22 Mar 2009

As the public electricity power supply utility, Tanesco struggles with bail-out plans in order to avoid major power shedding expected to hit the nation by September this year, fresh details have emerged showing how the cash-strapped company missed a $300million power deal due to greed and battle for the control of big money running into billions of shillings.

According to details from the financier - Barrick Tanzania - the project was suspended early in January this year after Tanesco - Tanzania Electricity Supply Company - failed to adhere to the financing conditions issued in order to ensure that the billions are not swindled by some corrupt top officials within the state-owned company.

Barrick Tanzania had agreed to finance the $300million Mnazi bay power project, which could have produced 300megawatts, and forestalled the looming power crisis.

According to inside information, Barrick Tanzania, being one of the potential clients of the proposed deal, was approached by Tanesco and Artumas through a Power Purchasing Agreement (PPA).

Under this arrangement, Barrick, as a prospective client was to consider the possibility of investing in a generating company, TanGen, and recover its investment through sale of power under the Power Purchase Agreement.

It is through this arrangement that Barrick Tanzania was ready to give the needed billions to finance the stalled project.

Investigations conducted by The Guardian on Sunday have established that earlier, Barrick Tanzania, being alarmed by the financial mismanagement within Tanesco, gave the latter a condition that the two should open a joint venture account in order to manage the Sh390billion($300million).

But for unknown reasons, Tanesco flatly rejected the proposal, insisting that it should be given full mandate to control the $300million.

However, the move was strongly rejected by Barrick which among other things questioned the intention of Tanesco of declining to operate a joint venture account with the financier.

A senior official from Barrick Tanzania who declined to be named citing the sensitivity of the current power debate told The Guardian on Sunday this week: ``I am surprised, they (Tanesco) are crying to buy $50million Dowans plants while they have failed to utilise a $300million deal from us…This is a shame.

``We were surprised to hear that Tanesco management wasn`t ready to agree with a very simple condition they were being given by Barrick…And this led us to think that perhaps there were hidden motives about our money.``

After failure to agree on how to manage the billions which is close to the company`s annual revenue collections, Barrick Tanzania`s management decided to stop financing the project, casting a bleak future on the country`s energy sector.

Surprisingly on February 21, this year, while tabling the financial recovery plan of Tanseco before the parliamentary committee responsible for overseeing all publicly owned corporations, the Company`s Managing Director, Dr. Idris Rashidi, told the committee that he wasn’t aware why Barrick Tanzania pulled out of the project.

``This has come as a surprise to us because we banked our hopes on this project…we were shocked to learn that the financier had pulled out of the
project, `` the MD told the committee, indicating that he wasn’t aware why Barrick had pulled out at the final stages.

But contacted for comment, the Minister for Energy and Minerals, William Ngeleja said: ``I have already started a process to rescue the project…It is true that the negotiations hit a snag recently, but I am working on it.

``I have organised a meeting on March 25 at my office that will involve all concerned parties - Barrick, Tanesco and Artumas - to discuss how to rescue the plan.``

The Minister went on: ``You know that in any deal there`s always disagreement about contentious issues but that can be sorted out…I will ensure that the country gets the 300 megawatts electricity as planned.”

The revelations come after three weeks of a verbal wrangle between prominent leaders, focused on accusations and counter-accusations over an alleged hidden agenda on the proposed 60bn/- Dowans takeover, a situation that has opened the floodgates of mudslinging politics.

The two parliamentary committees - the one led by legislator Kabwe and the other chaired by fellow legislator William Shelukindo - have strongly differed on the Dowans deal, raising a heated debate during the past few weeks.

The company currently purchases about 59 percent of its power from private producers, which according to financial details eats up to 83 percent of the total revenue collected annually.

With dilapidated infrastructure built mainly during the 1970s, the company`s power supply capacity is estimated at 595 megawatts.

This year, the actual demand is 787 megawatts - creating a deficit of 192 megawatts.

According to available details, the company has only 670,000 customers.

Last year, the company planned to increase its customer base by about 100,000, but the target couldn’t be reached due to financial straints.

Still, based on the current economic growth, demand for electricity is estimated to increase by 15 percent annually, while the production capacity continues to dwindle due to various technical and non-technical factors.

Since there are no comprehensive power generating plans in 2010, the power deficit will surge to 300 megawatts, putting the country at risk of facing an even worse phase of power rationing.

Currently, the state-owned company needs about $200m for major repairs on its dilapidated infrastructure, but so far there’s nowhere to get the money from.

Just two years ago, the company borrowed $300m from a consortium of local banks at 10 percent interest per annum, but almost 80 percent of that money was spent on settling outstanding debts.

Currently according to the inside details, Tanesco is on the brink of collapse due to the heavy costs of operations, largely attributed to capacity charges.

In 2004, the company paid 43/- to private power producers for every 100/- it collected in revenue. By 2006, when dubious government deals were made with private companies, that figure had more than doubled, to 104/- for every 100/- collected, according to the parliamentary committee presentation.

In 2007/08, the company spent 83/- for every 100/- it collected to foot the bill of power generated by private producers, but this year, the figures will soar even higher - to 106/- for every 100/- collected, according to the financial recovery plan seen by The Guardian on Sunday.

In other words, 83 percent of the total revenue collected by the state-owned utility company will go to private power producers, leaving the company in dire financial straits.

Over the past two years, the company`s revenue collection has spiked by 122 percent, reaching 437bn/-, a year up from 196bn/- in 2006.

Today, the company`s electricity loss - meaning the amount of energy lost when transmitted from point A to point B - is 24 percent, a staggering amount when compared to countries like South Africa where that loss is below 4.5 percent.


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