Tanzania - Emergency Power Supply Project

Documentof The WorldBank FOR OFFICIAL USE ONLY ReportNo: T-7623-TA TECHNICAL ANNEX FORA PROPOSEDCREDIT OF SDR30.2 MILLION (US$43.8MILLIONEQUIVALENT) TO THE UNITEDREPUBLIC OFTANZANIA FORAN EMERGENCY POWER SUPPLY PROJECT May 14,2004 Africa RegionEnergyGroup World Bank This document has a restricted distribution and may be usedby recipients only inthe performance of their official duties. I t s contents may not otherwise be disclosedwithout World Bank authorization.  Tanzania Emergency Power Supply Project 2 Technical Annex CURRENCYEQUIVALENTS US$l.OO =TSh 1,150 Exchange Rate Date: May 3,2004 FISCAL YEAR Government July 1to June 30 TANESCO January 1to December 3I WEIGHTS AND MEASURES Kilowatt (kW) = 1,000 watts Megawatt (Mw) = 1,000 kilowatt (kW) Gigawatt hour (GWh) = 1millionkilowatthour (kwh) Kilometer (km) = 1,000 meters Meter (m) =39.3 inches ABBREVIATIONS AND ACRONYMS BOT Bank of Tanzania DCA Development Credit Agreement EIB European Investment Bank EWURA Energy and Water Utilities Regulatory Authority FMR Financial MonitoringReport FSA FuelSupplyAgreement GDP Gross Domestic Product HFO Heavy FuelOil ICSID InternationalCenter for the Settlement o f Investment Disputes IDA InternationalDevelopment Association IPP Independent Power Producer IPTL Independent Power Tanzania Limited MEM Ministry of Energy andMinerals PSRC Parastatal Sector Reform Commission SDR Special DrawingRights SIDA SwedishInternationalDevelopment Association T&D Transmission and Distribution TANESCO The Tanzania Electric SupplyCompany Vice President: Callisto Madavo, AFRVP Country Director: Judy O'Connor, AFC04 Sector Manager: Yusupha Crookes, AFTEG Team Leader: Karen Rasmussen, AFTEG  TanzaniaEmergencyPower Supply TechnicalAnnex 3 FOROFFICIAL USEONLY TABLE OFCONTENTS IBACKGROUNDSTRATEGY........................................................................................... . Page ............................................................................................................ .i .........4 The 2003 Drought.............................................................................................................................. MacroeconomicPerformance 4 5 Status ofthe Power Sector ................................................................................................................. 7 Govemment'sResponseto PastDroughts TheTANESCO/GovemmentEmergencyPlanfor the PowerSector................................................ ......................................................................................... 11 12 PrivateInvestmentfor the UbungoPower Plant(2x36MW GasTurbines) ...................................... Conversionof IPTLPower PlantfromHFO to NaturalGas-Firing.................................................. 13 Measuresto MitigateAgainst ImpactofFutureDroughtsonthe Power Sector ............................... 13 Status ofOngoingEnergySector Operations.................................................................................... 14 14 I1 BANKRESPONSEAND STRATEGY...................................................................................... . 15 LessonsLeamed................................................................................................................................ Rationalefor IDAInvolvement......................................................................................................... 16 Eligibility for ProcessingUnder OP/BP 8.50 onEmergencyRecoveryAssistance.......................... 16 16 I11. DETAILEDPROJECTDESCRIPTION.................................................................................... 17 ProjectObjectives.............................................................................................................................. 17 ProjectCost andFinancingPlan........................................................................................................ 18 ProjectDescription............................................................................................................................ 17 On-lendingArrangements.................................................................................................................. 19 Benefits.............................................................................................................................................. 19 Risks.................................................................................................................................................. 19 IV. STUDIESAND TECHNICALASSISTANCE ......................................................................... 20 V. INSTITUTIONALARRANGEMENTSAND PROJECT IMPLEMENTATION..................... ImplementationArrangements.......................................................................................................... 21 21 Procurement....................................................................................................................................... 22 Disbursements.................................................................................................................................... 22 FinancialManagementAssessment, AuditingandReportingRequirements.................................... RetroactiveFinancing........................................................................................................................ 24 23 Environmentaland SocialImpact...................................................................................................... 24 VI. FINANCIALAND ECONOMICJUSTIFICATION................................................................. 25 PotentialMacroeconomicImpactof SevereLoad-Shedding............................................................ 25 FinancialImplications........................................................................................................................ 25 PrincipleAgreements ReachedDuringNegotiations........................................................................ VI1. ACTIONPLAN........................................................................................................................ 25 25 SCHEDULEB: Summaryof ProcurementandDisbursementArrangements................................. SCHEDULEA: EstimatedProjectCostsandFinancingPlan.......................................................... 26 27 Attachment 1: MethodologyandAssumptions for Calculating IncrementalThermal Energy ........29 SCHEDULEC: ProjectProcessingSchedule andTeam.................................................................. 28 Attachment2: Status of Bank Operations......................................................................................... 33 Attachment3: StatementofIFC's HeldandDisbursedPortfolio.................................................... 34 MAP (IBRD 33203) .......................................................................................................................... Attachment4: Countryat a Glance................................................................................................... 35 37 This document has a restricteddistributionandmay be used by recipients only in the performance of their official duties Its contents may not be otherwise disclosed without World Bank authorization . .  Tanzania EmergencyPower SupplyProject 4 TechnicalAnnex I:BACKGROUNDANDSTRATEGY Macroeconomic Performance 1. Since the mid-l990s, Tanzania has made substantial progress inmacroeconomic stabilization and structural reforms of the economy. At the beginning o fthe reform process, economic growth was slow to gain momentum, but over the last five years or so ithas averaged more than five percent. The positive development continued into 2002 when real gross domestic product (GDP) grew by about 6.3 percent. As a result o f the impact o f the drought on agriculture, real growth in2003 i s projectedat 5.5 percent. 2. Inflationremainedbelow five percent in2003. Annual inflationdeclinedto 4.4 percent at end-2002 (from 4.9 percent in2001), but increased slightlyto 4.8 percent by February 2004, due to food shortages.Non-food price inflation declinedrapidly from a peak o f 9.6 percent inJanuary 2003 to 0.6 percent by December 2003. 3. Higherreal growth inthe agricultural sector (which accounts for almost halfof GDP) has been accomplished through the liberalizationof marketingstructures, as well as o f agricultural prices and the foreign exchangeregime. Fiscal consolidationhas beencentral to the success in macroeconomic stabilization. Insupport of Tanzania's reform program, donors have provided sizable financial assistanceand this has almost eliminated the Government's domestic financing needs. This has again led to lower interest rates and stimulated private sector growth. 4. Fiscal developments inFY2002/03 were characterized bybetter than projectedrevenue performance, as well as higher-than-expected expenditure. Revenue exceededprojectionsby 0.3 percent of GDP on account of buoyant revenue from Value Added Tax and income tax. Total expenditure exceededprojectionsby 1.2 percent o f GDP, due to a higher than projectedend-of- year catch up inrecurrent expenditures and the upwardrevision o f development expenditures financed with foreign grants. Through January o f FY 2003/04, revenue exceededprojectionsby 0.2 percent of GDP, as tax revenue continued to be strong, partly as a result of the implementationo f measuresto curtail smugglingo fpetroleum imports, and the impact of strong collections of income tax. Duringthe same period, actual expenditure was 0.9 percent of GDP, or below projections, reflecting lower-than-programmed interest payments, as well as lower-than- projectedforeign and domestically-financed development expenditure. InFebruary 2004, Parliament passeda supplementary budget which covers additional drought relatedexpenditures inthe power sector, for restockingthe strategic grainreserve, andfor the purchase ofanew government aircraft. The additional expenditure o f about TShl87 billion is to be financed through a combination of higher than budgetedprogram support inflows, lower than budgeted debt service payments and from a drawdownofreserves from the BankofTanzania. 5. The discussion of the macroeconomic framework inthe last Poverty ReductionStrategy ProgressReportpoints out that despite strong revenue performance, a major challenge remains to raise the revenue to GDP ratio. The projectedmedium-term revenue targets are achievable, with implementationo f a comprehensive strategy for reform o f tax administration andpolicy. Inthis respect, the report notes appropriately the importance of eliminating exemptions, as well as of a review of tax laws. To improve tax administration, the Government is reorganizing the Tanzania Revenue Authority. 6. Through December 2003, the Bank o f Tanzania (BOT)maintained a tight stancewith respect to monetary policy with a view to meetingthe established reserve money targets. Reserve  TanzaniaEmergency Power SupplyProject 5 T e c h c a l Annex money and net domestic assets of the BOTremainedsignificantly below the December 2003 targets, as the BOTmore stringently enforced a standingrequirement for commercial banks to expeditiously transfer to the BOTtax revenue heldby the Tanzania Revenue Authority inbank accounts, and inaddition, actively engagedinopen market operations. As a result of these actions, money supply growth at end-December 2003 remainedbelow projections bymore than 4 percentage points. The liquidity squeeze inSeptember2003 resultedinsome commercial banks being unable to meet reserve requirements, and ledto temporarily highinterest rates on the interbank market. InOctober 2003, the liquiditysituation loosenedas aresult of the BOT'S injection of liquidityand a drawdownof deposits by the Government. Through December 2003, credit to the private sector increasedby 43 percent, which was significantly above projections, fueled inpart by increasedcompetition inthe banking system and the reduction ininterest rate spreads. 