid during the lasttwo decades. From 1962 to 1980 annual sales increased from 159 GWh to 738GWh, with an average annual growth of about 8%. This growth rate wasreduced to about 5% per annum between 1973 and 1977 due mainly to therestraint on growth imposed by the high cost of oil, but recovered with anaverage annual rate of about 9% between 1977 and 1980.

3.02 A comprehensive load forecast study covering the period 1981-2000was carried out in 1981 for the interconnected system, for each TANESCOregion and for the various zones of the country by Acres InternationalLimited of Canada (Acres). It was based mainly on historical growth trendsfor domestic and small consumers and on projected individual growth forindustrial and other major consumers. The proposed expansion of the gridto the isolated systems in the NW and SW zones and expectations of economicgrowth over the next two decades have been taken into consideration. Theload forecast was revised and updated by TANESCO during the appraisal toincorporate the revised construction programs of planned future industrialconsumers (Annex 4).

3.03 The revised load forecast estimates an average yearly growth from1981 to 1990 at about 6.6% for the interconnected system, includingZanzibar but excluding NW, SW, and SE expansions. Including the expansion,

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the growth is expected to be about 9%. This is lower than the historicalgrowth rate due to expectations of slower economic growth. SinceTanzania's independence in 1968, TANESCO has been expanding its grid toservice areas as far as economic constraints have permitted. It isenvisaged that TANESCO will connect the SW zone (Iringa, Mufindi and Mbeya)to the grid in 1983 and the NW zone from 1984-1986 (Dodoma in 1984,Shinyanga in 1985 in 1985, Tabora, Mwanza and Musoma in 1986). Someconnecting power lines between the grid and the SW and NW zones are underconstruction, and are being financed by the Canadian InternationalDevelopment Agency (CIDA) and the Italian Government, including for theconnection of the proposed Mtera power station to the grid via Iringa andDodoma.

3.04 Electricity sales and average yearly growth rates by TANESCOconsumer groups summarized below:

Sales Sales Average Annual---- GWh---- in Total (%) Growth Rate (%)

Consumer Groups 1975 1980 (average 1975 - 19801975-1980)

Domestic 86.1 155.9 20.7 12.6Commercial 56.5 87.5 10.5 9.1Industrial 339.6 482.4 68.2 7.3Public lighting 4.9 6.2 0.6 4.7

Total 487.1 732.0 100.0 8.5

Expansion of the interconnected system will enable reduction in theoperation of the diesel stations in the isolated systems, including thesecond largest system (Mwanza) and therefore will provide savings from fuelimports (about 50,000 toe in 1988).

3.05 The industry is by far the largest consumer group, and it isexpected that it will remain so for the foreseeable future. The nationalload forecast for 1982-1990 (Annex 4) shows total electricity consumptionincreasing at a growth rate of 8.9% per annum.

Development Program

3.06 The proposed project is part of TANESCO's development program(1983-1988), which will meet the growth in demand in the expanded grid.This program also includes some small diesel stations to meet demand inisolated areas and expansion of transmission/distribution system. By 1988TANESCO's total firm capacity (including the proposed project) willincrease to about 335 MW, which will be sufficient to meet the expectedsystem maximum demand of about 300 MW in 1990 with adequate systemreserves. This is the least-cost development program for construction ofgenerating and transmission additions needed to supply future loads. Thecosts of the program are summarized below:

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Cost of TANESCO's Development Program a/(1984 - 1988)

TSh US$ %---millions----

1. Proposed project 2,862.1 234.7 482. 220-kV and 132-kV grid extensions

(including thermal generation& system compensation equip.) 1,717.7 140.9 29

3. Rural electrification b/ 728.4 59.7 124. Other c/ 684.7 56.1 11

Total 5,992.9 491.4 100

a/ Including interest during construction. See Annex 12 for details.b/ Includes electrification of 20 townships and construction of mini-

hydro stations.c/ Includes some capacitor banks, feasibility studies and system

reinforcement, and a new technical school.

3.07 According to simulation studies performed by the consulting firmthat carried out the feasibility study for the project, the SwedishConsulting Group (SWECO), a protracted dry period of at least 3 years, asoccurred in 1975-1977, would result in the occurrence of power shortagesduring the peak demand period (around December) from 1985 onwards. Theconsultants give a probability of 1 in 10 for the occurrence of a 3-yeardry period. To avoid drastic load shedding under such circumstances,TANESCO would need to anticipate such an occurrence by conserving storedwater for hydro power generation and by introducing load managementmeasures. TANESCO will explicitly conduct an investigation into theadequacy of such measures, the potential dislocation to users and the meansof minimizing economic costs. The investigation will consider thejustification for installing thermal generation capacity in 1985 or lateras back-up capacity to the hydro-based power system.

3.08 SWECO have also carried out studies to evaluate the futureperformance of TANESCO's 220, 132-kV and lower voltage transmission systemsand rehabilitation of the Ubungo diesel station, which had been derated dueto problems with the quality of the cooling water, an inefficient coolingsystem and excessive vibrations. Three small hydropower plants and thepower distribution network in the capital area require major overhauls andrehabilitation after many years of intensive utilization. Maintenance andoperation of power facilities have been satisfactory; but there have beenproblems in supplying spare parts and consumables. Furthermore SWECOrecommended that various power system compensation equipment should beinstalled, to obtain better voltage conditions and lower system losses. Asystem control center, to be constructed in Dar es Salaam, has also beenrecommended because the existing control center is very small (part of theUbungo substation), old and is not equipped to control the proposedextended system. As recommended by the consultants, construction of asuitable control center is included in the project.

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3.09 The consultants' recommendations on transmission and distributionexpansion have been included in TANESCO's long-term generation/transmissiondistribution construction program. A transmission line (220-kV) from theMtera switchyard to Iringa, not a part of the project, is required toconvey project output to the interconnected power system. Government andTANESCO have agreed to complete the construction of Mtera-Iringa line byJanuary 1, 1987 to provide adequate transmission capacity for the powergenerated under the project.

Project Objectives

3.10 The main project objective is to increase the electricitygenerating capacity to meet the growth in power demand through 1990.The project will develop indigenous renewable energy resources thus savingon foreign exchange expenditures by substituting less expensive hydropowerenergy and imported oil. Further benefits would be increased jobopportunities and additional emploment possibilities during theconstruction period. The project will also help lay the basis for improvedpower sector institutions and for TANESCO's tariff policy, power systemcontrol and load dispatching practices. The proposed project will supplypower to the isolated areas through the expanded interconnected system andwill replace power production from diesel sets and thus provide substantialfuel cost savings (NW, SW and SE zones, Annex 1). Additional objectives ofthe project are to maintain and further improve TANESCO's operationsthrough continuing their training program and assisting TANESCO in planningsystem development through a study of long term power development.

Project Description

3.11 The project is an integral part of the Great Ruaha Rivergeneration complex comprising both Kidatu and Mtera, which would beoperated and regulated as a cascade system. The description of theproposed project is as follows:

(a) construction of a water intake at the existing Mtera reservoir onthe Great Ruaha River; a headrace tunnel and a vertical penstocksystem leading to an underground powerhouse with two 40-MWhydroelectric units; from thence a tailrace tunnel (about 10.5km long) to the Great Ruaha River; construction of a switchyardand administration buildings, a storehouse, a workshop andTANESCO staff houses at Mtera;

(b) construction of a system control center at Dar es Salaam;

(c) rehabilitation of the existing Ubungo diesel station and otherpower system facilities (para. 3.08);

(d) training of TANESCO's engineers and managerial staff to improveTANESCO's operations and its system control and load dispatchingpractices; and

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(e) consultancy services for construction supervision and forcarrying out studies of: (i) structure of power tariffs; (ii)long range power development; (iii) organization of the powersector; (iv) management system of TANESCO; and (v) rehabilitationof existing power generation and distribution facilities.

3.12 The proposed Mtera hydroelectric power plant will be locatedunderground near to the existing Mtera dam which was completed in late 1980as part of the Kidatu Hydroelectric Project Stage II (LN 715-TA). TheMtera power plant will comprise an inlet channel and an intake with trashracks in the existing Mtera reservoir, a short headrace tunnel, twopenstocks with intake gates, an underground powerhouse with control blockand a tailrace tunnel of 10.5 km length with galleries. An administrationbuilding with relay room, transformer cells and a switchyard will besituated in the open above the power station. The proposed powerhouse willhave two units (40 MW each, when using the available maximum gross head ofabout 105 meters).

3.13 The Mtera site already has some essential facilities forconstruction activities (such as access roads, air strip, contractorscamps, etc.) which were built during the construction of the Mtera dam andcan be further utilized for the construction of the power plant. TANESCOand its consultant have the necessary knowledge and experience of the siteand surrounding area regarding the availability and properties of localmaterials, such as rock, sand, etc., which would enable a quick start tothe project.

3.14 Design of the Mtera project was completed in October 1981 andcertain revisions to parts of this design were made during the appraisal inNovember/December 1981 on the basis of the recommendations of the advisorypanel of TANESCO and the Bank consultant who had reviewed the design inNovember 1981. The bid documents have already been prepared by SWECO, andin order to meet the project timetable, bid documents for the main civil,mechanical and electrical works to be included in the project were issuedin October 1982 and bids were opened in March 1983. Construction isexpected to begin in late 1983 and to be completed in mid 1988. It is alsoexpected that the construction of the control center, which would befinanced by the Federal Republic of Germany (KfW), would start in April1984 and be completed by August 1985. TANESCO would prepare an engineeringreport (including consultants' inputs) for the construction of the systemcontrol center by June 30, 1983. A full description of the Mtera powerplant and the detailed construction schedule are given in Annexes 5 and 7.

Cost Estimates

3.15 The estimated project cost, without interest during construction,is TSh 2,403.8 million (US$197.1 million) of which about 74%, amounting toTSh 1,784.8 million (US$146.4 million), is in foreign exchange. Totalfinancing requirement, including interest during construction, is estimatedto be TSh 2,862.1 million (US$234.7 million). The local costs include TSh309.8 million (US$25.4 million), about 19% of the total base cost, forduties and taxes. The summarized cost estimates (Annex 6) follow:

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Summary of Project Cost Estimate(TSh 1.0 = US$0.082)

% ofProject Components Local Foreign Total Local Foreign Total Total

TSh million --US$ million---

1. Civil works 201.0 584.4 785.4 16.5 47.9 64.4 272. Mechanical & Electrical Works 102.4 294.8 397.2 8.4 24.2 32.6 143. System Control Center 6.5 35.6 42.1 0.5 2.9 3.4 14. Rehabilitation of Ubungo

Diesel station and otherfacilities 14.5 184.4 198.9 1.2 15.1 16.3 7

5. Studies 6.6 17.9 24.5 0.5 1.5 2.0 16. Training - 9.0 9.0 - 0.7 0.7 -

7. Engineering & ConsultancyServices 68.1 117.7 185.8 5.6 9.7 15.3 7

Base Cost 399.1 1243.8 1642.9 32.7 102.0 134.7 57

Contingencies

8. Physical Contingency 23.0 179.5 202.5 1.9 14.7 16.6 79. Price Contingency 196.8 361.6 558.4 16.1 29.7 45.8 20

Subtotal 219.8 541.1 760.9 18.0 44.4 62.4 27

TOTAL PROJECT COST 618.9 1,784.8 2,403.8 50.7 146.4 197.1 84

1O.Interest during Construction 458.3 - 458.3 37.6 - 37.6 16

TOTAL FINANCING REQUIREMENT 1,077.2 1,784.9 2,862.1 88.3 146.4 234.7 100

3.16 The cost estimates are based on contractors' offers for recentsimilar civil, mechanical and electrical works mainly in Europe and also inother parts of the world. The base costs are expressed in mid 1983prices. During the appraisal mission, the project costs were revised totake into account the major revisions to the design of the project and alsorecommendations made by TANESCO's cost consultant (A.A. Mathews of USA) whohas prepared a report on project costs in which, among other things, localconditions were also considered. Physical contingencies for differentproject components, ranging from 10% to 18% on the base cost, have beenadded. The price contingencies are based on the constant exchange rate andprice escalation shown in the following table:

1986 and1983 1984 1985 thereafter

Foreign Costs % 8.0 7.5 7.0 6.0Local Costs % 14.0 13.0 12.0 12.0

3.17 The project cost has been compared with the prices of the openedbids for the civil works and adjusted accordingly.

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Project Financing

3.18 Project financing arrangements are well advanced. At theGovernment's invitation, representatives of the Federal Republic of Germany(KfW), Kuwait Fund for Arab Economic Development, NORAD, SIDA, IDA and theFrench and Italian Governments held two meetings (in 1982 and 1983) toreview the project preparations and discuss its financing. A Memorandum ofUnderstanding among the above parties has been prepared for theconsideration and approval of all involved parties. Co-financiers haveagreed to make their financing available to finance the foreign exchangecost of the project and to cooperate fully with each other on all mattersrelating to the execution of the project and on other matters of commoninterest. The amounts of financing for the project indicated by individualco-financiers are as follows:

In US$ million(equivalent)

France 5.0Germany (Kfw) 20.0Italy 19.0Kuwait Fund 20.0Norway (NORAD) 30.0Sweden (SIDA) 30.0IDA 35.0

Total 159.0

The above amounts reflect early 1983 exchange rates and are subject topossible currency exchange fluctuations. The final amounts would beadjusted to correspond to the actual project financing requirements. TheGovernment and TANESCO will finance the balance of the project's localcosts. The projects financing plan would be as follows:

Local Foreign Total---------US$ million---------

A. Project Costs

(i) IDA 3.0 32.0 35.0(ii) Co-financiers - 114.4 114.4(iii) TANESCO 22.3 - 22.3(iv) Government of Tanzania 25.4 - 25.4a/

Total 50.7 146.4 197.1

B. Interest During Construction

TANESCO 37.6 - 37.6

Grand Total 88.3 146.4 234.7

a/ Duties and taxes

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3.19 The proposed IDA credits of US$35 million would be made to theGovernment on the standard terms. Under a separate subsidiary loanagreement, the Government would onlend the IDA credit to TANESCO for a termof 20 years, with 5 years grace period and an interest rate of 11% perannum. Cost overruns and foreign exchange risks would be borne byTANESCO. Conditions of credit effectiveness shall be: (M) execution ofthe subsidiary loan agreement, (ii) notification by Federal Republic ofGermany (KfW) and SIDA that all conditions precedent to initialdisbursements of their grants have been fulfilled, (iii) signing of theNorwegian grant, and (iv) evidence satisfactory to IDA showing that theFrench and Italian grants have been made available for the project.

Engineering Consultants' Services and Project Implementation (Annex 7)

3.20 TANESCO would be responsible for project implementation, assistedby engineering consultants (SWECO) who were responsible for preparing thefeasibility study and bid documents (para. 3.07). TANESCO has signed aseparate contract with these consultants for the construction supervision.TANESCO employes a part-time advisory panel, which consists of anengineering geologist and three civil engineers specializing in damconstruction and underground excavation. The average manmonth cost(including about 1,600 manmonths of salary, international travel andsubsistence) is estimated at about US$11,000. The above arrangements forconsultants' services are acceptable. During negotiations TANESCO hasagreed to employ engineering consultants and two full-time experts for theconstruction supervision of the project, whose qualifications, experience,and terms and conditions of employment shall be satisfactory to IDA.TANESCO has also agreed to employ the part-time advisory panel to assist inthe supervision of construction and advise in the event of unforeseenproblems arising during project construction.

3.21 TANESCO staff have considerable experience in the construction oftransmission and distribution facilities and hydroelectric power plants.TANESCO has already a well-established construction supervisiondepartment. Rehabilitation of TANESCO's generating and distributionfacilities would require proper attention. Therefore TANESCO has agreed toemploy consultants with qualifications, experience and terms of referencesatisfactory to IDA to prepare the rehabilitation study of TANESCO'sexisting power facilities by June 30, 1984.

Procurement

3.22 Works: Procurement for the main construction works, includingthe headrace and tailrace tunnels, the underground power house and theadministration building, would be through international competitive biddingprocedures acceptable to the joint financiers (Federal Republic of Germany(Kfw), Kuwait Fund, NORAD and SIDA) which are in accordance with Bankguideline. The remaining and minor civil construction works would befinanced by Italy and TANESCO. Contracts for civil works and' goods,estimated to cost less than US$100,000 and not likely to interest foreignbidders, would be awarded on the basis of the local competitive biddingprocedures which were found to be satisfactory to IDA, and in which foreignbidders also have the opportunity to participate.

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3.23 Goods: Equipment, vehicles and furniture, would be grouped inappropriate contract packages and procured in accordance with theguidelines of the particular financing agency who would finance thecomponent.

3.24 Contract Review: All contract packages for civil works estimatedto cost over US$2.0 million equivalent and all contracts for goodsestimated to cost US$250,000 or more to be financed by IDA would be subjectto IDA's prior review of procurement documentation. Furthermore, allcontracts related to the consultant's services, studies and training wouldbe subject to IDA's prior review.

Disbursement

3.25 IDA funds would be disbursed against: (a) 37% of foreignexpenditures and 20% of local expenditures for civil works; and (b) totalforeign costs of studies, training expert's services, and equipment andmaterials for rehabilitation of power system facilities. No withdrawalsshall be made after March 31, 1984 in respect of payments for the maincivil works unless IDA has been notified by the Kuwait Fund and NORAD thatall conditions regarding their disbursements have been fulfilled (para.3.19). Furthermore, no withdrawals shall be made in respect of paymentsfor the rehabilitation of the power system facilities until IDA hasreceived the rehabilitation study (para. 3.21)

3.26 If any of the IDA funds remain undisbursed after projectcompletion, they would be cancelled. The proposed closing date would beJune 30, 1989 to allow for payment of retention money. A disbursementschedule (Annex 8) is based on the project implementation schedule andfollows in general the sector and IDA disbursement profile for East andWest Africa.

Project Monitoring and Evaluation

3.27 During negotiations the reports and records necessary to monitorprogress of the project and its evaluation on completion have been agreed.Proposed guidelines for a project monitoring system are given in Annex 9.

Environmental Aspects

3.28 The existing Mtera dam was constructed on the Great Ruaha River(completed 1981, financed under Loan 1306-T-TA) as part of the KidatuSecond Stage Hydroelectric Project. A general ecological review of theMtera site and the reservoir had been completed in 1970, financed by SIDA.A series of detailed studies of all environmental aspects was completedbetween 1972 and 1978, including the expected environmental changes belowthe Mtera reservoir during the construction of the Kidatu dam (Loan 715-TA,completed 1971). These studies did not indicate negative effectssufficient to jeopardize the feasibility of the construction of the dam.The studies' recommendations were discussed by the Government, the Bank,SIDA, and KfW and implemented as agreed between 1978 and 1981. Theyincluded the successful relocation of about 2,000 persons to the new ujamaa

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village established by the Government and TANESCO, the establishment ofhealth programs and a nature reserve, and a government program for tappingthe potential minimum yield of 3,000 tons per year of fish from the Mterareservoir. Implementation of the recommendations has been reviewed in thecompletion report on Loan 1306-T-TA. No adverse effects of the damminghave been observed so far.

