Tanzania - Issues and options in the energy sector

Report No. 49b4}-1A Tanzania: Issues and Options in the Energy Sector November 1984 Report of the Joint UNDPWobrld Bank Energy Sector Assessment Program This :dixcunent-has a restricted distribution. Its contents mav no.t be disclosed withoutl auiberination from- the Gwvernrment, thie UNDP or the WVorld Bank.  -V~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i 14 V ::JOINT U14DP/WORLD'BANK ENERGY SECTOR-ASSESSMENT PROGRAM REPORTS ALREADY ISSUED, > .., . ~ ~ ~~outrDate -Number, Indonesia' November 1981 35543-IND; - Mauritius December: ' 981 ; 3510-MAS Kenya - May 1982 3800-KE Sri Lanka May 1982 3792-CE Zimbabwe june 1982 3765-ZIM ,f Haiti -June 1982 3672-HA Papua New Guinea June 1i982 3882-PNG Burundi -June 1982 3778-BU Rwanda : June I1982 3779-RW MaLawi :August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia Januarv 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-FIJ Solomon Islands June 1983 4404-SOL Senegal July 1983 4182-SE Sudan JuLy 1983 4511-SU Uganda July 1983 4453-UG Nigeria August 1983 4440-UNI Nepal August 1983 4474-NEP Gambia November 1983 4743-GM Peru anuary 1984 4677-PE Costa Rica January 1984 4655-CR Lesotho *anuarv 1984 4676-LSO SeychelLes January 1984 4693-SEY Morocco March 1984 4157-MOR Portugal April 1984 4824-PO Niger May 1984 4642-NIR Ethiopia JuLy 1984 4741-ET Cape Verde August 1984 5073-CV Guinea Bissau August 1984 5083-CUB Botswana September 1984 4998-BT St. Vincent and the Grenadines September 1984 5103-STV St. Lucia September 1984 5111-SLU Paraguay October 1984 5145-PA ? ; E  FOR OFFICIAL USE ONLY Report No. 4969-TA TANZANIA ISSUES AND OPTIONS IN TEE ENERGY SECTOR NOVEKBER 1984 This is one of a series of reports of the Joint UNDP/World Bank Energy Sector Assessment Program. Finance for this work has been provided, in part, by the UNDP Energy Account and the Canadian International Develop- ment Agency through the UNDP; and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank.  ABSTRACT Tanzania's economic crisis has led to a contraction in the monetary productive sector, reduced export earnings and a shortage of foreign exchange to purchase recurrent essential imports, including crude oil and petroleum products. One objective of the Structural Adjustment Program (launched in November 1982) was to stimulate the deveLopment of alternative indigenous energy sources while economizing on the use of imported fuel. In this context, the discovery of significant quantities of natural gas off the coast presents Tanzania with some options which could influence further macroeconomic developments through their effect on the foreign exchange situation, notably by reducing imported petroleum products. This report reviews Tanzania's energy resources, incLuding the natural gas reserves. hydroelectricitv, biomass and coal deposits. The report then goes on to make demand projections for a fifteen-year period for each subsector (petroleum. electricity, coal, firewood and charcoal) using two macroeconomic growth scenarios. The main issues and options discussed include: optimal utilization of the natural gas reserves; least-cost system expansion and supply reliability in the power sub- sector; and increased fueLwood production. The report's recommendations focus particularly on investment options and strategies, technical assistance requirements, institutional strengthening and energy con- servation.  ABBREVIATIIGS CAMERTEC - Center for Agricultural Mechanization and Rural Technology CIDA - Canadian International Development Agency EEC - European Economic Commumity ESKAP - Joint UNDP/IBRD Energy Sector Management Assistance Program FAO - Food and Agriculture Organization CTZ - German Agency for Technical Cooperation IMP - International Monetary Fund kfW - KreditanstaLt fur Wiederaufbau KILAMCO - Kilva Ammonia Company MNRT - Ministry of Natural Resources and Tourism MWEM - Ministry of Water, Energy and Minerals NORAD - Norwegian Agency for Development RUBADA - Rufiji Basin Development Authority SAP - Structural Adjustment Programme SIDA - Swedish International Development Agency STAMICO - State Mining Corporation TANESCO - Tanzania Electric SuppLy Corporation TARECO - Tanzania Rural Electrification Corporation TIRDO - Tanzania Industrial Research and Development Organization TIPER - Tanzanian-Italian Petroleum Refining Company TPDC - Tanzania Petroleum Development Corporation TWICO - Tanzania Wood Industries Corporation UNDP - United Nations Development Programme UNIDO - United Nations Industrial Development Organization UTAFITI - Tanzania National Scientific Research Council This report is based on the findings of an energy assessment mission which visited Tanzania in June 1983. The mission comprised: R. Bates (Mission Leader), M. Kiwana (Report Coordinator), S. Chitale (Country Economist), E. Terrado (Renewables Specialist), H. Wagner (Forester), V. Mastilovic (Power Engineer), C. Schramm (Energy Economist), C. Poncia (Petroleum Economist), H. Burmeister (Industry and Energy Conservation Specialist), C. Das Gupta (Refinery Engineer Consultant), and C. Mortimer (Cas Specialist, Consultant).  CURRENCY 0QUIVALENTS 1 Tanzania Shilling = US$0.082 Tsh 12.18 = US$1.0 a/ Tsh 9.33 = USS1.0 b/ MEASUREMENTS Bbl BarreL of Oil = 0.15899 Cubic Meter; 42 US Gallons: 35 Imperial Gallons BTU British thermaL unit = 0.252 kilocalories Btuh British thermal unit/hour CF cubic foot = 0.02832 Cubic Meter Callon = 3.7853 Litre CWh Gigawatt-hour = 1,000,000 kilowact-hours(kWh) K (k) KiLo = 1,000 km Kilometer = 0.62 miles = 1000 meters kV Kilovolt (kV) = 1,000 Volts kWh Kilowatt hours = 1,000 Watt Hours lT/hr pounds/hour m cuoic meter = 6.289 barrels MCFD thousand cubic feet per day MMCF milLion cubic feet MVA megavolt ampere = 1,000 kilovolt amperes MW Megawatt = 1,000 Kilowatts (kW) MWh megawatt hour = 1,000 kilowatt hours TOE (toe.) tonne of oiL equivalent = 39.68 million BTU tonne metric ton = 1,000 kilogram (kg); 2,204.6 Pound (lb) Tpd tonnes per day Tpy tonnes per year TANZANIAN FISCAL YEAR Julv i - June 30 a! As of March 1983. b/ 1982.  ENERCY CONVERSION FACTORS Fuel Million Kcal per Unit Physical Units per TOE Liquid Fuels (tonne) Crude Oil 10.2 1.00 LPG 10.8 0.94 Kerosene 10.3 0.99 Jet Fuel 10.4 0.98 Gasoline i0.5 0.97 Gasoil 10.2 1.00 Industrial Diesel Oil 10.1 1.01 Fuel Oil 9.8 1.04 Natural Gas (mmcf) 252 0.04 Electricity (MWh) 86 x 10-2 4.0 Coal (tonne) 5.6 1.82 Fuelwood (tonne) 3.5 2.91 Charcoal (tonne) 7.0 1.46 Memo Items 1 TOE = 10.2 million kcal = 40.5 miLlion BTU = 42.7 GJ 1 kcaL = 3.968 BTU 1 kcal = 4.19 x 10 v GJ 1 MWh = 860,000 kcal = 0.248 TOE at 34% efficiency in thermal (oil) generation  TAULE OF WNTBTS Page KEY ISSUES AND RECOMMENDATIONS ................................... .,i-xdi I. ENERGY AND THE ECONOM,Y OF TANZANIA .........................s 1 Recent Macroeconomic Situation............................ 1 Overview of the Energy Sector. ..... ........... ....... ... 3 Commercial Energy Sources ...... . ***S6C ................. 3 Electricity ...................................... 6 9 Noncommercial and Other Energy Resourceso................ 10 II. ENERGY RESOURCES ..................2..... 12 Introduction............................................. 12 Petroleum and Gas....................................... 12 Exploration Activities ................. .........o . .... 12 Gas Resources and Petroleum Potential .................. 14 Hydroelectric Power...o...............0* 15 Potential .......me................ ...see............ . mc....... ... 15 Future Stutles........................................ is 18 Hydrological Data ..................................... 19l Coal..................................................... 19 Resources .............................................. 19 ProductiLon ..........e.....e...........ee.....e...e.....s 20 Development Prospects ... 20 Fuelwood................................................. 22 * 22 Resources ...................................... 22 The Deforestation .............. ...... .......... ... . 23 Nonconventional Energy .......................... 24 Resources..* c....... ................c. .c 24 Surplus Softwood, Forest Residues and Wood Processing Wastes ...... ... ... . ccc... 24 Agricultural Residues.................................. 24 Animal Wastes ..ccmcmm......................... 25 Sugar Industry Residues.......... e. mc.................... 26 Solar and Wind Energy.... m.ccmm.m.c.c..m.cmc.cmm.cc.... 26 Geothermal Power and Uranium Deposits .................. 27 Conclusionee...m..m..c.m.cc.c.c..............mcme......... 27 III. DEMAND FORECAST SCENARIOS .. ............... ..... 99sesesese.. 28 Introduction. mc..e.m.c....c..c.ce...c.ec..........................e.. 28 Total Coumercial hrergy ................ ...........................me..... c 29 Electricity ............... ............ ..... m. . 31 Fuelvood. . ......... c. m.c......... mm...... .........in................. 34 IV. ENERGY SUPPLY AND INTER-FUEL SUBSTITUTION . ................. 38 Introduction ............................................. 38 Petroleum Products .............. .... ... .. 39 Refining ................. ~~~39  Page Distribution, Transport and Storage .................... 44 Allocation Policy. .................... 45 Natural Gs.............. 46 Methodology of the Economic Evaluation................. 46 Overall Results ........ ....... 47 Industrial Substitution Market .........................0 50 Power Generation Market................... ......... *.. ...00 51 Fertilizer Production ............................e.ge..o 53 Methanol Production ........ 55 Transportation. .*........ ............... *... 55 Mnazi Bay Reserves ................. 57 Conclusions and Recommendations for Gas ................, 57 Electric Power........ ...... ................ 58 The Least-Cost Expansion Program............ ........ 59 Reliabil ty of Public Power Supply . .................... 63 Coalos.6........................ 66 The Traditional Coal Market.... g.g. .g....... g.m.....@ 66 Electric Power Generation............ ................ 67 The Industrial Market .............g......... 68 The Coal Export Market.000. ..0 ....eg gem....... ... g 69 Reliability of Coal Supply ................g.........* ....... 69 The Delivered Cost of Cosl............................. 70 Fuelwood.....o...g.. ... ... ... .. ....gmggggeg gg.. 72 Nonconventional Energy.................. ................. 76 Conclusions ............................................. 79 Commercial Energy ...... .. .... .. ......... .... 79 Noncommercial and Nonconventional Energy ............ 0... 84 V. DEMAND MANAGEMENT ..............................e........e... 86 Introduction.. ........................................... 86 Energy Pricing.........m... 86 Petroleum Products .......... ........ .......e.... . 86 Natural Gas............................................ 87 Electricdity .......... 00.0.0 ..................................... 91 Coal and Fuelwood ...e................ 93 Energy Conservation in Industry.e.e..... e.e............. 93 Fuelwood Conservation. ....Ce..U.eee.eeee.OSS e.e.c...... C 95 VI. INSTITUTIONS AND MANPOWER IN THE ENERGY SECTOR ............. 100 Introduction ........................................ 100 Petroleum, Power and Coal................................ 100 Ministry of Water and Energy (MWEM) ...................... 100 Tanzania Electric Supply Company (TANESCO) ....... goes 101 Rufiji Basin Development Authority (RUBADA) ............ 102 Tanzania Petroleum Development Corporation (TPDC)...... 102 Tanzania-Italian Petroleum Refining Company (TIPER).... 103 State Mining Corporation (STAMICO) ....................... 104 Renewablese....g.g..eeeCgmg.gee ...mo..g.meg. 105 Forestry ...... see .............................. * ... 105 Nonconventional .................. ...... .......... 106  Page Sector Coordination and Planning ......................... 108 An Institutional Framework for Cas ........... ....... 109 VII. INVESTMENT AND TECHNICAL ASSISTANCE IN THE ENERGY SECTOR ...................... ......... 112 Investment Requirements .... ........ ...... ........ ...... 112 Technical Assistance ......... ........................... 116 ANNEXES Annex 1 Energy Balance 1981 .................. . 121 Annex 2 Regional Fuelwood Consumption Estimates (1981)...... 122 Annex 3 Fuelwood Availability by Region g......... .... 123 Annex 4 National Storage Facilities for Petroleum Proutr.......... u c ts........fo.o. 124 Annex 4(a) Petroleum Product Prices, June 15, 1984...... 4..... 125 Annex 5 Illustrative Breakdown of Potential Gas Market for Cases IV - VII 126 Annex 6 Cas Supply Systems Selected for Economic Evluton........ o . i.e ..o. 127 Annex 7 Gas Supply Cost Estimat e. 128 Annex 8 Gas Depletion and Long-run Marginal Supply Costs for Cases I through V I I 129 Annex 9 Economic Evaluation Summary of Cases Considered 130 Annex 10 Potential Industrial Gas Market 131 Annex 11 Economic Cost of Coal and Fuel Oil at Selected Bulk Delivery Points (US$) ......................... o 132 Annex 12 Tanzania Electric Supply Company Limited - Tariff Schedule Effective Since Jan. 1, 1983 ....... 133 ANNEX 13 TANESCO, Long-run Average Ineremental Costs; SAP Scenario Data Base.. e .. ... . ..135 Annex 14 Village Afforestation Program Organization 136 Annex 15 Urban Energy Plantation Project 137  KEY ISSUES AnD UECOIXDDfOI5S The Energy Sector and the Economy 1. At the heart of Tanzania's present economic difficulties lies an acute shortage of "free" foreign exchange; 1/ the shortage has resulted in falling agricultural production and low industrial capacity utilization. To deal with this situation, the Covernment launched a structural adjustment program (SAP) in 1982, which aims at alleviating the scarcity of foreign exchange and consequentLy stimulating agri- cultural production and increasing the degree of industrial capacity utilization (paras. 1.3-1.8). 