Tanzania - Power Engineering and Technical Assistance Project

 Power Engineering and Technical Assistance Report No: ; Type: Report/Evaluation Memorandum ; Country: Tanzania; Region: Africa; Sector: Hydro; Major Sector: Electric Power & Other Energy; ProjectID: P002811 The Tanzania Power Engineering and Technical Assistance Project, supported by Credit 2330-TA for US$10.0 million equivalent, was approved in FY92. The loan was closed in FY96, a year behind schedule, and was fully disbursed. The Implementation Completion Report (ICR) was prepared by the Africa Regional Office. No contribution was received from the Borrower. The project's objectives were to: (i) assist Tanzania Electric Supply Ltd. (TANESCO), Tanzania's state- owned power utility, in completing the design work for the Lower Kihansi hydroelectric project –a least-cost generation project which the Bank was expected to finance; and (ii) upgrade TANESCO's accounting and financial capabilities. To this end. the project included: (i) preparation of the detailed design for the Lower Kihansi project, including site investigations and the preparation of bidding documents (about 70 percent of the project's total estimated cost of US$11.6 million); (ii) set up of a new billing and accounting system, including software and hardware; (iii) construction of a training center; and (iv) training of TANESCO's financial staff. The loan also included pricing and financial covenants, including a Government commitment to raise tariffs by 15 percent (in two steps) by July 1992. All of the project's physical, institutional and policy objectives were substantially met, albeit with some delays (one year for the new billing and accounting systems due to the higher-than-expected time required to introduce a new type of technology prepayment metering). The timely preparation of the design work and bidding documents allowed the construction of the Lower Kihansi project to proceed without delay (under financing from Credit 2489-TA approved in FY93), which was critical in light of the power shortage which subsequently developed in the country. The new prepayment billing system, originally introduced as a pilot, was successful in reducing billing errors and improving the company's cash-flow, and is now being mainstreamed (already accounting for some 60 percent of total revenues). And power tariffs were increased as scheduled. However, Government arrears to TANESCO have recently been on the increase. It is expected that current Government plans for the restructuring of the power sector will address this outstanding issue. The Operations Evaluation Department (OED) rates project outcome as satisfactory and sustainability as likely (as in the ICR). Institutional development impact is rated as substantial (instead of partial as in the ICR), in light of the above accomplishments. The Bank's performance is rated as satisfactory (as in the ICR), particularly on account of the appropriateness of the project design and related choice of lending instrument, the quality of its technical advice in helping solve initial compatibility problems with the billing software, and its maintenance of staff continuity throughout the implementation of this and the next project. Borrower performance is also rated as generally satisfactory (as in the ICR), in spite of the above- mentioned failing to resolve the arrears issue. Two important lessons can be drawn from this project: (i) a technical assistance project can be a very useful tool to continue the dialogue between the Bank and the Borrower on important institutional and policy issues while a large investment project is under preparation; and (ii) a pre-payment metering system can be a very effective way to both improve power company finances and encourage customers to conserve electricity, provided it is configured to accurately reflect the prevailing tariff structure. OED rates the ICR as satisfactory. No audit is planned.