3.29 Construction of the proposed project will have no significantimpact on the environment. There are no permanent settlements on thestretch of the river between the dam and the tailrace tunnel. Although thedischarged water in the river between the dam and the tunnel outlet will beconsiderably reduced during the dry season of the year, the minimum flow of1.0 m3/sec required by the Government's "Grant of Water Right CertificateNo. 4187", will be fulfilled at all times.

IV. FINANCIAL ASPECTS

TANESCO's Past Financial Performance

4.01 Over the five years 1976-81, TANESCO's sales revenues increasedby an annual average of about 21% as a result of average annual increasesof 10% in GWh sales and a 42% tariff increase in December 1979, whereasoperating expenditure increased at an annual rate of only about 19%,despite fuel cost increases of nearly 23% per annum. However, due to aslow down in economic activity during 1981, sales increased only 7% for theyear. A summary of TANESCO's income statements (Annex 10) for 1976-81follows:

1976 1977 1978 1979 1980 1981

GWh Sold 490 516 588 653 738 790Average Tariff(T) cts/kWh 40.3 48.2 46.6 46.2 65.0 64.5

---- ----- - TSh Million- ---- - --

Revenue from Sales 197.7 248.9 274.0 301.9 480.0 509.6Less: Cost of Operations 142.0 184.3 198.1 220.1 267.0 363.6Net Operating Revenue 55.7 64.6 75.9 81.8 213.0 146.0Less: Interest charged

to Operations 36.3 37.3 37.6 45.6 48.6 43.5Non-Operating Gains(Losses) a/ (19.1) (4.1) (1.0) 11.0 13.8 4.2

Net Surplus 0.3 23.2 37.3 47.2 178.2 106.7

Rate of Return(Revalued Asset Base) 3.4 3.9 2.3 1.9 6.8 2.1

Operating ratios through 1979 were moderate at around 73% until 1980, when theratio improved dramatically to 55% as a result of the tariff increase effected inin December 1979.

a/ Includes compensating exchange gains and losses

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TANESCO's 1980 Financial Position

4.02 Annex 11 shows TANESCO's actual balance sheets for 1978 through1981. TANESCO's fixed assets in operation increased by only 6% from 1978through 1980 but by 63% in 1981, when Kidatu II came into operation.Depreciation is charged on a realistic basis and for 1981 averaged some3.4% of average gross fixed assets in operation. The 1981 debt:equityratio of 53:47 was conservative, with 78% of debt relating to loans forKidatu I and Kidatu II. Bank Group lending (TSh 615 million) comprised 46%of TANESCO's debt, followed by Federal Republic of Germany (KfW) 20% andSIDA 17%. Borrowing terms were generally concessional over about 25 years(including 5 years grace) at interest rates ranging from 3-1/4 to 9%. In1980 and 1981, however, TSh 98 million (about 7% of TANESCO's debt) wasincurred through suppliers credits at 5% to 8.5% with repayment over 6 to10 years without a grace period. A schedule of debt as of December 31,1981 follows:

Grace and CurrencyRepayment Interest of Origin/ OutstandingPeriod Rate Amount of at 12-31-81(years) (%) Loan (TSh million)

Commonwealth Dev. Corp 5-17 7.25 £ 3.0 11.3IBRD Loan 518-TA 3-18 6.0 US$5.2 19.7IBRD Loan 715-TA 5-21 7.25 US$35.0 298.1Kingdom of Sweden 5-21 7.25 SK 83.0 111.5Government of Canada 10-15 3.25 C$ 2.0 12.2IBRD Loan 1306-TA 7-19 8.5 US$30.0 297.2Kingdom of Sweden 5-20 6.3 SK 80.0 120.0Federal Republic of Germany(Kfw) Loan 76-65-300 5-20 8.5 DM 60.0 218.2Federal Republic of Germany(Kfw) Loan 75-65-120 10-15 6.0 DM 13.1 48.6Government Loan 0-21 6.25 TSh 1.0 0.2Tanzania Investement Bank

No. 47 2-13 9.0 TSh 7.5 4.2Hawker Siddley Power-Eng. Ltd. 0-6 7.25 £ 0.9 11.3Mirrless Blackstone Ltd. 0-6 7.25 £ 3.0 38.6ADB Loan 0-12 7.5 UA 8.0 42.0Commonwealth Dev. Corp. 0-12 8.5 £ 3.4 15.7National Ind. of Norway 0-8 2.5 NOK16.3 18.5O.Y. Wartsila - Finland 0-7 8.5 US$ 2.2 16.1Energgoinvest - Yugoslavia 0-10 5.0 DM 12.4 32.4Banque Nationale De Paris 0-5 1.75 US$ 1.4 9.7Banque Nationale De Paris 0-6 8.0 FF 30.7 21.4

1,346.9Total Debt Outstanding December 31, 1981

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Debt service for 1980 was covered 2.7 times and 1981 was covered about 3.1times by net cash generation. TANESCO has complied with the debt servicecovenant of Loan 1306-T-TA which will be maintained by the proposedcredit. This covenant states that TANESCO shall not incur any debt withoutIDA approval other than that incurred for the project unless internalgeneration is at least 1.5 times the maximum debt service requirements.

4.03 On December 31, 1981 TANESCO had a bank overdraft of TSh 25million, mainly attributable to ineffective collection of customeraccounts; accounts receivables totaled TSh 298 million (an average of 213days of sales). To cover these overdraft situations, TANESCO hasmaintained lines of credit for very short terms from the National Bank ofCommerce. Although TANESCO reduced receivables to a level of 90 days salesby December 10, 1982, the major problem is that about 60% of accountsreceivables are owed by government and parastatal organizations which havenot been subjected to regular "disconnection for non-payment" practiLes.Computer breakdowns have limited TANESCO's ability to apply thedisconnection practice to the other 40% normally subject to thesepractices. During negotiations agreement was obtained from the Governmentand TANESCO that by December 31, 1983 TANESCO will maintain its accountsreceivable at a level which will not exceed 60 days of sales and thatTANESCO will submit to the Association a semi-annual summary of outstandingaccounts subdivided between Government (including parastatal) and other andaged in three categories - under 30 days, 30 to 60 days, and over 60 days.

4.04 A further contributing cause of TANESCO's 1981 liquidity shortageis the high inventory level, equivalent to 9% of its gross fixed assets inoperation. TANESCO is aware that its inventory includes a relatively highproportion of obsolete stock and intends not only to reduce such stocks,but to reduce its overall inventory level to about 4% of its gross fixedassets by 1986. With the increased hydro generation, the reduction ofstocks of fuel oil should help TANESCO towards its objective.

Tariff Levels and Rate of Return

4.05 Under Section 4.04 of the Project Agreement of the Special ActionCredit 55-TA, TANESCO agreed to revalue assets every two years and, underSection 4.05, to maintain tariffs at a level sufficient to achieve anannual rate of return of not less than 7% on average net fixed assets inoperation so revalued. TANESCO's assets were to be revalued for thispurpose using the average of the Dar es Salaam (a) Retail Price Index forWage Earners earning between TSh 2,000 and TSh 4,000 per annum; and (b) theCost of Living Index for Middle Grade Civil Servants earning between TSh8,000 and TSh 20,000 per annum, with both indices adjusted to exclude fooditems (letter dated August 12, 1976 from TANESCO to the Bank, Loan1306-T-TA). The application of this formula has produced revaluations of55% in 1976, 26% in 1978 and 33% in 1980. TANESCO believed that theserevaluations are excessive and unrealistic and they have experienceddifficulty justifying them to Government when submitting tariff increaseproposals. TANESCO's tariffs were increased by about 50% in 1976 and againby 42% in December 1979 to an average of 65 T cents/kWh (6.96 US cents/kWhat the official rate of exchange). This was not sufficient to meet theloan covenant, except in 1980 (6.8%), and it is expected that with theinclusion of Kidatu II in the asset base, only about 2% will be achieved

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f or 1981. Effective January 1, 1983 TANESCO has increased its averagetariff level by 50% from 65 T cents/kWh to 97.5 T cents/kWh.

4.06 Since Loan 1306-T-TA was made, both TANESCO and IDA have becomeaware of the shortcomings of this revaluation formula for the purpose ofincreasing tariffs. Therefore, for use until an index acceptable to theGovernment, TANESCO and IDA is available (para. 4.05), during negotiationsthe Government's and TANESCO's agreement was obtained to the followingmeasures: (a) increase of TANESCO's average tariff level by an additional20% to 117 T¢/kWh effective January 1, 1984; and (b) thereafter, tomaintain average tariff levels so that TANESCO's internal sourcescontribute to capital expenditure a level not less than 25% of its capitalexpenditure for the years 1985 and 1986 and 40% in each year thereafter.For this purpose, capital expenditures will be computed on a 3-year movingaverage (the preceding year, current year and following year). Governmentand TANESCO would determine a realistic and acceptable asset revaluationformula by December 31, 1984 wh-ch could be utilized in a rate of returnmeasure of the adequacy of tariff levels as a replacement for the abovecash generation formula with a rate of return requirement which wouldproduce similar financial results. TANESCO would, with the agreement ofIDA, have the option of substituting the rate of return method for theabove cash generation procedure.

4.07 Additional increases of TSh 4¢t in 1987 and 1988 have beenassumed, raising the average tariffs to T¢ 125/KWh. These increases havebeen determined as necessary to meet the requirements of the agreed cashgeneration goals (para. 4.06, b). However these increases will result inrates of return after 1984, when the rate of return is expected to be 7.7%,below the 7% rate of return required under Loan 1306-T-TA as follows: 1985- 5.7%, 1986 - 5.6%, 1987 - 4.4% and 1988 - 3.7% (Annex 10). These ratesof return reflect current replacement cost of TANESCO's fixed assets basedon the following assumed cost escalation: 1983 - 10%, 1984 - 9%, 1985 and1986 - 8.5% and thereafter 9%. As the revenues produced by the proposedtariffs are adequate to meet a significant portion of the constructioncosts while maintaining a relatively strong cash position, it would appearthat Tanzania's concern about the revaluation formula might be valid(para. 4.05). Additionally under Section 21 of TANESCO's license datedMarch 1, 1957, TANESCO cannot charge more than 120 T¢/KWh for light or 60T¢/KWh for power without obtaining the specific permission of the"Governor (now presumably the President). Therefore, this section wouldhave to be eventually revised or deleted. Government gave assurance thatthe required license revisions would be obtained without difficulty.

TANESCO's Financing Plan

4.08 Annex 12 shows TANESCO's estimated cash flow for 1981 through1990. During the project period of 1984-1988 TANESCO's constructionprogram envisages expenditure of TSh 5,988 million (US$491 -million),including interest during construction of TSh 890 million (US$73 million),of which about 48%, TSh 458 million, is in respect of the proposedproject. In addition to the proposed project borrowing of about TSh 1,818million (para. 3.18), the financing plan for this period includes majorforeign borrowing of TSh 1,128 million (US$93 million), to finance some 42%of the ongoing and other future construction, including the completion of

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major grid extensions. The financial forecasts do not include provisionfor expenditure on new thermal plant installed as back-up generationcapacity (para. 3.07). From 1984 through 1988, including the proposedproject, TANESCO intends to borrow TSh 2,946 million for its constructionprogram (US$242 million), of which the IDA proposed credit of TSh 423million (US$35 million) is 14%. The proposed credit is about 23% of theborrowing for the project and, although there is no requirement for otherlenders to do so, it has been assumed in this report that most would, likeIDA, require their grants and loans to be onlent to TANESCO at 11% over 20years including 5 years grace with TANESCO bearing the foreign exchangerisk. The present commercial lending rate in Tanzania isgovernment-controlled at about 11% and TANESCO would be eligible for alower rate of 10%. Therefore, 11% appears to be a realistic rate ofinterest. TANESCO's financing plan for 1984 through 1988 includesincreased government equity of TSh 1,073 million (US$88 million), and theGovernment agreed to provide such sums as become necessary to enableTANESCO to complete the Iringa-Mtera line which is vital to the proposedproject (para. 3.09). As this requirement is estimated to be only 5% ofthe funds required during the period, its provision should not be overlyburdensome to Government.

4.09 TANESCO's financing plan for 1984 through 1988 is summarized asfollows:

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Financing Plan 1984-1988

TSh US$ %---millions----

Requirements for Funds

Construction ProgramOngoing Works 1,060.6 87.0 15Future Projects a/ 1,638.9 134.4 24Proposed Project 2,399.3 196.7 35

5,098.8 418.1 74Interest during Construction 889.6 72.9 13

Total Construction Program 5,988.4 491.0 87Working Capital Increases 928.0 76.1 13

Total Requirements 6,916.4 567.1 100

Sources of Funds

Internal Generation 3,836.4 314.6 55Less: Debt Service 1,059.0 86.9 15

Net Internal Generation 2,777.4 227.7 40

BorrowingsProposed Project

Proposed IDA Credit b/ 423.1 34.7 6Other Financiers c/ 1,394.7 114.4 20

1,817.8 149.1 26

Ongoing and Future Projects 1,128.4 92.5 16Total Borrowings 2,946.2 241.6 43

ContributionsGovernment 1,072.6 87.9 15Consumer 120.2 9.9 2

Total Contributions 1,192.8 97.8 17

Total Sources 6,916.4 567.1 100

a/ For details of future projects see Annex 14.

b/ An amount of TSh 3.7 million (US$0.3 million) will be available tofinance the organization study which will be performed by Governmentand therefore is not shown in the schedule.

c/ Funds from Kuwait, Germany (KfW), NORAD, SIDA and the French andItalian Governments.

- 25 -

Future Operations and Financial Performance

4.10 Projected income, balance sheet and cash flow statements for1983/90, together with notes and assumptions used in their development, areshown in Annexes 10 through 13. The projections indicate that TANESCO'sfinancial performance and condition would be satisfactory throughout thisperiod. During this period electricity sales are forecast to increaseabout 7% per year while revenues, reflecting demand increases and tariffincreases in 1983, 1984, 1987, 1988 and 1990, will increase an average ofabout 19% per year. Expenses, including depreciation based on the revaluedasset basis, are expected to increase an average of about 15% per year.Key financial indicators during the project construction period follow:

Year1983 1984 1985 1986 1987 1988

Operating ratio (revalued basis) 72 64 70 66 73 75Current ratio 2.3 3.4 3.6 4.6 5.1 5.6Debt/equity ratio 38/52 39/61 39/61 38/62 37/63 35/65Debt/service coverage 2.5 3.1 3.0 4.0 3.7 4.2Construction cash generation % 28 34 25 42 45 54

4.11 The financial statements both actual and forecast reflect theliability and payment of income tax at a rate of 50% of net taxable incomewhich excludes depreciation and includes a capital investment allowance.TANESCO's entitlement to the application of this capital investmentallowance for the years 1975 through 1980 is currently being reviewed byGovernment. If this application is not allowed, TANESCO will be subject tosignificantly increased tax liabilities both in the past and in the futurefor which no provision has been made. During negotiations IDA and theGovernment discussed this subject and the consequences if this tax reliefwere not provided to TANESCO from 1978 through the project constructionperiod.

- 26 -

V. ECONOMIC ANALYSIS

Need for the Project

5.01 In 1980 TANESCO commissioned Acres International Ltd. to carryout a power sector study. The consultants recommended that planning,engineering and financing should proceed immediately for the constructionof a 60-MW thermal power station by 1986. This was to be either coal-firedat a (then) proposed new mine at Songwe-Kiwira or an oil-fired powerstation at Dar-es-Salaam using residual oil from the local refinery. Theconsultants also recommended that the feasibility study for Mtera, whichwas being carried out by SWECO (para. 3.08), should be completed and theengineering and preparation of contract documents should proceed subject toa review of the load growth of Tanzania. SWECO's feasibility reportconcluded that additional generation would be required by 1986 to meettheir "standard" load forecast. Subsequently during appraisal, TANESCO'sload forecasts were reviewed with SWECO and it was agreed that the TANESCOforecast, which was lower than the "low case" forecasts of either Acres orSWECO, should be adopted for planning purposes. Under the TANESCOforecast, additional generation capacity is required in 1988.

Least Cost Solution

5.02 The only existing technically feasible alternative to the Mteraproject in 1988 is the construction of an oil-fired steam power plant atDar-es-Salaam. If a gas-field is developed in time, a gas turbine plantwould also be an option for the next unit of generation capacity. Thereare a number of options for subsequent development based on hydroelectric,natural gas and coal potential. A detailed account of the economicevaluation for determining the least-cost solution is given in Annex 14.

5.03 A number of potential sites for hydroelectric generation havebeen identified in Tanzania including sites at Stiegler's Gorge, Kingenenasand Shuguri Falls. Stiegler's Gorge has been the subject of a planningreport carried out by A/S Hafslund (Norway), whereas the planning ofprojects at Kingenenas and Shuguri Falls is only in the conceptual stage.None of these sites nor any other of the potential hydroelectric sites arepossible alternatives to the Mtera project in 1988 since none could bedeveloped and constructed in time.

5.04 Proved gas reserves of about 800 BCF5/ have been confirmed atthe Songo-Songo off-shore field (para. 1.01). However, the TanzanianGovernment has stated its firm policy to use the Songo-Songo gas reservesfor the manufacture of fertilizers. Exploration activities are also inprogress at other on-shore and off-shorelocations including Kimbiji andMnazi Bay off-shore fields, although reliable estimates of reserves atthese locations are not yet available. The possibility of new gasdiscoveries is a factor in the planning of long-term power development, and

5/ BCF = billions of cubic feet.

- 27 -

therefore natural gas is considered to be an option for power generationeven though at present it is not possible to identify specifically the gasreserves that would be available.

5.05 An opportunity cost of gas for power generation equal toUS$3.0/MCF delivered to plant boundary is used in the evaluation basiccase. This delivered value represents in theory the highest economic valueof gas in alternative uses to power generation. The value of US$3.0/MCF isderived from analysis by the mission of the terms of a proposed agreementfor production of urea from Songo-Songo gas.

5.06 Progress in developing coal mines has not been sufficientlyadvanced for a coal-fired thermal station to be operational by 1988. Themission considers it realistic to assume that a coal-fired plant could bebrought into operation by 1991 supplied from new local coal mines. 6/However, the main load center for the power distribution system lies in thecoast and adjacent inland areas, especially in the Dar-es-Salaam andMorogoro region, which are 800 to 900 km from the coal fields. The capitalcosts of a transmission system supplying power from coal-fired stationslocated near to the coal fields to the main load center would be high,probably equivalent to about US$1,000 per kW of installed capacity at thecoal field. As a result, this option would be a high cost program formeeting the power demand in the main load center. However, it would be anattractive option for meeting demand in western Tanzania once the demand inthis region increased to a level that could sustain the economic productionof power from coal-fired units.