7. Tanzania's overall balance o fpayments position improved in2002/2003 becauseof larger inflows of donor assistanceand the impact o f debt reliefunder the Heavily IndebtedPoor Country Initiative. However, the current account deficit, excluding officialtransfers, widened slightly. There was a strong increaseinnon-traditional exports, mainly gold, combinedwith a moderate improvement intraditional exports, reversing a declining trend. Through the first half o f 2003/04, balance o f payments developments remainedinline with projections, as imports, notably petroleum imports, acceleratedand export growth was inline with expectations. International reserves substantially exceededprojections due to increasesof donor inflows and exports ofnon-traditional commodities and services. The exchange rate against the US.dollar depreciated to TShl110 per dollar by endJanuary, and has since remainedstable. Inreal effective terms, it depreciated by about 2 percent, which combined with a modest recovery o f the terms o f trade, improved the environment for exports. The exchangerate i s now close to what the InternationalMonetary Fundhas estimated as an equilibriumreal exchange. 8. The Government has made further progress inimplementingreforms inthe public enterprise sector. At end 2002, a concession for the Dar es SalaamWater and SewerageAuthority was granted to a British-German consortium. Meanwhile, the financial position and managerial capacity of TANESCO have continuedto improve following the introductiono f anew management team inmid-2002. The sale of 49 percent o f Air Tanzania to South African Airways was completed inNovember 2002. InDecember 2003, Government offered49 percent o f the shares of the National Microfinance Bank for sale to an investor consortium ledby a commercial bank and consisting o f micro-finance institutions. This will be followed by the sale o f a further 21percent o f shares to domestic investors. The 2003 Drought 9. In2003,boththelongrains(March-May) andtheshortrains(October -December) failed inlarge areas o f the country. Data indicates that water inflows to the overall hydropower system were two thirds of the average inflow over the past 25 years. The 2003 inflow to the MteraReservoir, the most important reservoir inTanzania's hydropower system, wasjust 40% o f the 60-year average inflow.  Tanzania EmergencyPower Supply Project 6 TechnicalAnnex 10. Imuact of the Drought on Food Security Followingthe poor longrains in2003, an assessment was conducted by the Ministryo f Agriculture and Food Security inJuly in conjunctionwith a multi-agency Food Security InformationTeam. The team identified47 districts, mostly inthe central and northern areas with apopulationof 2 million, as being inneed o f food assistance, with a corresponding food assistancerequirement of 77,500 million tons. In August 2003, the Government launched anappeal for food aid. 11, The situationas ofMarch2004 continuedto reflect the on-going impact ofthe 2003 drought. Harvestingof the 2003/04 short Vuli season cereal crops inthe bi-modal rainfall areas i s almost complete. The overall outlook i s poor due to inadequaterainfall. Ina few of the highland areas inthe Kilimanjaro Region, crops such as maize and beans were reported to be ingood condition. The aggregate 2003/04 productiono f cereals has been forecast at about 4 milliontons, or about 11percent below the previous marketingyear and 5 percent below the average for the previous five years. Below normal rainfall has also affected pasture conditions and raisedalarms concerning livestockproductivity, thoughrecent rainfall has raisedhopes for some recovery. 12. Reflecting low supply, maize prices continuedto rise inseveral markets, aggravating the food-security situation. Sharp increasesinmaize prices were notedparticularly inthe southem highlands and central Tanzania. 13. Serious food shortageswere reportedinseveralregions, includingDodoma, Shinyanga, Singida, Manyara, Lindi, Coast andMorogoro. Also, there are pockets o f food insecurity in Tanga, Kilimanjaro, Arusha, Mwanza, Mara andTabora Regions, where crops failed due to drought. The Food Security InformationTeam andWorld Food Programprioritized 24 districts in 10 regions to receive available food aid. 14. Impact of the Drought on the Power Sector. In2002, TANESCO generated 97% of its grid-based electricity requirements from hydropower sources. (See Demand and Supply Characteristics, paragraphs 18-20 for full descriptionofthe power system). Despite the poor inflows in2003, TANESCO maintained a highlevel of hydropower generation through the first halfof 2003, meeting 83% of the annual loadwith hydro power generation. The continuedhigh level of hydro output in2003 was achieved by "mining" the Mtera reservoir. The effect was that the Mtera reservoirwas severely depleted, and by the beginning of February2004, the reservoir level was at 690.31meters above sea level, or only 0.3 lmabove the minimumlevelrequired for generation'. 15. Evenwith the drawdown onthe Mterareservoir, TANESCO beganpurchasingelectricity from the lOOMWIPTLPower Plant inJuly 2003 at a capacity factor of about 90%. TANESCO had to postpone its capital works programto divert funds to cover the cost o f the additional thermal generation. Followingthe poor (October-December) short rains in2003, the declining reservoir level at Mtera forced TANESCO to negotiate with Songas, the private operator o fthe Ubungo Power Plant, to operate two o f the refurbishedUbungo gas turbine unitson expensive Jet A1 fuel startinginDecember 2003. Havingexhaustedits cashreserves, inNovember 2003 TANESCO requested financial assistance from the Government. Since then, the Government provided a cashinfusiono f about US$43 million equivalent, o f which US$15 millionwas to `As of May 3,2004 (effectively the endofthe rainy season), the reservoir level at Mterahadrisen to 2.76 meters above the minimumlevel. A level of 6.5 meters above the minimumlevel wouldbe requiredto fully utilize the capacity ofthe Mtera andKidatuhydropowerfacilities.  Tanzania Emergency Power Supply Project 7 Technical Annex reconcile outstanding Government electricity accountsreceivable before 20022. Since December 2003, TANESCO has beenspending about US$8 millionper month(compared withmonthly revenues ofUS$15 million) on imported Jet A1 fuel to run80MW at the Ubungo Power Plant andto purchase energy from the IPTLPower Plant. 16. Because o fthe depletiono f the Mterareservoir during2003, generation from the Mtera and downstream Kidatu Power Stations will be limitedin2004. The overall contributionto power generation from the hydro power plants in2004 i s expectedto meetjust 54% of the demand, resultinginsubstantially higher-than-average reliance on thermal generation ifsevere load-shedding i s to be avoided. Furthermore, TANESCO will start 2005 with a very low level o f water inthe Mterareservoir. Inorder to replenishthe Mtera reservoir, heavy reliance on thermal generation will continue through 2005 even under optimistic rainfall scenarios. 17. TANESCO i s now unable to pay for fuel for the extra thermal generation that i s needed to make up for the reducedhydropower output in2004, and there is a shortage o f thermalpower generation capacity. About 36MW of new thermal power capacity isrequired inOctober 2004, with a second36MW neededinearly 2005. Private financing is envisaged for the new thermal capacity and negotiations with a private sponsor, Songas, are under way. The Govemment, TANESCO and IDAhave mapped out the actions needed, including the proposed IDA support, privately-financed new thermal capacity and measuresto improve TANESCO's revenues, aimed at addressingthe emergency situation in2004 and ensuringthat no further emergency assistance would berequired in2005. Status of the Power Sector 18. Demand and Supply Characteristics. TANESCO's peak demand o f 506MW occurred in December 2003. During2003, a total of 3,066GWh was generated, with a monthly demand low o f 233GWh inFebruaryand a highof 275GWh inDecember. 19. TANESCO's interconnected grid system has an installedcapacity o f 773MW, of which 557MW (70%) is hydropower. TANESCO has dispatched hydropower aheado f thermal generation because of the lower variable energy costs. Inanon-drought year, most of the electricity (97% in2002) i s generated from hydropower. The table below summarizes the characteristics o fTANESCO's existinggeneration plant. TANESCO also operates about 30MW o f thermal generation inisolatedareas not connected to the grid. 'Since2002, the Government and the Zanzibar State Fuel and Power Corporation have been current in their electricity payments.  Tanzania EmergencyPower SupplyProject 8 Technical Annex InstalledGrid GenerationCapacityandEnergyProduction H Y D R 0 PLANT I Installed I Ownership Fuel Actual Generation Capacity (GWh) (MW) 2002 2003 ubungo 112 Ownedby JET Al, switching to 0.2 33 T TANESCO operated indigenousnatural H by Songas. gas aroundJuly 1, E Ownershipto be 2004. R transferredto Songas M inJuly 2004. Tegeta 100 Privately owned and A Heavy FuelOil 72 462 operatedby L (HFO) IndependentPower TanzaniaLtd(IPTL). Other 25 TANESCO Diesel 17 23 TotalThermal ,237(30%) , , 89(3%) ,518 (17%) TOTAL 794 2,801 I 3,067 20. TANESCO's largest hydropower complex, the MteraandKidatuDams, i s on the Great Ruaha River. The Mtera dami s the most important reservoir inthe power system providing over- year storage capability. Also, it regulates the outflows to maintain the water level for the downstream Kidatuhydropower plant. Thermal generation inTanzania currently relies on importedHeavy FuelOil (HFO), Jet A1 (aviation) fuel and Automotive Gas Oil. Concerning thermal generation, the Songo Songo gas infrastructurefacilities, supported under Credit 3569- TA, are expected to be commissioned around July 1,2004, at which time the ownership ofthe Ubungo Power Plant will be transferred to Songas (the private gas and power company) andrun on indigenous gas insteadof Jet A1 fuel. In 1995, agreementswere also signed with private Malaysian investors for the constructionof the lOOMW diesel IPTL Power Plant located at Tegeta. InApril 1998 duringthe constructionphase, TANESCO issued anotice o f default to the private investors because, inits view, project costs were inflated. After several rounds o f negotiations when the differences between the partiesremainedunresolved, TANESCO submitted the matter to the InternationalCenter for Settlement of InvestmentDisputes (ICSID) inNovember 1998. InJuly 2001, the arbitration panel issued its final rulingonthe case based on the evidence that hadbeenpresented.As a result of the arbitrationproceedings, the final capital cost o f the plant, for the purposes of calculation of the tariff, was reduced by 25 percent. The IPTL Power Plant was subsequently commissioned inFebruary 2002 and operates on HFO. 21. Govemment's Power Sector Reform Program. Power sector reformhas been on the Government's agenda for several years andmucho f the preparatory work has been completed. An electricity sectorreform act hasbeendrafted to facilitate the development andpromotionof,  Tanzania EmergencyPower Supply Project 9 Technical Annex and increasedprivate sector participation in, the expansion of electricity services. The analysis of possible market structureshas been completed and work i s on-going to define the market rules and to establish a regulatory agency. The Energy and Water Utilities Regulatory Authority (EWURA)will beresponsible for the electricity, gas, water and seweragesectors. 