Identifier
Created
Classification
Origin
06DARESSALAAM1776
2006-11-02 08:21:00
CONFIDENTIAL
Embassy Dar Es Salaam
Cable title:  

TANZANIA'S NEW ENERGY MINISTER TO THE RESCUE?

Tags:  PGOV PREL EAID ECON EIND TZ 
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DE RUEHDR #1776/01 3060821
ZNY CCCCC ZZH
P 020821Z NOV 06
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 5030
INFO RUCNCLM/MCC CANDIDATE COUNTRY COLLECTIVE PRIORITY
RUEHJB/AMEMBASSY BUJUMBURA PRIORITY 2432
RUEHKM/AMEMBASSY KAMPALA PRIORITY 2868
RUEHLGB/AMEMBASSY KIGALI PRIORITY 0872
RUEHNR/AMEMBASSY NAIROBI PRIORITY 0353
C O N F I D E N T I A L SECTION 01 OF 02 DAR ES SALAAM 001776 

SIPDIS

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DEPT AF/E FOR B YODER
PLEASE PASS TO G BREVNOV AT MCC

E.O. 12958: DECL: 11/01/2011
TAGS: PGOV PREL EAID ECON EIND TZ
SUBJECT: TANZANIA'S NEW ENERGY MINISTER TO THE RESCUE?

REF: A. A) DAR ES SALAAM 01740


B. B) DAR ES SALAAM 01145

Classified By: Michael L. Retzer, Chief of Mission, for reason 1.4(d).

C O N F I D E N T I A L SECTION 01 OF 02 DAR ES SALAAM 001776

SIPDIS

SIPDIS

DEPT AF/E FOR B YODER
PLEASE PASS TO G BREVNOV AT MCC

E.O. 12958: DECL: 11/01/2011
TAGS: PGOV PREL EAID ECON EIND TZ
SUBJECT: TANZANIA'S NEW ENERGY MINISTER TO THE RESCUE?

REF: A. A) DAR ES SALAAM 01740


B. B) DAR ES SALAAM 01145

Classified By: Michael L. Retzer, Chief of Mission, for reason 1.4(d).


1. (U) SUMMARY. The new Minister of Energy and Minerals,
Nazir Karamagi, promised a more strategic, private sector
approach to the energy sector when he met with Ambassador
Retzer and Deborah Malac, Deputy Office Director for East
Africa, on October 26. In the immediate-term, to prevent
complete blackout in the Lake Zone (near Lake Victoria),
Karamagi said that the Government of Tanzania (GOT) was
airlifting a 40 Megawatt generator to Mwanza within 20 days.
In the longer term, he explained his focus would be on
large-scale power projects, efficiency of transmission, and
reduction of subsidies. Karamagi repeated verbatim the
Ambassador's advice to President Kikwete just days earlier -
i.e. that the GOT should pursue future contracts with
principals not middlemen (Ref A). Noting that the Millennium
Challenge Corporation (MCC) had increasing reservations about
investing in the energy sector, the Ambassador encouraged
Karamagi to engage with the MCC team during its next visit to
Tanzania in mid-November. While stressing that there were no
"quick fixes," Karamagi said within a year, he was optimistic
on progress to ensure the power sector's sustainability. END
SUMMARY.

New Minister Brings Private Sector Perspective to Energy
-------------- --------------

2. (U) The Ambassador congratulated Minister Nazir Karamagi
on his new assignment as Minister of Energy and Minerals,
noting the confidence President Kikwete must have in him to
take over this challenging portfolio. (Note: On October 15,
Preside Kikwete shifted Karamagi to this new position after
10 months as Minister of Industry and Trade). Karamagi said
he believed that President Kikwete appointed him because of
his background in the private sector. "Coming from the

private sector," he said, "I know how businesses feel without
access to power and will work to streamline and manage the
sector more efficiently."

Short Term Plan: Stabilize Grid
--------------

3. (U) Outlining the GOT's short-term plan, Karamagi said
that the immediate need was to stabilize the national grid.
He explained that to prevent the Lake Zone from experiencing
a complete blackout, the government-owned Tanzania
Electricity Supply Company (Tanesco) had signed an emergency
contract with Alstom (a U.S.based company) on or around
October 16 to rent a 40 MW generator for Mwanza that will be
delivered within three weeks. According to the local press,
the total amount of the Alstom contract is USD 134 million
including air freight and fuel costs for a twelve month time
period.

