Tanzania - Power Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Repont No. 6026-TA STAFF APPRAISAL REPORT TANZANIA POWER REHABILITATION PROJECT April 10, 1986 Energy Division Eastern and Southern Africa Projects Department This document has a restricted distribution and may be used by reciplents only In the perormance of their official duties. Its montents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS. US$1 - TSh 16.4 TSh I - US$ 0.061 ABBREVIATIONS OF WEIGHTS AND MEASURES BCF - billion cubic feet MW - megawatt GWh - gigawatt hour MWh - megawatt hour ha - hectare TCF w trillion cubic feet kg - kilogram tpd - tons per day km - kil6meter tpy - tons per year kV = kilovolt toe = tons of oil equivalent kWh kilowatt hour tonne, t - metric ton m3 - cubic meter GLOSSARY OF ACRONYMS AND ABBREVIATIONS CIDA Canadian International Development Authority ENI Ente Nationale Idrocarburi EPD Engineering and Power Development Consultants Ltd. ESMAP Energy Sector Management Assistance Program GASCO Gas Corporatioa ICS Interconnected System IEDC International Energy Development Corporation MEM Ministry of Energy and Minerals MNRT Ministry of Natural Resources and Tourism NORAD Norwegian Agency for International Development NUWA National Urban Water Authority SIDA Swedish International Development Agency STAMICO State Mining Corporation TAC Tanzania Audit Corporation TANESCO Tanzania Electricity Supply Corporation TARECO Tanzania Rural Electrification Corporation TPDC Tanzania Petroleum Development Corporation TTI Technician Training Institute TIPER Tanzanian and Italian Refining Company, Ltd. IUNDP United Nations Development Program WSO Water Supply Organization GOVERNMENT OF TANZANIA FISCAL YEAR = JULY 1 - JUNE 30 TANESCO FISCAL YEAR = CALENDAR YEAR NOTE: Inconsistency in totals throughout report is due to rounding method of computer  FOR OICAL USE ONLY TANZANIA POWER REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: United Republic of Tanzania. Beneficiaries: The Tanzania Electric Supply Company, Limited (TANESCO), the Ministry of Energy and Minerals (MEN) and the National Urban Water .1uthority (NUWA). Credit Amount: SDR 34.7 million (US$40 million equivalent). Terms: Standard. Re-lending Terms: The Government would onlend US$37.3 million out of the proceeds of the credit to TANESCO at an irterest rate of 9% over 20 years, with 4 years of grace, TANESCO to bear foreign exchange risk; and make available US$2.4 millior to MEM and US$0.3 million to NUWA, both as grants. Cofinancing: The United Republic of Tanzania is arranging cofinancing as follows: grants from the Governments of Canada (US$10.2 million equivalent), Finland (US$2.3 million equivalent), and Norway (US$8.3 million equivalent); and a loan from the European Investment Bank (US$6 million equivalent). An additional amount of cofinancing for about US$10.6 million is being sought, but for which commitments have not yet been confirmed. Project Objectives: The main objectives of the proposed project are (i) to help restore Tanzania's power system, which is in urgent need of rehabilitation, to reasonable levels of reliability and service, and (ii) to encourage efficient domestic energy resource development and management. The proposed project would re-establish the operating performance of TANESCO's power system and assist in improving its financial performance through appropriate pricing policies. It would also help the Government and TANESCO to develop an invest- ment program for the power sector based on least-cost criteria, consistent with Tanzania's available financial and foreign exchange resources. It is also designed to improve availability and production of household energy supplies by pilot activities Ln n3re efficient commercial charcoal and charcoal stuEve production. Thi 4ocunent ha a eted ditibution ad may be ued by recipets only in te perfonmne of their oRia duties. Its contents may not otherwie be dbcsed without World ank authonriaon.  - ii - Project Description: The project comprises, for the power subsector: rehabilitation of power stations with a total name- plate rating of about 120 MW; rehabilitatiotu of existIng transmission lines, substations and distribution networks; improvement of associated communications facilities and supply of transport, spares and tools- Technical assistance would be provided for project implementation, financial operations, engineering and training programs in all areas of TANESCO's operations. For the other energy sector components, the project comprises: two or three commercial-sized pilot charcoal production operations based on the use of natural forests that have to be cleared for agricultural purposes; training of charcoal cooker manufacturers and artisans in production and dissemination of improved cookers; and a study of the feasibility of manufacturing or importing low-cost electric cookers. For NUWA, the project would provide technical support to improve its billing and collection procedures to ensure more timely repayment of its debts to TANESCO. Project Risks: The major risk is financial. The projected load growth and TANESCO revenues take the existing depressed state of the Tanzanian economy into con- sideration and also assume that it will continue for the immediate future. As a result, high tariff increases are required in order to provide adequate cash generation for TANESCO's overall operations and investments (even with an investment program that has been curtailed). A 67% tariff increase has recently been implemented and a semi-annual tariff review and adjustment mechanism is provided for under the project. No major physical risks are anticipated in implementing the proposed project. The charcoal cookers and production components depend on a newly- created organization for their management. This risk, as well as the problem of designing a workable arrangement between Government-supported training and financing activities and initiatives for private sector operation and marketing, would be reduced by the involvement of Tanzanian institutions experienced in private enterprise development atnd from experience from ongoing similar projects in other African countries.  - iii - Estimated Project Costs: a/ Local Foreign Total -US$ million