Power System Costs

5.07 The costs of the options for a long-term power developmentprogram are composed of capital (generation and associated transmissionworks), operating and maintenance and fuel costs. The capital costs ofexisting hydroelectric installations, including Mtera dam, and of committedinvestments in extending TANESCO's interconnected system are considered tobe sunk costs and therefore to have zero economic cost. The capital costsfor Mtera and Stiegler's Gorge hydro projects are based on informationcontained in the reports by Acres, SWECO and Hafslund, updated to mid-1983price.terms.7/ Economic costs are expressed in terms of domestic currencyby converting foreign cost components at a shadow exchange rate equivalentto TSh 20 = US$1.

5.08 A number of programs for long-term development have beenevaluated for this report. The criteria used for evaluation is the presentvalue of the total costs of a program discounted at a rate corresponding to

6/ Songwe-Kiwira and Mchuchuma coal fields located in Tukuyu area;estimated proved reserves 300 million tons; estimated inferred deposits1.3 billion tons; initial development is likely to be open-cast miningin Mchuchuma.

7/ Estimated capital costs, including associated transmission costs,excluding duties, taxes and interest, in constant mid-1982 price terms,are as follows: Mtera - US$155 million; Stiegler's Gorge Phase I -US$760 million; Phase II - US$213 million.

- 28 -

the opportunity cost of capital in Tanzania. In the basic evaluation case,this rate is taken to be 10 percent. Energy production in an averagehydrological year is credited to installed hydro capacity, and is takenfrom simulation studies carried out by the consultants (paragraph 5.07).Details of the capacity additions and energy balances used for some of theprograms evaluated are given in Annex 14.

5.09 Since the availability of gas for power generation is presentlyunproven (paragraph 5.04), the evaluation of a least-cost solution fromprograms that are known to be feasible at this stage excludes programs thatinclude gas as a source of power. The options for development thereforecover hydro (Mtera and Stiegler's Gorge schemes), coal and oil. Theoptions for the next increment of generation capacity, required by 1988, islimited to Mtera or oil-fired steam plant in Dar-es-Salaam. The results ofthe evaluation of the programs in this category are given in Annex 14. Theleast-cost option for the next increment of generation plant is Mtera.Thereafter, a coal-fired steam generation plant located near to proven coalreserves in southwest Tanzania would be an economic proposition. Theevaluation also shows that the Stieglerts Gorge hydroelectric site would bean economic option for development from the mid-1990s onwards. Theequalizing discount rate between Mtera and an oil-fired plant as the nextunit of capacity is 32 percent.

5.10 The results of the evaluation of development programs thatinclude gas generation plant, which assumes that natural gas would beavailable for power generation, are also given in Annex 14. The evaluationshows that the Mtera hydroelectric scheme is a significantly lower costoption than gas turbine plants with gas costed at US$3.0 per thousand cubicfeet. If gas did not have an economic alternative use to power generation,then a cost of US$3.0 per thousand cubic feet would not be justified. Thiswould be the case if alternative gas-consuming projects could not beimplemented for a certain increment of proved gas reserves. In such acase, the cost of gas used for power generation would be taken to begas-field development and operating costs only. Based on presentlyuncommitted Songo-Songo field develpment costs, the economic costs ofproceeding with either Mtera or a gas plant as the next increment ingeneration capacity are about equal. However, if sunk costs for theSongo-Songo field are also included, then natural gas would be a highercost option than Mtera.

5.11 The sensitivity of the evaluation conclusions have been testedfor increases in capital costs of the hydro schemes and to exchange ratesof 12.18 and 30 Tanzanian shillings to the US dollar. If the capital costsof Mtera are 20 percent higher than envisaged, Mtera would still be moreeconomic than an oil-fired plant or a natural gas plant with gas costed atUS$3.0 per thousand cubic feet. The Mtera project also remainseconomically more attractive than an oil-fired plant within the range ofexchange rates analyzed. Details of the sensitivity analysis are given inAnnex 14.

- 29 -

5.12 In summary, the proposed Mtera project is the least cost solutionin the absence of availability of natural gas for power production. If gasreserves become available for power generation but have alternative uses,Mtera is still the least cost solution. If the gas reserves have noalternative uses, there is no significant difference in terms of economiccosts between Mtera and a gas plant as the next increment of generationcapacity. In addition, there are other factors that are relevant to theselection of the next power project, and the following factors favor theselection of Mtera. The Mtera project would be owned and operated byTANESCO, who have a proven track record in the operation of hydroelectricscheme. Furthermore, hydroelectric schemes are relatively simple to operatewith low risk of mechanical breakdown. In contrast, for gas power plants anew institution would need to be involved in operating the gas field, thereare substantial risks of mechanical breakdown and to date there is noTanzanian organization that has experience in the operation of gas-firedpower generation and gas-field delivery systems. As a result, there wouldbe a substantial risk of delays and cost increases with the gasalternative.

Economic Rate of Return

5.13 The economic rate of return of the project is the discount rateat which the present value of the capital and operating costs of theproject equals the present value of the incremental benefits from theproject measured by value of production according to average tariff yield.Costs are economic values based on the assumptions used to derive theleast-cost power program. Average tariff yield is used as a measure of thevalue of benefits from the project although it is recognized that thismethod undervalues consumers' willingness to pay and that therefore anelement of consumer surplus is not included in the benefits. Therefore,the estimate of economic rate of return is conservative. Details of theeconomic costs and benefits used to derive the rate of return are given inAnnex 15. Including the 50% tariff increase effective January 1, 1983(para. 4.05), the economic rate of return from the project is 10.1 percent.

Tariffs

5.14 An indication of the correct average tariff level according toeconomic principles is given by the long-run marginal cost (LRMC) ofelectric power, which is derived from the identified least-cost powerdevelopment program. The LRMC is taken to be equal to the averageincremental cost of energy, which is calculated from the ratio ofdiscounted present value of total costs of the program to discountedpresent value of the quantity of electrical energy produced under theprogram. The total costs are economic values for capital and operatingcosts used in the derivation of the least-cost solution. The discount rateused is the opportunity cost of capital which is taken to be 10%. Thecosts and quantity of production from existing power facilities are notincluded. The LRMC of power is estimated to be as follows in 1983 priceterms and with system losses of 20 percent of sales:

- 30 -

- if gas is not available for power TSh/kWh produced: 1.83generation: TSh/kWh sold: 2.20(from Mtera + Coal + Stiegler's (US cents 11.0/kWh sold)Gorge 1995 option)

- if gas is available for power TSh/kWh produced: 1.50generation at US$3.0/MCF: 8/ TSh/kWh sold: 1.80(from Mtera + Nat. Gas Option) (US cents 9.0/kWh sold)

- if gas is available for power TSh/kWh produced: 1.07generation with no alternative TSh/kWh sold: 1.28economic use: (US cents 6.4/kWh sold)(from All Nat. Gas Option) 9/

The average yield from tariffs, including the 50 percent increase, isprojected to be TSh 0.975/kWh sold in 1983 price terms. Therefore, theaverage tariff is equal to about 44 percent of LRMC if gas is not availablefor power generation, and to 54 percent or 76 percent of LRMC under thealternative gas prices.

5.15 A tariff study based on LRMC was included in the previous loan(Loan 1306-T-TA) and carried out and partly implemented by TANESCOsatisfactorily so far. However, the present tariff structure is still farfrom an LRMC base and a new tariff study is necessary to take the proposedlong range power development study into consideration, including currentdevelopment plans reflecting the prospects for availability of gas.Therefore, the project includes a provision for a tariff study, to befunded by IDA, to examine and make recommendations regarding the mostappropriate structure for TANESCO's tariff. During negotiations,Government and TANESCO agreed to TANESCO's execution of a study with theassistance of consultants acceptable to IDA to be completed by July 31,1985 to determine appropriate tariffs based on TANESCO's LRMC, and to theimplementation of the agreed recommendations by January 1, 1986.

Risks

5.16 Although the future load growth accepted in this report is lowerthan the past growth and takes the existing economic recession intoconsideration and also assumes that it will continue, there is a slightchance that the actual growth could be lower than the estimates due topossible further economic deterioration. In that case, projects followingMtera power project would be rescheduled. A further point of considerationis that of the extremely high tariff increases that are required in orderto satisfy the cash generation provisions; however, substantial tariffincreases have been achieved in the past, which suggests there is no unduerisk in this respect. No major physical risks are anticipated inimplementing the proposed project beyond those that are normally expectedin the construction of a project of this type and size.

8/ MCF = thousands of cubic feet.

9/ Based on uncommitted Songo-Songo gas-field costs, i.e. excluding sunkcosts.

- 31 -

5.17 The impact of variable hydrological conditions and particularlydry periods on the power supply reliability in Tanzania has been studied indetail by the consultants (Acres, Canada and SWECO, Sweden) (see para.3.07). This involved a simulation of the behavior of the power system overa lengthy hydrological period assuming satisfaction of an assessed loaddemand. For computer model simulation purposes, operating rules have beenelaborated for water management aimed at meeting the power demand by themost economic combination of hydro and thermal generation. The results ofthe simulation calculations have determined the power generation from eachpower source in order to satisfy the load demand over the whole periodunder given hydrological conditions. Separate simulation models have beenused to determine the energy characteristics of the project and to carryout related operational costing and economic analyses. Detailed calcula-tions have indicated that it would not be economically justifiable to addthermal capacity to avoid a possible power shortage with a small risk ofoccurrence. The hydrological risks adopted in the consultants' studies areconsidered to be appropriate in view of the project's hydrological andother features as well as characteristics of the Tanzanian power systemgeneration mix.

VI. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATIONS

6.01 During negotiations the Government agreed:

(a) to employ consultants to prepare a power sector organizationstudy by December 31, 1984 and after comments from IDA implementthe agreed recommendations by December 31, 1985 (para. 1.11); and

(b) to make available to TANESCO equity funds necessary to completethe Iringa-Mtera line (para. 4.08).

6.02 The Government and TANESCO agreed:

to increase TANESCO's tariff level 20% effective January 1, 1984and maintain TANESCO's tariffs at a level sufficient to generateadequate cash to meet at least 25% of its average capitalexpenditures for 1985 and 1986 and 40% thereafter (para. 4.06).

6.03 TANESCO agreed:

(a) to employ consultants to prepare a management study by June 30,1985 and after IDA comments to implement the agreedrecommendations by January 1, 1986 (para. 2.02);

(b) continue to employ external auditors acceptable to the Bank andsubmit audited annual accounts within five months after the closeof the financial year (para. 2.04);

(c) to complete construction of Iringa-Mtera line by January 1, 1987(para. 3.09);

(d) to employ consultants and two full-time experts for constructionsupervision of the project (para. 3.20);

- 32 -

(e) to employ consultants to prepare the rehabilitation study ofpower facilities by June 30, 1984 (para. 3.21);

(f) not to incur long-term debt without IDA's approval (para. 4.02);

(g) to maintain customer accounts at a level which will not exceed 60days of sales by December 31, 1983 and forward IDA semi-annualsummaries of these accounts (para. 4.03);

(h) to determine a revaluation formula acceptable to IDA by December31, 1984 with the option of reestablishing a rate of returnmeasure (para. 4.06) and

(i) to execute a tariff study by July 31, 1985 and after commentsfrom IDA implement the agreed recommendations by January 1, 1986(para. 5.15).

6.04 The following conditions of effectiveness were agreed:

(a) execution of the subsidiary loan agreement (para. 3.19); and

(b) evidence has been received that funds from Federal Republic ofGemany (KfW), SIDA, NORAD, France and Italy are available (para.3.19).

6.05 Conditions of disbursement of Credit proceeds were established asfollows:

(a) no withdrawals shall be made after March 31, 1984 on main civilworks unless IDA has been notified by Kuwait Fund and NORAD thatconditions of disbursement of their loans have been fulfilled(para. 3.25); and

(b) no withdrawals shall be made for rehabilitation until IDA hasreceived the rehabilitation study (para. 3.25).

6.06 With the above agreements, the project would be suitable for anIDA credit of US$35 million equivalent. The Credit would be made availableto the Government for a term of 50 years, including a grace period of 10years, to be relent to TANESCO though a subsidiary credit agreementacceptable to the Association (para. 3.19).

ANNEX I- 33 Page 1 of 4

TANZANIA

FOURTH POWER PROJECT

TANESCO - Existing Power Facilities

Existing Power Network

1. The existing TANESCO power supply facilities are scattered allover the country as shown on the map (IBRD 16231). The power system canconveniently be grouped into four, covering the grid and the NW, the SW,and the SE zones. The grid, an interconnected power system which operatesat 220 kV, 132 kV and 66 kV, covers the coastal strip including Zanzibar,Dar es Salaam, Morogoro, Tanga, Moshi and Arusha regions. Important powerplants and transmission lines on the grid are shown on pages 3, 4 and 5 ofthis annex. Total energy consumption and maximum demand of the grid in1980 were 627 GWh and 118 MW. The other three zones include isolated loadcenters which are mainly the local Government's administrative centralcities. For these cities, the installed and available capacities, maximumdemand and consumptions are shown on pages 3 and 4.

2. The operating voltages and the length of the main powertransmission lines and distribution systems located in various zones aregiven on page 5.

3. TANESCO has an effective communication system throughout thecountry. It has used land mobile radio-telephone equipment satisfactorilyfor more than ten years. Maintenance crews working on transmission linesand almost all important power plants and substations are linked byradio-telephone. A powerline carrier (PLC) communication network has beenused throughout the grid satisfactorily. The primary means ofcommunication between the regional administrative centers and theheadquarters in Dar es Salaam is the public telephone system as operated bythe Tanzania Posts and Telecommunications Corporation.

4. TANESCO has an obsolete grid control center (load dispatchingcenter) at Dar es Salaam, which is too small to cope with the all-switchingoperations, load dispatching, frequency control, reactive power supply andvoltage control operations for the extended grid. A new control centerwould be built under the proposed project to handle and improve theseoperations.

- 34 -ANNEXIPage 2 of 4

Installed and Available Capacity,Maximum Demand and Energy Sales of TANESCO

Regions (1980)

---Capacity (MW)---Maximum Energy

Zones, Regions and Power Stations Installed Available Demand (MW) Sales (GWh)

The Grid Zone (includes Zanzibar)

Kidatu hydroelectric station a/ 200.00 200.00Kikuletwa hydroelectric station 1.20 1.20Nyumba Ya Mungu hydroelectric station b/ 8.00 8.00Hale hydroelectric station c/ 21.00 17.00Pangani Falls 17.50 17.50

Total Hydro d/ 247.70 243.70

Ubungo diesel station 46.60 15.00Ubungo gas turbine 15.00 -Arusha diesel station 3.70 2.70

Total Thermal 65.30 17.70

Total Grid Zone 313.00 261.40 117.61 626.51

The NW Zone

Dodoma region diesel 2.86 1.98 1.82 8.69Mpwapwa region diesel 0.42 0.34 0.23 0.83Grigida region diesel 0.69 0.48 0.52 1.53Tabora region diesel 2.23 1.60 1.20 5.53Kigoma region diesel 0.77 0.58 0.73 3.26Shinyanga region diesel 1.67 1.30 1.06 4.23Mwanza region diesel 27.00 15.00 8.56 41.89Musoma region diesel 7.50 6.00 4.06 15.93Burboda region diesel 1.36 1.03 1.07 4.40

Total NW Zone 44.50 28.30 19.25 86.29

a/ It has a reservoir at Mtera with a live storage capacity of 3,200 million m3 and atKidatu 125 million m3. Average production of the existing Kidatu is about 1,290GWh/year with a firm production of (96% probability) about 850 GWh/year.

b/ It has an 875 million m3 reservoir capacity. This is mainly an irrigation project.c/ Its reservoir is heavily silted and almost filled. Total average production of hydro

stations other than Kidatu is about 220 GWh/year with a firm production of (96%probability) about 190 GWh/year.

d/ Average and dry year production given in Annex 5, page 4.

35 ANNEX 1Page 3 of 4

Installed and Available Capacity,Maximum Demand and Energy Sales of TANESCO (continued)

Regions (1980)

Capacity (MW)Maximum Energy

Zones, Regions and Power Stations Installed Available Demand (MW) Sales (GWh)

The SW Zone

Iringa region hydro 1.22 1.22Iringa region diesel 0.75 0.70 1.78 7.98Mbeya region hydro 0.34 0.27 1.56 5.66Mbeya region diesel 2.47 2.08Tukuyu region diesel 1.20 1.05 0.90 4.43Njombe, Songea and Sumbawanga regions diesel 1.23 0.53 0.47 1.99

Total SW Zone 7.21 5.85 4.71 20.06

The SE Zone

Mtwara and Lindi regions diesel 4.87 3.19 1.18 1.60Nachingwea region diesel 0.95 0.40 0.34 1.06Kilwa and Mafia Island region diesel 1.56 1.28 0.34 0.65

Total SE Zone 7.38 4.87 1.86 3.31

Total All Zones 372.09 299.42 143.43 736.17

- 36 -

ANNEX 1Page 4 of 4

Length of Principal Transmission and Distribution Lines of TANESCO

Transmission/Distribution Line 220 kV 132 kV 66 kV 33 and 11 kV-----------------(km)-----------------

Kidatu - Dar es Salaam 307Hale - Dar es Salaam 280Hale - Moshi 275Hale - Tanga 60 a/Morogoro - Chalinze 83Myumba ya Mungu - Arusha 131Dar es Salaam - Zanzibar b/ 41Dar es Salaam - Zanzibar ci 38Grid distribution lines 2,703NW zone distribution lines 551SW zone distribution lines 163SE zone distribution lines _ 165

Total 307 777 131 3,582

a/ On wood poles, others are steel towers.b/ Overhead transmission line in the mainland.c/ Submarine cable in the Indian Ocean.