22. Against this backdrop, there has been significant progress inimproving the performance of TANESCO and ineffecting a financial turn-around inthe power sector, bothpre-requisites for further privateparticipation. InMay 2002, NetGroupof SouthAfrica was awarded atwo year Management Contract for TANESCO. The achievements o fthe performance basedmanagement contract over the past 2 years have beensignificant (see paragraphs 25-28). Inview of internationalmarket conditions, however, andthe need for further improvementsinTANESCO's operational performance and its financial situationbeforesuccessful privatization would be feasible, the Government has decided to extend the performance-based Management Contract for around 3-5 years. The new contract would be basedonrevisedperformance incentives aimed at reducing losses, increasing connections (after the emergency period), investing insystem rehabilitation, and the functional unbundling(ring fencing) o f generation, transmission and distribution. A decision on the timingfor launching private participationfor the concessioning o f TANESCO would be basedon future internationalmarket conditions and completion o f necessaryreforms. 23. Recognizingthat continuedsignificant Government subsidies for the power sector have constrainedTanzania's poverty reduction agenda, the Government, with assistance from the donor community including IDA, has laid out a 2-year plan to complete the transformation of TANESCO from a recipient o f Government subsidy, to a commercial entity. The plan includes extension o fthe Management Contract with appropriate incentives to achieve the performance improvements notedabove, implementation o f a power sector debt restructuringplanto clean up TANESCO's balance sheet inpreparationfor privatization, andtariff adjustments. A three month extension to the existingmanagement contract has been granted to permit adequatetime to formulate the scope andperformance benchmarks for the next phase of the 3-5 year Management Contract. 24. Effective May 1,2004, TANESCO's Board of Directors approved a tariff increase of 4.3%, basedinpart on lowering the lifeline tariffblock from 100kwhto 50 kwhper month. TANESCO will continue to review the level o f tariffs on a six monthbasis, andwill modify tariff levels up to 5% bi-annually, which is withinthe authority of TANESCO's Boardof Directors. A comprehensive tariff study i s proposed for financing under Credit 3569-TA. This study will update estimateso f the longruncost o fpower supply, propose a mechanism for indexing o f tariffs, and examine other measures(e.g. time o f day tariffs, a quota mechanismfor application in the event of future supply shortfalls, and application of geographically differentiated tariffs), to ensure that price signals to consumers encourage the efficient use o f electricity and that tariffs are maintainedat a levelnecessaryto ensure financial sustainability o f the power sector. 25. TANESCO's Financial and OperationalPerformance and Prospects. Following a competitive selection process, inMay 2002 the Government appointed NetGroup Solutions (South Africa) to manageTANESCO under a two-year perfonnance-based management contract, withTrust Fundsupport from the Swedish InternationalDevelopmentAssociation (SIDA). Under the leadership o f the new management team andwith support from the Government, TANESCO's operational and financial performance have improved significantly over the past two years. Since May 2002: (i) TANESCO's billing collectionrate (excluding settlement o f prior Government arrears) improved from 76% to 92%; (ii) staff numberswere reducedby 1,428 to 4,991 employees; (iii) TANESCOpaid down TSh33 billion of outstanding commercial debt;  Tanzania Emergency Power Supply Project 10 Technical Annex (iv) system lossesdeclined from 27% to 24%; (v) administrationand overhead costs were reducedby about 20% andTANESCO has obtained more competitive prices from suppliers ;and (vi) TANESCO hasanimprovedcredit rating inthe market, which enabledTANESCO to access the domestic capital market. The resultingimprovements incash inflows enabled TANESCO to finance: (i) staff redundancy costs of TSh22 billion, (ii)efficiency improvement costs of TSh7.5 billion, and (iii) capital investments of TShl1.3 billion. NetGroup's efforts to train and empower TANESCOstaffhave dramatically improvedmorale andproductivity. When the Management Contractor first entered TANESCO, it was under police protection. Now, two years later with the contract up for renewal, TANESCO staffhave publicly supported an extension. 26. System lossesremain at a relatively highlevel, inpart due to systemoverloadand lack o f fundsto implementreliefprojects suchasreplacement offaulty meters. Itis plannedthat funds available under Credit 3569-TA would be made available to address urgent distributionand transmission constraints. 27. The estimatednet cash flow impact o fthe newTANESCO management's actions over the past two years i s summarizedbelow. TANESCO: EfficiencyImprovement Gains2002-03 2002-03 Reduction inAdministrative and Operating Costs 36.0 I 34.3 Improvement inCollection Rate from 76% to 92% 31.3 29.8 Reduction inPayrollCosts Due to Retrenchment o f 1,550 Staff 6.4 6.1 Less: Efficiency Improvement Costs (7.5) (7.1) Additional Net CashInflows 71.6 68.2 28. The table below gives a summary of key operating performance indicators for 2002-05. TANESCO's OperatingPerformance Indicators2002-05 2002 2003 2004 2005 SystemLosses-- targets actual actual forecast forecast -- actual/forecast 22% 20% 18% 24% 24% 23% 22% OperationalData Collectionrates -- targets -- actuai/forecast 93% 94% 95% 89% 92% 93% 94% Peakdemand(MW) 475 506 555 611 Energysent out (grid connected) (GWh): 1 Hydro 2659 (95%) 2549 (83%) 1767 (54%) 1767(49%) 1 Thermal 135 (5%) 518 (17%) 1518 (46%) 1846 (51%) Total 2194 3052 3284 3613 Energysales (GWh) 2186 (+2.5%) 2342 (+7.1%) 2577 (+10.1%) 2872(+11.4%) Number ofcustomersat Dec 31 (`000s) 439 (+4%) 469(+7%) 505 (+8%) 541 (+8%) Numberof staff at Dec 31 6419 4991 4991 4991 29. Inspite oftheseimprovements, TANESCO's financial situationcontinues to beweak. The 2003 drought had a negative impact onTANESCO's financial situationbecausethe cost of imported fuel for thermal generation alternatives to hydropower has been very highcompared to TANESCO's present tariff. TANESCO's current operational requirements cannot be met from its presentrevenues. According to the latest estimates for 2004 under the probablehydro scenario, TANESCO's cash shortfall at the operating level is expected to be around TSh23 billion (US$20 million equivalent).  Tanzania Emergency Power SupplyProject 11 Technical Annex 30. Electricitv Tariffs. InU S dollar terms, the weighted average electricity revenue declined by 30% from US$0.095 per kwhin 1999, to US$0.066 per kwhin2003. This is highly significant since 65% to 70% o f TANESCO's revenue requirements, even ina non-drought year, are foreign exchange dependent. TANESCO's tariffneedsto be adjusted to correct the erosion of tariffs over the past five years and narrow the gap between the cost of service andrevenues. 31. Further to the May 2004 4.3% tariff adjustment, TANESCO's fundingrequirements duringthe 2004/05 periodwill haveto bemetthrough a combination ofmeasures, including: (i) furtherreductions inoperating costs; (ii) improvements inoperational performance further (system loss reduction); (iii) adjustments every six months, as required (paragraph 24); (iv) tariff continuedbut decliningGovernment subsidies; and (v) IDA assistance(for emergency power generation). I TANESCO: Av Revenue, Costs & Losses 140.0 0.120 120.0 0.100 100.0 0.080 c 80.0 p2 $ 60.0 0.060 40.0 0.040 v) + 20.0 0.020 22 0.0 0.000 -20.0 -0.020 40.0 -0.040 0Operatingcosts(TShs/kWh) II lossaftersubsidies(TShs/kWh) Operating --I--Electricityrewnue(USWkWh) -Operating costs (USWkWh) Government's Responseto PastDroughts 32. There have beenseveral major shortages of electricity inTanzania duringthe last decade. In1994, TANESCOwas unable to supply about lOOMWofload, which was equivalent to about one thirdo f maximum demand inthe interconnected system at that time. In 1997, TANESCO shed about 50MW of load. Load sheddingo f about 30 percent or 90MW occurred again in November and December 2000. Ineach case, load-shedding hasbeenprecipitatedbypoor rainfallinTanzania's predominantly hydroelectric system, highlightingTanzania's over-reliance on hydropower and inadequate or unaffordable thermal power generation. Initially, the Government's responseto past droughts was to install thermal generation operating on imported liquidfuel. About 37MW ofthermal generation was installedin 1994, anadditional 75MW of thermal generation in 1995, and the 1OOMW IPTLthermal Power Plant was commissioned in 2002. However, the highcost o f energy charges from these plantsrelative to TANESCO's revenues has limitedthe success o f this approach. The current emergency situation i s a case in point: inaddition to a thermal capacity shortage, TANESCO is facing an energy shortage as it i s unable to afford the cost o frunningthe Ubungo Power Plant gas turbines on Jet A1 fuel and the energy charges from the IPTLPower Plant.  Tanzania EmergencyPower Supply Project 12 TechnicalAnnex 33. Recognizingthis over dependenceon hydropower, the Government undertookthe diversificationo f Tanzania's electricity generation sourcesby soliciting private sponsors to develop indigenous natural gas resource as part of the World Bank-assisted Songo Songo Gas Development and Power Generation Project (Credit 3569-TA). The gas infrastructuresystem and conversion of the Ubungo Power Plant to gas-firing i s scheduled for commissioning around July 1,2004. The availability o f gas will significantly reduce the energy charges for thermal power generation and the consequentdrain on TANESCO's cash flow. The TANESCO/ GovernmentEmergencyPlanfor the Power Sector 34. When the October-December short rains in2003 didnot materialize, TANESCO considered the potential sources o f generation shown inthe table below, together with their unit costs, with the objective o fprocuring the least cost options to make up for the reduced hydropower output expected in2004. The option of utilizingthe dead storage of the Mtera reservoir for power generation at the downstream KidatuPower Plant was considered and rejected since it has bothnegative environmental and longterm power generation consequences. EmergencyPower Supply Options: SourcesandUnitCostsper kWh * About US$O.O7ikWh o fthis total amount i s the (variable) energy charge consisting o f variable operating costs and fuel. Inconsidering the least cost options for replacingreduced hydro output, it is the energy charge that is of interest, since the (fixed) capacity payment i s on a take-or-pay basis, and must be paid whether or not electricity is generated. 35. The TANESCO / Government planfor the remainder of2004 andearly 2005 is described below3. Without a combination of all of these actions in2004 and early 2005, the emergency situation could persist for a muchlonger period. The IPTLPowerPlant willrunat maximumoutput untilgas becomes available inearly July 2004. Duringthis period, the gas turbines at the Ubungo Power Plantwould berun on Jet A1 fuel and would balance the generation shortfall. After commissioning o f the Songo Songo Gas Development and Power Generation Project (Credit 3569-TA) scheduled for aroundJuly 1,2004, the Ubungo Power Plantwill runon gas at maximum capacity utilization, and the IPTLPower Plant will make up the balance o f generation required; Privately-financednew gas-basedthermalpower generation capacity will be commissioned inOctober 2004 andJanuary 2005, at which point the more expensive thermal generation plant (IPTL) will be dispatched last (see paragraphs 37 and 38); 3The elements of this planare describedinthe MinistryofEnergy andMinerals letter to IDA ofMay4, 2004.  