TANZANIAN ENERGY MINISTER BRIEFS INTERNATIONAL

C O N F I D E N T I A L SECTION 01 OF 03 DAR ES SALAAM 000412 SIPDIS DEPT AF/E FOR B YODER AND C PELT, AF/EPS FOR M NORMAN ALSO AF/RSA FOR J NAY AND FOR EB DEPT PASS TO MCC FOR L BLACK AND G BREVNOV TREASURY FOR L KOHLER LONDON FOR J YOUNG PARIS, BRUSSELS FOR AFRICA WATCHERS E.O. 12958: DECL: 03/01/2011 TAGS: EFIN ECON ENRG EPET TZ SUBJECT: TANZANIAN ENERGY MINISTER BRIEFS INTERNATIONAL DONORS ON POWER CRISIS REF: DAR ES SALAAM 00312 Classified By: Mary B. Johnson, Economic Counselor, for reason 1.4(d). SUMMARY -------------- ¶1. (U) On February 28, Ambassador Retzer attended a meeting called by the Ministry of Energy and Minerals to provide an official briefing of Tanzania's power crisis to all Heads of Mission and donor agencies. Minister of Energy, Ibrahim Msabaha, provided an overview of the power crisis. In Dar es Salaam, power shedding has increased from eight hours in early February to 16 hours toward the month's end. According to Msabaha, successive years of drought, power distribution problems, and rising fuel prices have triggered the need for significant load shedding on the national power grid. Msabaha outlined various steps the Government of Tanzania (GOT) would take in an effort to restore power supply. Heads of Mission and donors questioned the timeline for the GOT's plans and the economic impact of the power cuts. A brief exchange also took place between the World Bank representative and the Deputy Minister of Energy regarding potential use of Millennium Challenge Corporation (MCC) funds to assist the power sector in the longer term. END SUMMARY. DWINDLING WATER LEVELS FORCE POWER CUTS -------------- ¶2. (U) Given the worsening power situation, Minister Msabaha explained that the GOT thought it would be prudent to officially brief the diplomatic and donor community on the GOT's point of view with respect to the problem. He admitted that Tanzania's over-dependence on hydro-power was at the heart of the current power crisis. Three or four years of successive drought have resulted in a crippling deficit of water at key sources of hydro-power such as the Mtera Dam. The minimum level for power generation at Mtera is 690 meters above sea level (the dam normally operates at 698 meters). Msabaha said that they are currently operating below the minimum level for generation; the first stage was to operate the dam at 688 meters, but they have been forced now to operate at 687 meters. "We thought by this time we would have seen the rains, but unfortunately, that is not the case and we have had to undertake load shedding," Msabaha said. FAULTY SONGAS TRANSFORMER EXACERBATES LOAD SHEDDING -------------- -------------- ¶3. (U) TANESCO and the GOT first reached a load shedding agreement on February 4, initiating eight hour power cuts to save 60 Megawatts (MW). This experiment failed as consumers shifted their consumption to different hours of the day. One week later, on February 11, load shedding deepened to 12 hours per day to save 120 MW. On February 17, the situation worsened when a transformer broke down at Songas' Ubungo gas-to-electricity power plant. This mechanical failure resulted in an additional loss of 75 MW and forced even further load shedding up to 16 hours per day. Despite the best efforts of TANESCO, Msabaha noted that load shedding has not been as reliable as it should be. GOT PURSUES EMERGENCY GENERATION SCHEMES, REQUESTS ASSISTANCE -------------- -------------- ¶4. (U) Msabaha emphasized that the GOT was not standing idle during this crisis. He outlined the following steps which the GOT was pursuing to increase generation: -- Leasing gas turbines using proceeds from canceled debt (as allowed by the International Monetary Fund). The gas turbines are expected to be in place within the next two to three months. -- Purchasing gas turbines, which would be TANESCO owned, to provide another 100 MW of power. The purchase and installation of these gas turbines is estimated to entail approximately eight months to one year of work. -- Using coal resources in Kiwera to generate 50 MW by October 2006 and potentially 100 MW by the end of 2007. The Kiwera project will be primarily a private undertaking with the GOT holding only 22 percent of the investment. -- Working with the Dutch on a power project in Tageta (nearby Dar es Salaam) to generate 45 MW by the end of 2007. ¶5. (U) After outlining the steps which the GOT planned to undertake, Msabaha explained that the GOT had pursued options in the past to diversify Tanzania's power regime. By 2005, Tanzania managed to have two sources