- 37 -ANNEX 2

TANZANIA

FOURTH POWER PROJECT

Statistical Data on TANESCO's Power System

1976 1977 1978 1979 1980

Installed Generation Capacity (MW)

Interconnected SystemHydro 147 147 147 147 247Diesel 40 51 51 51 51Gas turbine 15 15 15 15 15

Total 202 213 213 213 313

Isolated SystemsHydro 1 1 1 1 1Diesel 26 31 51 51 59

Total 27 52 52 52 60Total Generating Capacity 229 245 265 265 373

Power Production (GWh)Interconnected System 480 540 593 653 686Isolated Systems 79 82 89 104 110Purchase from captive plants 3 3 3 3 3Total 562 622 685 757 797

Sales of Energy (GWh)Interconnected System 418 442 491 547 627Isolated Systems 72 74 97 107 101Total 490 516 588 654 738

Station Use 11 12 16 18 12Total Consumption 501 528 604 672 750

Total Losses in % 12.2 17.8 17.7 12.6 7.1

Peak Demand (MW)Interconnected system 84.9 91.4 99.2 110.9 117.6Isolated systems(arithmetic sum) 17.7 17.2 19.0 25.5 26.1Total (arithmetic sum) 102.6 108.6 118.2 136.4 143.7

Number of Consumers 1976 1977 1978 1979 1980

Domestic 57,806 61,695 80,707 88,729 94,819Comnercial 16,776 16,554 21,089 23,749 24,421Industrial 1,195 1,120 2,301 3,099 3,348Public Lighting 370 299 382 393 951Others 1/ - 10,111 638 604 176

Total 76,147 89,779 105,117 116,574 123,715

1/ Consumers reclassified in 1978

TANZANIA ELECTRIC SUPPLY COMPANY LIMITEDCOMPANY ORGANIZATIONAL STRUCTURE

| Ministry of Wafer ||-ad Erergy

Board of Directors

Metaraging Director

Company Secretary Chief InternalAuditor

I Ii I Auditor

DCortrrt of Dlannitntieoorate of D finn Directorate of Manpower Directorate of

D irector Director Director l Development and Adminidtration | DpirontoDiretor Direto

co

ager ... gm;; ;;; ; f Mar lger g f Public M l Manager | Mangser Manpower| g

Construction | | Planning F LM < I PalReions Personnal end Dl e Pve opmaent n g Principal MatnaerMan r Adminiratin a nd Tranigpe;ti..

Cli-f~~~~~~~~~~~~~~~oli eir esne

Chiefz; Cii Chief Pronnect Trinn Chief letrialtiin

Engineer Enginerer ReaIn /Amnerto fie Engineer

Chief Electrical Chief PlanningL- Chief TrameialioEngineer ad DitibE tigieer

Engineer

Chief Suvyr Chief DacignogmnL | Cif | ea Chief Commercil

L t X | Analyst k | ~~~~~~~~~~~~~~~~~~~~~~~~~~Engineer rEgne Cchoe D f Supplies Pci Chief SyLte m

EngneeA nan M er Poam ngl

Maae Coto Engnee

Accou--ants Supplies AnalystOffioer nine

Accountants SuppliesReioa

Comp utea

World Bank -23545

39 - ANNEX 4Page 1 of 3

TANZANIA

FOURTH POWER PROJECT

Future Sales and Maximum Demand

1. TANESCO, in accordance with sound engineering practice, regularlyrevises the load forecast for the preparation of the next month's budgetand the yearly forecast for the next year's budget. In 1981 ACRESInternational Limited of Canada also prepared a comprehensive load forecast- high, low and standard - on the basis of IDA and TANESCO terms ofreference.

2. ACRES' load forecasts through 2015 were developed for each zone,and for the entire country to enable isolated and interconnected systems tobe developed to meet forecast demand. The load forecast, mainly based onhistorical growth trends for domestic and small customers and projectedindividual growth for the industrial and other major consumers, is verysensitive to the variation of future industrial consumption because of its68% of the total sales. During the appraisal the mission reviewed theforecast of individual industrial customers (existing and future) andrevised the ACRES' forecast as summarized below:

Load Forecast for Extended Grid

---1985--- ---1990--- ---1995---MW GWh MW GWh MW GWh

ACRES' High Forecast 262 1,530 406 2,379 727 4,260ACRES' Standard Forecast 237 1,397 354 2,084 576 3,395ACRES' Low Forecast 214 1,268 307 1,816 454 2,688Revised Forecast 225 1,164 299 1,699 400 2,272

3. The revised load forecast was based on interviews with theimplementing agencies of the existing and future industrial projects andthe ministries involved. Progress of construction, financing situation andthe availability of raw materials, etc. of each project (about 90 existingand future industrial setup and projects) were factors taken into account.The expansion of the grid to the new isolated systems, i.e. NW and SWzones, and the likelihood of the current economic recession continuing forabout two more decades (throughout the study period, 1981-2000) and lowercapacity operation of the existing industrial factories have also beentaken into consideration. The revised load forecast is shown on thefollowing pages:

- 40 - ANNEX 4

Page 2 of 3

TANZANIA

FOURTH POWER PROJECT

Revised Energy Forecast (GWh)

ConsumptionIndividual attributable

Existing Consumption of to the Grid ExtendedYear Zanzibar Grid NW and SW NW and SW Grid

1981 22 703 127 - 7251982 26 748 146 - 7751983 31 814 186 14 a/ 8601984 33 886 136 95 bI 1,0141985 35 954 284 174 c/ 1,1641986 37 1,017 317 317 d/ 1,3721987 39 1,078 344 344 1,4621988 41 1,132 362 362 1,5361989 43 1,188 379 379 1,6121990 45 1,248 404 404 1,698

a/ Iringal Dodoma and Mbeyac-/ Shinyanga and Taborad/ Mwanza and Musoma

Revised Capacity Forecast (MW)

Additional LoadExisting from the Expansion Extended

Year Zanzibar Grid to NW and SW Zones Grid

1981 5 119 1241982 6 127 - 1331983 6 139 35 1811984 7 152 44 2031985 7 164 53 2251986 8 175 60 2431987 8 186 65 2591988 9 195 68 2721989 9 205 72 2861990 10 245 75 300

- 41 - ANNEX 4Page 3 of 3

TANZANIAFOURTH POWER PROJECT

INSTALLED AND FIRM CAPACITY AND MAXIMUM DEMAND OF TANESCO'S GRID

MW

410 -

MTERA L----'DIESEL400 - UNIT No. 2 RETIREMENTS

390 - L 1380 MTERA

370 - UNIT No. 1\j |SYSTEM

360 - REHABILITATION RESERVESOF DIESEL STATIONS (LARGEST HYDRO

350 - AND LARGESTTHERMAL UNIT)

340 DIESEL CAPACITY DIESEL

OF TABORA AND CAPACITY OF330 SHtNYANGA MWANZA

EXTENSION AND MUSOMA320 - EXTENSION

310 -DIESEL CAPACITY OF

300 - DODOMA,MUFINDI AND

290 - MBEYAEXTENSION

280 DIESEL AND

HYDRO CAPACITY OF DIESEL I270 IRINGA RETIREMENTS

260 ~EXTENSiON \260

250-

240 - INSTALLEDCAPACITY

230 -

220 -

210 -

200 -

190 _ MAXIMUM DEMANDOF EXTENDED

180 _ FIRM CAPACITY GRIDOF EXTENDED

170 - GRID

160-

1 50

140 -

130

120

110 _

100 I I I I I I I

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

World Bank - 23611

-42 - ANNEX 5Page 1 of 5

TANZANIA

FOURTH POWER PROJECT

Description of Mtera Power Plant

Project Area

1. The project area is shown on the map (IBRD 16231) and asummarized project description is given in Chapter III. A fullerdescription of major components is given below, with a summary of theproject's early history and a brief description of its important featuresof geology, topography, hydrology, drilling programs and method ofconstruction.

Background

2. The Bank's involvement in the development of the Great RuahaRiver (one of the major tributaries of the Rufiji River) goes back to 1969when the Bank initially appraised a project which mainly consisted ofconstruction of a dam and an underground powerhouse at Kidatu site with two50-MW hydroelectric units. This first stage of development was financedunder the second power loan (Loan 715-TA, December, 1970 for US$30million). The second stage consisted of the construction of the Mtera dam(175 km upstream of Kidatu dam) and additional two 50-MW hydroelectricunits at the existing Kidatu powerhouse (Third Window Loan - 1306-T-TA,July, 1976 for US$30 million). The project completion report for thisloan, dated November 30, 1982, is under review. The proposed project isthe third and ultimate development of the Great Ruaha River, consisting ofthe construction of an underground powerhouse with a capacity of two 40-MWhydroelectric units, bringing total ultimate installed capacity of theGreat Ruaha River to 280 MW when the project is completed in 1987.

Topography and Hydrology of Great Ruaha River

3. The Great Ruaha River rises in the mountainous South-Westernregion of Tanzania, close to the northern tip of Lake Malawi, where therainfall is one of the heaviest in the country (about 910 mm last 45 yearsaverage). From there it flows in a northeasterly direction until itreaches Mtera, where other major tributaries join it and the flow turns ina southeasterly direction. The river falls about 175 m over a distance of34 km before it reaches the Mikumi-Ifakara road bridge at Kidatu and thenit enters a long flat plain flowing at a gentle gradient towards the eastuntil it joins the Rufiji River.

4. At Mtera where the power station would be located, the averageflow is about 125 m3/sec which corresponds to a calculated annual flow ofabout 3,900 million m3 (based on direct discharge measurements obtained

- 43 -

ANNEX 5Page 2 of 5

over a period of 25 years from 1955 to 1979 and supplemented by earlierrainfall measurements) 1/. Annual and seasonal flow variations are greatand may show a ratio of as high as 100 to 1.

Mtera Dam

5. The Mtera dam was inaugurated in early 1981 and is located about6 km downstream of the earlier Mtera road bridge on the Dodoma-Iringahighway. The dam is a concrete buttress dam with spillway and spillwaychute on the south bank of the river and a bottom outlet on the riverbank. The main data of the dam is as follows:

Calculated maximum river discharge:

1% probability, m3/sec 2,5000.1% m3/sec 4,0000.01% m3/sec 6,000Reservoir capacity - dead - million m3

- live - million m3 3,200 a/Reservoir, million m3 600Full supply level, elevation m 698.5Minimum supply level, elevation m 690.0Total crest length, m 260Maximum height above river bottom, m 45Crest level of dam, elevation m 701.5Maximum spillway discharge capacity m 6,000Bottom outlet discharge capacity, m3/sec 600

a/ Could supply sufficient water for average year production forthree subsequent dry years.

Mtera Power Plant

6. Geological investigations in the proposed project area comprisestudy of landsat images, aerial photographs, seismic tests, field mappingand 8 diamond drilling of about 1,360 lineal meters (both in the tunnel andpowerhouse cavern). Two holes are in the powerhouse/penstock area and 6are along the alignment of the 10.5 km tailrace tunnel. The advisory panelof TANESCO and the independent Bank consultant consider the extent of thiswork is consistent with the usual requirements of a feasibility study forthe preparation of bid documents. The quality of rock (mainly granite) is

1/ Calculated figures from the model are:

1% probability - 16,400 million m3

50% probability - 3,00099% probability - 540

- 44 -ANNEX 5Page 3 of 5

shown to be unusually good and the panel and the Bank consultant areagreeable with this conclusion. The Mtera power plant comprises an inletchannel, intake with trash racks, a short headrace tunnel (about 100 m),two vertical penstocks (about 100 m each) with intake gates, an undergroundpowerhouse with control black, and tailrace tunnel of 10.5 km length withmerge galleries. An administration building with reading room, transformercalls and a switchyard are situated in the open above the powerhouse. Theproposed powerhouse contains two Francis type units, each with a capacityof 40 m when using the available maximum gross head of about 105 m.

7. Main data for the proposed power plant is as follows:

Full supply level in the reservoir,elevation m 698.5

Minimum supply level in the reservoir,elevation m 690.0

Water levels at tunnel outlet, elevation mat 96 m3/sec (flow for 80 MW output)at 4,000 m3/sec 593.2

Generator capacity per unit MVA 48.0Headrace tunnel lengthi m 100.0Headrace tunnel size m~ 55.0Number of penstocks, m 2.0Diameter of penstocks, m 3.2Length of penstocks, m 110.0Size of powerhouse cavern, m 45 X 13.5 x 25Surge gallery area, m2 3,000.0Tailrace tunnel, length, km 10.5Tailrace tunnel cross section, m 2 55.0

8. The inlet channel is situated in the reservoir area just upstreamof the right alignment of the Mtera dam. Part of the excavation for thechannel will have to be carried out under water. A cofferdam will beprovided to enable the major part of the excavation to be carried out indry. The works will be carried out during periods of low water levels inthe reservoir.

9. The entrance of the headrace tunnel for the power plant will beto concrete situation located just upstream of the Mtera dam on the rightriver bank. The intake will be placed sufficiently deep to avoid anydeleterious effects from vorteces created by the 8.5 m drawdown allowed forin the reservoir. The intake will be equipped with trash racks withappurtenant cleaning equipment. From the intake the water will flow in theunlined headrace tunnel.

10. Each penstock intake will be provided with a cylinder gateupstream of which a wheel gate will be arranged in a separate shaft, commonto both the penstock intakes. The penstocks will be steel lined andsurrounded by concrete over the entire length.

- 45 -ANNEX 5Page 4 of 5

11. The powerhouse will be of the underground type located about 125m below the ground surface. The machinery hall will be for twohydroelectric units with auxiliary equipment. The turbines will be of thevertical Francis type, directly coupled to the generators. Access to thepowerhouse will be obtained via an access tunnel about 600 m in length.

12. Water will be discharged to the tailrace tunnel through steel andconcrete lined draft tubes. At the end of draft tube, a gate will beinstalled. From the draft tubes, the water will be passed back to theriver through the unlined tailrace tunnel. It is anticipated that someparts of this tunnel will be strengthened by means of concrete cubes,shotcrete lining and holting. The tunnel would be excavated from eightfaces.

13. The power cables from the generators will be passed through acable shaft from the machinery hall to the transformers, located in theswitchyard at above ground level. The power plant will be connected to thesystem at Iringa and Dodoma by 220-kV power transmission lines which willbe financed by CIDA.

14. The average production of the project will be about 350 GWh peryear, the firm production about 220 GWh per year. 2/ The plant load factorwill be about 50% average and 31% firm. The hydro production of-theTANESCO system is shown below: 2/

Dry Year Average YearProduction Production--- GWH ---- ---- GWh-

Wami/Pangani River System

Hale, Pangani Falls, NyumbaYa Mungu and Kikulekwa 190 220

Great Ruaha River System

Kidatu 850 1,290Mtera 290 350

Total 1,330 1,860

2/ With a probability of about 96% (Annex 1, page 2).

-46- ANNEX 5

Page 5 of 5

Operations

15. The existing Kidatu power station (200 MW) and the proposed Mterapower station (80 MW), together with existing dams at Kidatu (livereservoir capacity: 125 million m3) and Mtera (live reservoir capacity:3,200 million m3) comprise a cascade system on the same river (GreatRuaha). Regulation of the river is very important to produce maximumpossible energy from the river water depending on the load pattern and thesystem demand for capacity and energy. Therefore, upon an earlier Bankrequest (in 1979) consultants of TANESCO (SWECO) have recently prepared astudy reported titled "Great Ruaha Power Projects Water Management, 1981."In this report necessary information is given in the form of severaldiagrams to explain how to operate the reservoirs at Mtera and Kidatu undervarious conditions in a year, e.g. various load demands, various waterlevels in the reservoirs, etc. The diagrams also show when production ofthermal power shall be started up in the system in order to avoid powershortages during dry periods.

-47 - ANNEX 6Page 1 of 6

TANZANIA

FOURTH POWER PROJECT

Project Cost Estimates(TSh 1.0 = US$0.082)

Project Items Local Foreign Total Local Foreign Total- TSh million----- ------US$ million------

PART A

1. Main Civil Constructionworks 84.1 539.5 623.6 6.9 44.2 51.1

2. Duties & Taxes 100.9 - 100.9 8.3 - 8.3Subtotal 185.0 539.5 724.5 15.2 44.2 59.4

Contingencies

3. Physical contingency 18.2 92.3 110.5 1.5 7.6 9.14. Price contingency 102.6 165.2 267.8 8.4 13.5 21.9

Total contingencies 120.8 257.5 378.3 9.9 21.1 31.0

TOTAL PART A 305.8 797.0 1,102.8 25.1 65.3 90.4

-48 - ANNEX 6Page 2 of 6

Local Foreign Total Local Foreign Total------TSh million--- -----US$ million------

PART B

1. Other works (water supplyand sanitation, elevatorsoperators camp ) 7.5 44.9 52.4 0.6 3.7 4.3

2. Duties & Taxes 8.5 - 8.5 0.7 - 0.7subtotal 16.0 44.9 60.9 1.3 3.7 5.0

Contingencies

3. Physical contingency 2.2 7.3 9.5 0.2 0.6 0.8Price contingency 8.6 14.5 23.1 0.7 1.2 1.9Total contingencies 10.8 21.8 32.6 0.9 1.8 2.7

TOTAL PART B 26.8 66.7 93.5 2.2 5.5 7.7

PART C

1. Mechanical works (gates,trash racks andpenstock steel linings) 5.6 40.8 46.4 0.4 3.4 3.8

2. Duties & Taxes 9.9 - 9.9 0.8 - 0.8Subtotal 15.5 40.8 56.3 1.2 3.4 4.6

Contingencies

3. Physical contingency - 5.8 5.8 - 0.5 0.54. Price contingency 9.3 14.0 23.3 0.8 1.1 1.9

Total contingencies 9.3 19.8 29.1 0.8 1.6 2.4

TOTAL PART C 24.8 60.6 85.4 2.0 5.0 7.0

- 49 -ANNEX 6Page 3 of 6

Local Foreign Total Local Foreign Total-----TSh million ----- -----US$ million------

PART D

1. Turbines, pipeworkand crane 13.0 93.0 106.0 1.1 7.6 8.7

2. Duties & Taxes 23.3 - 23.3 1.9 - 1.9Subtotal 36.3 93.0 129.3 3.0 7.6 10.6

Contingencies

3. Physical contingency - 13.3 13.3 - 1.1 1.14. Price contingency 21.4 32.0 53.4 1.8 2.6 4.4

Total contingencies 21.4 45.3 66.7 1.8 3.7 5.5

TOTAL PART D 57.7 138.3 196.0 4.8 11.3 16.1

PART E

1. Generators 5.5 67.3 72.8 0.5 5.5 6.02. Duties & Taxes 15.7 - 15.7 1.3 - 1.3

Subtotal 21.2 67.3 88.5 1.8 5.5 7.3

Contingencies

3. Physical contingency - 9.0 9.0 - 0.7 0.7

4. Price contingency 13.0 22.7 35.7 1.1 1.9 3.0Total contingencies 13.0 31.7 44.7 1.1 2.6 3.7

TOTAL PART E 34.2 99.0 133.2 2.9 8.1 11.0

PART F

1. Transformers 1.2 13.4 14.6 0.1 1.1 1.22. Duties & Taxes 3.0 - 3.0 0.2 - 0.2

Subtotal 4.2 13.4 17.6 0.3 1.1 1.4

Contingencies

3. Physical contingency - 1.8 1.8 - 0.1 0.14. Price contingency 2.8 4.6 7.4 0.2 0.4 0.6

Total contingencies 2.8 6.4 9.2 0.2 0.5 0.7

TOTAL PART F 7.0 19.8 26.8 0.5 1.6 2.1

-50- ANNEX 6Page 4 of 6

Local Foreign Total Local Foreign Total------TSh million ----- -----US$ million-------

PART G

1. Electrical works a/ 6.5 80.3 86.8 0.5 6.6 7.12. Duties & Taxes 18.7 - 18.7 1.5 - 1.5

Subtotal 25.2 80.3 105.5 2.0 6.6 8.6

Contingencies

3. Physical contingency - 10.8 10.8 - 0.9 0.9

4. Price contingency 15.4 27.2 42.6 1.3 2.2 3.5Total contingencies 15.4 38.0 53.4 1.3 3.1 4.4

TOTAL PART G 40.6 118.3 158.9 3.3 9.7 13.0

PART H

1. System control center b/ 6.5 35.6 42.1 0.5 2.9 3.42. Duties & Taxes - - - - - -

Subtotal 6.5 35.6 42.1 0.5 2.9 3.4

Contingencies

3. Physical contingency - 4.4 4.4 - 0.4 0.44. Price contingency 2.5 8.4 10.9 0.2 0.7 0.9

Total contingencies 2.5 12.8 15.3 0.2 1.1 1.3

TOTAL PART H 9.0 48.4 57.4 0.7 4.0 4.7

PART I

1. Rehabilitation of Ubungodiesel station c/ 3.3 44.6 47.9 0.3 3.7 4.0

2. Duties & Taxes _ - - - - -

Subtotal 3.3 44.6 47.9 0.3 3.7 4.0

a/ Auxiliaries.h/ Construction of center, supply of supervisory control, and data acquisition

equipment.c/ Spare parts for engines, generators, fuel oil, and cooling systems.

