KIKWETE'S CABINET APPROVES MCA COMPACT PROPOSAL

C O N F I D E N T I A L SECTION 01 OF 02 DAR ES SALAAM 001504

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E.O. 12958: DECL: 09/05/2011
TAGS: PREL PGOV ECON EFIN EAID ENRG EINT TZ
SUBJECT: KIKWETE'S CABINET APPROVES MCA COMPACT PROPOSAL

REF: DAR ES 0165

Classified By: D. Purnell Delly, Charge d'Affaires for reason 1.4(d)


1. (SBU) SUMMARY. On August 28, President Kikwete and
Cabinet officially approved the Government of Tanzania's
(GOT's) Millennium Challenge Account (MCA) Compact proposal
for submission to Millennium Challenge Corporation (MCC)
Washington. The GOT's proposal focuses on strengthening
Tanzania's infrastructure network in three key sectors:
transport, water and energy. The total cost of all proposed
projects is USD 799 million, with 48 percent of the budget
for road construction and airport upgrades, 30 percent for
water and sanitation projects, and 16 percent for rural
electrification. The recent submission signals that Tanzania
is on track with the Compact process, meeting key target
dates set forth by MCC. The GOT's Coordinator for the MCA
Compact, Bernard Mchomvu, has proved skillful in working
through Tanzania's bureaucracy, establishing an appropriate
structure for the process, and identifying potential areas of
sensitivity or concern. Important next steps include the
internal presentation of an "Opportunity Memo" by the MCC
Country Team to the Investment Committee and MCC's due
diligence of all projects proposed by the GOT. END SUMMARY.

Kikwete's Cabinet Approves MCA Compact Proposal
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2. (SBU) On August 28, President Kikwete's Cabinet reviewed
and approved the Government of Tanzania's (GOT) recently
completed Millennium Challenge Account (MCA) Compact
proposal. With Cabinet approval, the GOT formally submitted
the proposal to the Millennium Challenge Corporation's (MCC)
country team, led by Country Director, Gretchen Brevnov. The
GOT managed to achieve submission within the six month time
frame set by the MCC delegation after its initial visit to
Tanzania in February 2006.


3. (C) According to the GOT's MCC Coordinator, Bernard
Mchomvu, the Cabinet approved the proposal with no
substantive changes and with the full support of President
Kikwete and his Ministers. Mchomvu told Econoff on August 30
that President Kikwete had read not only the Cabinet paper
summary but the entire MCA 70 page proposal. Mchomvu noted
that "President Kikwete stressed his support for the proposal
and asked his Ministers if they had any comments. The
Ministers raised no objections and instead emphasized that
they needed this development assistance 'yesterday'."

Tanzania's Proposal: Improving Infrastructure
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4. (SBU) The GOT's proposal focuses on strengthening and
expanding Tanzania's infrastructure network with projects in
three primary sectors: transport, water and energy. The
stated objective is to stimulate broad-based economic growth
and poverty reduction by addressing supply side constraints
and improving access to basic services. Based largely on
Tanzania's recently completed National Strategy for Growth
and Reduction of Poverty (known in Swahili as "MKUKUTA"),the
proposal reflects discussions within the GOT's Ministries and
between the GOT and Tanzania's private sector and civil
society.


5. (SBU) Tanzania's proposed projects for transport, water
and energy total USD 799.2 million. Projects in the
transport sector amount to USD 386.6 million (or 48.4 percent
of the total),while projects in the water and energy sectors
amount to USD 243 million (30.4 percent) and USD 130.6
million (16.3 percent) respectively. The following chart
outlines the proposed projects and associated costs:

Sector Project USD
Name (millions)
-------------- --------------
Transport Tunduma-Sumbawanga Road (224.5km) 112.000
Transport Tanga-Horohoro (68km) 34.000
Transport Tunduru-Songea (263km) 130.000
Transport Songea-Mbamba (144.5km) 50.204
Transport Upgrade Kigoma Airport 9.000
Transport Upgrade Mafia Airport 8.570
Transport Zanzibar Rural Roads 42.818
TRANSPORT Total: 386.593
Water Kidunda Dam 126.000

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Water Bunena and Kagemu Water intakes, 9.378
Water Morogoro water supply systems 2.192
Water Pemba Water supply 11.616
Water Zanzibar Town sanitation 11.500
Water Misungwi Town Water Supply 12.516
Water Bunda Town Water Supply 4.628
Water Bariadi Town Water Supply 3.000
Water Tarime Water Supply 9.000
Water Geita Town Water Supply 17.134
Water Rural Water Supply (Ungujga,Pemba) 12.077
Water Monitoring and Assessment 8.200
Water Water quality Laboratories 6.000
Water River Basin Organizations 9.800
WATER Total: 243.041
Energy Electrification of 12 District HQs 25.160
Energy Nakatuta Small Hydropower Plant 31.100
Energy Malagarasi Small Hydropower Plant 24.340
Energy Zanzibar Submarine Cable 50.000
Interconnection Improvement
ENERGY Total: 130.600
Total all sectors: 760.233
Program Management Budget (MCA Team): 39.000
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TOTAL: 799.233


Sensitive Areas: Kidunda Dam, Fiscal Management on Zanzibar
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6. (C) When questioned on potential areas of sensitivity
within the proposal, Mchomvu highlighted two: the Kidunda dam
and the management of funds for project implementation on
Zanzibar. In terms of the dam, Mchomvu said that although
due diligence would be completed by the MCC Team, "some
issues on the environmental front, which are
characteristically associated with dams may be raised." With
respect to Zanzibar, Mchomvu pointed out that the GOT's
proposal calls for project funds to be managed by the
relevant ministries including ministries on Zanzibar. "While
the MCC Country Team has indicated a level of comfort with
such an arrangement on the Mainland, the Team is less
confident in the financial management and accountability
structures on Zanzibar. This could be one area where
political sensitivities arise," Mchomvu noted.

Comment: MCC Compact Process Moving Forward in Tanzania
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7. (C) The GOT's recent submission signals that the MCA
Compact process is on track in Tanzania. After gaining MCA
Compact eligibility, President Kikwete wasted no time after
assuming office in December 2005 to appoint Bernard Mchomvu,
a well-respected and competent coordinator, to lead the
process. Mchomvu has proved highly adept at working within
GOT's bureaucracy, organizing countless consultative sessions
with relevant Ministries. Mchomvu also ensured establishment
of a proper support structure: the creation of a Tanzanian
MCC Steering Committee to guide the process and a Technical
Core Team for implementation. Now that the GOT has submitted
its proposal, the ball is back in MCC Washington's court,
with key next steps including the Country Team's "Investment
Opportunity Memo" and its due diligence process to assess the
GOT's proposed projects.


8. (C) Despite one or two sensitive areas, the MCC Compact
is development assistance which the Kikwete administration is
anxiously awaiting. When his Ministers said they wanted such
projects "yesterday," President Kikwete expressed his hope
that money could be disbursed as early as May 2007. MCC
Washington has not yet provided even a tentative date for
Compact signing or disbursement of funds, saying that the
process could take anywhere from nine to twelve months from
submission of the GOT's proposal. END COMMENT.
DELLY