Tanzania Emergency Power SupplyProject 13 Technical Annex 0 TANESCO has arranged for co-generation o f about 5MW from the Kilembero and Mtibwa sugar factories to be suppliedto the grid; 0 The Govemment plans to convert the 100MWIPTLPower Plant from HFOto gas-firing in2005 oncethe additionalgasturbines havebeeninstalledandthe emergencypower supplyperiodhas concluded. At that time, individual generating unitsof the IPTLPower Plant would be taken off-line for conversion ina phasedmanner, without intempting supply (see paragraph 39); 0 Incase further generation capacity wererequired, as afallback position, TANESCOhas prepared procurement documentation for foreign EmergencyPower Producers involving leased gas turbines to runon indigenous naturalgas; and 0 With financing under Credit 3569-TA, TANESCO will retain a consultant to carry out a rapid assessment of practical electricity demand management measureswhich could realistically be implementedby TANESCO inthe short term. 36. The estimated total cost of the incremental thermal generation due to the effects o f the 2003 drought (i.e. above the thermal generation that would be requiredina year with normal hydrology) basedonthe probable hydrokhermal generation mix i s about US$67million for the period January 2004-February 2005. Details conceming the determination ofthe incremental thermal generation requirement are presentedinAttachment 1. PrivateInvestmentfor the UbungoPowerPlant(2x36MW GasTurbines) 37. Part of the solution to the current emergency i s to install as quickly as possible new natural gas-basedthermal generation. This additional gas-fired generation i s also an important part of the planto mitigate against future droughts. TANESCO i s targeting commissioning of a gas turbine (36MW) at the Ubungo Power Plant by October 2004 and an additional 36MW gas turbine by January 2005. Boththese gas turbines are proposedto be financed, owned and operated by Songas, the private sector gas and power company established under Credit 3569- TA. 38. Under the current contractual arrangementswith Songas (which has first right of refusal to install upto 60MW at the Ubungo Power Plant under project financing arrangements satisfactory to the Govemment), TANESCOhas requested Songasto finance and install two additional gas turbines (2x36MW) under open book arrangements. It is the intention of the parties to work within the existinglegal and commercial framework with regardto the existing Songo ContractualAgreements. As such, no additional credit enhancement (guarantees or increase inthe liquidityfacility) i s envisaged. Technical assistanceunder Credit 3569-TA is being providedto assist TANESCO and the Government to assessthe commercial bank financing arrangements for the 2x36MW units, including financing from the local market. ConversionofIPTLPower PlantfromHF'Oto NaturalGas-Firing 39. Even with 2x36MW ofnew gas turbines inoperationby early 2005, the IPTLPower Plant will continue to be runat a highcapacity factor in2005. Giventhe impact o f the significant cost of runningthe IPTLPower Plant on imported fuel (approximately US$4.1 millionper month at a 90% load factor), the economic and financial assessment supports converting the existing 10x1OMW medium speed diesel generators at Tegeta to natural gas-firing. The Govemment has requested IDA assistance for financing boththe conversioncost and the cost of extendinga gas  Tanzania Emergency Power Supply Project 14 T e c h c a l Annex pipeline spur to the site. It i s proposed to finance the conversion through amending the Development Credit Agreement of the Songo Songo Gas Development and Power Generation Project and creating a Project Agreement with TANESCO. The 2kmpipeline spur to the IPTL Power Plant i s proposed to be financed under Credit 3569-TA through a change order to the pipeline construction contract. 40. The ReservesCertificationReport for the Songo Songo gasfieldpreparedbyGaffney Cline andAssociates in2001andrecent updated audits o fthe gasfield, confirm that there i s sufficient gas to meet the additionalrequirements o fthe 2x36MW gas turbines over the next 20 years, as well as for operating the IPTLPower Plant on gas. Measuresto MitigateAgainstImpactof FutureDroughtson the Power Sector 41. Additional mitigation measuresinclude: 0 Once the gas infrastructure facilities are commissioned and adequate gas-basedthermal generation capacity ininstalled, TANESCO will revise its hydropower operating regime including the management of the Mtera reservoir. Technical assistanceand softwarehardware requirements would be financed under Credit 3569-TA. 0 With IDA assistance, TANESCO i s undertakingpreparationo f a new Power System Master Planto provide an updated guide on least cost power sector expansion options. Also with IDA support, the Govemment i s planning to develop an Independent Power Producer (PP) strategy andbiddingdocuments for the next thermal plant, which i s likely to be either additional gas turbines or conversion o f existing simple cycle machines to combinedcycle. 0 Improving TANESCO's cash flow, and ensuringthe financial sustainabilityo f the sector including tariff adjustments, a TANESCO debt restructuringplan, and measures to lower the cost of IPPs (e.g. the buydown of Songas accumulatedreturns on equity andthe conversion o f PTLto gas firing). A comprehensive tariff study will be financed under Credit 3569-TA. IDAhas also offeredto take the leadincoordinating donor responseto the Government's proposalfor restructuringTANESCO's debt. 42. The combinationof adequategas-basedthermal generation, revisedoperational practices to better managethe Mterareservoir, and financial sustainability inthe power sector, will position the power supply system inTanzania to withstand future droughts without emergency assistance or severe load-shedding. Status of Ongoing Energy Sector Operations 43. Sonno Songo Gas Develooment andPower Generation Project (Credit 3569-TA). Implementation i s proceeding satisfactorily. Songas, a private power and gas company, has been established under the project. Songas i s responsible for installation o f a gas plant on Songo Songo Island, constructiono f a 232km marine and landpipeline, andconversionof the Ubungo Power Plant (112MW) to gas firing, which is expectedto be completed on July 1,2004, about 33 months following Boardpresentation inOctober 2001. Execution of the Ministryo f Energy and Minerals (MEM)capacitybuildingcomponent, includingthe resettlement infrastructureandwayleave village electrification scheme, has encountered substantial delays. A mid-termreview o f the project was heldinJanuary 2004, and an action planto remedy the delayed implementation o f the MEMcomponent isbeingcloselymonitored. One oftheperformance indicatorsfor the project is  Tanzania Emergency Power Supply Project 15 Technical Annex an increase inthe level ofprivate investment ingas infrastructure. A measure o f success inthis regardis the development of a commercial gas market beingundertakenby PanAfrican Energy and the Tanzania PetroleumDevelopmentCorporation. Constructiono f a US$2.4 million gas ringmain, with private financing, will be completed byJuly 2004. Gas sales contracts have been signed with the Wazo HillCement Plant, Kioo Glass, the Tanzanian Breweries, and discussions are under way with several more potential commercialusers. 44. Privatization and Private Sector Development Proiect (IDA Credit 3304-TA). In September 2001, the Presidential Parastatal Sector Reform Commission (PSRC) awarded two power sector consultancy contracts financed under Credit 3304-TA. Mercados Energeticos was retainedto review andrecommend anew structure for the power sector, and to develop appropriate trading arrangements and a regulatoryregime. The consultants' recommendations includedthe unbundlingo fTANESCO into two distribution companies, three generation companies and atransmission company. A SystemOperator and MarketAdministrator would be locatedwithin the transmission company, with provisions to make it independent interms of operational decisions and financial issues. Inrecognition o f the current investor climate andneed to consolidate the gains from TANESCO's improvedtechnical and financial performance, in early 2004 the Govemment decided to extend the existing performance-based management contract for another 3-5 years, rather than pushingforward with full restructuring and privatization inthe face o f the current low global investor interest indeveloping country power systems. Inthe interim,the Management Contractor will establishring-fenced functional business units within TANESCO, and undertake other efficiency improvementsincluding necessarydistribution and transmission rehabilitation and reinforcement investments, as a prelude to proceedingwith privatization. 45. Stone & Webster was retainedto draft the newlegislation for the Govemment approved industrystructure, trading arrangements,andregulatoryregime, as well as to assistincorporate restructuringo f TANESCO consistent with the new industrystructure. Draft legislationi s under discussion. Also under Credit 3304-TA, PSRC hasretainedthe service of Deloitte Touche Tohmatsu to provide advice with regardto the institutional design and establishment of the EWURA. 11: BANKRESPONSEAND STRATEGY 46. A review ofthe existingIDAportfolio inthe power sector for Tanzania was undertaken and the possibility o f usingsavings available under the Songo Songo Gas Development and Power Generation Project (Credit 3569-TA) was considered. Use o f a portion o f these savings i s proposed for the conversiono f the IPTLPower Plant to gas-firing. (See paragraph 39). However, the preparation o f a stand-alone operationon an emergency basis, was deemed as a more appropriate instrumentto support the Government's overall emergency power supply plan, for the following reasons: InSeptember 2003, the Government had formally requested IDA to restructure Credit 3569-TA insupport of urgentTANESCO transmission and distribution rehabilitation requirements to prevent chronic system failures. A number o f technical/economic, environmental/social and financial studies are currently under way inthis regard. While usingall the cost savings to finance TANESCO's emergency power generation needscouldbeviewedas efficient inthe short term, this would compromise system reliability inthe short to mediumterm. Secondly, the cost savings were considered a means o f underpinning the power sector policy dialogue on improving TANESCO's performance, industryrestructuring, financial restructuring and establishing a functioning regulatory body.  