- 51 - ANNEX 6

Page 5 of 6

Local Foreign Total Local Foreign Total- TSh million ----- ----- US$ million------

Contingencies

3. Physical contingency - 4.9 4.9 - 0.4 0,44. Price contingency 1.2 8.6 9.8 0.1 0.7 0.8

Total contingencies 1.2 13.5 14.7 0.1 1.1 1.2

TOTAL PART I 4.5 58.1 62.6 0.4 4.8 5.2

PART J

1. Rehabilitation of otherpower facilities 11.2 139.8 151.0 0.9 11.5 12.4

2. Duties and Taxes - - - - - -Subtotal 11.2 139.8 151.0 0.9 11.5 12.4

Contingencies

3. Physical contingencies 0.9 14.6 15.5 0.1 1.2 1.34. Price contingencies 1.9 28.0 29.9 0.1 2.3 2.4

Total contingencies 2.8 42.6 45.4 0.2 3.5 3.7

TOTAL PART J 14.0 182.4 196.4 1.1 15.0 16.1

PART K

1. Studies 6.6 17.9 24.5 0.5 1.5 2.02. Duties and Taxes - - -

Subtotal 6.6 17.9 24.5 0.5 1.5 2.0

Contingencies

3. Physical contingency - 2.6 2.6 - 0.2 0.24. Price contingency 1.6 2.6 4.2 0.1 0.2 0.3

Total contingencies 1.6 5.2 6.8 0.1 0.4 0.5

TOTAL PART K 8.2 23.1 31.3 0.6 1.9 2.5

- 52 -ANNEX 6Page 6 of 6

Local Foreign Total Local Foreign Total- TSh million ----- ------US$ million------

PART L

1. Training - 9.0 9.0 - 0.7 0.72. Duties & taxes - - - - - -

Subtotal - 90 90 0.7 07

Contingencies

3. Physical contingency - 0.9 0.9 - 0.1 0.14. Price contingency - 3.1 3.1 - 0.3 0.3

Total contingencies - 4.0 4.0 - 0.4 0.4

TOTAL PART L - 13.0 13.0 - 1.1 1.1

PART M

1. Engineering and consultancyservices 14.1 117.7 131.8 1.2 9.6 10.8

2. Duties & taxes 54.0 - 54.0 4.4 - 4.4Subtotal 68.1 117.7 185.8 5.6 9.6 15.2

Contingencies

3. Physical contingency 1.7 11.8 13.5 0.1 1.0 1.14. Price contingency 16.5 30.7 47.2 1.4 2.5 3.9

Total contingencies 18.2 42.5 60.7 1.5 3.5 5.0

TOTAL PART M 86.3 160.2 246.5 7.1 13.1 20.2

TOTAL PROJECT COST 618.9 1,784.9 2,403.8 50.7 146.4 197.1

Interest during construction 458.3 - 458.3 37.6 - 37.6

TOTAL FINANCING REQUIREMENT 1,077.2 1,784.9 2,862.1 88.3 146.4 234.7

TANZANIAFOURTH POWER PROJECT

PROJECT IMPLEMENTATION SCHEDULE

YEAR OF CUNSTRUCTION 19R1 1982 1983 1984 1985 1988 1917 1988

QIUARTER 1 2 3 74_ 2 3 4 1 2 3 4 _ 2 3 4 _ 2 4 1 2 3 4 1 2 1 1 2

777/7 ' 7/ /~~~~~~~~77PREPARATION OF TENDER DOCUMENTS . / / 7/ // / / / ' ' /

TENDERIN G AND EVALUATION 7)//7 / 7

AWARD CIVIL CONTRACTS 7 57 / , . 7 '7

AWARD MECHAN ICAL AND ELECTRICAL CONTRACTS . . / /, . / .. , . ..MOBILIZATION AND PREP WORKS " -.-. 7

CIVILWORKS ROADS ,/ / . / 7 ' I ""' . */ *, II 7 . 7 .,

COFFER DAMS / , / / 1 / / / , , .

EMPL_OCYERS VILLAGE EACAVATION , , ' . , / . / / . ,./ ',

CONCRETE WORKS 6, / t..... ../ / , . / / '7

ENTRANCE IANLDING EXCAVATION //,, // .// 7 ,, , ,,, i, * . ,, ,/

__________ ~ ~ ~ ~ ~ ' , . ,,, ,,, , '/,. I ' ' ''' I ''. '1 i1/''' I . /77',7/ 77 /7 '''

A CONCRETE VORKS /K / / ,// / , / I . i I . u / / ./ , ... , ,,

LIFT . ~ ~~~~/7 // .77/ / / ' . / / / 7 7,

hRAFTT REGAT S,// / / 77 / , /, ./ I / ' ' $/. / 7 /'/7 '77_/7/7r,_ , ,

FTADRACEAND ESLCAVATION ....../. '/ .I / / /. T 7 77 -l mm 7/,/

TRANSFOR ERS // // . ///, // //$$/'// _t7/' '7 .7.r '7'/77

CONCRETE WORKS 'QIP '77 ' , j / / / . t " , ,/ - i , t .

EHINSTCK ALLWIT E EXCAVATION l/, / 1'M o o. .I. / 1''' / /

______ 77EETAtN/ / /7 / /// 7 77 / /// 777

CONCREATEN WRKS 7/77 .' 'Es 'E | S 7 / / . / * "O RKDRAFTFOR CBLES.ETC ECAVATION OF7/ Aj7DITS'~~~p.sm

_A____AC _T U7N7N 777 / 777 .. / / //. . / 7/ .. . 77

ROCK SUPORTS 111 lis . .... loll lolls7 77.......I.11111 7"<16 1/f. i''''''o4 o /"..7,

CANCRETEORK /777 // 7 7 / 7 | . / I m ITI 77 /1 7/ 7 _ _ 77MN//TARINRY9LATS

AECCESSE TWORKSPOCKETEEL 777 7NIT 77 777 77 7. fi *f

7'777 77/777 .7 7 j 77.~~~~~~~0 7-o 7/77 777770777ON

T_WLR KSE TUNNEL WITH ADITS AND TUNEL GT 2I* **I

*____________ *"' DESI"GN/Eh5~INTKEUND UTLT,g ANDp M 115 ,m

ROKSUPRTA7NE7/77/ 777 llEli 111111f111 Ils111 ,li131 It.mii ii,595 SSE1I1 "77 7

1 _ TFAN9PORTATIDN SORMRS

TRINALLATNIONS AND AOMMISSIONIRNGDNUITIONING 7777 77 7/77 "' ~ I .- .... 11

ST ION~~~~~~~~~~~~~~~~~~~~~~~ I '77 777 77 ,51111IlS / 7WTERT ADUPOPLY ETION$'7// 77 7 " " 777

STUDfES STUDY FOR POWER77/77 777 7/ 7 777 /7777TOR77LIFTEORGANIZAT7ION I ~ ~ '7"~ 7 . ,,,

TRAJNJNG PR~EPENDRSATEDN OF" <TRAINjN. 7777 R,II-R- a

--WORKS FORTUB GTE '" UN;7<>'' '''T- mI

WORKS FOR UNIT 77727 /7 //7 -9',- - - 77/

illit OTHER WORK7S 7 /7 7 7'~7 77 7 7/ 7 '77 777 7

M M0 ESIN ND ANFACU'NTAEADULTG ~ 7/77777 - - Sl jm 7 15 7 /

-0-0.41IN" 77T77RAN777SPOR/TATION W.7 77777 77 7,d 777 2353

- 54 -ANNEX 8

TANZANIA

FOURTH POWER PROJECT

Disbursement Schedule(Thousands of US$)

Cumulative UndisbursedIDA Fiscal Euarterly Disbursements at end ofDisbursements Disbursements at end of Quarter Quarter

1983/1984June 30, 1984 8,00o0/ 8,000 27,000

1984/1985Sept. 30. 1984 300 8,300 26,700Dec. 31, 1984 700 9,000 26,000March 31, 1985 1,500 10,500 24,500June 30, 1985 1,700 12,200 22,800

1985/1986Sept. 30, 1985 2,000 14,200 20,800Dec. 31, 1985 2,100 16,300 18,700March 31, 1986 2,500 18,800 16,200June 30, 1986 2,700 21,500 13,500

1986/1987Sept. 30, 1986 3,000 24,500 10,500Dec. 31, 1986 2,600 27,100 7,900March 31, 1987 1,800 28,900 6,100June 30, 1987 1,600 30,500 4,500

1987/1988Sept. 30, 1987 1,300 31,800 3,200Dec. 31, 1987 1,000 32,800 2,200March 31, 1988 800 33,600 1,400June 30, 1988 600 34,200 800

1988/1989December 31, 1988 500 34,700 300March 31, 1989 300 35,000

Closing Date: December 31, 1988

1/ Advanced payment for main civil works

- 55 - ANNEX 9Page 1 of 2

TANZANIA

FOURTH POWER PROJECT

Project Monitoring Guidelines

1. There are a number of areas described in the various chapters whichare key elements in the efficient operation of the utility and the success of theproject. The main areas for establishing a monitoring system are described below(see also para. 3.14).

2. The principal implementation steps to be compared monthly with plannedtarget dates are as follows:

A. Mtera Power Plant

Civil Electrical & Mechanical Works

Preparation of bid documents March 1982Invitiation to bid October 1982Bid closing March 1983Contract awards July 1983Construction of civil works start September 1983Erection of mechanical & electrical

work start October 1985Commissioning of first Unit January 1987Commissioning of second Unit May 1988

B. Construction of Control Center

Preparation of design March 1983Preparation of bid documents July 1983Invitation to bid August 1983Bid evaluation November 1983Contract awards February 1984Construction starts April 1984Commissioning August 1985

C. Rehabilitation of Ubungo Diesel Station

Completion of Rehabilitation Report May 1983Placing orders for spare parts September 1983

equipment and materialRehabilitation starts January 1984Completion October 1985

l

- 56 - ANNEX 9

Page 2 of 2

D. Studies

Appointment of consultants Sept 30, 1983Completion of tariff study July 31, 1985Completion of reorganization study Dec 31, 1984Completion of long range

development study Dec 31, 1984Completion of TANESCO Management Study June 30, 1985Completion of Rehabilitation Study June 30, 1984

E. Training

Completion of the training programs Sept 30, 1983Training starts March 1984Completion June 1987

3. Records will be maintained comprising the targets against actual resultsin:

General

a) hydro production (in kWh);b) diesel plant production (in kWh);c) purchase from captive plants (in kWh);d) power consumption (in kWh, by classification);e) consumption of plant auxiliaries (in kWh);f) fuel consumption of diesel stations (in kcal/kWh and gr/kWh);g) losses (by classification)h) equipment and transmission failures;i) number of interruptions and their durations;j) number of consumers (by classification)

Administrative and Financial

k) number of staff (by classification)1) average tariff level (in cents per kWh)m) rate of return on average revalued net fixed assets;n) debt service coverage;o) operation ration;p) number of days' sales outstandingq) debt/equity ratior) revisions to project cost estimate and related financings) overdue accounts receivable

- 57 - -lZE 10

TANZANIA

TANZANIA ELECTRIC SUPPLY CCNPANY, LTD.

INCafE STAT12ENTS(TSh Millions)

--- Actual --- -Provisional-- -Estimated----- - --

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

GWh - Sold 588 653 738 790 795 851 910 974 1042 1115 1193 1277 1366Average (T) cents/kWh Sold 46.6 46.2 65.0 64.5 65.0 97.5 117.0 117.0 117.0 121.0 125.0 125.0 147.0

Sales Revenues 274.0 301.9 480.0 509.6 516.7 829.7 1064.7 1139.6 1219.1 1349.2 1491.3 1596.2 2008.0

Operating Expenses

Generation 76.2 87.2 114.3 153.6 177.5 236.5 265.1 295.6 204.5 296.5 278.7 339.5 391.1Transmission & Distribution 16.2 21.0 31.3 36.5 34.3 39.1 45.1 51.6 60.7 70.1 80.3 92.1 105.8Administration 53.6 57.2 74.5 103.3 94.8 109.1 125.4 144.3 165.7 185.8 208.1 233.1 261.0Depreciation 42.1 44.7 46.9 70.2 184.6 210.5 249.2 306.0 377.1 433.6 544.6 655.7 719.0Income Tax 10.0 10.0 - - - - - - - - - - -

Total Expenses 198.1 220.1 267.0 363.6 491.2 595.2 684.8 797.5 808.0 986.0 1111.7 1320.4 1476.9

Operating Income 75.9 81.8 213.0 146.0 25.5 234.5 379.9 342.1 411.1 363.2 379.6 275.8 531.1

Other Income (Losses) (1.0) 11.0 13.8 4.2 10.0 (277.6) 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Net Income before Interest 74.9 92.8 226.8 150.2 35.5 (43.1) 389.9 352.1 421.1 373.2 389.6 285.8 541.1

Interest 37.6 45.6 48.6 43.5 81.2 109.1 118.7 112.8 112.6 120.0 128.4 371.5 380.6

Net Income (toss) 37.3 47.2 178.2 106.7 (45.7) (152.2) 271.2 239.3 308.5 253.2 261.2 (85.7) 160.5

Retained Earnings Adjustment

Provision for Deferred Taxation (18.9) - (2.9) (27.6) (33.0) (48.2) (57.7) (42.6) (82.9) (142.5) (90.8) (77.8) (54.2)Transfer to Capital Reserve (14.0) (47.3) (175.0) (87.0)Dividend (7.8) - - 7.8Depreciation transfer to

Valuation Reserve - - 64.0 83.9 105.7 131.7 164.8 203.8 252.8 311.9

Net Retained Earnings (3.4) (0.1) (0.3) 0.1 (78.7) (136.4) 297.4 302.4 357.3 f75.5 374.2 89.3 418.2

Balance Brought Forward 4.2 0.8 0.7 1.0 .9 (77.8) (214.2) 83.2 385.6 742.9 1018.4 1392.6 1481.9

Retained Eamings (Deficit) 0.8 0.7 1.0 .9 (77.8) (214.2) 83.2 385.6 742.9 1018.4 1392.6 1481.9 1900.1

Rate of Return - - - 2.1 1.1 5.5 7.7 5.7 5.6 4.4 3.7 2.2 4.1

- 5 - ANNEX 11

TANZANIA

TANZANIA ELECTRIC SUPPLY C(fPANY, LTD.

BAIANCE SHEETS(TSh Killions)

-- Actual -- -Estimatedd--1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Assets

Fixed AssetsPlant in Operations

Revalued 1472.5 1527.7 1568.0 2562.4 4906.7 6322.0 6969.0 9351.3 10760.6 12364.4 16679.3 18292.0 20053.3Less Depreciation 319.8 361.6 407.6 476.9 1214.2 1546.1 1934.4 2404.8 2986.3 3688.7 4565.3 5631.9 6857.8

Net Plant In Operation 1152.7 1166.1 1160.4 2085.5 3692.5 4775.9 5034.6 6946.5 7774.3 8675.7 12114.0 12660.1 13195.5Plant Under Construction 438.1 705.6 1231.9 602.4 994.4 715.8 2162.9 1787.8 2221.1 2590.6 384.5 968.9 2507.5

Net Fixed Assets 1590.8 1871.7 2392.3 2687.9 4686.9 5491.7 7197.5 8734.3 9995.4 11266.3 12498.5 13629.0 15703.0

Long-term Investments - 1.2 4.5 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8

Current AssetsCash - 6.0 - - 80.2 139.2 449.5 473.5 727.8 905.9 992.9 1013.2 851.4Accounts Receivable 66.4 94.8 167.6 297.6 129.2 138.6 177.8 190.3 203.6 225.3 249.1 266.6 285.2Inventories 103.4 160.0 193.3 240.3 268.3 245.3 194.3 212.5 194.3 189.3 227.3 219.3 224.3Other Receivables& Advances 26.9 40.4 57.8 52.7 52.7 52.7 52.7 52.7 52.7 52.7 52.7 52.7 52.7

Prepaymoets, etc. 11.0 5.2 39.8 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9Total Current Assets 207.7 306.4 458.5 614.5 554.3 599.7 898.2 952.9 1202.3 1397.1 1545.9 1575.7 1437.5

Less: Current LiabilitiesAccounts Payable 15.0 11.4 45.0 59.8 58.7 66.7 71.8 77.4 71.3 83.4 84.9 94.7 104.0Advance on Works Orders 73.3 91.3 99.8 113.5 113.5 113.5 113.5 113.5 113.5 113.5 113.5 113.5 113.5Customers Deposits 9.6 12.4 15.3 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1Tax Payable 11.6 21.6 21.6 21.6 - - - - - - - - -Other 26.3 40.1 57.2 57.2 57.2 57.2 57.2 57.2 57.2 57.2 57.2 57.2 57.2Overdraft 0.2 - 12.9 25.1 - - - - - - - - -

Total Liabilities 136.0 176.8 251.8 295.3 247.5 255.5 260.6 266.2 260.1 272.2 273.7 283.5 292.8Net Current Assets 71.7 129.6 206.7 319.2 306.8 344.2 637.6 686.7 942.2 1124.9 1272.2 1292.2 1144.7

Total Assets 1662.5 2002.5 2603.5 3013.9 5000.5 5842.7 7841.9 9427.8 10944.4 12398.0 13777.5 14928.0 16854.5

Equity and Liabilities

EquityCapital 577.7 577.7 577.7 767.0 1099.7 1203.3 1656.8 1977.9 2136.8 2216.8 2275.9 2275.9 2275.9Advances for Capital 70.8 170.9 299.6 207.8 - - - - - - - - -

Total Capital 64d.5 748.6 877.3 974.8 1099.7 1203.3 1656.8 1977.9 2136.8 2216.8 2275.9 2275.9 2275.9Capital Reserves 115.3 74.3 249.3 498.1 498.1 498.1 498.1 498.1 498.1 498.1 498.1 498.1 498.1Consumers Contributions 26.9 35.0 48.4 52.9 69.2 87.1 106.8 128.5 152.3 178.5 207.3 239.0 273.9Retained Earnings (Deficit) 0.8 0.7 1.0 .9 (77.8) (214.2) 83.2 385.6 742.9 1018.4 1392.6 1481.9 1900.1Revaluation Reserve - - - 1591.6 1896.9 2242.4 2565.2 3024.0 3558.9 4135.9 4973.3 5800.8

Total Equity 791.5 858.6 1176.0 1526.7 3180.8 3471.2 4587.8 5555.3 6554.1 7470.7 8509.8 9468.2 10748.8

Deferred Tax Provision 109.8 109.8 112.7 140.3 173.3 221.5 279.2 321.8 404.7 547.2 638.0 715.8 770.0

Long-term Debt

IBRD and IDA 409.2 542.7 620.5 615.0 654.8 743.5 822.1 880.7 980.1 1014.8 1004.2 961.6 915.5Other 352.0 491.4 694.3 731.9 991.6 1406.5 2152.8 2670.0 3005.5 3365.3 3625.5 3782.4 4420.2

Total long-term Debt 761.2 1034.1 1314.8 1346.9 1646.4 2150.0 2974.9 3550.7 3985.6 4380.1 4629.7 4744.0 5335.7

Total Equity and - 1662.5 2002.5 2603.5 3013.9 5000.5 5842.7 7841.9 9427.8 10944.4 12398.0 13777.5 14928.0 16854.5Liabilities _ _ _

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ANNEX 12

TANZANIA

TANZANIA ELECTRIC SUPPLY CCMPANY, LTD.