2. The petroleum subsector occupies a key position in this program. Althougb the consumption of petroLeum products represents only about 7% of total energy consumption (Table 1), it accounts for more than half of Tanzania's "free" foreign exchange, a proportion which has cisen rapidly since the Late 1970s. Hence, petroleum imports compete more and more with other imports essential for economic growth. On the other hand, the avaiLability of adequate supplies of petroleum products is essential to stimulate the monetized part of the economy. Industry and transport consume nearly 80Z of all petroleum products (Table 2). If the SAP is effective, commercial energy consumption can be expected to increase more than twofold between 1981 and 1996. These complex interrelationships between the use of petroleum products, economic growth and foreign exchange resources pose a difficult issue of choice for the Government: how to achieve an optimal balance between the import of petroleum products and the import of other inputs necessary for economic revival (paras. 1.11-1.16). Table 1: FINAL ENERGY CONSUMPTION, 1981 Thousand Toe Percent Fuelwood 7,950 88.1 Charcoal 350 3.9 Coal 3 0.0 Electricity 59 0.6 Petroleum 664 7.4 Total 9,026 100.0 1/ "Free" foreign exchange is defined as export earnings and foreign aid which is not tied to specific projects.  - ii - Table 2: DISTRIBUTION OF PETROLEUM PRODUCTS BY CONSUMING SECTOR Thousand toe Percent Industry 143 21.5 Conmerce 30 4.5 Transport 372 56.0 Households 76 11.5 Agriculture 33 5.0 Other 10 1.5 Total 664 100.0 3. At the same time, there is a growing crisis in the non-com- mercial energy sector. The wide gap between the current level of fuel- wood consumption (39.2 million m p.a.) and sustainable fuelwood produc- tion (16.0 million m3 p.a.) is Leading to severe deforestation in practically all regions (paras. 1.23-1.24; 2.32-2.33). The potential consequences are severe, given the high population growth rate (3.3X p.a.) and the fact that fuelwood (including charcoal) constitutes over 90% of finaL energy consumption (Table 1). By the year 2000, the productive capacity of the natural forests could be reduced by as much as 25%. At that time, forced widespread use of cattle dung and agricultural residues would contribute to severe depletion of the agricultural soils and drastically reduce their productive capacity. Consequently, more land would be required to grow the same amount of food, thus increasing the competition for land. 4. The Government is welL aware of the energy supply problem and one of the main SAP strategies is the development of indigenous energy resources; this would reduce the country's present dependence on imported petroleum and decelerate the erosion of the nation's forest capital. A second element of the SAP is the setting of appropriate pricing policies to recover the economic costs of supply and to regulate consumer demand. In this context, it is encouraging to note that Tanzania has abundant hydroelectric and coal resources; and substantial natural gas reserves have recently been discovered off the coast. Tanzania also has an excellent forestry potential, although it must be carefully husbanded if it is to continue to play its important role in the energy sector. Other biomass resources, in the form of various residues and wastes, are considerable and solar and wind energy may offer some long-term potential. Finally, there is evidence of geothermal activity and uranium deposits.  - 2.11 - Immediate Priorities 5. Based on its analysis of the various supply and demand options, the mission proposes the following immediate priorities for tackling Tanzania's energy problems: (a) increase fuelwood production through better forestry practices, more efficient use of existing resources, research, training and more planting for energy applications (paras. 4.91-4.97); (b) secure and protect the existing Songo-Songo wells (para 2.8); (c) carry out certain essential but modest measures to make the refinery economically viable, including overdue repairs and replacements, debottlenecking, fuel conse.-vation, a change in the type of crude oil processed and a change in product rpecifications (paras. 4.7-4.13); without these measures,it would clearly be preferable to shut down the refinery and import all refined products (para. 4.14); (d) improve the reliability of the power system to support increases in agricultural production and the degree of industrial capacity utilization, by strengthening and rehabilitating generation, transmission and distribution facilities (paras. 4.61-4.69); (e) continue with the extension of the main power grid which is presently under way, to utilize as fulLy as possible existing hydroelectric facilities and the new hydroelectric plant under construction, with consequent savings in gas oil and industrial diesel oil (paras. 1.20; 4.70); (f) foster industrial energy conservation to reduce petroleum imports; and fuelwood conservation to reduce the pace of deforestation (paras. 5.20-5.35); (g) carry out feasibility studies for developing natural gas as a substitute for the use of fuel oil, industrial diesel oil and gas oil in domestic industry and in power generation (pa-as. 2.11; 4.33-4.40; 4.52); (h) do not commit a major part of the existing known gas reserves to a single high-risk export use, such as fertilizer produc- tion, without a contract which ensures that this use will pay a gas price which more than covers the full economic costs of supply (paras. 5.9); (i) adhere firmly to the economic pricing of energy in the domestic market and full cost recovery to manage properly the level of energy demand; to allocate energy demand efficiently between different fuels; and to mobilize investment resources (paras. 5.1-5.19);  i iv - (j) focus efforts of non-forestry biomass usage towards increased substitution for fuelvood and imported petroleum products (paras. 4.98-4.105); and (k) strengthen energy sector management and energy planning co- ordination, both at the level of overall sector planning and within the individual energy agencies (paras. 6.32-6.37). Although not studied by the mission, the Government considers that high priority should also be attached to increasing the storage capacity for petroleum products in the region in view of the major problem with the transport network and to rehabilitating the number of vehicles and ships dedicated to petroleum products distribution. Furthermore the possibility of obtaining petroleum supplies from neighbouring countries on a short-term basis for the northern region should be investigated (paras 4.19-4.20) and attention should be given to streamlining the procedures for making foreign exchange resources available to institutions in the energy sector (paras. 4.8; 4.25; 4.65-4.69). The mission's conclusions and recommendations with regard to dealing with priorities (a)-(k) are considered under three headings: policy measures; investment options; and technical assistance requirements. Policy Measures 6. The prices of all the main petroleum products are at least equal to their economic opportunity costs, if the international (border) prices are converted at a shadow rate of foreign exchange of US$1 = TSb. 18.5. Of course, the use of a higher shadow exchange rate would increase the economic opportunity costs expressed in local currency terms. However, at the particular shadow rate assumed here, the government is in effect levying a substantial tax on petroleum products as a whole. The main policy question, therefore, concerns the extent to which petroleum product prices should be used as a vehicle for general tax purposes. Such a question is beyond the scope of an energy assessment report and requires a careful evaluation of the effects of different taxation forms on the economy as a whole, taking into account alternative methods of raising tax revenues and their effect on resource allocation. 7. The pricing situation is less satisfactory in the electricity subsector. Tariffs are not sufficient to meet TANESCO's medium-term financial requirements for internal cash generation; and the tariff level is below the estimated average incremental cost of supply in the medium- term. 2/ The mission considers that the full economic implications of TANESCO's present policy of a uniform national tariff should be reviewed, since it involves a substantial subsidy from users in the low-cost main grid to consumers in the high-cost isolated systems and fails to give 2/ However, it is close to the long-run cost if the relatively inexpensive gas-fired turbines become available in the early 1990s.  v appropriate signals to the latter concerning the economic costs which their consumption creates (paras. 5.11-5.13). Finally, there are inadequacies related to the internal structure of electricity tariffs. The mission therefore recommends that the Government take immediate action on the tariff level, according to financial requirements, and subsequent action to improve the structure and regional differentiation of tariffs, when the results are available from the study of long-run marginal costs which is being financed under the Fourth Power Project (paras. 5.14-5.17). 8. Subject to detailed feasibility studies, natural gas could become available in Dar-es-Salaam in the second half of the 1980s. Major decisions will face the Government in gas pricing. Natural gas is expected to enjoy a substantial cost advantage over other fuels. While some of this advantage should be passed on to local industrial and commercial users, to induce the desired substitution of gas for imported petroleum products, the Government should aim to set gas prices above the long-run economic costs of supply in order to generate tax revenues (paras. 5.6-5.8). A similar policy should be pursued with regard to the proposed fertilizer plant at Kilwa: in the mission's view, it is essential that the Government charge a gas price which covers the full economic costs of supply - i.e. the sum of the direct (physical) cost and the depletion cost -- plus a margin to capture for the Government some of the high resource value of the gas (economic rent). In this way, the Government will avoid subsidizing a large export consumer and avoid creating inequities in the treatment of local users (paras. 5.9). 9. Responsibility for energy supplies rests with a multiplicity of agencies. The Ministry of Water, Energy and Minerals (MWEM) handles hydrocarbons, hydroelectricity, coal and uranium; the Ministry of Natural Resources and Tourism (MNRT) deals with fuelwood; while the Prime Minister's Office also is involved with village woodlots and village electrification through its rural development responsibilities. Apart from being responsible for policy formulation, the Ministries supervise the activities of various parastatals. In the case of MWEM, these are: the Tanzania Petroleum Development Corporation (TPDC); the Tanzania- Italian Petroleum Refining Company (TIPER); the Tanzania Electric Supply Corporation (TANESCO); the Rufiji Basin Development Authority (RUBADA); and the State Mining Corporation (STAMICO). Finally, there are Ministries which have an important impact on the energy sector although they are not directly responsible for energy supplies, e.g. the Ministries of Agriculture, Transport and Industry (paras. 6.1-6.28). 10. To ensure a more effective cenrral coordination between the agencies responsible for energy supply and a more integrated long-term planning of energy supplies, the mission recommends the creation of a small team of energy specialists based in MWEM and reporting to an Inter- Ministerial Energy Commission. The team would correlate and evaluate information on all proposals and projects involving large new energy demands and significant new energy supply prospects and options. The existing gap in planning and implementing work on non-conventional energy  - vi - sources could be filled by the appointment of a renewable energy expert as a member of the energy planning team. The Energy Commission would be a newly-created committee of Principal Secretaries from all the Ministries with an important involvement in the energy sector, either on the demand or the supply side. In light of the papers received from the energy team, the Commission would take decisions for implementation by the Ministry concerned or where necessary (e.g. if a major investment is involved or substantial disagreement exists within the Commission) prepare proposals for consideration at the Ministerial level (paras. 6.29-6.34). 11. The new gas agency which wiLl be necessary to proceed with the comiercial exploitation of Tanzania's gas reserves would be supervised by MWEM and could easily be integrated within this planning framework. Several organizational options are available for the new agency, ranging from a relatively autonomous corporation to a division of TPDC. The resolution of this issue, requiring a policy decision by the Government, is urgent (paras. 6.36-6.40). 12. Development of the natural gas subsector will create more com- petition with TIPER for scarce manpower trained in hydrocarbons; remuneration policies for refinery staff will need to be reviewed to ensure that they are competitive. Furthermore, TIPER's administrative autonomy may need to be increased (paras. 6.15). 13. Forestry policy must focus upon: (a) an acceleration of the Village Afforestation Program, by distributing more seedlings to farmers, expanding forestry extension services and introducing agro-forestry schemes; and (b) estabLishing plantations of fast-growing fueLwood species, e.g. eucalyptus, near urban centers to help alleviate the fuelwood and charcoal deficit in urban areas. The Government has already prepared programs under (a) and (b) and the mission recommends that these schemes be refined and reviewed in light of the Government's financial and managerial capabilities. Measures will also be needed to promote the proper management and utilization of the miombo forests, which provide 96X of the fuelwood supply (paras. 4.91-4.97). 