Long Term Plan: Big, Strategic Projects
--------------

4. (U) Minister Karamagi underscored his understanding that
there were "no quick fixes" to the current crisis and
stressed that the GOT needed to approach the power sector
more strategically. To prevent dependence of certain regions
on one power source, Karamagi said that he would pursue
large-scale, power generation projects carefully placed in
different regions of the country. He also intends to focus
on improving transmission which currently results in losses
of up to 26 percent. Ambassador Retzer highlighted the
contribution that small power producers could also make to
increasing power supply, citing examples in the U.S. of
private producers selling wind and solar power directly to
the national grid. The Ambassador emphasized that there was
room for small producers and that the government should
encourage such entrepreneurship in the energy sector.

Setting Sustainable Rates: Killing the Cow Or Milking it?
-------------- --------------

5. (U) On the subject of setting sustainable rates, Minister
Karamagi indicated that the GOT was willing to raise power
tariffs to reduce, and hopefully eliminate, government
subsidies to the sector. He emphasized, however, the GOT's
view that before raising rates, there had to be improvements
in either the quantity or quality of power supply. Karamagi
told the Ambassador, "In terms of taxing the business
community, we have to be careful. We don't want to kill the
cow which is giving us milk."


6. (U) The Ambassador explained that for the business

DAR ES SAL 00001776 002 OF 002


community, reliability was the critical factor. He stressed
that the inability to plan ahead and the cost of damaged
equipment often proves more expensive to the private sector
than hikes in the electricity tariffs. Minister Karamagi
nodded and noted that the GOT would have to carefully manage
the approach to the private sector, which he admitted
sometimes exaggerated the impact of tariff hikes to increase
profit margins.

Retrospective on Richmond: No More Middlemen
--------------

7. (C) Commenting on the GOT's contract with Richmond
Development Company (Ref A and B),Karamagi said that
Richmond managed to secure a good contract despite its lack
of credentials. He emphasized that while Richmond may lack
capacity, the company still has time within its contract to
deliver. In Karamagi's view, taking Richmond to court now,
"could actually make the company rich!" He said the GOT's
hope was for the contract to run out and for Richmond to
simply walk away. "In the future," Karamagi told the
Ambassador, "we need to deal only with principals and not
brokers." The Ambassador agreed wholeheartedly and explained
that this was exactly what he had told President Kikwete
earlier in the week (Ref A).

Minerals: Digging for Win-Win Deals
--------------

8. (U) Turning to the other half of Minister Karamagi's
portfolio, the Ambassador inquired about the GOT's progress
reviewing mining contracts. Karamagi replied Tanzania had
aggressively tried to attract foreign direct investment in
the early 1990s based on the desire to get rid of its stigma
as a socialist country. Under President Kikwete's
leadership, the GOT is revisiting some of these contracts.
Karamagi emphasized, however, that Tanzania did not want to
be viewed as a country where the validity of contracts were
questioned from one administration to the next. "We are not
intending to twist arms here but we are seeking gentlemen's
agreements," he said. The Ambassador noted that win-win
deals or "gentlemen's agreements" were possible and advised
that the GOT carefully consult public records to determine
the profitability of these mining companies.

MCC: To Invest or Not to Invest?
--------------

9. (C) The Ambassador informed Minister Karamagi that the
Millennium Challenge Corporation (MCC) had reservations about
investing in Tanzania's energy sector. "Although the GOT has
proposed USD 130 million worth of energy projects, MCC
Washington will not be able to invest without a recovery plan
and a long-term, strategic plan for the sector's
sustainability," the Ambassador explained. Karamagi agreed
to meet with the MCC Country Team during the next visit to
Tanzania; he noted his job, in the short-term, will be to
reassure both the business community and the international
donor community that the GOT is committed to resolving the
power crisis as quickly as possible. He added, "If I can
stay here for one year, and systematically implement my plan,
I can comfortably say that I will be able to put Tanzania's
power problem behind us."


10. (C) Deborah Malac noted Washington's concern about the
dampening effect of the power crisis on Tanzania's economic
growth. "We would hate to see the energy problem undo many
of the economic gains which Tanzania has been making over the
past years," she stressed. Karamagi agreed and responded
that the impact was serious: "Without energy, an economy will
drown."

Comment:
--------------

11. (C) Karamagi's private sector perspective is a
much-needed breath of fresh air for the energy sector. With
words like, "strategic," "systematic," and "streamline," he
is singing a different tune than former Minister Ibrahim
Msabaha, who never articulated a vision for the sector during
his ten months in office. Especially encouraging was the
fact that Minister Karamagi emphasized the need for the GOT
to deal directly with principals, repeating verbatim what the
Ambassador had told President Kikwete three days earlier.
While it is too early to say whether the new Minister of
Energy will be able to rescue the sector from further power
blues, one thing is for sure; more private-sector oriented
management cannot hurt. END COMMENT.
RETZER