Tanzania Emergency Power Supply Project 16 Technical Annex LessonsLearned 47. Recent Bank experience inthe preparation o f emergency projects inthe Africa Region (Kenya, Mozambique and Madagascar) has demonstrated the importance of: (i) the speedof the preparatiodappraisalprocess; (ii)simple project design and strong implementation and a monitoring framework; and (iii) the inclusionof mitigative measures to preventrepeated disasters. These lessonshavebeentaken into account through a simpleproject design with few contracts, rapid preparation and appraisal, completion o fbiddocuments and procurement procedures, a dedicated implementationunit involvingTANESCO's senior management, and a clear set o f mitigation steps to ensurethat futuredroughts do not leadto apower sector emergency. Rationale for IDA lnvolvement 48. Without IDA'Ssupport, TANESCO would be unable to pay for fuel and emergency generation capacity whichwould result insevere load-shedding and economic disruption. Empirical evidence from previous load-shedding episodes inTanzania clearly demonstratesthe significant negative economic impact o f severe load-shedding. Support from the donor community was sought, and EIBindicated its interest to participateinthe private sector transaction for financing o fthe 2x36MW gas turbines. Donors interested inthe energy sector indicated their preference to fundinvestments rather than consumables like fuel. Other donors indicated that they would continue to concentrate onproviding budgetary support basedon the Poverty Reduction Strategy Paper which focuses on the social sectors. Eligibility for ProcessingUnder OP/BP 8.50 on Emergency Recovery Assistance 49. According to the OPlBP8.50 on Emergency Recovery Assistance, the Bank considers the criteria listedbelow indecidingwhether to provide an Emergency Recovery credit`loan. The following paragraphs detail how the proposed Tanzania Emergency Power Supply Project meets each o f these criteria. Impact on economic priorities and investmentprograms. Without assistanceincovering the incrementalcost of imported fuel and energy purchases, there will be loadsheddingo f about 27% o f projectedenergy requirements in2004. The economic impact is estimated to be equivalent to as muchas 6% o f GDP. On a monthly basis, the level o f assistance requiredby TANESCO to avoid load-shedding would be about 8% of total monthly Government revenues. Since November 2003, the Government has provided a cash infusion of US$43 millionequivalent, o f which about US$15 millionwas to reconcile outstanding Government electricity accounts receivable before 2002. The Government will be providing anadditionalUS$23 million inbudgetary support for emergency assistanceduring2004. Without IDA support, there would be a need for further Government budgetary allocations which would result ina significant reductionin spending on other economic priorities and investmentprograms, including the poverty agenda. Support from the donor community was sought for the proposedproject, but has not been forthcoming. 0 Frequency. For recurring events, such as annual flooding a regular investment loan i s more appropriate. Though droughts do occur periodically inEast Africa, the situationin Tanzania is not an annual occurrence. While the availability o f water varies from year to year, water inflows into Tanzania's hydropower systemduring2003 and untilnow, were less than halfo f the annual 40-year average inflows. Data indicates that water inflows to  Tanzania EmergencyPower Supply Project 17 Technical Annex the overall hydropower system were two thirds of the average inflow over the past 25 years. The 2003 inflow to the Mtera Reservoir, the most important reservoir inTanzania's hydropower system, wasjust 40% of the 60-year average inflow. e regular investment project may be preferable. In2003, boththe longrains (March - May) Urgency. For slow on-set disasterssuch as a drought, the more thoroughpreparation of a rains in2003 been good, the impact of the March - May drought would have been greatly and the short rains (October - December) failed insome parts o f the country. Hadthe short reduced. Hence the full extent of the emergency was only apparent at the end of 2003, and shortly thereafter the Government requestedemergency assistance fiom IDA. e Prospectsfor reducing hazardsfrom similar natural disasters in thefuture. The combination of: (i) availability of indigenous natural gas to replace expensive the imported fuel; (ii) the installation of adequate gas-based thermal generation withinthe next year; (iii)revisedoperational practices to better managethe Mtera reservoir and the operations of other hydropower plants for optimal dispatch o f the mixedhydrokhermal system; and (iv) steps to improve the financial sustainability inthe power sector, will position the power supply systeminTanzania to withstand future droughts without emergency assistanceor severe load-shedding. All of these measures are to be addressed as part of the emergency operationand / or as part of the proposed restructuringof Credit 3569-TA. e Expected economic benejh The major economic benefit o f the proposed project i s the avoidance of severe load-shedding and the consequentnegative impact on the overall economy and delivery o f social services. The project will benefitnot only electricity customers, but also those employed inthe formal and informal services who would lose jobs and income due to the economic impact o f significant power supply interruptions. Social service users will also benefit as apotentially major disruption to provision o f these services will be avoided. 111:DETAILEDPROJECTDESCRIPTION Project Objectives 50. The proposed project would assist the Government inimplementingits emergency measuresto avert a prolongedperiod o f severe load-shedding which threatens to cripple economic activities and hinder the delivery of social services. Project Description 51. The proposedproject would provide funds to assist TANESCOandthe Government to meet the incremental power supplycosts attributable to the 2003 drought. Itwould finance fuel and energy purchasesto maintain power supply at a level sufficient to prevent a severe contractionof the economy and inthe provision o f social services. 52. IDA'Sproposed financial contributionwould cover the following incrementalvariable costs directly relatedto the drought: (i) the fuel costs o frunningthe Ubungo Power Plant on Jet A1 fuel throughearly July 2004 when the Ubungo Power Plantwill be commissioned runningon indigenous natural gas; and (ii) the cost ofpurchasingelectricity (kwh)producedf?om the PTL Power Plant operating on HFO through February2005. The combination o f the May 1,2004  Tanzania Emergency Power Supply Project 18 Technical Annex tariff increase, subsequentbi-annual tariff adjustments as necessary, the proposed IDA credit and Government support through 2004, will ensurethat TANESCO will be able to generate adequate power to avoid severe load shedding. The tariff projections take into account the need for TANESCO to cover the capacity and energy payments for the proposed new 2x36MW to be developed, constructed, commissioned and ownedby the private sector (Songas). ProjectCost andFinancingPlan 53. The financingplandescribed below covers the incrementaloperating costs due to the drought through February 2005, as well as the capital costs for new gas-fired generation plant, which are necessaryto avoid load shedding and whichwill reduce the country's over-dependence on hydropower. Financing Plan (US$ million): Source Local 1Foreign 1Total US$ million Government/TANESCO 0.0 23.0 23.0 Songas(Commercia1 Debt and Equity) 0.0 44.0 44.0 IDA* 0.0 43.8 43.8 Total 0.0 110.8 110.8 54. TANESCO's Projected Cash Flows and Financing;Plan for 2004/05. The table below provides the projected financing gap and financing plan for TANESCO through 2005. The projections are based on the probablehydropower generation scenario which has been usedas the basis for the proposed Emergency Power Generation Project. TANESCO/GovernmentFinancingPlan(2004/05) Probable Hydro Scenario (US$ million) On-lendingArrangements 55. Because o f the emergency nature of this proposed project, as opposed to an investment operation, the proposedIDA credit to the Government would beprovidedto TANESCO on a grant basis, rather than being on-lent. Thejustification for this approach is that as a commercially  Tanzania Emergency Power Supply Project 19 Technical Annex operating company, TANESCO would either load shedor charge a tariffto fully recover the costs o f supplyingelectricity duringthe emergency. This would require nearlya doubling of the present tariff which would not be affordable to consumers even over the short-term emergency period. To avoid the negative economic consequencesof load shedding, the Government i s providing assistanceto TANESCO to permit it to supply electricity at a level exceeding that which would be commercially feasible. Onthis basis, repayment o f these funds would unfairly penalize TANESCO. TANESCO would enter into a Subsidiary FinancingAgreement with the Government, setting out the terms under which the Government will make the IDA funds available. Benefits 56. The avoidance of severe load-shedding and the conseauent negative impact on the overall economy and delivew of social services will directly benefit not only electricity customers, but also those employed inthe formal and informal services who would losejobs and income due to the economic impact of significant power supply interruptions. Social service users will also benefit as a potentially major disruption to provision of these services will be avoided. 57. Maintaining the current momentumo f the power sector reformurogram. Both severe load-shedding andmassive tariff increases(i.e. a surcharge to fully cover all additionalthermal generation costs) couldjeopardize the sector reformprogram. Under the leadership o f the new TANESCO management and with cooperation o f the Government, there have beensubstantial improvementsinTANESCO's financial and operational performance inthe last 2 years. There has also been a significant change inTANESCO staffperceptionof this first step inthe reform process, as described inparagraph25. However, public support for the reformprocess, specifically the current and any futureprivate participationinthe power sector, couldbe underminedifthere is the perceptionthat the reformprocess hasresultedineither huge load- sheddingor huge tariff increases. Risks 58. Delays inExecution of the Government's Emergency Power Promam. There i s a riskof delays innegotiating with Songas, arranging the financing for, andinstalling and commissioning a 36MW gas turbine inOctober 2004 and the second 36MW gas turbine inJanuary 2005. To mitigate against this risk,legal, technical andproject finance (merchant banking) assistanceto the Government andTANESCO is beingprovided underCredit 3569-TA. There i s also arisk of delays inconverting the IPTLPower Plant to gas-firing, thus continuingthe financial drain on TANESCO o fpaying for imported fuel. Legal andtechnical assistancewill also be provided to assist the Government and TANESCO inreviewing the contractual arrangements, securing the Government's interest inthe enhancedIPTL Power Plant and ensuring proper oversight o f the technical aspects o f the conversion. Finally, there is a riskthat there couldbe further delays in commissioning o f the Songo Songo Project gas infrastructure system. Intensive Songas management oversight and close monitoringbythe MEM's Project MonitoringUnit should mitigate against further slippages inthe commissioning date o f the gas processing plant, pipeline and Ubungo Power Plant runningon indigenous gas. Also, the project includes a contingency o f one additional monthof financing for Jet A1 fuel which would be available to TANESCO ifthe gas supply i s delayed through July. 59. Continuationo fthe Emergency into 2005 due to Failure o f Government or TANESCO to Take RequiredSteus. The Government and TANESCO prepared a comprehensive emergency power supply plan andhave already taken anumber o f important steps to enable TANESCO to  Tanzania Emergency Power Supply Project 20 Technical Annex transition out o f the emergency power supply phaseinto anormal planningmode (see paragraphs 34-42). 