CASH FPLW(Tsh millions)

-Actual- ----- Estimated --------------------Sijmsary

Internal Sources 1981 1982 1983 1984 1985 1986 1987 1988 1984-88 1989 1990

Net Income (loss) before Interest 150.2 35.5 244.5 389.9 352.1 421.1 373.2 389.6 1925.9 285.8 541.1Depreciation 70.2 184.6 210.5 249.2 306.0 377.1 433.6 544.6 1910.5 655.7 719.0Total Internal Sources 220.4 220.1 455.0 639.1 658.1 798.2 806.8 934.2 3836.4 941.5 1260.1

Internal Requirements

Increase/(Decrease) in Working Capitall! 124.7 (117.1) (21.6) (16.9) 25.1 1.2 4.6 60.3 74.3 (.3) 14.3Debt Service (excluding IDC) 67.8 161.5 185.6 208.8 209.9 199.9 216.3 224.1 1059.0 511.9 539.3

Total Internal Requirements 192.5 43.8 164.0 191.9 235.0 201.1 220.9 284.4 1133.3 511.6 553.6Net Available from Internal Sources 27.9 176.3 291.0 447.2 423.1 597.1 585.9 649.8 2703.1 429.9 706.5

Construction and Capital Requirements:Ongoing Works 197.6 418.8 446.4 596.7 191.7 86.0 90.7 95.5 1060.6 104.3 113.9Future Projects 147.9 165.2 156.9 621.1 607.1 166.9 58.0 185.8 1638.9 557.2 1492.5Proposed Project - - - 236.4 480.2 601.0 625.0 456.7 2399.3 - -

Total Construction 345.5 584.0 603.3 1454.2 1279.0 853.9 773.7 738.0 5098.8 661.5 1606.4IDC 22.6 8.0 42.7 70.9 135.8 193.8 231.1 258.0 889.6 34.5 47.2

Total Construction & Capital Requirements 368.1 592.0 646.0 1525.1 1414.8 1047.7 1004.8 996.0 5988.4 696.0 1653.6

Balance to Finance 340.2 415.7 355.0 1077.9 991.7 450.6 418.9 346.2 3285.3 266.1 947.1

Financed by:

Consumers Contributions 4.5 16.3 17.9 19.7 21.7 23.8 26.2 28.8 120.2 31.7 34.9

Equity

Contributions - Ongoing 105.3 16.1- Future Projects - 108.8 103.6 423.2 259.6 82.0 764.8- Proposed Project - - - 30.3 61.5 76.9 80.0 59.1 307.8

Total Equity 105.3 124.9 103.6 453.5 321.1 158.9 80.0 59.1 1072.6

Borrowing

Ongoing Works 62.2 245.3 240.5 322.6 80.4 403.0Future Projects 156.0 134.5 52.0 410.6 229.0 67.6 18.2 725.4 254.7 750.4Proposed Project:IDA Credit 106.5 88.6 131.7 69.5 26.8 423.1Other 75.3 274.9 322.9 403.1 318.5 1394.7Total Borrowing 218.2 379.8 292.5 915.0 672.9 522.2 490.8 345.3 2946.2 254.7 750.4

Total Financing 328.0 521.0 414.0 1388.2 1015.7 704.9 597.0 433.2 4139.0 286.4 785.3Increase/(Decrease) in Cash (12.2) 105.3 59.0 310.3 24.0 254.3 178.1 87.0 853.7 20.3 (T61.8)Cumlative Cash (Overdraft) 51) 80.2 139.2 449.5 473.5 727.8 905.9 992.9 992.9 1013.2 1.4

Net Available from Internal Sources 27.9 176.3 291.0 44727 423.1 597.1 585.9 649.8 - 429.9 706.5Less: IDC 22.6 8.0 42.7 70.9 135.8 193.8 231.1 258.0 - 34.5 47.2Net Internal Sources after Debt Service 5.3 168.3 248.3 376.3 287.3 403.3 354.8 391.8 362.7! 395.4 §659.0

3 Years Moving Average of Construction Reg. 554 552 878 1104 1177 969 789 724 9582/ 1002 1328% Available from Internal Sources 1 30 28 34 25 42 45 54 38 39 50

1/ Excluding cash or overdrafts.2/ 1983-1988 average.

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ANNEX 13Page 1 of 3

TANZANIA

FOURTH POWER PROJECT

Notes and Assumptions for Financial Projections

1. In preparing the financial projections TANESCO's FY80 actualfinancial statements have been used as a base.

Income Statements

Revenues

2. Existing tariffs assumed to be increased by 50% in January 1983to 97.5 (T) cents/kWh, by a further 20% to (T) cents 117.0 in 1984 and byan additional (T) cents 4 in 1987 and 1988 to (T) cents 125.0 in 1987.Sales as per TANESCO forecasts agreed during negotiations.

Operating Costs

Generation

3. Fuel/lubricating oil expenditures are based on engineeringestimates of plant utilization and an assumed price escalation of 15% perannum (1980 cost: TSh 0.58/kWh). No energy purchases are assumed beyond1981. Price increases of 10% per annum but no volume increases have beenassumed for salaries and wages, repairs and maintenance, and othergeneration expenses. The staffing at Mtera is effectively static sincestaff are already in place for maintenance and control of the existingMtera dam. Salaries assume annual scale increases of 3-4% plus generalwage increases equal to approximately 30% of inflation. The absence ofvolume increases for repairs and maintenance for thermal stations reflectsrecent purchases of sets from Mirrlees Blackstone and Wartsila.

Transmission and Distribution

4. Salaries and wages are assumed to increase 10% annually;provision has also been made for additional staffing as follows: 1982-46,1983-44, 1984-50, 1985-34, 1986-66, to maintain the additional gridsystem. Repairs and maintenance are assumed to increase 10% annually inprice and 5% in volume. Other transmission and distribution expenses aretaken to rise 10% per annum in price and 10% in volume.

Administration

5. Volume increases have been taken at 5% per annum through 1986 and2% thereafter. Annual salaries escalation is assumed at 10%.

- 61 -ANNEX 13Page 2 of 3

Depreciation

6. An average rate of 3.75% of gross fixed assets in operation hasbeen used.

Income Tax

7. Income tax has been calculated at 50% of the net income plus thedepreciation charged in the accounts, but less the tax allowances on theassets. Deferred taxation has been reserved at 50% of the differencebetween the net assets for tax purposes and the net assets shown in thebalance sheets.

Interest

8. The IDA Credit, SIDA and NORAD loans for the project are assumedto be onlent at 11%. Interest rates of other lenders are based onTANESCO's previous experience.

Balance Sheets and Cash Flow Projections

Fixed Assets

9. Fixed assets and related accumulated depreciation are on arevalued basis in Annex 11.

Accounts Receivable

10. It has been assumed that accounts receivable would be equivalentto the following number of days of sales revenue: 1982-90 days, 1983-75days and thereafter 60 days.

Inventories

11. Inventories, expressed as a percentage of average revalued grossfixed assets, are assumed as follows: 1982 4.75%, 1983 3.5%, 1984 and 19852.35%, 1986 1.75%, 1987 and 1988 1.25%, thereafter 2%. 1980 was 12-1/2%but the base did not include Kidatu II and inventories included asignificant amount of obsolete stocks.

Consumer Contributions

12. Consumer contributions have been taken at TSh 400 per consumer.

Accounts Payable

13. These are estimated at 10% of cash operating expenses.

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ANNEX 13Page 3 of 3

Long-term Debt for Future Projects

14. Each future project has been identified with actual or potentiallenders, if known. Debt service has been based on TANESCO's historicalpattern for such loans to (or onlent by) the Government (9% interest) withdurations varying with TANESCO's experience of each lender's normalrepayment terms. Terms for unidentified future lenders (e.g. for acoal-fired generating station) has been assumed at 9% over 27 years,including 7 years grace period with 100% foreign cost being borrowed.Local cost is assumed to be financed by TANESCO.

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ANNEX 14Page 1 of 21

TANZANIA

Economic Analysis - Least Cost Solution

1. The evaluation of the most economic option for new powerfacilities in 1988 has to be set in the context of long-term powerdevelopment. There are two related issues involved in determining theleast cost long-term power program. The first issue concerns the selectionof the next unit of power generation capacity which is required by 1988.The only existing technically feasible alternative to the Mtera project in1988 is the construction of an oil-fired steam power plant at Dar-es-Salaam, although this would result in an increase in oil imports andtherefore, greater expenditure of scarce foreign exchange. If a gas-fieldis developed in time, a gas turbine plant would also be an option for thenext unit of generation capacity. The second issue concerns the type ofpower plant selected for additional generation capacity subsequent to1988. According to TANESCO's load forecast, the first stage of suchadditional capacity would be required in 1990 or 1991 depending upon theamount of capacity commissioned in 1988. There are a number of options forsubsequent development based on hydroelectric, natural gas and coalpotential.

Hydroelectric Options

2. A number of potential sites for hydroelectic generation have beenidentified in Tanzania including sites at Stiegler's Gorge, Kingenenas andShuguri Falls. Stiegler's Gorge has been the subject of a planning reportcarried out by A/S Hafslund (Norway), whereas the planning of projects atKingenenas and Shuguri Falls is only in the conceptual stage. None ofthese sites nor any other of the potential hydroelectric sites are possiblealternatives to the Mtera project in 1988 since none could be developed andconstructed in time.

3. The first phase of the Stiegler's Gorge hydroelectric projectl/could be completed by 1992 if the project was started before end 1984.Subsequent phases would be completed as required to meet increased load.The firm energy potential of existing hydro stations (Kidatu), Mtera andStiegler's Gorge hydro projects would be sufficient to meet TANESCO's loadforecast to about the year 2012, and therefore these hydro projects form anoption for a long-term power development program. Howevever, the powerpotential of the Stiegler's Gorge project is large relative to the

1/ Stiegler's Gorge installed capacity and firm energy: Phase I 300MW/2,150 GWh; Phase II 600 MW/1,570 GWh; Phase III 300 MW/1,150 GWh;Phase IV 900 MW/1,050 GWh.

- 64 -

ANNEX 14Page 2 of 21

total load of TANESCO's system and, even with the proposed phasing, much ofthe potential output would not be usable during the initial years ofoperation. The amount of unused potential would be reduced as the date forinstalling the first phase is put back due to growth in TANESCO's systemload. Therefore, there are further options in which implementation of thefirst phase of the Stiegler's Gorge project is delayed to 1995 or beyond,and thermal power plants are installed before the first phase of theStiegler's Gorge project. The other identified potential sites forhydroelectric generation (paragraph 2) are not considered as firm optionsfor new power generation facilities in 1991 since insufficient preparatoryinvestigations have been carried out to provide reliable technical and costdata.

Natural Gas Option4. Proved gas reserves of about 800 BCF2/ have been confirmed atthe Songo-Songo off-shore field. Exploration activities are also inprogress at other on-shore and offshore locations including Kimbiji andMnazi Bay off-shore fields, although reliable estimates of reserves atthese locations are not yet available. The possibility of new gasdiscoveries is a factor in the planning of long-term power development.

5. The Tanzania Government has stated its firm policy to use theSong-Songo gas reserves for the manufacture of fertilizers. According to adraft gas suply agreement between the Tanzanian Petroleum DevelopmentCorporation (TPDC) and Kilwa Ammonia Co. (KILAMCO), TPDC has undertaken todedicate 602 BCF of gas reserves at Songo-Songo for KILAMCO's use for themanufacture of fertilizers. This agreement is conditional on success inraising financing for the fertilizer project and on proving the existenceof adequate reserves. Therefore, if the agreement becomes binding, therewould be about 200 BCF of gas reserves at Songo-Songo available for powergeneration.

6. In the present state of knowledge about Tanzania's energyresources, there are two strategies worth consideration for the use of gasfor generating power. The first strategy involves using gas turbinesprimarily as reserve and peak generation capacity by taking advantage ofthe lower capital costs of gas turbines relative to other plants. Underthis strategy, gas generation capacity would be installed as the nextstation following the Mtera project and would be required by 1991.

2/ BCF = billions of cubic feet.

- 65 -ANNEX 14Page 3 of 21

Additional units could be installed subsequently depending on the economicattractiveness of other available power plants. The quantity of gasreserves that would need to be dedicated to power generation under thisstrategy would not be more than 100 BCF. Therefore, such use of gas forpower development would be planned as a supplementary use of gas to a majorgas user, such as a fertilizer project.

7. The second strategy takes into account the possibility thatsubstantial gas reserves will be discovered in addition to the Songo-Songofield. Under this strategy, gas generation plant would be used to meetbase load and would be the main type of plant commissioned. The periodover which such a program could be enacted would depend on the quantity ofgas reserves that would be available for dedication to power generation. Apower program based entirely on gas turbine installations to meet TANESCO'sload forecast projected at a growth rate of 5 percent per year for a 30year period up to 2016, would require the dedication of about 2.5 trillioncubic feet of gas reserves. This quantity greatly exceeds presently provedreserves in Tanzania and therefore, this strategy remains hypothetical un-less sufficient new reserves are discovered. Nevertheless, this strategyis worth consideration as a possibility for power development in theorywhilst exploration is in progress for new gas reserves.

8. An opportunity cost of gas for power generation equal toUS$3.0/MCF delivered to plant boundary is used in the evaluation basiccase, whether the gas is supplied from the Songo-Songo field or a new asyet unproved field. The net economic value of gas is the delivered valueless gas field and gas delivery system costs. This delivered valuerepresents in theory the highest economic cost of gas required for power inalternative uses to power generation. The value of US$3.0/MCF is derivedfrom analysis by the mission of the terms of a proposed agreement forproduction of urea from Songo-Songo gas. In practice, the value ofUS$3.0/MCF could be lower than the value for the opportunity cost of gasfor generating power, since a use for gas other than for manufacturingfertilizer would not be considered as giving the opportunity cost for powerunless the economic value of gas in this use is higher than US$3.0/MCF.For instance, if gas reserves of the order of 3 trillion cubic feet areproved in a new gasfield, as would be required for the long-term base-loaduse described in paragraph 7, one alternative use for the reserves would beexports of LNG which at present offers a return to gas that is at least ashigh as from the manufacture of fertilizers.

Coal Option

9. Coal is another option for new power generation capacityinstalled after 1988. Progress in developing coal mines has not beensufficiently advanced for a coal-fired thermal station to be operational by1988. The mission considers it realistic to assume that a coal-fired plantcould be brought into operation by 1991 supplied from new local coal

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ANNEX 14Page 4 of 21

mines. A 100 MW coal-fired plant could be constructed in the vicinity ofone of the coal-fields in Tanzania,3 / and would require about 350,000 tonsper year of coal at full production. Due to high costs of transportationfrom coal-field to the coast, the economic value of coal mined in Tanzaniafor export would be very low. Therefore, development of Tanzanian coalreserves will have to be based on domestic utilization. The provedreserves are sufficient to meet the requirements of the series ofcoal-fired power plants that would be needed to meet TANESCO's loadforecast to beyond the year 2016 projected at a growth rate of 5 percentper year.

10. The main load center for the power distribution system lies inthe coast and adjacent inland areas, especially in the Dar-es-Salaam andMorogoro region which are 800 to 900 km from the coalfields. The existinggrid zone, which covers this region, presently accounts for about 85percent of the total energy sold by TANESCO (Annex 1). The capital costsof a transmision system supplying power from coal-fired stations locatednear to the coal fields to the main load center would be high, probablyequivalent to about US$1,000 per kW of installed capacity at thecoal-field. As a result, the cost of power delivered to the main loadcenter from this source would be more than US cents 10 per kWh even if coalwas to be supplied at a low cost to the power station, such as US$ 25 perton from open-cast mines. Although this coal option would be a high costprogram for meeting the power demand in the main load center. it would bean attractive option for meeting demand in western Tanzania once the demandin this region increased to a level that could sustain the economicproduction of power from coal-fired units. Power could be delivered tothis region at an economic cost of the order of US cents 5 per kWh from acoal-fired station located near to an open-cast mine. According to thepresent power demand forecast (Annex 4), demand in the Mbeya and Mwanzaregions could be sufficient from the mid 1990s for economic development ofa coal-fired power station in western Tanzania.

Power System Costs

11. The costs of the options for a long-term power developmentprogram are composed of capital (generation and associated transmissionworks), operating and maintenance and fuel costs. The capital costs ofexisting hydroelectric installations, including Mtera dam, and of committedinvestments in extending TANESCO's interconnected system are considered tobe sunk costs and therefore to have zero economic cost. The capital costsfor Mtera and Stiegler's Gorge hydro projects are based on informationcontained in the reports by Acres, SWECO and Hafslund, updated to mid-1983

3/ Songwe-Kiwira and Mchuchuma coal-fields located in Tukyu area;estimated proved reserves 300 million tons; estimated inferred deposits1.3 billion tons; initial development is likely to be open-cast miningin Mchuchuma.