14. The mission sees a less important role for non-forestry biomass resources except in certain applications which substitute these resources for petroleum products and fuelwood. Government efforts in this respect should focus on (a) expanding the use of residues as a supplementary cooking fuel; (b) concentrating the use of biomass power gasifiers in sawmills and small ruraL power appLications; and (c) continuing the emphasis on biogas digesters in institutions (paras. 4.98-4.104). While solar and wind energy are likely to have specific applications in the long run, they do not warrant any significant priority in Government policy for the time being. Similarly, although it appears that Tanzania has geothermal resources, the mission would not recommend any major expenditures at present, given the large hydroelectric potential and naturaL gas resources. Evidence also exists of uranium deposits which might eventually be exploited for export, but they are not economical for local use (paras. 4.105-4.106).  - vii - 15. Government policy towards energy conservation should support efforts to impLement the recommendations of TIRDO's energy audits by providing incentives and foreign exchange to allow industry to undertake the required investments. Support should also be given to efforts to improve the end-use efficiency of fuelwood in three specific areas: (a) improved charcoal making, through the use of improved kilns; (b) improved household charcoal stoves ("jikos"); and (c) tobacco curing, where simple low-cost improvements to existing flue-curing barns could result in significant reductions in fuelwood consumption (paras. 5.21-5.25). Investment Options 3/ 16. Natural gas has been discovered at Songo Songo Island, 220 km south of Dar-es-Salaam. Proven reserves are 726 bcf, with an additional 157 bcf probable and 223 bcf possible. A more recent discovery has taken place at Mnazi Bay; further confirmation drilling is necessary but proved and probable reserves are conservatively estimated at 609 bcf (paras. 2.8-2.9). While Mnazi Bay is too remote for immediate development for the domestic market (it is close to the Mozambique border, some 460 km from Dar-es-Salaam), it could be developed for export markets (fertilizers and methanol) or at a later stage serve as a supplementary supply for Songo Songo (para. 4.50). However, the mission recommends that feasibility studies be considered urgently for the development of Songo Songo, the construction of a transmission pipeline from Songo Songo to Dar-es-Salaam, the installation of a secondary gas distribution system in Dar-es-Salaam, and the conversion of industrial plants in Dar-es- Salaam to use natural gas (paras. 4.33-4.35; 4.51-4.52; 7.3). 17. Aside from TANESCO's ongoing works reLated to extensions to its main grid (US$124 million through 1988) and under the Fourth Power Pro- ject (US$149 million) 4/, there will be a need to strengthen the transmission, sub-transmission and distribution networks in the inter- connected system and to rehabilitate the Pangani River hydroelectric stations (US$169 million through 1991) (paras. 4.61-4.69; 7.2). Addi- tional generating capacity is unlikely to be required in the intercon- nected system before 1992. At that time subject to the outcome of proposed feasibility studies new capacity could be located in or near Dar-es-Salaam and fired with natural gas supplied by a pipeline from Songo Songo (US$30 million for 2x3OMW) (paras. 4.37-4.39; 7.2). Apart from the last item, all these investments can be expected to proceed if the financing is available, i.e. they should not be sensitive to the rate 3/ The figures for investment requirements in these paragraphs are expressed in constant 1983 US dollars and should be regarded as tentative. 41 The Fourth Power Project covers, inter alia, the Mtera hydroelectric scheme, a new system control center and rehabilitation of the Ubungo diesel power station.  - viii - of growth assumed for electricity demand. Ongoing works and works financed under the Fourth Power Project are for all practical purposes committed; the provisions for rehabilitation and new works are to effect cost savings, improvements in system reliability and increases in the quality of electricity supply even with the existing level of demand. Of course, if further adverse developments occur in Tanzania's overall economic situation, the Government and TANESCO may well face financial constraints which, in turn, couLd compel TANESCO to reduce its investment program. In that event, it will be necessary to estabLish priorities for the financing and timing of individual components based upon a careful weighing of political, social, economic, technicaL and operational criteria (para. 7.2). 18. To increase fuelvood production, the mission recommends a minimum energy plantation program for urban areas of 22,500 ha in a first five-year period (US$14 million) and 51,000 ha in a second five-year period (US$32 million); the program should start immediately and would cost some US$32 million through 1991. Similarly, a minimum program of village afforestation for rural areas would start with the planting of ten million seedlings in 1984; plantings could reach 42 million seedlings by 1991 at a total cost of US$12 million for the period (paras. 4.93- 4.97; 7.4). 19. Only modest investments are suggested for the refinery, to cover debottlenecking, repairs and replacements and the reduction of internal fuel consumption and losses. These investments (amounting to US$10 million) are needed urgently to secure the safe and continued operation of the refinery and they have a short payback period (paras. 4.7-4.14; 7.5). 51 20. The investment estimates in the preceding paragraphs are sawmmarized in Table 3; they should be regarded as tentative. They imply a level of investment in the order of US$635 million in 1983 prices for the period through 1991, i.e., less than US$80 million p.a. This corresponds to about 2% of estimated 1983 GDP, which is reasonable compared with other developing countries (para. 7.7). Technical Assistance Requirements 21. BiLateral and multilateral agencies are already providing considerable amounts of foreign aid to the energy sector in Tanzania. Nevertheless, the mission identified a number of areas where further technical assistance is required to assist Tanzania in defining and analyzing the appropriate investment options and policy measures. Such assistance should, whenever possible, emphasize training and the use of Tanzanian counterpart staff. 5/ Financing from the Italian Government is likely to be forthcoming for some of these refinery investments.  - ix - 22. Feasibility studies should be initiated without delay for the construction and financing of a gas pipeline from Songo Songo to Dar-es- Salaam. While the objective would be to introduce natural gas as a substitute for fuel oil in the industrial market, the sizing of the pipeline must take into account a possible use for natural gas as a fuel in power generation. Furthermore, the possibility of using compressed or liquified natural gas (CNG or LNG) as a substitute for gas oiL and gasoline in the transport sector is worth pursuing and should be supported by a preliminary feasibility study; if the study confirms the potential for CNG or LNG, technical assistance is recommended for a pilot project and full feasibility study (paras. 4.51-4.52; 7.11). Table 3: ESTIMATED PUBLIC INVESTMENT REQUIREMENTS FOR PRIORITY OPTIONS TO 1991 (USS milLion, 1983) Natural Gas - securing and protecting existing Songo Songo wells 4 - field development 6 - transmission pipeline - secondary distribution 5 - plant conversion 6 Subtotal 66 Electric Power - ongoing works 139 - Power IV (ongoing) 196 - reinforcement/rehabilitation and export 169 - 60 MW gas turbines 30 Subtotal 504 Forestry - urban 32 - rural 12 Subtotal 7Z Refinery 10 Industrial Energy Conservation 3 Coal 8 Subtotal 21 Total 635 Note: Estimated investment requirements in this table are below those in Table 7.1 since the former does not include certain lower- priority investment. The projected investments in gas would depend on the outcome of the feasibility studies in paras. 16 and 22. 23. IDA resources included in the Fourth Power Project provide a good basis for tackling many of the issues faced in the power subsector: however, the study of long-range electric power development must examine carefully the natural gas option for future power generation, along with  other possibilities; and in allocating the funds provided to rehabilitate TANESCO's power facilities, provision should be made to operate the Ubungo station with natural gas in the event that it becomes available in Dar-es-Salaam (paras. 4.54-4.60; 4.66). Additional technical assistance is recomended to: review the present system of gathering hydrological and other related data; hire a water management expert to investigate the operation of the Kidatu and Mtera reservoirs; rehabilitate the three small hydroelectric stations on the Pangani River; and finance diesel experts to assist in carrying out the rehabilitation of some of the larger generating stations in the isolated systems and to provide basic training in the maintenance of diesel units (paras. 4.61-4.69; 7.12). 24. While some localized surveys of Tanzania's forestry capital have been conducted -- notably in Kilimanjaro, Tanga, Kilombero and Tabora with Canadian assistance - no national forest inventory has been made to provide an accurate estimate of total forest resources: conseq- uently there is no reliable basis for planning. As a matter of high priority, a national forest inventory should be carried out, supported by external technical assistance; it would need to be implemented on a con- tinuing basis, in order to assess the rate of deforestation over time and the degree of success afforded by afforestation measures (paras. 2.31; 7.13). 25. Despite the lack of a comprehensive national forest inventory, the present extent of the deforestation problem and the vital role played by fuelwood in Tanzania's energy picture make it clear that urgent mea- sures are necessary to preserve and upgrade the forest resource. Technical assistance should support further investigation of the growth dynamics, productivity and utilization of the miombo forests, plantationing methods and the introduction of new species and fast regeneration techniques (paras. 2.33; 4.91-4.97; 7.13). 26. The mission recommends two important policy measures in the institutional area: the creation of a new gas entity and a planning team of energy specialists (paras. 6.29-6.36). While a management study of TPDC was compLeted in March 1982, there is the need for a follow-up study devoted solely to resolving the issue of an institutional framework for gas and the associated manpower and training needs; technical assistance would also be necessary to help with the implementation of a training program (para. 6.39). The expatriate advisers who would initially form the core of the energy planning team -- at least for two or three years - would need to be funded by externaL donor agencies (para. 7.17). 27. The mission sees no immediate priority for domestic coal development, which will not be competitive with gas in Dar-es-Salaam; neither does it seem competitive with fuel oil at distances much beyond 300 km from the coal-producing areas (paras. 4.83-4.87). Nevertheless, technical assistance should supporc two studies: the first would deter- mine more accurately the economic costs of delivering coal to the principal markets; the second wouLd examine in detail the coal market within the Mbeya area, where coal should be competitive with other fuels  - xi - (notably fueL oil and fuelwood) (paras. 4.88; 7.13). These studies, together with the results of the ongoing IDA Coal Engineering Credit, would provide basic information for eventually calculating the economic cost and value of coal; and decisions on possible future development (para. 5.18). 28. Outside technical assistance is required to provide further support to TIRDO to continue with its work on industrial energy conservation. Such assistance could also help with a follow-up energy audit program, the implementation of energy conservation measures which require foreign exchange and the provision of advice to Government on the institutional aspects involved in establishing a coordinated energy con- servation program (para. 7.16). Implementation of Options: A Scenario 29. The mission has worked through an illustrative demand/supply scenario for the commercial energy subsector, using 1986, 1991 and 1996 as reference years. Commercial energy demand was projected on the assumption that the SAP would be successfully completed, leading to additional inflows of foreign exchange, starting in 1984. Commercial energy supply was analyzed on the assumption that the key options identified by the mission would be implemented. It was concluded that modest additional demands for coal could be expected -- primarily to provide for Mbeya Cement Plant -- and satisfied from existing plans; electricity demands in the interconnected system could be met entirely from hydroelectric sources and gas-fired plant throughout the projection period under normal hydrological conditions; and gas substitution for petroleum products could amount to 123,000 toe and 153,000 toe by 1991 and 1996 respectively (equivalent to US$19 million and US$33 million p.a. respectively at constant 1981 prices). Petroleum products would still be required for power generation in the isolated systems and to meet certain other demands, notably transport. The end result, with regard to product imports and exports, crude oil imports and the balance of payments is suimmiarized in Table 4. This shows that, even with the implementation of these key options, net imports of petroleum can be expected to increase by 72% in physical terms between 1981 and 1996 and by 92% in value terms over the same period (paras. 