60. PotentialRemtational Risk. The IPTLPower Plant transaction was a deviation from the least cost generation expansion plan and was the subject of international arbitration proceedings, the outcome of which was a reductioninfinal project capital costs used inthe calculation of the plant tariff, by about 25%. The proposedproject would finance energy purchases from this thermal plant. Also, financing the conversion o f this plant from HFOto gas-firing is proposed with savings from Credit 3569-TA (see paragraph39). Inthe current circumstances, the purchase of electricity from this plant is the least cost option for meetingthe load. Onbalance, this practical consideration outweighs considerations of the history o f the transaction. Furthermore, the IPTLPower Plant will be inoperation, with TANESCO obligated to pay capacity charges for the next 17.5 years. Thus, it makes economic and financial sense to reduce the costs of electricity to energy users, by convertingthe plant to gas-firing. IV: STUDIESAND TECHNICAL ASSISTANCE 61. The following studies and technical assistancewould be financed under Credit 3569-TA7to support the Government's strategy for addressing the current emergency and for ensuring that the power sector i s positionedto withstand future droughts without requiring emergency assistance from the Government: 0 Once the gas infrastructure facilities are commissioned and adequate gas-basedthermal generation capacity ininstalled, TANESCO will revise its hydropower operating regime includingthe management o f the Mtera reservoir. This will includethe provisiono f technical assistanceand softwarekardware requirements. 0 TANESCO will retain a consultant to carry out a rapid assessment o fpractical electricity demand management measureswhich couldrealisticallybe implementedby TANESCO inthe short term. 0 A comprehensive tariff study isproposed. This study will update estimates ofthe long runcost ofpower supply, propose amechanism for indexingoftariffs, andexamine other measures (e.g. time o f day tariffs, a quota mechanism for application inthe event of future supply shortfalls, and application of geographically differentiated tariffs), to ensure that price signals to consumers encouragethe efficient use of electricity and that tariffs are maintainedat a levelnecessaryto ensure financial sustainability o f the power sector. 0 TANESCO will carry out anewPower SystemMaster Planto provide an updated guide on least cost power sector expansion options. 0 The Government is planning to develop anIndependent Power Producer strategy and biddingdocuments for the nextthermal plant, which is likely to be either additional gas turbines or conversionof existing simple cycle machines to combined cycle. 0 Legal, technical and project finance (merchant banking) assistanceto the Government and TANESCO would be provided under Credit 3569-TA7innegotiatingwith Songas, arranging the financing for, and installing and commissioning a 36MW gas turbine in October 2004 and the second 36MW gas turbine inJanuary 2005.  Tanzania EmergencyPower Supply Project 21 TechnicalAnnex Legal and technical assistance will also be providedunder Credit 3569-TA to assist the Government and TANESCO with regard to the plannedconversion of the IPTLPower Plant to gas-firing, inreviewingthe contractual arrangements, securingthe Government's interest inthe enhancedIPTLPower Plant and ensuring proper oversight of the technical aspects of the conversion. 0 IDAhas also offeredto take the leadincoordinatingdonor responseto the Government's proposal for restructuringTANESCO's debt. V: INSTITUTIONAL ARRANGEMENTSAND PROJECTIMPLEMENTATION ImplementationArrangements 62. The Deputy Managing Director o f Generation, Transmission and Engineeringwill have overall responsibility for implementationof the proposedproject. The Acting Director o f Projects who reports to the DeputyManagingDirector of Generation, Transmission and Engineering, has beenappointed as the ProjectManager. The ProjectManager will coordinate and manageproject activities andwill interact across all departments inTANESCO and with the MEM,the MinistryofFinance andIDA. TANESCO's Tender Boardwillberesponsible to ensure that all procurement under the proposedproject would be inaccordance with the Government's and IDA'Sprocurement guidelines. The structure o f TANESCO's Tender Board conforms to the Public Procurement Act of 2001. The Chairman o fthe Tender Board i s the ManagingDirector and the Secretary to the Tender Board i s the Director of Finance. Members include four additional TANESCOstaff, along withrepresentatives from the Ministryof Finance and the MEM. The Director of Internal Audit will be incharge o f project auditing, and will report directly to the Managing Director (see organizational structure below). I TANESCO's Board of Directors I ManagingDirector 1 I Deputy ManagingDirector, Generation, Transmission& Engineering 111 (Project ImplementationTeam) -1 Director of 1 Director Finance Director of Projects Internal Audit (Procurement & Finance) (Overall Coordination) I I I I Procurement 63. The proposed project would finance: (i) requirements for the Ubungo Power Plant fuel untilits conversionto gas firing aroundJuly 1,2004; and(ii) kilowatt hours (i.e., the energy  Tanzania Emergency Power Supply Project 22 T e c h c a l Annex charge made up of fuel and variable operation and maintenance costs) producedby the IPTL Power Plant, excluding any applicable duties, taxes and levies4. 64. Procurement of Jet A1 fuel will follow InternationalCompetitive Bidding (ICB) procedures (allowing at least 15 days biddingperiod with publicationinthe nationalnewspapers, the UnitedNations Development Business and dgMarket). The fifteen-day biddingperiod with the publication innationalnewspapers, the UnitedNations Development Business and dgMarket i s an exception, considering the emergency nature of this project. The two contracts under the proposed project will be subject to IDA'Sprior review. 65. Tanzania has sufficient local fuel suppliers o f Jet A1 fuel with storage and distribution capabilities, which can meet TANESCO's demand on emergency basis. TANESCO requires this fuel untilJuly 2004, when the gas infrastructure system i s expected to provide gas for runningthe Ubungo Power Plant. TANESCO confirmed that local fuel suppliers could supply any quantity o f Jet A1 fuel, but on certain occasions some dealershave failed to meet quality interms o f specifications, specifically elements such as sulfur and alkaline are sometimes found to be out o f specifiedrange. TANESCO normally uses a laboratory of the Tanzania InvestmentResearch Development Organizationto confirm the quality of the consignment. It takes a day to obtain the results, and the cost of these tests i s sharedequally between the supplier and TANESCO. 66. Onthe basis ofthe formal procurement capacity assessmentconducted duringproject appraisal, TANESCO has acceptableprocurement capacity, andthus the procurement risk for this project i s consideredto be average. A procurement plan for the project executionperiod (through February2005) was discussedandreviewedby IDA. Audits ofprocurement anddisbursementof IDA funds will beundertakenon amonthly basis by internalauditors. Externalaudits ofthe project accounts will be undertaken after 4 months from credit effectiveness and at the completion o f the project. Disbursements 67. The project completion date is February28, 2005 andthe closing date is August 31, 2005. IDA will disburse against eligible payments upto the allocation of the CreditProceeds limit specifiedinSchedule 1ofthe Development Credit Agreement. All applications to withdraw proceeds from the Credit Account will be fully documented. 68. To facilitate disbursements under the project, TANESCO will establish a Special Account with an authorized allocation o f US$4.5 million. 69. Ifthe water levelintheMteraReservoirweretoreach696.5 metersabove sealevelat any point intime duringthe execution o f the proposedproject, the emergency power situation would be deemed to have ended, and disbursements of IDA funds to addressthe emergency situation would be terminated. Allocationof CreditProceeds IPTLPower Plant -kWh(variable O&M and fuel) The direct contracting of kWhprocurement from the IPTL Power Plant has beencleared by the World Bank's Operations Procurement Review Committee.  Tanzania Emergency Power Supply Project 23 Technical Annex FinancialManagementAssessment,Auditing andReporting Requirements 70. Accounting Systems,Policies and Procedures. TANESCO's financial management systemhas been designedto support management inits deployment o f resources to ensure the efficient and effective applicationof these resourcesinthe delivery of outputs and inthe achievement o f desired outcomes. Dueto the nature of the transactions andthe emergency nature of the proposedproject, monthly FinancialMonitoring Reports would be prepared andwould integrate project accounting, procurement, contract management, disbursements and the audit of physicalprogress under each o f the contracts. 71. Management Reporting (Financial Monitoring Reports). Monthly management reports would beproducedand would serve as Financial Monitoring Reports (FMRs) requiredby IDA. They will be subject to internal audit on a monthly basis. The contents of these reports would cover the followingaspects: FinancialReports (Sources andUses of FundsbyFundingSource, Uses of Fundsby Project ActivityKomponent); a PhysicalProgress (Output Monitoring) report; and a Procurement and Disbursementreport. Duringnegotiations, IDA reviewed and agreedwith TANESCO the format and content of the FMR, which will also serve as the monthly progress report. 72. TANESCOEntity Financial Statements. The Tanzanian Companies Ordinance, (CAP 212) requires companies to prepare its financial statementswithin six months after the financial year-end and inaccordancewith Generally Accepted Accounting Practice (which inter alia includes the application o fthe accrual basis o frecognition of transactions). TANESCO will submit its audited entity financial statementsto IDAwithin six monthsafter the endof the financial year. 73. Project Financial Statements. Because of the short duration o f the proposed project, TANESCO has agreedto submit a set o f audited interim project financial statementsfor the first 4 months o f the project, and a final set of audited project financial statements for the entire period o f the project, within45 days after the end of the respective reporting dates. 74. Internal Audit. An InternalAudit Directorateexists at TANESCO headquarterswith independent dual reporting to the Managing Director and respective auditees. The Internal Audit Directoratehas sufficient capacity and i s well staffed. To improve quality andtimeliness of follow-up, responsesto audit queries are requiredto be submitteddirectly to the Managing Director. The Internal Audit Directorate concentrateson corporate governance and testing compliance with financial regulations. The Director of Internal Audit would be responsible for ensuring that the monthly FMRs are subjected to internal audit and that the report will be providedto the Managing Director within 30 days subsequent to eachmonthly reporting date, and copiedto IDA. 75. ExternalAudit. The external audit for boththe TANESCO entity financial statementsas well as the Project Financial Statements, will be carried out by PriceWaterhouseCoopers, TANESCO's current appointedauditors. TANESCO will have its entity financial statements audited within six months after the end o f the financial year. Two audits will be carried out on the Project Financial Statements, namely four months after the project has become effective and another one at the endo f the project. Due to the nature o f the proposed project, these audit reports would be required within45 days subsequentto the reportingperiods. This means that the normal legalrequirement o f IDA for submission ofthe audit report within six months of the endofthe financial year will not be applicable. The costs incurred for the audit will beborneby  Tanzania Emergency Power Supply Project 24 Technical Annex TANESCO through its normal operating budget. Duringnegotiations, the terms ofreference for the external auditor were discussedand agreed. 