Tanzania - Power Development Program Project

FILE- COPY RESTRICTED Report No. TO-594a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE DEVELOPMENT PROGRAM OF THE TANGANYIKA ELECTRIC SUPPLY COMPANY LIMITED TANZANIA October 19, 1967 Projects Department  -CURRENCY EQUIVALENTS 1 Tanzanian Shilling = 100 Tanzanian cents 1 Tanzanian Shilling = US$0. 14 US$1 = Tanzanian Shilling 7. 14 61 = Tanzanian Shilling 20. 1;1 = US$2. 80 E1, 000, 000 = US$2,800,000 TANESCO's Fiscal Year = Calendar Year  TANZANIA APPRAISAL OF THE DEVELOPMENT PROGRAM OF THE TANGA1NYI A ELECTRIC SUPPLY COMPANY LIMITED Table of Contents Page SUMMARY i 1. INTRODUCTION 1 20 THE ELECTRIC POWER INDUSTRY OF TANZANIA 1 3. THE TANGANYIKA ELECTRIC SUPPLY COMPANY LIMITED 2 Organization and Management 2 The Company's License 3 Existing Facilities of TANESCO 3 4. THE POWER MARKET 4 Future Demand and Sales Forecast 4 5. DEVELOPMENT PROGRAM 6 6. THE PROJECT 7 Status of Engineering, Procurement and Disbursement 7 Construction Schedules 8 Estimated Cost 8 Unit Costs 9 7. ADDITIONAL EXPANSION WORKS 9 8. FINANCIAL ASPECTS 9 Tariffs 9 Past Operations 10 Present Financial Condition 11 Proposed Financing Plan 13 Estimated Future Earnings 16 Future Financial Position 17' Debt Limitation 17 9. CONCLUSIONS 17 This report is based on the findings of a Bank mission consisting of G.E. Wyatt, F. Rydell and N. De Sirkar which visited Tanzania in November 1966 and February 1967.  List of Annexes 1. Growth of Total Energy Sales 1958-1966 2. Growth of Industrial Energy Sales 1958-1966 3. Merz & McLellan Market Survey Estimates of Demand 1967-75 4. Large Consumers Expected to be connected in Next Five Years 5. Merz & McLellan Market Survey Estimate of Sales 1967-1975 6. System Capacity and Maximum Demand 7. Actual and Estimated Income Statements 8. Estimated Source and Application of Funds Statements 9. Actual and Estimated Balance Sheets 10. Estimated Construction Expenditures, 1967 through 1972 11. Interest Schedule 12. Amortization Schedule of Long-Term Debt Map  TANZANIA APPRAISAL OF THE DEVELOPMENT PROGRAM OF THE TANGANYIKA EIECTRIC SUPPLY COMPANY LIITED SUMMARY i. The Tanganyika Electric Supply Company Limited (TANESCO) has applied to the Bank for a loan of US$5.2 million equivalent to help meet the estimated foreign exchange purchases for its development program including the provision of additional generating capacity and expansion of transmission and distribution facilities. The total cost of the Project is estimated at US$8.56 million equiva2ent. ii. The Project, which is part of a six-year expansion program, is intended to provide TANESCO with the additional facilities required to meet the estimated demand for power up to the end of 1970 or early 1971. It consists of the installation of about 18 MW of diesel generating units in the Ubungo station at Dar es Salaam and about 3 MW of diesel generating units at Mwanza in northwestern Tanzania, extensions to 33 kv transmission lines, and expansion of the distribution system and minor additions to generating plant. The Project would be limited to the three-year period 1968 through 1970 though some advance payments on major items of equip- mentmay be incurred in December 1967. iii. The Project is technically sound, the estimated cost is reason- able, and the construction schedules are realistic. TANESCO's operations are well managed and its organization is sound and it is capable of con- structing and operating the Project. iv. TANESCO has been a profitable organization in the past, earning an average rate of return of about 7% during the years 1963 through 1965, and earning an lle2% return in 19660 Present tariffs are adoquate. Based on the sales forecast at the same level of tariffs the estimated rate of return for the years 1967 through 1971 is about 12%. During the period 1967-1970 TANESCO is expected to provide from its internal cash genera- tion about 26% of its total capital requirements for expansion. v. Because of TANESCO's present mortgaged position resulting from a Commonwealth Development Corporation (CDC) loan made in 1961, satisfactory arrangements were agreed during negotiations for the proposed Bank loan to rank pari passu with the Sterling Debenture Stock. vi. The Project is suitable for a Bank loan of US$5.2 million equiva- lent for a term of 20 years including a grace period of 3