4.108-4.111; Tables 4.8 and 4.9). The large increase in fuel oil exports over present levels (450%-600Z compared with 1981) suggests that the economic options of maintaining the refinery in operating condition or closing it down will need to be reexamined as the facts become clearer regarding demand and prices in the international fuel oil market and the speed and extent of natural gas penetration. 30. The mission did not develop an equivalent quantified energy balance for the future with regard to the non-commercial energy subsector due to the problems of measuring the impact of pursuing the various options which have been identified. Even so, it is easy to see that any plausible demand/supply scenario would demonstrate continued deforestation. The estimated excess of fuelwood cons3umption over the sustainable supply of fuelwood in 1981 was 23 million m (para. 3). The  - xii - mission projects that fuelwood consumption is likely to increase by 70Z over the period 1981-1996; while the projected savings from fue wood conservation are unlikely to amount to more than 3.5 million m by 1996. At the same time, the mission concluded that the resources of the Forestry Directorate and the- Government's funding capacity were insufficient even to eliminate the existing fuelwood deficit in urban and rural areas; hence the mission was constrained to recommend a program for establishing urban energy plantations and extending rural woodlots which is a bare minimum based on a rough judgement about Tanzania's forestry implementation and funding capacity. The program would at best only match the present deficit in urban areas -- and this with a lag -- with no provision for additional needs, while in rural areas even the present deiicit could not be met. The degree of overcutting in Tanzania will in consequence increase; the only real question concerns the speed at which this takes place. This can only be mitigated by forced additional con- servation measures through increases in fuelwood prices and the distances over which fuelwood must be carried (paras. 4.114-4.115). Table 4: ILLUSTRATIVE PROJECTIONS OF PETROLEUM PRODUCT IMPORTS AND EXPORTS AND CRUDE IMPORTS (thousand toe) 1981 1986 1991 1996 Petroleum Product Imports (Exports) Gasoline 14 (16) 25 89 Gas Oil 169 129 215 353 Industrial Diesel Oil - 11 34 67 Fuel Oil (55) (116) (189) (150) Other petroleum products 94 53 101 176 Net Petroleum Product Imports 222 61 186 535 Crude Imports 544 750 750 750 Total Net Imports - Quantity 766 811 936 1,285 - Value (US$ million) 237 194 274 450 31. The mission concludes that bold, urgent and decisive measures are required in the energy sector in Tanzania in the immediate future. These measures must cover both policy decisions and investment projects and entail appropriate support from overseas technical assistance.  I. ENERGY AND THE ECONOMO OF TANZANIA Recent Macroeconomic Situation 1.1 Tanzania has a land area of 945,000 km2 of which 498,000 km2 is arable (52Z). Its 1981 population was estimated at 19.1 million and growing at 3.3Z p.a.; 89% of the population is rural while the remaining lZ is concentrated in towns which, apart from the coastal region, are relatively remote from each other. Sixty percent of the rural population is estimated to be living below the absolute poverty income level of US$109 per capita. Agriculture is the mainstay of the economy; its share in GDP is about 52%, while that of industry is 17Z 6/; the balance (31%) is accounted for by the services sector. Agriculture also provides 80O of exports and 90% of national employment. 1.2 From independence in 1961 throughout the decade, the country managed to achieve significant improvements in meeting the educational, health and other basic needs of the population. There was also satisfac- tory performance in the macroeconomic sense, with real CDP growing at 4.4Z p.a. from 1966-72 and investment by nearly 20% p.a. Unfortunately, this was accompanied by relatively slow growth in the productive sector, especially agriculture (which grew by only 2.3Z from 1966 to 1973). 1.3 Since then, Tanzania'a economic situation has continued to de- teriorate. The economy has undergone a structural change away from the monetary productive sector into the subsistence and public services sec- tors. In 1982, per capita GDP in current terms fell by 10 7/ agricul- ture declined by 8.7% and industrial output fell by nearly 25Z while the services sector recorded an increase. 1.4 As a result of the contraction in the agricultural and indus- trial sectors, export volumes declined. 8/ The situation was further exacerbated by declining international commodity prices for Tanzania's main exports, and rapidly rising prices for essential imports, especially petroleum. As a result, terms of trade suffered losses of 2-3% p.a. between 1978 and 1982 (in spite of severe cutbacks on imports) and the 6/ Industry covers manufacturing, construction and mining. 7/ In 1982, per capita GDP fell to US$263 from US$291 in 1981. These calculations were made using market prices and with official exchange rates as the deflator. 8/ Exports of coffee, cloves and tea have stagnated between 1976-1982; cotton exports felL by 60%; sisal by 45Z; cashew nuts by 90Z; and tobacco by 47X.  -2- external current account deficit amounted to US$606 million by the end of 1982. 1.5 Although Tanzania received substantial import support from foreign aid sources during the period, 9/ a high and increasing per- centage of this aid was "tied" to specific projects. This meant that Tanzania was overwhelmingly dependent on its own reduced export earnings to provide "free" foreign exchange i.e., funds to finance essential recurrent imports to revitalize its agriculture, industry and transport sectors (Table 1.3). The shortage of foreign exchange has resulted in falling agricultural production; poor maintenance of existing infrastruc- ture; and low capacity utilization in industry. 1.6 To deal with the economic crisis, the Government successfully negotiated a Stand-by Credit Agreement with the IMF in 1980 (for up to US$235 million in two years) with emphasis on restriction of domestic credit expansion; reduction in debt payment arrears; and eventual agree- ment on an appropriate exchange rate policy. The Government also launched a structural adjustment program (SAP) in November 1982, based on a report by the independent Tanzanian Advisory Group (TAG) which was financed by an IDA Technical Assistance Credit. Its main objectives are: (i) to reduce the rate of inflation through adjustment of the government budget; and (ii) to achieve balance-of-payments adjustment to alleviate the scarcity of foreign exchange and consequent under-utili- zation of domestic production capacity. The main strategies are: (a) provision of incentives and support for exporters; (b) cutbacks in specific future government recurrent and development expenditures; (c) rationalization of producer and consumer pricing policies; (d) in- creased efficiency in transport and marketing services; (e) stimulation of development of alternative domestic sources of energy while econo- mizing on the use of imported fuel; and (f) to ensure the effective use of external assistance. 1.7 However, important decisions still remain to be taken on matters such as the exchange rate and real adjustment of agricultural prices as well as preparation of specific action programs in key sectors (e.g. transport) which would have a measurable impact on production. Discussions with the IMF on a possible second standby arrangement have not yet been concluded. 1.8 Tanzania will continue to face a very difficult situation -- on both the domestic and external fronts - over the next three to five years. To avoid further stagnation of economic activity and declining per capita GDP, it will be necessary to continue emphasis on export per- formance, improved capacity utilization and import substitution wherever possible. In this context, the discovery of significant quantities of natural gas off the coast presents Tanzania with some options which could 9/ 60% of total imports in 1982.  -3- materially influence future macroeconomic developments through their effect on the foreign exchange situation. Investments in natural gas could lead directly to increased export revenues through fertilizer ex- ports (para. 4.41) or a reduction in import expenditures through substi- tution for petroleum products imports (paras 4.35; 4.38; 4.112). It will be necessary to ensure that these investments are made in a way that will lead to the optimal utilization of the nation's gas resources. Overview of the Energy Sector 1.9 In 1981, Tanzania's final energy consumption totalled about 9.0 milLion toe of which 92% was in the form of fuelwood and charcoal IO/ and the balance of 8Z was provided by hydroelectricity, coal and imported pe- troleum products (Table 1.1). The largest consuming subsector was house- holds (85%); followed by industry (10X) and transport (4%). The overall per capita consumption was estimated to be about 470 kgoe, comparable to other developing countries at similar levels of per capita income. ill 1.10 The gross supply of primary energy in 1981 amounted to about 10.4 million toe, made up as follows (in thousands of toe): fuelwood, 9,400 (90.4%); hydroelectricity, 180 (1.7%); crude oil 521 (5Z); and imported petroleum products, 277 (2.7%). A major part of the difference between gross supply and final consumption was caused by the substantial conversion losses involved in charcoal production (4 toe of dry fuelwood to produce 1 toe of charcoal). Losses at the petroleum refinery were also significant: 7-8Z as compared to worldwide refinery industry aver- ages of 3.5-4%. The energy balance in Annex 1 gives the gross supply, stock changes, conversion losses and net domestic consumption of energy in 1981. Commercial Energy Sources 12/ Ceneral 1.11 In 1981, total consumption of comercial energy (8% of total energy consumption) was about 0.7 million toe or 38 kgoe per capita. The 10/ Fuelwood and charcoal are classified as non-commercial energy sources. 11/ For example, Sudan 324 kgoe; Uganda, 350 kgoe (1980); Kenya, 430 kgoe (1979); Zimbabwe, 720 kgoe (1980). 12/ The definition of commercial energy may be misleading, in that large quantities of fuelwood and charcoal are traded coimercially, but it is retained in accordance with convention and to facilitate inter- country comparisons.  -4- per capita consumption is low, even by African standards e.g., the comr parable figures for Kenya (1980) and Sudan are 120 kgoe and 58 kgoe respectively. Imported petroleum accounted for 91.6Z of 1981 commercial energy consumption while hydroeLectricity contributed only 8Z and indi- genous coal only 0.4%. This demonstrates a high degree of reliance on imported commercial energy. The largest consumer of commercial energy was transport (51X); followed by industry (25Z); households (122); com- merce (62); agriculture (52) and others (1X). The minor share of con- sumption by households is a reflection of limited access to electricity (Para. 1.18) and a suppressed demand for cooking kerosene (Para. 1.14). Agriculture is also a minor consumer due to the relatively low level of mechanization. Table 1.1: FINAL ENERGY CONSUMPTION, 1981 (103 toe) Electri- Petroleum Share Fuelvood Charcoal Coal city Products TotaL (2) Industry 600 150 2 34 143 929 10 Commerce - - - 12 30 42 0.5 Ttansport - - - - 372 372 4 Households 7350 200 - 13 76 7,639 85 Agriculture - - - 33 33 0.5 Other - - - 10 10 0.5 Total 7,950 350 2 59 664 9,025 100 Share (Z) 88.1 3.9 0.0 0.6 7.4 100 1.12 Petroleum. Between 1975-82, total consumption of petroLeum products grew at an average rate of only 0.62 p.a. (Table 1.2) compared to CDP growth of 3.0O per annum in real terms over the same period. In fact, total consumption has actualLy fallen in the last two years. 1.13 The stagnation was due primarily to a lack of foreign exchange to purchase crude oil and petroleum products (para. 1.5); reduced eco- nomic activity; and underutilization of available capacity in transport and industry, which are the main consumers of petroleum products. In 1981, the transport sector accounted for 562 of petroleum consumption; industry (222); commercial (5x); domestic (11%); agriculture (5x); and power generation (12). Although the energy assessment mission did not quantify the scope for energy conservation in the transport sector, the possibilities are obviously large in view of the high proportion of petroleum products consumed by transport, especially of gasoil by trucks. The mission strongly recommends further study of energy  -5- conservation in transport using the assistance of the Energy Sector Management Assistance Program. Table 1.2: CONSUMPTION OF PETROLEUM PRODUCTS, 1975-82 (103 tons) Average Annual Product 1975 1978 1980 1981 1982 Growth (Z) LPG 5.5 5.7 5.8 5.9 5.4 - Av. Gas 3.6 3.3 1.8 1.6 1.6 -10.9 Gasoline 104.9 105.7 113.6 111.7 120.4 1.9 Kerosene 68.5 96.8 77.5 75.5 68.9 - Jet 24.0 28.0 51.6 49.7 37.7 6.8 Gas Oil . 205.1 218.0 259.3 242.6 243.7 2.5 Industrial 2. Diesel Oil 56.2 53.0 56.6 54.0 51.2 -1.3 FueL Oil 143.8 115.1 119.2 122.3 109.1 3.9 Total a/ 611.8 625.6 685.6 663.2 638.0 0.6 a/ May not be exact with column totals due to rounding. 5/ A mixture of gas oil and fuel oiL in a ratio of 97:3. 1.14 Although the average annual growth in gasoline consum ption (1.9X) exceeds the growth of petroleum products as a whole, it is believed that there is a supressed demand due to Government fiscal measures and rationing policy (para. 1.15). Similarily, gas oil is believed to be in short supply in the transport sector, even though it registered the highest annual growth (2.5%). Kerosene consumption in 1982 was actually lower than in any year since 1975. This gives a clear indication of an acute shortage of kerosene, especially given the annual population growth (3.3%). 