- 67 -

ANNEX 14Page 5 of 21

price terms.4/ The capital costs of oil-fired steam plants are based on aunit rate of US$1,200/kW installed, for gas turbine plants of US$600/kWinstalled, and for coal-fired plants of US$1,600/kW installed. Theeconomic cost of gas used for power generation is taken to be US$3.0 perthousand cubic feet (paragraph 8).5/ The economic cost of coal suppliedto power stations is based on an assumed cost of supply from localopen-cast mines of US$25/ton. The economic value of petroleum products isbased on import parity prices and is assumed to increase at 2.0 percent peryear in constant price terms in line with World Bank projections. Allcosts are expressed in constant 1983 prices. Economic costs are expressedin terms of domestic currency by converting foreign cost components at ashadow exchange rate equivalent to TSh 20 = US$1.

12. A number of programs for long-term development have beenevaluated for this report. The criteria used for evaluation is the presentvalue of the total costs of a program discounted at a rate corresponding tothe opportunity cost of capital in Tanzania. In the basic evaluation case,this rate is taken to be 10 percent. Energy production in an averagehydrological year is credited to installed hydro capacity, and is takenfrom simulation studies carried out by the consultants (paragraph 11).Details of the capacity additions and energy balances used for some of theprograms evaluated are given at the end of this Annex.

13. Since the availability of gas for base-load power generation asan alternative to the Mtera project is presently unproven (paragraph 7 ofthis Annex), the evaluation of a least-cost solution from programs that areknown to be feasible at this stage excludes programs that include gas as asource of power. The options for development therefore cover hydro (Mteraand Stieglers Gorge schemes - paragraph 2), coal (to supply western areasof Tanzania and separately, the main load centers in eastern Tanzania -paragraph 9) and oil station (located in the Dar-es-Salaam area - paragraph1). As noted in previous paragraphs in this Annex, the options for thenext increment of generation capacity, required by 1988, is limited toMtera or oil-fired steam plant in Dar-es-Salaam. The results of theevaluation of the programs in this category are summarized below for theevaluation basic case (for which the assumptions are described inparagraphs 8, 11 and 12 of this Annex). Details of the costs for some ofthe programs are given at the end of this Annex.

4/ Estimated capital costs, including associated transmission costs,excluding duties, taxes and interest, in constant mid-1983 price terms,are as follows: Mtera - US$100 million; Stiegler's Gorge Phase I -US$760 million; Phase II - US$213 million.

5/ Equivalent to about US$3 per million BTU.

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ANNEX 14Page 6 of 21

Power Development Program Present ValueOption Year of Cirmissiondng Additioral Generating Capacity of Total Gosts

(T&h milon)1988 1991/2 1994/5 Siequently

A Mtera Coal Coa Coal 11560B Oil Coal Coal Coal 12966C Oil Mtera Coal Coal 12303D MAtera Oil Oil St. Gorgel/ (1995) 10776E Mtera Coal2/ Coal2/ St. Gorge2/ (1995) 10760

1/ First phase of Stiegler's Gorge2/ Coal-fired plant onnrected to existing transmission system only (100 MW)

14. The evaluation of options that exclude gas generation plant showsthat Mtera is the least-cost option for the next increment of generationcapacity. Thereafter, a coal-fired steam generation plant located near toproven coal reserves in the southwest of Tanzania would be an economicproposition. This plant (Option E) would supply the load centers inwestern Tanzania connected to the grid system (see Annexes 1 and 2) and itmay also be possible to transmit some power to eastern Tanzania along the220 kV line from Mbeya to Dar-es-Salaam that will have already beenconstructed. The evaluation also shows that the Stiegler's Gorgehydroelectric site would be an economic option for development from the mid1990s onwards. The equalising discount rates for some of these options areas follows:

Equalizing Discount Lower Cost Option at Discount RatesOptionsl/ Rate (EDR) (%) Below EDR Above EDR

A and B 32 A BA and C 22 A CA and D 11.3 D AD and E 10.5 E D

1/ Defined in table to paragraph 13.

15. The evaluation of development programs that include gasgeneration plant, which assumes that natural gas would be available forbase-load power generation, is summarized below for the basic evaluationcase. Details of the costs for some of the programs are given at the endof this Annex.

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ANNEX 14Page 7 of 21

Power Development Progran Present ValueOption Year of Qxnissioning Aditional Gererating Capacity of Total Costs

(TSh mW1ions)1988 1990 1993 Subsequently

F Mtera Nat.Gas Nat.Gas Nat.Gas 8799G Nat.Gas Mtera Nat.Gas Nat.Gas 9015H Nat.Gas Nat.Gas Mtera Nat.Gas 9329I Nat.Gas Nat.Gas Nat.Gas Nat.Gas 9736J Oil Nat.Gas Nat.Gas Nat.Gas 10508K Mtera St. Gorgel/ (1992) Nat. Gas 11486L Mtera Nat. Gas Nat. Gas St. Gorge1/ (1995) 10217M Mtera Nat. Gas Nat. Gas Nat. Gas & St. Gorge 1/ (2000) 8718

1/ First Phse of Stiegler's Gorge.

The evaluation shows that in the basic case the Mtera hydroelectric schemeis a lower cost option than gas turbine plants with gas costed at US$3.0per thousand cubic feet. An oil-fired generation plant is not an economicoption to Mtera or gas turbine plant. The economic attractiveness of theStiegler's Gorge project increases as its implementation date is delayed,and by the year 2000 Stiegler's Gorge becomes attractive relative tonatural gas priced at US$3.0 per thousand cubic feet at 10 percent discountrate. The equalizing discount rates for some of these options are asfollows:

Optionsl/ Equalizing Discount Rate Lower Cost Option at Discount Rates(EDR) (x) Below EDR Above EDR

F and G 32 F GF and I 20 F IF and J 28 F JF and L above 50 F LF and M 10.2 M F

1/ defined in table above.

The evaluation shows that options that include natural gas aresignificantly more attractive in economic terms than options that are basedon the absence of natural gas supplies for power generation (paragraphs 13and 15).

16. A key assumption in the above evaluation is that there would bean alternative use for gas to power generation that has an economic valueequivalent to US$3.0 per thousand cubic feet of gas. The sensitivity ofthe evaluation to this assumption is shown below, in which gas-field futurecapital and operating costs are charged to power, and gas consumed forpower generation is given zero opportunity cost. In the case that gas doesnot have an economic alternative use to power generation, the economiccosts of proceeding with either Mtera or a natural gas plant as the nextincrement of generating capacity are about equal. Therefore, this casedefines the break-even value of gas for power in comparison to the Mteraproject, which is equivalent to an average cost of gas for power of

- 70 -ANNEX 14Page 8 of 21

US$1.32/MCF at 10% discount rate. The inclusion of the sunk costs of theSongo-Songo gas-field would add about US$110 million in present value termsto the discounted cost of the natural gas option at 10 percent, which isequivalent to about TSh 2200 million at the shadow exchange rate of TSh20/US$1.0, and in this case the Mtera project would be clearly theleast-cost option.

Powr Devewlopment Progran Present ValueOption Year of Cosmissioning Additional Generating Capacity of Total Costs'/

(TSh Million)1988 1990 1993 ibsequently

Fl Mtera Nat.Gas Nat.Gas Nat.Gas 7235Gl Nat.Gas Mtera Nat.Gas Nat.Gas 77491 Nat.Gas Nat.Gas Nat.Gas Nat.Gas 7172

1/ Gas-field capital and operatings costs are based on estimates made by consultingengiLeers (Williams Bros.) for the &Sogo-Songo field (excluding sunk costs), with anadditional amual aLlcaance of US$7 mi11ion for expatriate mmsagement.

17. The sensitivity of the above conclusions has been tested forchanges in assumptions from those used in the basic case concerning capitalcosts of hydroelectric schemes, estimates of which are subject to greateruncertainty than other cost estimates. The cases examined are capital costestimates for Mtera increased by 20 percent and for Stiegler's Gorge by 30percent, which results in the following incremental increases in thepresent values of total costs discounted at 10 percent for those optionswhich include these schemes:

M4tera: +20% to capital costs--installed by 1988: +TSh 285 millions--installed by 1990: +TSh 236 millions--installed by 1993: +TSh 177 millions

Stiegler's Gorge: +30% to capital costs--installed by 1995: +TSh 1812 millions--installed by 2000: +TSh 1028 millions

With a capital cost increase of 20 percent, Mtera would still be moreeconomic than an oil-fired power station or a natural gas station with gascosted at US$3.0/MCF as the next increment in capacity in 1988 (paragraph15).6/ A 20% increase in Mtera capital costs would raise the break-evencost of gas for power relative to Mtera from 1.32 to 1.50 US$/MCF. Anincrease of the order of 30% in the capital cost of the Stiegler's Gorgeproject would strengthen the economic justification for delaying itsimplementation (paragraph 13).

6/ The present values of total costs for programs based on Mtera andnatural gas costed at US$3.0/MCF, with Mtera capital costs increasedby 20 percent, are as follows (TSh millions):

Option F: Mtera (1988)/Natural Gas: 9084Option G: Nat. Gas/Mtera (1990)/Nat. Gas: 9251Option H: Nat. Gas/Mtera (1993)/Nat. Gas: 9506

- 71 -ANNEX 14Page 9 of 21

18. The sensitivity of the above conclusions has also been tested tothe value adopted for the shadow exchange rate. The results of thesensitivity analysis are given on page 10 of this Annex for shadow exchangerates of 12.18, 20, and 30 Tanzanian shillings to one US dollar. Theanalysis shows that (a) the Mtera project remains more economic than anoil-fired steam plant or a natural gas plant with gas valued at US$3.0/MCFwithin this range; (b) the economic attractiveness of Mtera increases withhigher shadow exchange rates; (c) Mtera is more economic than a natural gasplant with gas charged at gas-field capital and operating costs withexchange rates above TSh 20/US$, and is less economic at lower exchangerates.

Tanzania Power Development Program (1984-2016)

Economic Evaluation (1982 Prices)

Sensitivity to Exchange Rate

Present Value of Total Costs (TSh Millions)

Power Development Program 10% Discount Rate 15% Discount Rate

Option Year of Commissioning Additional Generating Capacity Exchange Rate (TSh/US$) Exchange Rate (TSh/US$)

1988 1990 1993 Subsequently 12.18 20 1/ 30 12.18 20 302, _

Gas has Opportunity Value of US$3.0/MCF Delivered to Power Generation Station

F Mtera Nat. Gas Nat. Gas Nat. Gas 5,954 8,799 12,439 3,159 4,648 6,553

G Nat. Gas Mtera Nat. Gas Nat. Gas 5,995 9,015 12,878 3,188 4,797 6,855

H Nat. Gas Nat. Gas Mtera Nat. Gas 6,082 9,329 13,480 3,202 4,892 7,053

I Nat. Gas Nat. Gas Nat. Gas Nat. Gas 6,203 9,736 14,359 3,172 4,945 7,281

J Oil Nat. Gas Nat. Gas Nat. Gas 7,018 10,508 15,003 3,657 5,421 7,705 N

Gas has Zero Opportunity Value and Gas-field Costs are Charged to Power Generation

F1 Mtera Nat. Gas Nat. Gas Nat. Gas 5,038 7,235 10,094 3,079 4,476 6,295

Gl Nat. Gas Mtera Nat. Gas Nat. Gas 5,162 7,749 10,980 3,299 4,924 7,046

II Nat. Gas Nat. Gas Nat. Gas Nat. Gas 4,686 7,172 10,513 2,868 4,392 6,452

No Gas is Available for Power Generation

A Mtera Coal Coal Coal 7,696 11,560 16,500 4,297 6,462 9,254

B Oil Coal Coal Coal 8,748 12,966 18,759 4,850 7,205 10,444

1/ Basic Case TSh 20 - US$1; discount rate 10%

>2/ MCF - thousands of cubic feet P D

x

o -0

H,

TANZANIA POWER DEVELOPMENT PROGRAMBASIC DATA

EXCHANGE RATE TSH/USAOFFICIAL 12.18 (II03 PRICESISHADOW 20.00

(---------------NATURAL SAS ------------------ 3HTERA HYORO DIESEL(FUEL OIL)$ OIL(HEAVY) STATION STATION ASSOC. COAL(STEANI STIE6LERS GORGE Pt STIEGLERS SORGE P2tt

UNITS STATION & ASSOC. UNITS STATION ASSOC. UNITS STATION ASSOC. UNITS SOLE CYC COMB CYC UNITS TRANS. UNITS STATION ASSOC. UNITS STATION ASSOC. UNITS STATION A ASSOC.TRANSH. TRANS. TRANS. /STATION TRANS. TRANS. TRANS.

CAPITAL COSTS UStMILL. 100 USO/KN o 0 USA/KN 1200 0 USS/KN 600 1500 USt/KN 1600 900 USHMILL. 700 60 USYMILL III UUSS16 36 (LUIT 1)

FOR.EXCH.COHP.W 8ff 0 U e5 0 65 80 80 80 70 80 70 08RFFICIAL RATE TSH16 1218 TS14/NN 0 0 T5t4/H 840 0 TS14/MW 731 TSt6 438 TS14/MW 1949 1096 TS16 8526 731 TSt6 1352 0ISHADON RATE TSHt6 1906 T954/1M 0 0IS4/MW 1298 0 TSt4/NN 1130 TSt6 664 TStt4/M 2950 1659 TSt6 02358 1106 TSt6 1960 0

PROPORTION/YEAR (ll1 J3 0 0 0 0 0 0 0 0 10 0 0 02 21 0 0 Us 0 25 0 15 0 13 0 1o 03 24 0 0 30 0 45 33 30 33 13 0 40 04 24 0 0 40 0 20 34 40 34 14 0 40 05 1o 0 0 15 6 10 33 15 33 14 H 10 0

13 3313 34

ANNUAL OLM COSTS 10 33

FOR.EICH CONP. i(Z 40 70 0 50 0 so s0 0 s0 0 40 0 40 02OFFICIAL RATE TSHt6 7 TSt6 8 0 TSt4/1N 28 0 TS$4/MW 15 45 0 TS14/N 34 0 TSt6 16 0 TSt4/NN 4 0OSHADOW RATE TSH86 9 TSt6 12 0 TS$4/NN 37 0 TSt4/N 20 59 0 TS4/MN 45 0 rst6 20 0 TSt4/N 5 0

FUEL COSTS N/A N/A N/A N/A N/A N/A

FUEL CONSUMPTION TONS/WNH 260 TONS/6H 280 HCF/GWH 13000 8600 TONS/GWH 546 0 0FUEL PRICE USA/TON 250 HON/TON 190 US)/NCF 3 3.00 USA/TON 24 0 0FOR.EXCH.CONP. (21 100 100 100 100 70 0 0FUEL COSTSAOFFICIAL RATE TS74/6(8H 79 tSt4/6NH 65 1384/6(8H 48 31 TS14/G6W 16 0 0aSHAOOW RATE TS14/6WN 130 TSt4/6NH 106 TSt4/GWH 78 52 TS84/GWH 23 o 0

FUEL PRICE RATE OF 2.00 2.00 0 0 0 0.00 0INCREASE (I/YEAR) I EXISTING PLANT ttFIRST UNIT

Units:

TSh * 6 = TSh millions

TS * 4/MW = TSh ten thousand/MW

TS * 4/GWh TSh ten thousand/GWh

US$ MILL = US$ millions ~ H

C

- 74-_ ANNEX 14Page 12 of 21

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- 76- . ANNEX 14Page 14 of 21

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TANZANIA PONER DEVELOPMENT PROGRAMECONOMIC COSTS(TSH KILLION)

OPTION: OIL+COAL EVALUATION CASE BASIC

(---------------------CT PITA L COSTS------------ --------- <---- -& COSTS------------------> (----------FUEL COSTS-----------> TOTALYEAR HYDRO OIL (HEAVY) NATURAL GAS COAL MTERA DIESEL OIL NAT.6AS COAL DIESEL CIL AT.GAS COAL COSTS

STATION ASS.TRAN STATION ASS.TRAN STATION ASS.TRAN

1984 0 0 0 0 0 0 0 0

1985 0 99 0 0 0 0 0 17 0 0 0 0 0 0 0 It51986 0 296 0 0 0 0 0 17 0 0 0 14 0 0 0 326187 0 460 0 0 0 0 0 5 17 0 0 0 SO 0 0 0 532198 0 362 0 0 0 255 0 11 17 14 0 0 6 26 0 0 690

1989 0 99 0 0 0 509 315 11 17 28 0 0 12 115 0 0 11051990 0 0 0 0 0 934 325 1t 17 29 0 0 21 219 0 0 15531991 0 0 0 0 0 1018 630 11 17 28 0 34 44 278 0 6 20671992 0 0 0 0 0 1189 640 11 17 28 0 34 14 323 0 23 22781993 0 0 0 0 0 1189 640 11 17 28 0 69 5 237 0 60 22541994 0 0 0 0 0 764 630 11 17 28 0 103 8 170 0 92 18231995 0 0 0 0 0 934 325 11 0 28 0 103 0 157 0 118 1676199S 0 0 0 0 764 630 11 0 29 0 239 0 174 0 139 1941997 0 0 0 0 934 325 11 0 28 0 138 0 163 0 166 1765IS98 0 0 0 0 764 630 11 0 28 0 172 0 178 0 190 1974

199 0 0 0 0 934 325 If 0 28 0 172 0 164 0 220 19542000 0 0 0 0 764 630 11 0 28 0 207 0 213 0 242 20S52001 0 0 0 0 934 325 11 0 28 0 207 0 17 0 277 19602002 0 0 0 0 764 630 11 0 28 0 241 0 187 0 308 21692003 0 0 0 0 934 325 11 0 28 0 241 0 194 0 341 20732004 0 0 0 0 764 630 11 0 28 0 276 0 197 0 375 2282

2005 0 0 0 0 934 325 11 0 28 0 276 0 193 0 413 21792006 0 0 0 0 764 630 11 0 28 0 310 0 189 0 452 23942007 0 0 0 0 934 325 11 0 28 0 310 0 192 0 492 22922008 0 0 0 0 1019 630 11 0 29 0 345 0 178 0 537 27472009 0 0 0 0 1443 640 11 0 28 0 345 0 178 0 581 32262010 0 0 0 0 1697 955 11 0 28 0 379 0 178 0 628 38772011 0 0 0 0 1697 955 11 0 28 0 414 0 180 0 677 39622012 0 0 0 0 1697 955 11 0 29 0 448 0 191 0 729 40492013 0 0 0 0 1697 955 11 0 28 0 493 0 181 0 7B3 41382014 0 0 0 0 1443 955 21 0 28 0 517 0 180 0 840 39742015 0 0 0 0 934 640 11 0 28 0 552 0 184 0 899 32472016 0 0 0 0 255 315 I1 0 28 0 596 0 288 0 961 2344

PRESENT VALUE OF TOTAL COSTS I I 5 2738610 12966IS 7205

PRESENT VALUE OF ENERGY FROMADDITINAL CAPACITY (8WH) I 7 5 16150

10 589s 5 15 2496 o

AY.INCREMENTAL COST ENERGY I I 5 1.70ITSH/KHtI 10 2.20

15 2.89

TANZANIA POWER DEVELOPMENT PROGRAMCAPACITY ADDITIONS AND ENERGY BALANCE

OPTION- MTERA+NAT.BAS-SAS TURBINE

(----------------CAPACITY ADDITIONS --------------- )LOAD EXISTING CAPACITY 6----------NEN CAPACITY ------- ) TOTAL CAPACITY ENERGY (-------------------- ENERGY BALANCE----------------I