76. FinancialManagement Risk. An evaluation o fTANESCO's financial management system was undertaken, and indicates that the financial management arrangements for the proposed project would satisfy IDA'Sminimumrequirements. Hence, the project financial management riski s assessedas beingnegligible. Retroactive Financing 77. The proposed credit would provide for retroactive financing inthe amount of US$8.8 million, equivalentto 20% of the proposed credit amount, to finance fuel and kWhexpenditures incurredbefore effectiveness of the proposed credit. Environmental and SocialImpact 78, An environmentalaudit ofthe project sites hasbeen completed byTANESCO, for which Terms of Reference were reviewedand approvedby IDA'. TANESCO has built up its capacity to undertake environmental audits and environmental impact assessments and has carried out similar assessments for SIDA. The objectives of the environmental audit are to assist the Government to determine the environmental liabilities and the need for remedial actions necessaryto bringthe facilities into compliance with Tanzanian Law andWorld Bank Safeguard Policies and environmental guidelines, and to protect the healtho f workers and the general public livinginthe area andthe environment. There i s no resettlement since theproposedproject involves existing generation sites. The sites impactedbythe proposed project include: (i) the IPTLPower Plant (100MW); and (ii) UbungoPower Plant (112MW), bothlocated inthe the outslurts o f Dar es Salaam. An Environmental ImpactAssessment and EnvironmentalAudit have already been carried out at the Ubungo Power Plant under Credits3569-TA and 2489-TA, and a summary of air quality monitoringi s preparedmonthly by Songas. Similarly, reports on the environmentalaspectsof the IPTLPower Plant, including air emissions, are prepared periodically byTANESCO. TANESCO's environmental unithas carriedout the environmentalaudit, which has beenreviewed and found satisfactory to IDA. The draft Environmentalaudit was issued to the InfoShop on May 7,2004 and has beenmade available inTanzania at TANESCO's Corporate Headquarters. VI: FINANCIAL AND ECONOMICJUSTIFICATION Potential Macroeconomic Impact of Severe Load-Shedding 79. Without assistance incovering the cost of importedfuel and energy purchases, TANESCO would load shed about 891 GWhduringMarch-December 2004, equivalent to about 27% ofprojected energy requirements in2004, or US$55 million inlost revenues to TANESCO. Byone estimate, the cost ofthis unservedenergy to the economy couldbe as highas US$550 million, or 6% of GDP. * At thetime of undertaking the Environmental Audit, the possibility of including diesel generators, to be leasedfrom Geita Gold Mining Ltd. and installed at TANESCO's Mwanza site, was under consideration and an assessmentof the Mwanza site was included inthe Environmental Audit. Since then, based on a review o f the hydropower situation it has been determined that leased generationat Mwanza will not be needed. Hence, financing for t h ~ component has been dropped from the proposedproject. s  Tanzania Emergency Power Supply Project 25 Technical Annex 80. Although it i s difficult to determine exactly the cost of unservedenergy, there is empirical evidence from Tanzania to show the impact of load shedding due to previous droughts. For example from the 1994Economic Survey, it is documented that there was a 3.8% decline in industrial growth mainly becauseof electricity shortages and subsequentloadshedding that started inSeptember 1994. Itwas also notedthat other services such as hotels, hospitals, and shops were adversely affected and forced to buy diesel generatorsto meet their demands. In 1997, the overall rate of economic growth dropped to 3.3% from 4.2% inthe previous year, on account o f electricity shortages. Recent surveys (including the draft 2004 Investment Climate Assessment), indicate that inadequate electricity supply i s already one o f the major constraints faced by industryinTanzania and is also a major impediment to the start-up of new businesses. It is clear that load shedding on the scale projectedwithout IDA support would have a very negative impact on the economy. FinancialImplications 81. See paragraphs 14-17: "Impact o f the Drought on the Power Sector" for discussion onthe financial impact of the drought on TANESCOandthe Government assistanceprovided so far. VII: ACTION PLAN PrincipleAgreementsReachedDuringNegotiations 82. The following agreements were reached duringnegotiations: 0 TANESCO will recruit consultants to carry out a study to review andrevise TANESCO's hydro-power operating regime, includingthe management of the Mtera reservoir, and the optimization of dispatch of the hydrokhennal system, to be financedunder Credit3569- TA. Training andsoftware/hardware requirements to implementthe newprocedures could also be included; 0 TANESCO will recruit experts to undertake a rapidassessment o f electricity demand- side managementmeasures, and to prepare a set o f practical measures which could realistically be implementedby TANESCO inthe short term, to be financed under Credit 3569-TA; and 0 Ifthe water level inthe MteraReservoirreaches696.5 meters at anypointintimeduring the execution ofthe proposedproject, the emergency power situationwouldbe deemedto have ended, and disbursementsunder the proposed project to addressthe emergency situationwould be terminated.  Tanzania Emergency Power Supply Project 26 Technical Annex Schedule A Emergency Power Supply Project Estimated Project Costs and Financing Plan Estimated Project Costs Project Cost by Component* Local I Foreign 1 Total US$ million Jet A1 Fuel 0.0 I 23.4 I 23.4 KilowattHoursProduced(IPTL PowerPlant) 0.0 43.4 43.4 INew GenerationPlant (2x36MW I 0.0 II 44.0 44.0 1 TotalFinancing Required 0.0 I 110.8 III110.8 under Credit 3569-TA through restructuring o fthe project. Project Cost by Category Local I Foreign I Total I- US$ million Goods -Jet A1Fuel --KilowattHoursProduced(IPTL PowerPlant) Enpineerinp/Procurement/Construction Contract* 0.0 44.00 44.0 Total Financing Required 0.0 110.8 110.8 Proposed Financing Plan Financing Plan (US$ million): Source Local I Foreign 1 Total US$million Government/TANESCO 0.0 I 23.0 1 23.0 Songas(CommercialDebt and Equity)* 0.0 44.0 44.0 IDA 0.0 43.8 43.8 Total 0.0 110.8 110.8  Tanzania Emergency Power Supply Project 27 Technical Annex Schedule B Summaryof ProcurementandDisbursementArrangements A. Summaryof ProcurementArrangements The procurementof all goodsto be financed underthe proposedproject will beprocuredby TANESCO inaccordancewith the Bank's Guidelines: Procurement under IBRI)Loans and IDA Credits (January 1995, revised inJanuary and August 1996, September 1997, and January 1999). A General Procurement Notice was publishedinthe UNDevelopmentBusiness onMarch 15, 2004. The invitation to bidfor eachICB contract has been advertised inaccordancewith the procedures applicable underparagraph 2.8 of the Bank's Procurement Guidelines. IDA has discussed and approved the procurement plan for the project. All contracts are subject to prior review. Total Program (inUS$Millionequivalent) Total Cost (incl. Expenditure Category Procurement Method Contingencies) ICB NCB Oth& N.B.F 1. Goods 23.4 0.0 43.4 44.0 110.8 (10.4)" (0.0) (33.4) (0.0) (43 .8) TotalProjectCost 23.4 0.0 43.4 44.0 110.8 OfwhichIDA-FundedCost (10.4) (0.0) (33.4) (0.0) (43.8) B. Summaryof DisbursementArrangements Theproject completion date is February 28,2005, andthe Credit ClosingDate is August 31, 2005. Retroactive financing inthe amount of US$8.8 million, or about 20% of the proposed IDA credit wouldbeprovidedfor expenditures incurred from project appraisal (March 1,2004) and before credit effectiveness. To facilitate disbursements, a Special Account will be established. Allocationof CreditProceeds ExpenditureCategory Amount (US$ million) Financing Percentage Goods Jet A1 fuel 10.4 100% IPTLPowerPlant-kwh(energy) 33.4 100%  Tanzania EmergencyPower Supply Project 28 Technical Annex SCHEDULEC PROJECTPROCESSINGSCHEDULEAND TEAM TIMETABLEOFKEY PROJECTPROCESSINGSTEPS Preparation / Pre-appraisal / Appraisal February 24 -March 1,2004 DecisionMeeting April 13,2004 Negotiations April26 -May 5,2004 PlannedBoardPresentation June 8,2004 PlannedEffectiveness June 10,2004 PlannedClosing August 31,2005 BANKPROJECT TEAM NNIlt? Specialty Karen Rasmussen Team Leader ReynoldDuncan Senior Power Engineer Wendy Hughes Senior Energy Specialist IanDavies Power Engineer (Consultant) Robert Robelus Senior Environmental Specialist Kristine Ivarsdotter Senior Social Development Specialist Marius Koen Senior FinancialManagement Specialist Gulam Dhalla FinancialAnalyst (Consultant) PascaleDubois Senior Counsel Steve Gaginis Senior Disbursement Officer HelenaKofi Procurement Analyst PascalTegwa Senior Procurement Specialist Janine Speakman Senior ProgramAssistant V. S. Krishnakumar LeadProcurement Specialist Vedasto Rwechungura Program Officer, Country Office Tesfaalem Iyesus Senior Procurement Specialist MangeshHoskote Senior Energy Specialist Ad Hoc Advisory Committee Richard Cambridge Lead Specialist BenFisher Consultant, OPCIL AlfredNickesen Manager, OPCIL Aberra Zerabruk Lead Counsel Gary Stuggins LeadEnergy Economist Barry Trembath Lead Power Engineer  TanzaniaEmergencyPower SupplyProject 29 Attachment 1 TechnicalAnnex MethodologyandAssumptions For CalculatingIncrementalThermalEnergyRequirementDueto the 2003 Drought A1.l TANESCO and IDAtogether developed a model to estimate the additional thermal electricity generation that would be requiredin2004 and 2005 as aresult of the impact of the 2003 drought. This "incremental energy requirement due to drought" is defined as electricity from thermal generation that would berequired, over and above the thermal generation that TANESCO would require givennormal hydrology and normal hydropower output. A1.2 Data was obtained from TANESCO's records and usingTANESCO's SYSIMmodel. Basedonhydrological data for the 1980-2003 period, it was agreedthat the inflow data for 2001 and 2002 fairly represent `normal', non-drought inflow patterns inTanzania's hydropower catchment areas. Basedupon this inflow data, the average energy actually generatedmonthby month from the hydropower plants in2001 and 2002 fairly represents the energy that could be expected from hydropower generation inanormal, non-droughtyear. * Al.3 Figure Al.1shows thisnormal hydropower generation, as defined above, as aportion of the actual total electricity demand in2003. The difference betweenthe normal hydropower output and the total demand is met by thermal generation, primarily from the IPTLPower Plant with a small contribution from a generator at amine feeding the main grid. The combinationof the IPTL and other thermal generation i s the level of thermal generation (i.e. the number of GWh each monthproduced from thermal power plants) that would be expected ina normal, non- drought year. A1.4 FigureA1.2 shows the actual hydropower generation in2003 as a fraction ofthe actual total electricity demand in2003. Comparing these two graphs, it is apparent that in2003 there was lesshydropower generation andmore thermal power generation than inanon-drought year. This is demonstrated bythe larger contributionfrom the IPTLPower Plant, andthe addition of two additional sources of thermal generation - grid-connected diesel (diesel) generation and the operationof two of the Ubungo Gas Turbines on Jet A1 fuel (GT Jet fuel) - inDecember 2003. Interestingly, the number of GWhgeneratedfrom hydropower in2003 i s only slightlylower than ina `normal' year. The effect ofmaintainingarelatively highoutput fromhydropower despite the 2003 drought was that the Mtera reservoir was fully depleted over the period. By the endof 2003 the reservoirlevel was within centimeters o f shut-down level. Al.5 The poor finishto 2003 interms o f water reserves inthe Mtera reservoir