131 Availability of jet fuel dropped during 1982 forcing some foreign airlines to cut back on flights to Tanzania while Air Tanzania reduced its frequency of domestic flights. Consump- tion of industrial diesel oil and fuel oil declined over the period - indicating reduced activity in the industrial sector. In so far as there is suppressed demand for petroleum products, it is difficult to determine what part is due to (a) the general stagnation in economic activity and (b) the lack of foreign exchange to purchase crude and refined pro- ducts. 14/ 13/ Kerosene is virtually unobtainable outside Dar-es-Salaam. 14/ Kerosene is a notable exception in that the lack of consumption growth is due almost entirely to restricted supply.  1.15 At present, Tanzania has no indigenous supply of petroleum and imports all its oil requirements. Although petroleum is only 7Z of total energy consumed in 1981, it accounted for 91% of commercial energy and thus has a big impact on the monetary sector of the economy. In response to the oil crisis of 1973/74 and 1979, the Government introduced controls such as restricted weekend driving and gas oil rationing which helped to suppress the growth of petroleum imports (Chapter IV). However, the relative share of petroleum (crude and refined products) in totaL imports has been growing since 1978 (Table 1.3). At the same time Tanzania is facing an increasing shortage of "free" foreign exchange to finance recurrent imports of which petroleum is a major constituent (para. 1.5). 1.16 Already petroleum accounts for 50% of "free" foreign exchange; any increase in petroleum imports would mean a reduction of other vital inputs for the agricultural and industrial sector (e.g. spare parts) with obvious implications for economic activity. At the same time, there is a shortage of petroleum products for transport purposes compounded by distribution problems. The question is how to achieve an optimal balance between importation of petroleum products and other inputs necessary for economic revival, given the anticipated short-term continuation of foreign exchange shortage (para. 1.8). Electricity 1.17 Electric power consumption in 1982 amounted to 706 GWh (or 8% of total commercial energy) as shown in Table 1.4. The per capita con- sumption was about 36 kWh, which is rather Low. 15/ This reflects the depressed sta=e of the industrial sector and the limited access to elec- tricity (about 3% of the population). 161 Industry is the largest user of electricity, accounting for about 55Z of sales in 1982; domestic sales were 25Z, commercial (19%); and public lighting less than 1%. Table 1.3: PETROLEUM IMPORTS COMPARED TO TOTAL IMPORTS, 1976-82 1976 1978 1980 1981 1982 1. Petroleum imports (TSh million) 935 991 2,148 2,100 2,701 2. Imports from "free" foreign exchange (TSh million) 4,441 5,956 5,881 5,256 5,313 3. Total imports (TSh million) 5,841 9,349 10,874 9,573 9,246 4. (1) as a Z of (2) 21 17 36 40 51 5. (1) as a Z of (3) 16 11 20 22 30 15/ Comparable figures: 90 KWh (Kenya in 1980); 60 (Sudan in 1981); and 22 KWh (Ethiopia). 16/ The Government plans to establish a new organization to accelerate rural electrification through development of renewable energy resources, such as mini hydropower plants.  -7- Table 1.4: TANESCO ELECTRICITY GENERATION AND SALES, 1977-82 Average Annual Growth Rates 1977 1980 1981 1982 1977-80 1980-82 Generation (Gwh) Interconnected System 540 686 715 720 8.3 2.4 Isolated Stations 82 110 107 108 10.2 -0.9 Total 622 794 823 828 8.5 2.1 Sales (Gwh) Interconnected System 442 627 630 604 12.3 -1.9 Isolated Stations 74 101 120 102 10.9 0.5 Total 516 728 750 706 12.2 -1.5 Maximum Demand (NW) Interconnected System 91 118 124 118 Apparent Losses (Grid Only) (Z) 22.2 9.4 13.5 19.2 Note: The apparent losses for 1980 and 1981 are almost certainly in- correct, probably due to an over-reporting of consumption. Ac- tual losses are likely to be in the order of 15%. The energy balance in Annex I has adjusted total 1981 electricity consump- tion accordingly and reduced each consumer category "pro rata." 1.18 Between 1977 and 1980, consumption grew rapidly at about 12.8% p.a. (Table 1.4). Since then, despite an increase in the number of connections and growing domestic sales, total consumption fell by 1.5Z as a result of the deepening economic crisis. This was caused by, among other things, Lower capacity utilization, and project completion delays and cancellations in the industrial sector -- the main consumer of electricity. 17/ As a result, total peak demand in 1981 was only 150 MW as compared to available capacity of 296 MW (Table 1.5). These develop- ments have important impLications for existing power demand projections and future systems expansion plans (paras. 4.54-4.60). 17/ Industrial load factors fell from 1977 average of 44Z to 38% in 1981. Only 22% of new industrial power consumption projected for 1982 was actually achieved, due to project completion delays and cancellations.  1.19 At present, the power supply system of TANESCO (vhich provides about 98Z of total power generated) 18/ consists mainly of an extensive interconnected grid in the east and northeast of the country serving the principal load centers, including Dar-es-Salaam, Morogoro, Arusha, Zanzi- bar, Moshi and Tanga. This system derives its power from 5 hydropower plants and 2 diesel stations in a 80:20 ratio. About 77% of the present installed capacity is at Kidatu Dam, which supplies Dar-es-Salaam through a 22OkV single-circuit transmission line passing through difficult terrain. Any failure of this line would lead to a severe breakdown on the system, whose vulnerability is a cause for concern (paras. 4.61- 4.63). TANESCO also covers 15 isolated service areas throughout the country, but mostly located in the northwest (including Dodoma, Iringa, Tabora, Bukoba, Kigoma and Mwanza) 19/); the southwest (Mbeya, Songea and Tukuyu); and the southeast (Mtwara, Lindi and Nachingwen). TANESCO 's total installed capacity of about 370 MW comprises 247 MW hydro and 133 MW diesel and gas turbines (Table 1.5). Table 1.5: TANESCO BASiC DATA, 1981 Length of Power lines (kwi) Number of Peak Installed Available and Voltages (kV) Connections Demand I) (M) (11) Interconnected System 313.0 260.4 3,961 (220,132, 81,556 122 66, 33, 11-kV) Isolated Systems: Northwest 44.1 28.0 551 (33, 11-kV) 19,261 20 Southwest 7.1 6.0 163 (33, 11-kV) 6,634 5.7 Southeast 5.5 2.0 165 (33, 11-kV) 3,472 2.0 Total 369.7 296.4 8 4,840 110,923 149.7 a/ The difference between Installed and available capacity is mainly due to derating diesel statFons. Source: Staff Appraisal Report 4050-TA, Fourth Power Project, Tanzania. 1.20 The isolated stations depend mostly on diesel-powered generat- ing plants; many of these plants are in a dilapidated condition due to lack of spare parts and they operate at a limited load factor due to lack of fuel oil (para. 4.69). It is TANESCO's policy to extend the grid 181 The remaining 2% is produced by captive power plants owned by private companies and parastatals under license from TANESCO. 19/ Over 50% of total isolated system capacity is located at Mwanza.  -9- system to replace most of the isolated stations in the northwest and southwest regions by the end of 1988. The policy is expected to: lower TANESCO's own operating costs; promote diesel fuel import savings (esti- mated at about 50,000 toe in 1988); and encourage more industries to locate in the interior in line with Government policy. In addition, TANESCO hopes to replace some existing capacity at Bukoba by hydropower supplies imported from Uganda (para. 4.72). At present, the grid system has been extended as far as Nufindi; and further extension to Mbeya is expected by 1985 (para. 4.54). The connection for the proposed Mtera power station to the grid is also under construction. 20/ Coal 1.21 Sales of coal in 1982 amounted to about 7,700 tonnes -- less than 0.5X of total comnercial energy consumption. 211 This emphasizes the relatively minor role played by coaL in Tanzania to date as shown in Table 1.6 below. Due to supply constraints and limited distribution facilities, current consumption is confined to the Mbeya region where the coal deposits are situated. 22/ Table 1.6: COAL CONSUMPTION, 1977-82 (tons) 1977 1979 1981 1982 Tea estates 360 4890 3470 6450 Tobacco 15 680 120 - Others al 305 340 530 690 !beya Ceoent Plant - - - 580 Total 680 5910 4120 7720 a/ Local hotels, hospitals and rural industries. Source: STAMIOD 1.22 Up to the present, the local tea estates have accounted for 801 of sales. However, Kbeya Cement Plant is expected to require up to 60,000 tpa at full capacity. This has implications for future production (para. 4.108). 201 Financed by CIDA and the Italian Government. 21/ Per capita cansumption of coal in Tanzania in 1982 was 0.4 kg as compared to 9.3 kg in Malawi in 1981. 22/ For example, the tobacco growers in the Iringa region no longer use coal because of difficult logistics and high transport costs.  - 10 - Noncommercial and Other Energy Resources 1.23 As elsewhere in Sub-Saharan Africa, forestry resources supply most of total energy consumption (92Z in 1981). Fuelwood accounted for 96Z of noncommercial energy, while the balance (4O) was provided by char- coal. Total fuelwood use 23/ of 39.2 million mj in 1981 was equivalent to a per capita consump%ion of 40 kgoe (2.03 m ), which was average compared to Sudan (3.7 m ) and Malawi (1.7 m3). The breakdown of the total for Tanzania by main consumer category and by region is in Annez 2. The household sector accounted for 91% of nonco.mercial energy while rural industries consumed the remaining 9Z. 1.24 The rural areas (89% of total population) depend almost exclu- sively on wood fuel for cooking and heating. The average household uses about 1.7 1 per capita exclusively for cooking. Continued overcutting and depletion of forest resources close to population concentrations has dramaticaLly increased the distance travelled and time spent in collect- ing fuelwood (average hauling distance is about 3km; and average time per household spent is more than 75 man-days). The urban population includ- i3g small scale industries and service facilities use about 6.4 million a: of wood mostly converted into charcoal. Supply of charcoal to urban areas is unreliable and expensive due to transport bottlenecks and the increasing remoteness of charcoal-producing forest areas from urban centers. This has resulted in charcoal prices beyond the reach of many low-income urban dwellers while substitutes for charcoal (electricity, kerosene, LPG) are either not available or even more expensive. 1.25 Cqnversion losses involved in charcoal production from wood are high - 12mJ of solid wood are required for 1 ton of charcoal - because of the low efficiency of the earth kilns us d in the process. Industrial use of fuelwood is also inefficient -- 50m of wood or more required t cure 450 Kg of tobacco. This figure is far higher than in Malawi (20mJ of solid wood per 500 Kg of sobacco) which is also wasteful. A more satisfactory ratio would be 15m of wood for 450 Kg of tobacco. Further, most household stoves in Tanzania are inefficient in the combustion of wood or charcoal. It is felt that improvement in these three specific end-uses could produce a significant reduction in current fuelwood con- sumption, thus decelerating the rapid depletion of forest resources. 1.26 Tanzania also has considerable biomass resources (e.g. wood processing wastes, agricultural residues, animal wastes, molasses and bagasse) as well as solar and wind energy resources, which are consumed almost entirely within isolated agro-industrial enterprises. Therefore, these resources make a negligible contribution to national energy 23/ Includes wood used directly and in form of charcoal.  - 11 - consumption. 24/ To a varying extent, possibilities exist for the economic utilization of some of these energy resources for household and industrial purposes, which would help to reduce the demand for fuelvood (para. 4.98-4.107). 241 Consequently, they are not included in the 1981 energy balance.  - 12 - II. ENRGY RESOURCES Introduction 2.1 Tanzania's indigenous energy resources are large and diverse, but have not yet been explored and exploited systematically. Commercial energy resources include abundant hydroelectricity potential, substantial coal deposits and the recently discovered natural gas resources off the coast. All these can play a useful role in the Government's strategy to develop domestic energy resources with the objective of reducing the country's present dependence on imported petroleum products. Tanzania also has an excellent forestry potential which must be carefully husbanded if it is to continue its important roLe in the noncommercial energy sector. Other nonconventional energy resources, such as agri- cultural residues, could be exploited to make a bigger contribution to energy consumption and there is evidence of both uranium and geothermal potential. Petroleum and Gas Exploration Activities 2.2 Exploration activities have taken place in Tanzania for several decades although the volume of completed work is quite low. Sedimentary basins with hydrocarbon potential are concentrated in two areas: (i) the inland Rift Valley basins to the west, in which the geology and petroleum potential are relatively unknown; and (ii) the eastern coastal basins, where most exploration to date has been done. 2.3 The only completed exploration work in the Rift Valley area has been a reconnaissance aeromagnetic survey carried out by the Tanzanian Petroleum Development Corporation (TPDC). This has confirmed the exis- tence of a sedimentary basin whose geology, however, remains almost unknown, and petroleum potential speculative. Further exploration in various parts of the Rift Valley system (such as the projected regional aeromagnetic survey on Burundi, Rwanda, Tanzania and Uganda, being financed by the World Bank and the seismic study of Lake Victoria by Duke University) is therefore required before any assessment of prospects for indigenous petroleum resources can be made. 2.4 First exploration of the coastal sedimentary basins was by Shell and BP from 1950 to 1961. Four exploratory wells were drilled, one each on Zanzibar, Mafia and Pemba Islands and one on the mainland south of the Rufiji River. None of these wells encountered oil or gas presence sufficient to justify further drilling and both Shell and BP surrendered their exploration licenses by 1964. TPDC was estabLished in 1969 with exclusive control of all petroleum rights in the country (para. 6.11) and  - 13 - in the same year the Government granted AGIP an exploration license covering essentially the same areas relinquished by Shell and BP. Later, AMOCO joined the venture on a 50:50 basis. Four deep test wells were drilled, including Songo Songo I which struck gas in 1974; but its reserves were then considered uncommercial. ALl four wells were later abandoned and AGIP/AMOCO relinquished the area surrounding Songo Songo Island to TPDC in 1976, though retaining a considerable portion of the coastal basin (see Map). Offshore, Oceanic and other consortium made up of Phillips, Getty, AGIP and Hispanic Oil carried out seismic surveys in 1975-77. 