of thermal power operating: the Ubungo natural gas power plant and the IPTL diesel fired power plant. "Tanzania needs to increasingly rely on thermal generation to make sure there is enough mixture in the sources for power generation." He urged renewed interest in diversification and asked the meeting participants to put their heads together to overcome the problem. ¶6. (U) Asking for ideas, renewed interest, and any help which might be possible for donors to give, Msabaha was not particularly specific in his request for assistance. In terms of how Heads of Mission or donors intended to provide assistance, the public response was not specific either. The Swedish Ambassador, Mr. Torvlag Akesson, noted that Sweden had been cooperating with Tanzania in the power sector for over 20 years on rural electrification and was prepared to look at prospects for increased generation. Sheku Sesay of the African Development Bank, noted that the AFDB had recently completed a USD three million study on rural electrification and was prepared to work with the World Bank on generation-related issues. BEYOND GENERATION: LONG TERM PROBLEMS OF TRANSMISSION/DISTRIBUTION -------------- -------------- ¶7. (U) During the brief discussion which followed the Minister's overview, the issue of power transmission and distribution emerged in addition to the power generation problems. Bashir Mrindoko, Commissioner for Energy at the Ministry of Energy and Minerals, spoke up by adding that Tanzania also had significant transmission and distribution problems which needed to be rectified for proper functioning of the power regime. He referred to a World Bank study which determined that an investment of USD 750 million over the next five years could be used to reduce the amount of power lost through transmission from 26 percent to 14 percent. Msabaha said that he was happy Mrindoko raised this "very important point." ¶8. (U) Judy O'Connor, Tanzania's World Bank Country Representative, suggested that after the immediate problems of generation were handled, the Ministry of Energy might consider the possibility of using Millennium Challenge Corporation (MCC) funds to address longer-term issues in the power sector. Deputy Minister, Lawrence Masha, responded that he was aware of the MCC compact process and that the Ministry was currently working on a proposal for the power sector. Masha also approached the Ambassador at the close of the meeting, emphasizing his interest in the MCC process and stating that beyond power generation issues, transmission and distribution were critical problems hindering the sector. ¶9. (U) The impacts of the prevailing power crisis were of primary concern to the meeting's participants. The Swedish Ambassador Akesson, for example, inquired about budgetary implications associated with the power crisis while the Representative of the European Commission on Infrastructure, Guy Rijcken, inquired about implications for private sector growth. The short answer from the Minister was that there would likely be implications for the GOT's budget as well as private sector growth, but that the extent of the impact was not yet known. Although TANESCO is trying to reach compromises with many businesses, Msabaha noted that given the scale of the problem, compromising is not always possible. Highlighting the worrisome but unknown impact of power shedding, Msabaha posed the rhetorical question, "How can we speak of economic or social development without power?" RETURN TO NORMALCY? HOPEFULLY BY END OF RAINY SEASON -------------- -------------- ¶10. (C) COMMENT: While the GOT pursues emergency generation schemes and the country prays for the long rains to begin (typically in early to mid-March),the private sector will surely suffer negative impacts from deepening power cuts (reftel 00312). Manufacturers face increased production costs, service-oriented businesses face spiraling power bills, and the traffic light on investment has turned yellow, if not, temporarily blinking red. According to Mayank Malik, Managing Director of Citibank (please protect),Twiga Cement has put an investment of USD 100 million investment on hold due to the unreliable power situation. When will Tanzania return to some semblance of normalcy or "get back to where it was before load shedding?" asked Andrew Massey, Head of the Political Section of the British High Commission. While the February 28 headline of the Guardian Newspaper read, "10 More Days of Long Power Cuts," Msabaha predicted normalcy would return only by the end of the rainy season - July or August - at the soonest. END COMMENT. RETZER