inevitably meant that TANESCO began 2004 with a greatly reduced potential for hydropower generation from Mteraandthe downstream KidatuPower Plant. Figure A1.3: "Emergency Power Generation Plan-Total Generation Requirement" shows the projected generation, by source, that would be requiredto meet the demand in2004. Note that the hydropower generation i s significantly lower than that for a "normal" year, reflecting the fact that output from Mtera and the downstream Kidatuwill be limitedbecause of the low starting level o f the Mtera Reservoir. Al.6 FigureAl.3 shows the IPTLPower Plant (IPTL) runningat maximumoutput inthe first halfo f the year, untilgas becomes available inearly July 2004. UntilJuly, the gas turbines at the Ubungo Power Plant will balance the shortfall runningon Jet A1 fuel (GTJet fuel), with a small contribution from grid connected diesel (diesel) generation. After commissioning o f the Songo Songo Gas Development and Power Generation Project (Credit 3569-TA) scheduled for around July 1,2004, Songas will assume ownership of the gas turbines at the Ubungo Facility. These four existing gas turbines will runonnatural gas (GT Gas) at maximumcapacity utilization, and the IPTLPower Plant will make up the balance. The figure shows that by October, maximum  Tanzania Emergency Power Supply Project 30 Attachment 1 Technical Annex output fi-om IPTLand the four existing Songas gas turbines wouldbe insufficient to meetthe demand as hydropower output falls off duringthe dry season. TANESCO i s targeting commissioning o f an additional, privately-financed 36MW gas turbine at the Ugungo Power Plant inOctober 2004. Al.7 Emergency" shows the impliedincremental thermal power generation for 2004 - i.e. the Figure Al.4 "Emergency Power Generation Plan-IncrementalRequirement Due to difference betweenthe thermal power generation requirement to meet the actual load, and the thermal generation that would havebeenrequired ina normal rainfall year. The proposed IDA Emergency Power SupplyProjectwould finance the incrementalthermal generation from the IPTLPower Plant, andJet A1 fuel for the incrementalpower generation from the gas turbines runningon Jet fuel. Al.8 A similar approachwas usedto project the incrementalthermal energy requirementsfor 2005. These projections show the need for a secondnew 36MW gas turbine inJanuary 2005. Boththese additional gas turbines are proposed to be financed, owned and operated by Songas, theprivate sector gas andpower company, established under Credit3569-TA. Evenwith 2x36MW ofnew gas turbines inoperation inearly 2005, the IPTLPower Plant will continue to be runat a highcapacity factor in2005, inorder to allow the Mterareservoir to recover. Given the impact o fthe significant cost o frunningthe IPTLPower Plant on imported fuel (approximately US$4.1 million per month at a 90% load factor), the economic and financial assessment supports converting the existingWartsila 38 lOxlOMW mediumspeeddiesel generators to naturalgas-firing. Once the additional 2x36MW gas turbines have been installed, one by one the generating units o f the IPTLPower Plant would be taken off-line for conversionin a phasedmanner, to avoidreducing available capacity below a levelneededto meet demand.  Tanzania Emergency Power Supply Project 31 Attachment I Technical Annex figure AI.I 2003 Actual Demandwith 'Normal' (Non-drought) HydropowerGeneration 300.00 250.00 200.00 ipn f 150.00 Other (3 Hydro 100.00 50.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months Figure AI.2 2003 Actual Demand with Actual Generation 300.00 250.00 200.00 IPTL 8 Other 150.00 GT Jet fue Diesel 100.00 Hydro 50.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months  Tanzania Emergency Power SupplyProject 32 Attachment 1 Technical Annex Figure A1.3 Bnergency Power Generation Plan -Total Generation Requirement 2004 Projected Demandwith Estimated Generation Based on Probable Hydropower Scenario 350.00 300.00 w i p n 250.00 Other 200.00 New GT 150.00 llliGTGas 100.00 Q GT Jet fue 50.00 Diesel 0.00 Hydro Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Figure A1.4 BnergencyPower Generation Plan Incremental Requirement Due to Bnergency - 2004 ProjectedDemandwith EstimatedGenerationBasedon Probable HydropowerScenario 140.00 120.00 100.00 w ipn 80.00 New GT 60.00 GT Gas 40.00 HGTJet fuel 20.00 Diesel 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months  Tanzania Emergency Power Supply Project 33 Attachment2 Technical Annex Statusof BankOperations Difference between expected andactual Original Amount in US$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO71014 2004 HIVIAIDS 0.00 0.00 0.00 0.00 0.00 72.65 -1.14 0.00 PO82335 2004 Second HealthSector Dev. 0.00 40.00 0.00 0.00 0.00 66.13 6.67 0.00 PO59073 2003 DAR WATER SUP & SANITATION 0.00 61.50 0.00 0.00 0.00 57.41 3.52 0.00 PO67103 2003 Partic. Agr. Dev. and EmpowermentProj. 0.00 56.58 0.00 0.00 0.00 58.33 2.35 0.00 PO47762 2002 RURAL WATER SUPPLY 0.00 26.00 0.00 0.00 0.00 26.91 8.20 0.00 PO58706 2002 TZ ForestConservationand Management 0.00 31.10 0.00 0.00 0.00 34.02 8.14 0.00 PO71012 2002 PrimaryEduc. Dev. Program 0.00 150.00 0.00 0.00 0.00 55.65 31.54 0.00 PO73397 2002 Lower Kihansi EnvironmentalManagement 0.00 6.30 0.00 0.00 0.00 5.20 1.80 0.00 PO02797 2002 TZ SONGO SONGOGAS DEV. & 0.00 183.00 0.00 0.00 0.00 118.49 84.06 0.00 POWERGEN. PO65372 2001 SocialAction Fund 0.00 60.00 0.00 0.00 0.00 8.20 -11.84 0.00 PO69982 2001 RegionalTrade Fac.Proj. - Tanzania 0.00 15.00 0.00 0.00 0.00 9.04 2.67 0.00 PO60833 2000 PUBLIC SERV REFPROG 0.00 41.20 0.00 0.00 0.00 28.07 -14.79 0.00 PO49838 2000 PRIVATIZATION 0.00 45.90 0.00 0.00 0.00 30.73 25.15 0.00 PO50441 2000 RURAL& MICRO FINSVC 0.00 2.00 0.00 0.00 0.00 1.oo 0.93 0.20 PO02822 2000 TANZANIA PSAC I 0.00 190.00 0.00 0.00 0.00 43.74 -151.60 0.00 PO57187 2000 FIDP I1 0.00 27.50 0.00 0.00 0.00 13.85 12.28 1.65 PO47761 1999 TAX ADMINISTRATION 0.00 40.00 0.00 0.00 0.00 21.36 17.15 4.81 PO02804 1998 AGRIC RESEARCH 0.00 21.80 0.00 0.00 0.00 0.76 1.09 0.00 PO02789 1998 Human Res. Dev. I 0.00 20.90 0.00 0.00 0.00 0.91 0.04 0.00 PO46837 1997 TZ:LAKE VICTORIA ENV. (IDA) 0.00 10.10 0.00 0.00 0.00 1.49 -3.31 0.00 PO38570 1997 TZ:RIVER BASINMGMSMAL 0.00 26.30 0.00 0.00 0.00 1.44 3.17 0.00 PO02758 1996 URBAN SECTOR REHAB 0.00 105.00 0.00 0.00 0.00 8.24 14.53 0.00 PO02770 1994 TZ ROADS I1 0.00 170.20 0.00 0.00 63.53 24.25 92.67 35.58 Total: 0.00 1,330.38 0.00 0.00 63.53 687.87 133.28 42.24  Tanzania Emergency Power Supply Project 34 Attachment 3 Technical Annex TANZANIA STATEMENTOFIFC's HeldandDisbursedPortfolio InMillions ofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1997 AEF Aquva Ginner 0.68 0.00 0.00 0.00 0.68 0.00 0.00 0.00 1998 AEF Blue Bay 1.24 0.00 0.00 0.00 1.24 0.00 0.00 0.00 2001 AEF Boundary Hi1 0.20 0.00 0.00 0.00 0.20 0.00 0.00 0.00 1996 AEF Contiflora 0.07 0.00 0.00 0.00 0.07 0.00 0.00 0.00 1998 AEF MajiMasafi 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1994 AEF Moshi Lthr 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2000 AEF Zan Safari 0.52 0.00 0.00 0.00 0.52 0.00 0.00 0.00 2002 EximBank 2.50 0.00 1.oo 0.00 1S O 0.00 1.oo 0.00 1996 IHP 0.35 0.60 0.00 0.00 0.35 0.60 0.00 0.00 2000 IOH 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 2000 NBC 0.00 10.00 0.00 0.00 0.00 3.44 0.00 0.00 1993 TPS (Tanzania) 4.38 0.87 1.04 0.00 4.38 0.87 1.04 0.00 1991I97 TPS Zanzibar 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1994 TanzaniaBrewery 0.00 6.00 0.00 0.00 0.00 6.00 0.00 0.00 Total portfilio: 12.62 17.69 2.04 0.00 11.62 11.13 2.04 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. Totalpendingcommittment: 0.00 0.00 0.00 0.00  Tanzania Emergency Power Supply Project 35 Attachment4 Technical Annex Country at a Glance Sub- POVERTY and SOCIAL Saharan Low. Tanzania Africa income Development diamond' 2002 Population, mid-year(miliions) 35.2 688 2,495 Lifeexpectancy GNIpercapita (Atlas method, US$) 280 450 430 T GNI(Atlas method, US$ biilions) 9.9 306 $072 Average annual growth, 1996-02 Population (w 2.4 2.4 19 Laborforce (%) 2.5 2.5 2.3 GNI Gross per primary M o s t recent estimate (latest year available, 1996-02) capita nrollment Poverty(%of populafionbelownationalpoveftyline) Urbanpopulation (%of totalpopulation) 34 33 30 Lifeexpectancyat birth (years) 43 46 59 Infant mortality(per looolivebMhs) a 7 a5 81 Childmalnutrition (%of childrenunder5) 29 Access to improvedwater source Access to an improved water source (%ofpopulation) 68 58 76 Illiteracy(%of populationage rS+) 23 37 37 Gross primaryenroilment (%of school-age population) 63 86 95 -Tanzania Male 63 92 133 Female Lowincome group 63 80 87 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 GDP (US$ billions) Economic ratios' 4.6 9.3 9A Gross domestic investmentlGDP .... 27.2 l7.O l7A Exportsof goods and ServiceslGDP .. a.4 5.3 6.7 Trade Gross domestic savingslGDP 0.3 8.4 135 Gross nationalsavings/GDP .... 6.2 7.3 13.1 T Currentaccount balancelGDP .. -15.5 -7.9 InterestpaymentslGDP Domestic 12 0.4 0.6 Investment Total debtiGDP .. savings 145.1 715 772 Total debt servicelexports 23.6 42.2 a.3 7.8 Presentvalueof debt/GDP 14.4 1 Presentvalue of debtlexports 89.9 Indebtedness 1962. I 9 2.02 2001 2002 2002-06 (averageannualgrowlh) GDP 4.O 6.1 6.3 -Tanzania GDP Dercapita 13 3.8 4.1 Lowincome group ~ STRUCTURE of the ECONOMY (%of GDP) Agriculture Industry Manufacturing Services Privateconsumption Generalgovernment consumption 8.6 117 a.5 Imports of goods and services .... 39.4 23.9 23.6 -GDI W G D P 1982-92 1992-02 2001 2002 (averageannualgrowlh) Agriculture .. 3.6 5.4 5.0 industry .... .. 5.3 6.9 9.3 Manufacturing 4.3 5.0 7.8 Services 3.7 5.5 6.2 Private consumption .. 3.9 24.0 2.3 Generalgovernment consumption 19 -32.6 0.6 Gross domestic investment 0.7 5.8 6.7 Imports of goods and services .... 2.3 8.5 -3.3  Tanzania Emergency Power Supply Project 36 Attachment 4 Technical Annex Tanzania PRiCES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (%change) I30 x I Consumer prices 26.9 218 5.2 4.6 implicit GDP deflator 25.4 6.2 4.2 Government finance (%ofGDP, includes currentgrants) Currentrevenue 12.7 114 1.15 97 98 99 00 01 02 Currentbudgetbalance 0.6 -0.7 -14 I O i 0 4 ~ Overallsurplusldeficit -16 -5.0 -5.7 TRADE 1982 1992 2001 2002 (US$millions) Export and import levels (US$ mill.) Total exports (fob) 411 414 772 737 2.0007 Coffee ?34 60 57 70 Cotton 56 96 33 41 Manufactures 43 64 56 36 Total imports (cif) 1P8 1357 1726 1.889 Food 0 6 25 1s9 Fuelandenergy 256 142 0 6 I Capitalgoods 527 639 755 0a Exportpriceindex(S95=00) 66 75 151 156 98 97 98 99 00 import priceindex(S95=00) 77 0 1 0 2 10 Exports mlrrports Terms of trade (S95=lOO) 1P 74 148 141 O' O2 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balance to GDP (%) Exportsof goods and services 645 546 1,430 1569 0 imports of goods and services I201 1,665 2232 2224 Resource balance -556 -1,337 -602 -656 -2 Net income -65 -187 -65 -45 .4 Net currenttransfers 24 456 -29 0 -8 Currentaccount balance -523 -714 -736 Financingitems (net) 524 8l7 909 -8 Changesin net reserves 0 -02 -VI -347 -x) Memo: Reserves includinggold (US$millions) Conversion rate (DEC,local/US$) 9.3 297.7 676.4 966.6 i EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ miii.) Total debtoutstanding anddisbursed 6,202 6,675 6,679 7,238 iBRD 211 l71 6 6 IDA G:606 A:6 414 I 1618 2,568 2,869 Total debt service 152 235 154 P6 IBRD 25 45 4 3 IDA 4 B 35 22 6 2.869 Composition of net resourceflows Officialgrants 309 697 927 Official creditors 231 263 93 7 9 Private creditors 31 -45 -21 -21 Foreigndirect investment l7 P 224 Portfolio equity 0 0 0 D 717 400 World Bank program Commitments 71 60 355 57 Disbursements 0 7 235 129 U6 t:i:? E - Bilateral D Other mltilateral F- Private Principalrepayments 0 39 23 6 1 ~ ~ C-IMF G- Short-terr  MAP SECTION