2.5 After 1978, exploration reached higher levels of activity following a Government decision to accelerate exploration and to encour- age private participation. TPDC carried out inland seismic surveys north of Dar-es-Salaam, and the Mafia Channel in 1980; on Mafia Island and Zanzibar Channel in 1981 and 1983. 25/ TPDC's main drilling effort was appraisal of the Songo Songo gas field in which significant gas reserves were proved up (para 2.8): Wells SS 2, 3 and 4 in 1978/79, with coopera- tion from ONGC of India; Wells SS 5 and 6 in 1980/81, followed by Wells SS 7, 8 and 9 in 1982/83 under two IDA Credits cofinanced with the European Investment Bank and the OPEC Fund for International Develop- ment. 261 Other TPDC wells were in the Kimbiji area (40 km south-east of Dar-es-Salaam) following a gas discovery at a well drilled in 1982 at Kimbiji East with the assistance of the Government of Algeria. Two confirmation wells were drilled: Kimbiji Main I with the assistance of the OPEC Fund, and Tancan I offshore with Petrocanada International Assistance Corporation as financier/operator. Although much valuable geological information was obtained, no sizeable gas reserves have been confirmed in the Kimbiji area. 2.6 ACIP/AMOCO drilled the Kizimbani weLl south of Songs Songo in 1979. The well was dry and AGIP/Amoco relinquished 9,250 k in 1980. They carried out a 1,500 km marine reflection seismic survey on their remaining 13,950 km2 coastal/shelf area and struck gas in Mnazi Bay Well I in 1982 (para. 2.9). Amoco has now withdrawn from the partnership but negotiations are underway concerning future exploration/development activity, since AGIP's present license is scheduled to expire in September 1985 unless another well is drilled. 2.7 Following enactment of the Petroleum Act (Expl ration and Production) Shell was awarded in 1981 a total of 71,793 km along the Ruvu Valley Basin, an inland extension of the main coasta'l sedimertary 25/ Mostly financed by the Government of Tanzania with some assistance from Norway. 26/ The First Songo Songo Petroleum Exploration Project IDA Credit S-27- TA, and the Second Songo Songo Petroleum Exploration Project IDA Credit 1199-TA.  - 14 - basin, extending south from Dar-es-Salaam across the Rufiji River. Esso "farmed in" with a 40% interest in 1983. An on-going program of seismic acquisition was started in April 1982. Under its work commitments, Shell/Esso is to drill two wells by September 1985. International Energy Development iorporation (IEDC) was awarded, in 1981, an exploration block of 12,750 km covering the northeast coast, the Zanzibar channel and part of the island; seismic coverage started in July 1982. Societe Nationale Elf Aquitaine (SNEA) was awarded a seismic option in 1983 on a shelf area eztending from the TPDC Songo-Songo block up to and including the Mafia channel and island and negotiations regarding further exploration are scheduled to begin shortly. Gas Resources and Petroleum Potential 2.8 At present, proven gas reserves at Songo Songo are 726 bcf (about 20 million toe). 27/ To obtain an idea of the relative magnitude of these reserves, it can be noted that Tanzania's total couuercial energy consumption in 1981 was 0.7 million toe; assuming deliverability at 70 umcfd, Songo Songo proven reserves alone are equivalent to Tan- zania's total domestic comercial energy needs for the next 30 years at 1981 consumption levels (para. 1.11). Additional probable reserves at Songo Songo are estimated at 157 bcf and possible reserves at 223 bcf (Table 2.1). Further, a number of structures have been identified in areas surrounding Songo Songo by utilization of acquisition and processing techniques including true amplitude processing; as yet undrilled, these structures may each contain an additional 50-80 bef recoverable gas reserves, according to recent estimates. Additional investment, on a priority basis, is required by several of the Soogo- Songo wells (para 2.5) to safeguard existing reserves. Offshore, wells 3 and 4 require approximately US$1.8 million to implement protection measures against corrosion and marine collision harards. Onshore, wells 5, 7 and 9 are leaking gas; repairs are estimated at U14$2.0 million (para 7.3 (a)). 2.9 The most recent significant gas discovery was by AGIP/AMOCO at Mnazi Bay. Only one well has been drilled; the data therefore are uncer- tain and and confirmation drilling is necessary. Any prediction of gas reserves beyond the current conservative estimate of 609 bcf proved and probable reserves remains speculative. 271 Songo Songo reserves certified by Exploration Consultants Ltd. (ECL); TPDC's exploration advisers, August 1983.  - 15 - Table 2.1: NATURAL GAS RESERVES (bcf) Songo-Songo Mnazi Bay Total Proved 726 23 7495 Probable 157 586 743 Possible 223 - 223 Total 1,106 609 1,715 2.10 No oil discoveries have been made to date perhaps due to the low level of exploration activity. However, as the accumulation and interpretation of existing and new seismic data procedes, a number of new structures have been determined (and certain of the earlier wells found to have been off structure). This, plus the fact that several oil companies are continuing exploration activities, indicates significant prospects for further gas and possibly oil discoveries in the coastallshelf/off-shore basins. 2.11 Although the natural gas supply situation is favorable in volume terms, the geographic distribution of identified gas reserves presents problems in planning development for utilization in already established industries. Proven gas reserves at Songo Songo are 220 km south of the main ccwmercial energy consuming market of Dar-es-Salsam. Nnazi Bay reserves are even further south (460 km from Dar-es-Salaam). On the other hand, uncertainty remains about the outcome of exploration activities at Kimbiji (40 km from Dar-es-Salaam) or whether oil/gas will be confirmed to exist in the exploration blocks adjacent to Dar-es- Salaam. 28/ Therefore, plans for gas utilization in both domestic and export projects must be discussed not only in terms of availability but also with regard to a gas transmission infrastructure which should be planned with the flexibility to accomodate eventual changes in flows of gas from sources to utilization (paras. 4.51-4.52). Hydroelectric Power Potential 2.12 Although a detailed inventory of all Tanzania's hydropower resources is not available, a number of studies have been prepared by foreign consultants covering the major river basins and possible large hydropower projects (para 2.14). The total hydropower potential has been estimated to be about 20,000 GWh per year, with about 4,000 Ki of 281 Shell/Esso and IEDC are conmitted to conduct test drilLing in this area by 1985.  - 16 - installed capacity, of which 247 NW has been developed and 80 MW is under construction at Mtera on the Great Ruaha River (see Map). This project is being partly financed by IDA Credit 4050-TA as the Fourth Power Proj- ect. 29/ Its main objective is to increase the electricity generating capacity of TANESCO to meet growth in power demand through 1990, by sup- plying power to the expanded interconnected system (paras. 1.21; 4.54). 2.13 The harnessed hydropower potential in Tanzania is concentrated on the Great Ruala River at the 200 MW Kidatu Hydropower station (para. 1.20). The other existing hydropower plants are at Nyumba Ya Mungu (8 MW); Pangani Falls (17.5 MO); KikuLetwa (1.2 MW)e and Hale (21 KW). In addition, there are about 20 mini-hydropower stations with a total capacity of around 1 MW. The notable features of Tanzania's hydropower potential are great concentration of the resources (66Z in two projects); limited number of medium size (100-300 NW) projects; and many potential sites for mini hydropower development. 2.14 The river basins with major sites suitable for hydropower plants are shown in Table 2.2 below. So far, more than 100 sites for hydropower development have been identified. In addition to potential major hydropower sites, Tanzania has a number of sites suitable for mini- hydropower plants. International aid agencies are actively investigat- ing about 30 sites with a total capacity of 50 MS for possible develop- ment. 30/ It would be appropriate to compare such development against the provision of diesel-powered stations (paras. 4.55-4.60). Finally, there are many possibilities for the development of micro hydro schemes but no organized action to this effect. 2.15 Hydropower Development Studies. Studies of hydropower resources have been carried out to varying levels of detail; in general, for all major hydropower projects, feasibility studies have been prepared and for some of them project design memoranda are available. Three studies are of particular interest, covering the Rufiji River, the Kilombero and Luwegu Rivers and the Kagera River. Studies of mini-hydro- power plants need to be completed, particularly those in remote and isolated areas. 29/ Other agencies involved in financing the project include France, Germany (KfW), Italy, Kuwait Fund, Norway (NORAD), and Sweden (SIDA). 30/ Norwegian Agency for Development (NORAD); Swedish International De- velopment Authority (SIDA); and KreditanstaLt fur Wiederaufbau (KfW) of West Germany.  - 17 - Table 2.2: RIVER BASIN SITES FOR HYDROPOWER PLANTS Potential Firm River Project Capacity Energy Status (NW) (Cwh) Rufiji Stiegler's Gorge 2,100 5,920 Feasibility Upper and Lower Kihansi - 285 1,024 Prefeasibility Upper Rubin ji - 55 160 Maddle Ruhind- 500 1,472 Lower RuhindJ. - 130 392 " Ikondo - 340 1,165 Taveta - 145 547 Tosomaganga - 10 40 Ibosa Hill - 35 134 Nginayo Hill - 42 163 Lukose - 130 477 Kagera Rusomo Falls 60 Feasibility Kishanda Valley 180 Prefeasibility Mara - 90 Reconnaissance Wami - 120 Nkive - 160 Rumbila - Rumakali - Songve - 50 Ntembe - 60 Kalambo - Malagarasi - 100 2.16 Rufiji River. The largest hydropower potential in Tanzania ex- ists where the Rufiji River passes through Stiegler's Gorge. Development of this site is has been studied in detail by Norconsult, Norway. 311 The Stiegler's Gorge site can be developed in stages to provide hydro- power and flood control for irrigation purposes. In vi;'.w of the very high capital costs for the dam and power facilities (first phase about US$900 million; whole development US$2,000 million in base 1983 prices) and present expectation that electricity demand will grow slowly, it is not likely that this project could be economically justified for power generation for internal consumption in the period up to the year 2000 (para. 4.56). The Covernment has established the Rufiji River Basin Authority (RUBADA) which is responsible for implementation and management of the project (para. 6.10). The designing of the power project is now substantially complete and some tender documents have been prepared. In addition RUBADA has completed a number of studies to determine the costs and benefits of the non-power multi-purpose aspects of the project, such as flood control, tourism, fishing and irrigation. 31/ The project had previously been studied by F&O and Coyne & Bellier, France.  - 18 - 2.17 Kilombero and Luwegu Rivers. The Kilombero river is the Rufiji River's main tributary in the South-West and accounts for about 602 of the Bufiji river's discharge at Stiegler's Gorge. Two apparentLy excel- lent potentiaL hydropower sites exist at Kihansi. Their combined capa- city is 285 MW generating an average of 1,024 GWh p.a., but requiring back-up capacity in the system because of limited storage and large seasonal flow variations. These projects represent important hydropower potential in Tanzania and have been investigated to a pre-feasibility study level. They might be suitable for phased development after the Mtera hydropower project subject to their comparison with gas-fired plants (para. 4.57). These projects deserve further attention and justify initiation of their feasibility studies and projects designs. The projects could eventually contribute to covering intermediate power needs before the large Stiegler's Gorge project becomes manageable. The feasibilitity study for the power projects on KilomberolLuwegu rivers would represent an important input in the analysis of the Long-range development program of the power subsector (para. 4.54). 