YEAR DEHAND HYDRO DIESEL HYDRO NAT.6AS NAT.GAS COAL CAPACITY RESERVE DEMAND EX.HYDRO DIESEL HTERA OIL NAT.GAS COAL(NM) (Mn) (MN) (MN) (NW) (NW) (M) (NW) (21 (GNH) (B1H) (GNH) (GW") (GNH) (G6H) (6GH)

19841985 225 244 77 321 43 1164 1164 01986 242 -3 319 31 1373 1363 101997 259 0 318 23 1462 1427 35 0 01989 271 0 80 398 47 1536 1510 4 22 01989 285 -3 395 39 1612 1510 8 94 0(990 300 -14 381 27 1699 1510 14 175 0 01991 315 -1 30 410 30 1784 1510 28 246 0 01992 330 -1 30 439 33 1873 1510 9 304 50 01993 347 -19 60 480 38 1967 1510 3 350 104 01994 364 -9 471 29 2065 1510 5 350 200 0(995 382 -27 60 504 32 2168 1510 0 350 308 01996 401 504 26 2277 1510 0 350 417 01997 421 60 564 34 2391 1510 0 350 531 01998 442 564 27 2510 1510 0 350 650 01999 465 60 624 34 2636 1510 0 350 776 02000 488 624 29 2769 1510 0 350 908 02001 512 60 684 34 2906 (510 0 350 1046 02002 538 684 27 3051 ISIO 0 350 1191 02003 565 60 744 32 3204 1510 0 350 1344 02004 593 744 25 3364 1510 0 350 1504 02005 623 -60 120 804 29 3532 1510 0 350 1672 02006 654 -60 60 804 23 3709 1510 0 350 1849 02007 686 60 864 26 3894 1510 0 350 2034 02006 721 -60 120 924 29 4089 1510 0 350 2229 02009 757 924 22 4293 1510 0 350 2433 02010 795 -60 120 984 24 4SO9 1S5O 0 350 2648 02011 834 60 1044 25 4733 1510 0 350 2873 02012 876 -60 120 1104 26 4970 (510 0 350 3110 02013 920 60 1164 27 5219 1510 0 350 3359 02014 966 -60 120 1224 27 5480 1510 0 350 3620 02015 1014 60 1284 27 5754 1510 0 350 3894 02016 1065 -60 120 1344 26 6041 1510 0 350 4181 0

PV ENER6Y (NHU) I 5 3687 0 12463 0 0

10 1734 0 4151 015 924 0 1572 0

-9 ANNEX 14

* ~~~~~~~~~~~Page 17 of 21

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TANZANIA POWER DEVELOPMENT PROGRAMCAPACITY ADDITIONS AND ENERGY BALANCE

OPTION: ALL NAT.GAS-GAS TURBINE

<----------------CAPACITY ADDITIONS --------------- )LOAD EXISTING CAPACITY <----------NEW CAPACITY ------- ) TOTAL CAPACITY ENERGY (--------------------ENER6Y BALANCE---------------->

YEAR DEMAND HYDRO DIESEL HYDRO NAT.GAS NAT.6AS COAL CAPACITY RESERVE DEMAND EX.HYDRO DIESEL MTERA OIL NAT.GAS COALtIH) (mW) t"W) (NW) (MN) (NW) (MW) (NW) 11) (GWH) 16HH) (SW) (68H) ISWH) (1WH) 16NH)

19841985 225 244 77 321 43 1164 1164 01986 242 -3 318 31 1373 1363 101987 259 0 318 23 1462 1427 35 0 01988 271 0 30 348 28 1536 1510 4 0 221999 285 -3 30 375 32 1612 1510 8 0 941990 300 -14 60 421 40 1699 1510 14 0 175 01991 315 -1 420 33 1784 1510 28 0 246 01992 330 -1 419 27 1873 1510 9 0 354 01993 347 -19 60 460 33 1967 1510 3 0 454 01994 364 -9 45t 24 2065 1510 5 0 550 01995 382 -27 60 484 27 2168 1510 0 0 658 01996 401 484 21 2277 1510 0 0 767 01997 421 60 544 29 2391 1510 0 0 881 01998 442 544 23 2510 1510 0 0 1000 01999 465 60 604 30 2636 1510 0 0 1126 02000 488 604 24 2768 1510 0 0 1258 02001 512 60 664 30 2906 1510 0 0 1396 02002 538 -60 60 664 23 3051 1510 0 0 1541 02003 565 -60 120 724 28 3204 1510 0 0 1694 02004 593 724 22 3364 1510 0 0 1854 02005 623 60 784 26 3532 1510 0 0 2022 02006 654 -60 60 784 20 3709 1510 0 0 2199 02007 686 60 844 23 3894 1510 0 0 2384 02008 721 -60 120 904 25 4089 1510 0 0 2579 02009 757 904 19 4293 1510 0 0 2783 02010 795 -60 120 964 21 4508 1510 0 0 2999 02011 834 60 1024 23 4733 1510 0 0 3223 02012 876 -60 120 1084 24 4970 1510 0 0 3460 02013 920 60 1144 24 5219 1510 0 0 3709 02014 966 -60 120 1204 25 5480 1510 0 0 3970 02015 1014 60 1264 25 5754 1510 0 0 4244 02016 1065 -60 120 1324 24 6041 1510 0 0 4531 0

PV ENERGY (ISW) T 5 0 0 16150 0 o 4

10 0 0 5885 0 *

15 0 0 2496 0 t

TANZANIA POWER DEVELOPMENT PRORANECONOMIC COSTS(TSH MILLION)

OPTION: ALL NAT.6AS-6AS TURBINE EVALUATION CASE BASIC SAS PRICE(US$/MCF) 3.00

<----------------------CAPITAL COSTS------------- -- (-------------O&K COSTS-----------------) 4----------FUEL COSTS----------- TOTAL

YEAR HYDRO OIL (HEAVY) NATURAL GAS COAL MTERA DIESEL OIL NAT.5AS COAL DIESEL OIL NAT.6AS COAL COSTSSTATION ASS.TRAN STATION ASS.TRAN STATION ASS. TRAN

1984 0 0 0 0 0 0 0 01985 0 0 0 82 0 0 0 0 17 0 0 0 0 0 0 0 99

1996 0 0 0 230 210 0 0 0 17 0 0 0 14 0 0 0 471

1987 0 0 0 378 216 0 0 0 17 0 0 0 50 0 0 0 661

1988 0 0 0 394 210 0 0 0 17 0 9 0 6 0 17 0 652

1989 0 0 0 164 0 0 0 0 17 0 15 0 12 0 73 0 281

1990 0 0 0 230 0 0 0 0 17 0 30 0 22 0 137 0 435

1991 0 0 0 296 210 0 0 0 17 0 30 0 44 0 192 0 788

1992 0 0 0 296 216 0 0 0 17 0 30 0 14 0 276 0 950

1993 0 0 0 362 210 0 0 0 17 0 46 0 5 0 354 0 SS31994 0 0 0 296 0 0 0 0 17 0 46 0 8 0 429 0 795

1995 0 0 0 362 210 0 0 0 0 0 62 0 0 0 514 0 1146

1996 0 0 296 216 0 0 0 0 0 61 0 0 0 598 0 1171

1997 0 0 362 210 0 0 0 0 0 76 0 0 0 687 0 1335

1998 0 0 296 0 0 0 0 0 0 76 0 0 0 780 0 1152

1999 0 0 526 210 0 0 0 0 0 91 0 0 0 878 0 1705

2000 0 0 756 216 0 0 0 0 0 91 0 0 0 981 0 2045

2001 0 0 789 210 0 0 0 0 0 106 0 0 0 1089 0 21942002 0 0 493 0 0 0 0 0 0 107 0 0 0 1202 0 1802 co

2003 0 0 592 210 0 0 0 0 0 122 0 0 0 1321 0 22452004 0 0 592 216 0 0 0 0 0 122 0 0 0 1446 0 23762005 0 0 822 210 0 0 0 0 0 137 0 0 0 1577 0 27462006 0 0 789 210 0 0 0 0 0 137 0 0 0 1715 0 28512007 0 0 657 216 0 0 0 0 0 152 0 0 0 1860 0 29862008 0 0 897 210 0 0 0 0 0 167 0 0 0 2012 0 32762009 0 0 987 210 0 0 0 0 0 167 0 0 0 2171 0 34362010 0 0 1019 216 0 0 0 0 0 183 0 0 0 2339 0 3756

2011 0 0 953 420 0 0 0 0 0 199 0 0 0 2514 0 4085

2012 0 0 1019 216 0 0 0 0 0 213 0 0 0 2699 0 4147

2013 0 0 953 420 0 0 0 0 0 228 0 0 0 2893 0 4494

2014 0 0 855 216 0 0 0 0 0 243 0 0 0 3096 0 4411

2015 0 0 329 210 0 0 0 0 0 259 0 0 0 3310 0 41072016 0 0 131 0 0 0 0 0 0 274 0 0 0 3534 0 3940

PRESENT VALUE OF TOTAL COSTS I 2 5 2312210 973615 4945

PRESENT VALUE OF ENER6Y FROMADDITIONAL CAPACITY (B1HI @ T 5 16150 co

10 588515 2496

AV.INCREMENTAL COST ENERGY i 2 5 1.43(TSH/KWH) 10 1.65

15 1.98

TANZANIA POWER DEVELOPlENT PROGRAMCAPACITY AND ENERGY BALANCES

OPTION MTERA+STIE6LERS GORSE 1995+COAL

LOAD EXISTING CAPACITY <…--CAPACITY ADDITIONS------> TOTAL CAPACITY ENERGY <--------------------ENERGY BALANCE …----------------YEAR DEMAND HYDRO DIESEL MTERA ST.G.PHI ST.6.PH2 COAL CAPACITY RESERVE DEMAND EX.HYDRO DIESEL MTERA ST.G.PHI ST.6.PH2 COAL

(no) (MN) (HN) (MN) (HN) (MN) (MN) (NW) IZ) (6HH) (S6H) (6WH) (WlH) (1WH) (WHH) (SWH)

19841985 225 244 77 321 43 1164 1164 01986 242 -3 318 31 1373 1363 101987 259 0 318 23 1462 1427 35 01988 271 0 Go 398 47 1536 1510 4 221989 285 -3 395 39 1612 1510 a 94!990 300 -14 381 27 1699 1510 14 175 01991 315 -1 380 21 1784 1510 28 246 01992 330 -1 60 439 33 1873 1510 9 304 502993 347 -19 420 21 1967 1510 3 350 0 1041994 364 -9 60 471 29 2065 1510 5 350 0 2001995 382 -27 300 744 95 2168 1510 0 350 158 1501996 401 744 85 2277 1510 0 350 397 201997 421 744 77 2391 1510 0 350 511 201998 442 744 68 2510 1510 0 350 630 201999 465 744 60 2636 1510 0 350 756 202000 4B8 744 53 2768 1510 0 350 888 202001 512 744 45 2906 1510 0 350 1026 202002 538 744 38 3051 IS1O 0 350 1171 202003 565 744 32 3204 1510 0 350 1322 222004 593 744 25 3364 1510 0 350 1484 202005 623 150 894 44 3532 1510 0 350 1652 0 202006 654 894 37 3709 1510 0 350 1829 0 202007 686 894 30 3894 1510 0 350 1829 185 202008 721 150 1044 45 4089 1510 0 350 1829 380 202009 757 1044 38 4293 1510 0 350 1829 584 202010 795 1044 31 4508 1510 0 350 1829 799 202011 834 150 1194 43 4733 1510 0 350 1829 1024 202012 876 1194 36 4970 1510 0 350 1829 1261 202013 920 150 1344 46 5219 1510 0 350 1829 1371 1592014 966 1344 39 5480 1510 0 350 1829 1371 4202015 1014 60 1404 38 5754 1510 0 350 1829 1371 6942016 1065 60 1464 37 6041 1510 0 350 1829 1371 981

041-

PV ENERGY 16H T 5 3687 9272 2296 89410 1734 3226 588 33715 924 1250 162 159

. TANZANIA POWER DEVELOPMENT PROGRAMECONMIC COSTS

(TSH MILLION)OPTION: MTERAtSTIE6LERS GORSE-I995+COAL EVALUATION CASE BASIC

TOTAL…----------------------CAPITAL COSTS----------------------- < ON COSTS ----------------- > <----------FUEL COSTS ----------- cosTs

YEAR MTERA STIESLERS SORGE STIE6LERS 6ORGE COAL MTERA DIESEL STIE6LERS SORGE COAL DIESEL COALSTATION ASS.TRAN STATION ASS.TRAN STATION ASS.TRAN PHASE I PHASE 2

PHASE I PHASE 2

1984 248 0 0 0 0 0 0 2481995 400 0 0 0 0 0 0 12 0 0 0 0 0 0 0 4121986 457 0 0 V 0 0 0 12 0 0 0 16 0 0 0 4861987 457 1236 0 0 0 0 0 4 12 0 0 0 58 0 0 0 1768Il88 343 1607 0 0 0 0 0 9 12 0 0 0 7 0 0 0 19771989 1607 0 0 0 249 0 9 12 0 0 0 14 0 0 0 18S01990 1730 0 0 0 48 37 9 12 0 0 0 25 0 0 0 23101991 1730 0 0 0 913 38 9 0 0 0 0 50 0 0 0 2739ISS2 1607 365 0 0 747 73 S 0 0 0 27 16 0 0 12 28551993 1607 376 0 0 664 38 9 0 0 0 27 6 0 0 24 274S1994 1236 365 0 0 249 37 9 0 0 0 54 10 0 0 46 20051995 0 0 0 0 0 0 9 0 20 0 54 0 0 0 35 1181996 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 87I997 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 871998 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 871999 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 872000 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 87

2001 0 0 0 0 0 0 9 0 20 0 54 0 0 0 5 872002 0 0 196 0 0 0 9 0 20 0 54 0 0 0 5 283 OD

2003 0 0 784 0 0 0 9 0 20 0 54 0 0 0 5 8722004 0 0 784 0 0 0 9 0 20 0 54 0 0 0 5 8712005 0 0 I96 0 0 0 9 0 20 5 54 0 0 0 5 2882006 0 0 0 0 0 0 9 0 20 5 54 0 0 0 5 92

2007 0 0 462 0 0 0 9 0 20 5 54 0 0 0 5 555

2008 0 0 0 0 0 0 9 0 20 10 54 0 0 0 5 972009 0 0 0 0 0 0 9 0 20 10 54 0 0 0 5 98

2010 0 0 462 0 0 0 S 0 20 10 54 0 0 0 5 5602011 0 0 0 0 0 0 9 0 20 IS 54 0 0 0 5 1032012 0 0 462 0 249 0 9 0 20 15 54 0 0 0 5 0132013 0 0 0 0 747 37 9 0 20 20 54 0 0 0 37 9232014 0 0 0 0 1161 74 9 0 20 20 54 0 0 0 97 14362015 0 0 0 0 913 74 9 0 20 20 81 0 0 0 160 12772016 0 0 0 0 249 37 9 0 20 20 108 0 0 0 227 669

PRESENT VALUE OF TOTAL COSTS I 1 5 1636810 1076015 7672

PRESENT VALUE OF ENERGY FROMADDITIONAL CAPACITY 1(NH) 7 T 5 16150

10 588515 2496

AV.INCREMENTAL COST ENERGY I 1 5 1.01(TSH/KNH) 10 1.83

15 3.07

- 84 - ANNEX 15

ECONOMIC RATE OF RETURN ON MTERA PROJECT

Incremental ------Mtera ------- IncrementalOutput Capital Operating Benefits Net

Year from Mtera 1/ Costs Costs at TSh 0.81/kWh 3/ Benefit(GWh) ------------------(TSh million) 4/-------------------

1984 248 -2481985 400 -4001986 457 -4571987 457 4 -4611988 22 343 9 18 -3341989 94 9 76 + 671990 175 9 142 +1331991 246 9 199 +1901992 304 9 246 +2371993 350 9 284 +275to2037 350 9 284 +275

Economic Rate of Return: 10.1%

1/ Production from Mtera hydro station in an average hydrological year taken tobe 350 GWh (300 GW firm energy and 50 GWh secondary energy).

2/ Transmission and distribution losses taken to be 20% of energy sales from 1988onwards.

3/ Case 2 average tariff yield is TSh 0.975/kWh sold in constant 1983 price terms,equivalent to TSh 0.81/kWh generated.

4/ 1983 price terms.

- 85 - ANNEX 16

Page 1 of 2

TANZANIA

TANESCO

FOURTH POWER PROJECT

Selected Documents and Data Available in the Project File

General Reports and Documents Related to the Sector

1. "Stiegler's Gorge Scheme Preliminary outline and Tentative Estimateof Cost," November 1967, Coyne and Bellier.

2. "Planning the Development of the Kagera River Basin," June 1972,Polytechna-Hydroprojekt - Carlo Lotti & Co.

3. "Energy Policy in Tanzania," June 1980, International Institute forEnvironment and Development.

4. "Stiegler's Gorge Scheme Preliminary Outline and Tentative Estimateof Cost," November, 1967, Coyne and Bellier.

5. "Kingenenas and Shuguri Falls Power Projects, A Preliminary Reviewand Study Identification Report," November 1980, A/S Hafslund -Norplan A/S.

6. "Tanzania Power Sector Study," February 1981, Acres InternationalLimited.

7. "Tanzania Power Sector Study Executive Summary," March 1981, AcresInternational Limited.

8. "Statements of the Minister of Water and Energy during Presentationin the National Assembly of Expenditures," July 1981 and 1982, MWE.

9. "TANESCO System Operations," October 1981, TANESCO.

10. "Opportunities For Natural Gas Utilization," October 1982,International Gas Development Corporation.

- 86 - ANNEX 16Page 2 of 2

General Reports and Studies Related to the Project

1. "Report on Tanzania Electricity Supply Company Ltd." January 1977,Electricity Supply Board, Ireland.

2. "Great Ruaha Power Project Studies of Soil Erosion, Vegetation andFluvial Transport of Mtera Reservoir Region," June 1977, SWECO.

3. "Great Ruaha Power Project Expected Environmental Changes Below theMtera Reservoir," June 1978, SWECO.

4. "Ubungo Power Plant Rehabilitation," April 1981, SWECO.

5. "Great Ruaha Power Project Mtera Dam Water Management," May 1981,SWECO.

6. "Great Ruaha Power Project - Mtera Power Plant Preinvestment Study,"June 1981, SWECO.

Selected Working Papers

Computer printouts and discounted cash flow studies.

Project cost estimates and sensitivity studies; and

Financial and accounting statements.

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