2.18 Kagera River. The hydropower potential of this river, which fords part of the borders with Burundi, Rwanda, and Uganda, can be de- veloped at three sites: Rusumo Falls, Kishanda Valley and Kakano. Rusuno Falls, for which feasibility studies have been carried out would be the initial development to give river flow control and water storage. Development of the river would involve various international agreements. An agreement between Tanzania, Burundi and Rwanda for joint development at Rusumo Falls was signed in 1977. This river is in the remote north- west of Tanzania, far from main load centers and the development of its potential depends on the neighboring countries. Future Studies 2.19 Present accumulated knowledge about hydropower resources in Tanzania is adequate for long-range power development planning. However, more detailed and updated project designs are required, especially for hydropower plants to be built in the 1990s; rhus MWEM and TANESCO should secure preparation of detailed design and introduce a mechanism for up- dating of costs. Despite the numerous studies of Tanzania's hydropower potential, the planning of additional new hydro generation has been carried out with insufficient lead time to ensure its optimal develop- ment. A complete inventory should be establi bed with individual hydro- power schemes ranked by merit taking full account of transmission costs to load centres, in such a way so that the in-entory can be rapidly verified and/or modified when new information from subsequent studies becomes available (paras. 4.54; 7.12). 2.20 As to subsequent investigations, the Government needs to define a program of required studies up to feasibility and project design stages, together with cost estimates for the studies. The program should rank the studies a: to priority and timing of execution, taking into account financial, institutional and other relevant constraints as well as the findings of the proposed least-cost power expansion programs (para. 4.54).  - 19 - Sydrological Data 2.21 The status of gathering hydrologicaL, meteorological, climatic and topographical data requires an independent expert's review in order to verify the appropriateness of the available data and to propose neces- sary improvements. Therefore, it would be advisable to hire a hydrolog- ical expert to review the present system of collecting hydrological and other data as well as the quality of river flow measurements in order to outline a course of action to be taken by MWEM to ameliorate the system of gathering, processing and utilizing hydrological data (paras. 4.70; 7.12). Coal Resources 2.22 The occurrence of coal in Tanzania was first reported around 1880. However, little systematic work was undertaken until about 1930. At that time, some reconnaissance geological mapping took place, principally in the southwestern part of the country (see Map). No addi- tional work took place until 1949, at which time the Colonial Development Corporation (CDC) was invited by the then Government of Tanganyika to evaluate coal deposits of the country with a view to their economic de- velopment. This program extended from 1949 to 1957 and extensive geo- logical investigations were conducted. These investigations which in- cluded diamond drilling in the Ngaka, Mchuchuma and Songwe-Kiwira coal- fields, established the presence of coal in significant quantities but no development was attempted because of the limited market prospects. Tanzanian coal resources are estimated at about 1,900 million tons of which 304 million tons are considered proven. Table 2.3: COAL RESOURCES (million tons) Field Measured Inferred Total Ketewaka-Mchuchuma 186.6 495 681.6 Songwe-Kiwira 35.0 595 615 Galula - 53 53 Njuga 126 126 Liweta - 34 34 Ngaka 97.7 152 249.7 Nbamba Bay - 29 29 I4hukuku 19 19 Ufipa 17-57 17-57 Lunecha -_ _ 319.3 1,520 -1,560 1,824.3-1,864.3 Source: STAMICO, June 1983.  - 20 - 2.23 Since 1966, geological effort has concentrated on two of these coalfields: Songwe-Kiwira, where the coal is classified as bituminous weakly coking, low in sulphur and phosphorous, ash content of 25-30% and with calorific value of about 5,500 kcal/kg; and Ketewaka-Mchuchuma. where the coal is of higher calorific value (about 7,000 kcal/kg). However, attention has been focused on Songwe-Kiwira, because of its relative proximity to transport infrastructure and potential markets, when com- pared to Ketewaka-Mchuchuma. 32/ 2.24 Two exploration projects have been undertaken in the past six years: a geological investigation of the Songwe-Kiwira coal field by a team from the People's Republic of China and a study into the feasibility of developing the Nchuchuma coalfield by a consortium of Dr. Otto Gold GubH, Rodeco CmbH and Saarberg-Interplan GmbH. The latter work was financed by the Federal Republic of Germany (GTZ). The primary objec- tives were the development of these coals for use in conjunction with the nearby iron ore deposits. Both these exploration projects have recently been completed. At the time, the iron ore projects were found to be uneconomic. Production 2.25 Present coal production is limited to one small underground mine, the Ilima colliery (in Songwe-Kiwira), which has been worked since 1953. Production has been about 10,000 tons per year but is constrained by lack of diesel fuel and spare parts. It appears unlikely that the production will be exceeded this year despite the fact that pillar ex- traction is underway. The block is nearing the end of its life and will cease production by early 1984 if the present production rate is main- tained. Exploration is about to commence so as to define another block of reserves adjacent to the existing block for early development. If the exploration proceeds on schedule a new production unit could possibly start in late 1984 increasing to about 50,000 tpy by 1988 (para. 2.29). Development Prospects 2.26 As part of its strategy of developing domestic energy resources to substitute for imported petroleum products and to reduce deforesta- tion, the Government is looking to the coal sector to substitute for fuel oil in industry and power generation and for fuelwood and charcoal in domestic uses. Several development options are being considered to increase coal production. 2.27 Apart from the proposed new mine at Ilima (para. 2.25), there are two other potential sites for future coal production. Both sites are located in the Songwe-Kiwira coalfield which, out of the recognized 32/ Songwe-Kivira is 87 Km from TAZARA railway on an already existing road, while Mchuchuma is about 260 km from TAZARA with no road link.  - 21 - coalfields in southwest Tanzania, appears to have most potential for com- mercial development in the foreseeable future (para. 2.23). Detailed exploration of the Ivogo Ridge area of the Songwe-Kiwira coalfield (implemented and financed by the Chinese Government) has been completed and the results have been presented to Tanzania. This underground coal mining project is reportedly scheduled to commence production in 1986 reaching full production of 150,000 tons per year in 1988. There is at present no reason to doubt this schedule. 2.28 An IDA Coal Engineer_ang Credit is presently financing the exploration of another site in Songwe ICiwira, Kabulo Ridge, which appears to be an excellent prospect for development of an open-pit coal mine pro- ducing low grade coal suitable for industrial consumers and for power generation at lower costs than would be involved in an underground mine. The project's objectives are to provide the government with up- dated geological data on Kabulo Ridge; and to complete a feasibiLity study for a mine development if exploration results so warrant. It is too early to postulate a firm production schedule, should an open-pit mine materialize; however, earliest production would probably be in 1990 with an ultimate capacity of up to 300,000-500,000 tpy depending on demand. 2.29 Table 2.4 sulmmarizes the production capacity which could be developed in Tanzania up to 1990. Production costs for the proposed new Ilima mine and the potential open-cast mine at Kabulo Ridge are expected to range between US$25-30 per tonne of coal. 331 No information is available about expected production costs At the underground Ivogo Ridge (Kiwira) mine. However, it is reasonable to assume that these costs will be in a higher range than those in Ilima or Rabulo, since mechanized underground mines are usually more expensive than open-cast mines. 2.30 Full production, however, will depend on the identification of reliable buyers for the coal. The coal fields are relatively remote from the main energy-consuming centres - Mbeya is the only sizeable town within a 300 km radius -- and transport costs in Tanzania are high. Also, coal has not been available in sufficient quantities to make an impact on the general energy scene -- there is little awareness of coal usage tecbniques, apart from existing consumers of coal (para. 4.82- 4.88). It will take a high level of coordination between the Government, coal-producing bodies, the transport sector and the industrial sector to achieve optimal use of Tanzania's domestic coal resource. 33/ 1982 prices.  - 22 - Table 2.4: POTENTIAL PRODUCTION CAPACITY ('000 tonnes) 1983 1984 1985 1986 1987 1988 1989 1990 Ilima 10 5 10 20 30 50 50 50 Ivogo -il nil nil 10 80 150 150 150 Kabulo nil nil nil nil nil nil nil 50 Total 10 5 10 30 110 200 200 250 Fuelwood Resources 2.31 Tanzania has approximately 440,000 km2 of forestry resources (40Z of its land area). They are composed of 43.2 million hectares of natural miombo forest; nearly 950,000 ha of closed tropicaL forests; about 29,000 ha of planted trees in individual or communal woodlots and in schooLs; and about 60,000 ha of softwood and 6,000 ha of hardwood on industrial plantions. The figures for the natural forest resource are based on inventories in a few areas and have therefore a limited accuracy. 34/ Since no national forest inventory has been made to verify estimates, there is no reliable data base for forestry planning purposes. A national forestry inventory should therefore have a high priority (para. 7.13). 2.32 Theoretically the potential annual fuelwood production of these forestry resources is in the order of 20 million m3; in 3practice, the actual fuelwood supply is much lower at abou= 16 million m (Table 2.5). There are three principal reasons. First, many of the forests are rela- tively remote from populated areas (para. 1.26). Thus, it is estimated that only 80% of the miombo forests are accessible for fuetwood coLlec- tion while the tropical closed forests (major producers of high value sawn timber) are so remote from habitation that they are considered of little significance for fuelwood supply. Secondly, industrial planta- tions were habitually established in thinly-populated areas, where there was less demand for agricultural land. Therefore the wood residues produced are of little use as domestic fuelwood, due to the long dis- tances from the plantations to potential consumers. However, the wood 341 Between 1971 and 1973, CIDA financed inventories in Kilimanjaro, Mtmara, Tanga, Kilombero and Tabora covering 2.8 million ha in reserved forest areas and 4.2 million ha in harvested forest areas. Jaakko Poyry carried out an inventory on 500,000 ha in Amani, Morojora, Handan and Kilombero.  - 23 - processing industries on the plantations could meet all their energy requirements by using these residues if appropriate equipment were installed (paras. 4.98-4.100). Thirdly, the Village Afforestation Programme 35/ made a slow start. Communal woodlots were particularly unsuccessful due to lack of interest. Individual woodlots and school plantations fared much better in that more interest was displayed by the individual farmers and school children in planting and maintaining trees. However, since most of these trees require seven years to reach maturity, their impact on the rural fuelwood supply is still fairly small. The Deforestation Problem 2.33 Annex 3 shows the annual sustainable amount of woodfuel supply compared to actual consumption in 1981 on a regional basis. A summary is in Table 2.5, which shows the wide gap between the current level of fuel- wood consumption and the sustainable fuelwood production. The country is cutting two and a half times more fuelwood than the forests can supply on a sustainable yield basis. More than 23 miLlion m3 are taken every year from the nation's forest stock depleting the equivalent of 0.5 million ha of forest with severe consequences for further fuelwood supply and for the ecological balance of the country. The Government is aware of the problem and has already introduced some measures to counter the problem (para. 2.32). However, given the high population growth rate (3.3% p.a.) and the fact that over 90% of the population relies almost exclusively on fuelwood as a domestic energy source, further steps rust be taken imme- diately to slow down and ultimately halt deforestation (paras 4.91-4.95). Table 2.5: ANNUAL SUSTAINABLE FUELWOOO SUPPLY, CONSUMPTION AND DEFICIT Miombo Forest Woodlots Total Supply Consumption Deficit (103 ha) (103m3/year) bl (103 ha) (10 m-/year) S/ (10 3m3/year) (103m3/year) (103 3*year) 34,549 15,064 29,069 524 15,593 39,103 23,510 a/ Does not include wood production of closed tropical forests and industrial plantations; miombo forest production is based on 80% accessibility. b/ MAI (Mean Annual Increment) for Natural Forests = 0.5 m /ha. c/ MAI for Eucalyptus woodlots = 19 m3/ha. 35/ This program was launched by the Government in 1975 to help arrest the rapid deforestation. Seedlings were provided by the Forestry Division to villages and institutions to establish their own fuelwood supply.  - 24 - Nonconventional Energy Resources 2.34 Aside from fuelwood, Tanzania has considerable biomass re- iources in the form of forest residues, wood processing wastes, surplus softwood, agricultural residues, animal wastes and sugar industry resi- dues. To a varying extent, possibilities exist for the economic conver- sion of these resources to energy for domestic and industrial purposes. Solar and wind energy may also offer some long-term potential but in the near-to-medium term their applications are much more limited than bio- mass. While there is evidence of geothermal potential and uranium deposits, the mission sees no economic case for their development in the foreseeable future.There is also evidence of peat deposits in the Kagera region which are being investigated. Surplus Softwood, Forest Residues and Wood Processing Wastes 2.35 While most regions suffer supply deficits of fuelwood 36/ from hardwood forests, utilization of softwoods for timber and pulp is well beLow the annual allGwable cut. The proportion of this softwood poten- tial that could be economically utilized for energy requirements amounts to some 200,000 m3 solid wood equivalent per year or about 23,000 toe 371 per year after 1986 (Table 2.6). While this would make only a minor contribution to overall supply (less than 0.3Z of estimated total woodfuel use in 1981), locally the utilization of such wastewood would have a significant impact on overcutting. The major constraint to utilization of softwoods for fuel is the relative remoteness of softwood plantations from population centers (para. 4.98). Agricultural Residues 2.36 Coconut residues are probably the most significant agricultural residue in terms of potential energy. It is estimated that there are about 120,000 hectares of coconut plantations along the coast and on Zanzibar, Pemba and Mafia, which produced 175 million coconuts in 1980. This indicates an immediate potential for coconut shells and husks of over 100,000 tons per year (28,500 toe), even after making allowance for copra drying requirements. If improved techniques are applied to present hectarage and the planned new hybrid plantations are established over the next 15 years, the potential residues would roughly double to 200,000 361 "Fuelwood" in this context refers to wood from miombo forests and hardwood plantations, which constitute almost all wood burned in households or converted into charcoal. 37/ Assuming on the average, 2,670 kcal/kg and 0.6 tons/m3 for softwoods with 40Z MC wet basis.  - 25 - tons (56,000 toe) per year. The stemwood from unproductive coconut trees is another potential fuel source estimated at 2.5 million tons (42,000 toe) over a 20-year exploitation period (para. 4.104). 2.37 Cashewnuts yield large quantities of shells and husks which are potential fuels. The projected capacity for 1984 is 113,60C tons of raw nuts, which could generate some 74,000 tons of residues per year. A factory for producing 7,200 tons per year of briquetted charcoal in Dar- es-Salaam for export is expected to become operational soon (para. 4M106). Table 2.6: TOTAL WOOD RESIDUES AVAILABILITY Annual Assumed Potential Utilization 1986-90 Factor Availability (,3) (Z) (toe) Surplus Softwood a/ 500,000 20 16,000 Logging Residues 70,000 40 4,500 Processing Wastes 30,000 50 Z,400 Total 22,900 a/ From a SIDA study in 1982. 2.38 Maize residues are a waste disposal problem in the corn growing regions of Arusha, Tanga, Dodoma, Iringa and Mbeya. They are normally not used for household cooking as they burn fast, are bulky and smoky. A SIDO/Twente University (Dutch) project was carried out to determine the feasibility of using the cobs as fuel for small power gasifiers to run village grinding mills. The technical problems were considered manage- able but increasing capital costs and low utilization rates have combined to make the systems uneconomic (para. 4.106). Animal Wastes 2.39 Dung from animals could be converted to biogas fuel by anaero- bic digestion to supply an extra fuel resource for Tanzania. There is evidence of increased use of dried dung directly for fuel in wood-defi- cient rural areas but due to nitrogen loss this mode of utilization is obviously not to be encouraged. The theoretical potential is large: SIDO figures for 1980 indicate a cattle population of 14.8 million, 5.5 million goats, 3.6 million sheep, 25 million chickens and about 10,000 pigs. About 60Z of the cattle populaticn is concentrated in the regions of Arusha, Mwanza, Mara, Dodoma and Tabora, most parts of which have serious current or projected fuelwood deficits. Considering cattle alone, animal dung production would be about 50 million tons, if an  - 26 - average of 10 kg dung per head per day is assumed. However, the amwunt of dung that could be available for biodigestion is likely to be much less if usage pattern, age of animals, ownership pattern, etc. are con- sidered. A conservative estimate of the potential indicates around 2.5 million tons of collectible dung per year. Converted to biogas, the energy production from this resource would be about 46,000 toe or roughly 0.5Z of total fuelwood demand in 1981. Except for a few units in priv"ce farms, almost all of the existing 300 biogas installations in Tanzania are in institutions and community centers (para. 4.105). Sugar Industry Residues 2.40 Bagasse produced from Tanzania's five sugar mills 38/ during the grinding season provides the main fuel for the mill boilers. How- ever, the present production rate of bagasse is not sufficient for the needs of the mills and their associated plantations. Therefore there is no excess bagasse to generate additional electricity, e.g. for irrigation purposes. 39/ Although a number of milL improvements could result in excess bagasse, the grinding rates of the mills (even at full capacity) may be too low to justify the substantial capital investment needed to improve plant efficiency. 2.41 Molasses is another by-product of sugar mills. Present produc- tion is about 70,000 tpy, of which 34Z ends up as waste. The Government had intended to use this waste in an anhydrous ethanol plant to produce gasohol. However, this project has been postponed, primarily because of its narginal viability and lack of foreign exchangc for the large capital investment (about TSh 160 million). Solar and Wind Energy 2.42 Limited solar insolation and wind regime data indicate good po- tential for direct solar radiation. Aside from a few photovoltaic panels used in repeater stations of the Tanzania Posts and Telecommunications Corporation and small-scale irrigation water pumping, there is no signi- ficant commercial use of solar energy at present. A number of experi- ments are being conducted by MWE and the University of Dar-es-Salaam in the areas of water heating, pumping, distillation and cooking. There is probably a more practical use for wind energy than solar energy through some 100 small water-pumping windmills currently installed throughout the country. 38/ Kilombero I and II, TPC, Mtibwa and Kagera. 39/ Tanesco is planning to supply electric power to Kilombero I and II.  - 27 - Geothermal Power and Uranium Deposits 2.43 There is evidence that Tanzania has geothermal resources. Typically, such resources can be expensive to deve'lop, they discharge steam and hot water with a high mineraL content and they can become a serious source of pollution. In view of Tanzania's large hydroelectric potential. and natural gas resources, the mission would not recommend any major expenditures to investigate or develop geothermal resources in the foreseeable future. Evidence also exists of uranium deposits. Eventu- ally, uranium might be exploited for export but it will not be economical for local use. 40/ Conclusion 2.44 In the medium term, the fuelwood resource will continue to be the most important domestic resource for Tanzania's overall energy needs and more managerial effort and a higher budgetary allocation should be devoted to its preservation. The natural gas reserves proved to date present an opportunity for Tanzania to become more self-reliant in comr mercial energy, should further exploration justify that a pipeline be constructed to carry the gas to Dar-es-Salaam for use in industry and transport. Additional hydroelectric capacity is not an immediate priority in view of the ongoing Fourth Power Project; however some of the existing capacity and the transmission and distribution network urgently need major overhaul and rehabilitation. Coal and noncommercial energy resources (apart from fuelwood) can make only a minor contribution at present, although their respective roles can be expected to expand. Lack of long-term comprehensive data on solar insolation and wind regimes in various parts of the country; the unavailability of proven and affordable technologies that could be disseminated; and the diffused intermittent nature of the resources themselves severely limit opportunities to displace more easily handled conventional fuels. 40/ See "Energy Policy in Tanzania", Commonwealth Secretariat (Commonvealth Fund for Technical Cooperation), August 1980.  - 28 - III. DENAUD FORECAST SCUIARIOS Introduction 3.1 A set of energy forecasts, covering the period 1981-1996 at five-year intervals, has been produced, proceeding from the 1981 energy balance discussed in Chapter I. Total commercial energy demand was projected as a function of total real GDP (i.e. in constant 1978 prices), using a macroeconomic model; the share of electricity demand within that total was then estimated separately. The difference between the two figures represents the demand which would have to be met from non-elec- tricity sources, i.e. from petroleum products, from coal and -- in the future -- from natural gas. However, as noted in Chapter I, the future recovery of the economy of Tanzania and its subsequent growth will depend crucially on the outcome of the Government's structural adjustment pro- gram, which was launched in 1982, and on the availability of foreign exchange. Economic recovery will also entail improved management of domestic resources and a revitalization of exports. In view of these uncertainties, the forecasts of comnercial energy demand employ two alternative scenarios related to the underlying growth of the economy. The "SAP" scenario implies an average growth rate in GDP of 3.9Z p.a. over the decade 1981-91 and 6-7Z p.a. thereafter. The "Delayed SAP" scenario implies no growth in CDP until 1986, an average growth rate of 1.8Z p.a. from 1986 to 1991 and 6Z p.a. thereafter. Noncomuercial energy demand currently consists almost entirely of fuelwood or charcoal. As explained in Chapter I, agricultural wastes and residues have not been effectively utilized by the population at large and in consequence were not incorporated in the 1981 energy balance. Given the preponderance of household consumption in the total, it was postulated that the demand for fuelwood is mainly a function of population; the principal component of noncoumercial energy demand was then obtained from estimates of popula- tion growth, assuming a continuation of the present levels of per capita consumption. The relatively minor component associated with tobacco curing was extrapolated from past trends, employing linear regression techniques. 3.2 Issues and options related to the supply of energy -- for example, the extent to which natural gas and coal can be used to sub- stitute for petroleum products in meeting forecast commercial energy demands, the possible role of fuelwood plantations and the potential for increasing the contribution of agricultural wastes and residues -- will be considered in Chapter IV. The options available for influencing energy demand - notably through interfuel substitution, appropriate pricing policies, industrial energy conservation and improved firewood and charcoal stoves - are discussed in Chapter V.  - 29 - Total Conmercial EnerBZ 3.3 Projections of total commercial energy demand have been made from a macroeconomic model which assumes a 'SAP" scenario in which Tanzania undertakes a series of economic reforms which in turn are supported by additional inflows of foreign exchange in 1984 (the first year of adjustment). The macroeconomic model then links CDP growth to the free foreign exchange which is available for the purchase of recurrent imports, it makes the level of investment a function of the amount of project-tied aid inflows and it defines consumption as a residual expenditure after deducting investment and net exports from GDP. 3.4 Aggregate GDP and investment projections are then estimated by applying elasticities calculated from historical data to the free foreign exchange and tied aid respectively and considering 1984 as the first year of adjustment. The results are in Table 3.1, which shows that aggregate CDP can be expected to grow rapidly in 1984, due to the fact that GDP has fallen consistently for the last three years and the initial recovery can thus be expected to be fast. During 1985 and 1986, the growth rate of CDP is 2X and 3X respectively; these are years in which rehabilitation of the export crops is carried out and output responds with a delay. The real recovery starts only in 1987, when exports reach about US$700 mil- lion in constant (1978) prices. By the end of the decade, CDP settles at a steady growth rate of 6Z to 7Z p.a. 3.5 Table 3.1 also breaks aggregate GDP into its sectoral compo- nents, by using historically observed shares and by exogenously specify- ing changes for future years reflecting the impact of the adjustment program. The share of agriculture and industry increases while that of the social services declines. 3.6 Finally, Table 3.1 sets out projections of total commercial energy demand by working from aggregate GDP through the following simple linear relationship: (Comuercial Energy Demand in toe) = (A) x (CDP in constant 1966 prices) The coefficient A is estimated from historical values at 0.066; the relationship implies an energy/CDP elasticity of one.  Table 3.1: PROJECTIONS OF NATIONAL ACCOUNTS AND COMMERCIAL ENERGY CONSUMPTION, 1984-1991 a/ (TSh BILLIONS IN 1978 PRICES UNLESS OTHERWISE SHOWN) 1981 1984 1985 1986 1987 1988 1989 1990 1991 GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.2 41.3 43.7 46.9 Indirect taxes 3.3 4.3 4.4 4.6 4,8 5.1 5.4 5.7 6.1 GDP at market prices 35.3 37.7 38.5 39.6 41.9 44.4 46,7 49,3 53.0 Imports 7.9 7.1 7.3 7.4 8.0 8.5 9.2 9.8 10.6 Exports 5.4 4.4 4.8 5.2 5.6 6,2 6.9 7.7 8.3 Investment 8.1 9.1 9.3 8.8 7.9 7.6 6.7 7.1 7.6 Consumption 29.7 31.1 31.6 33.0 36.5 39.0 42.3 44.3 47.6 Growth rate of GOP (5) (7.0) - a/ 2,1 2.9 6.0 5,7 5.4 5.8 7.3 GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.3 41.3 43.7 46.9