Energy and development in Tanzania

Energy and development in Tanzania Issues and perspectives Mark J. Mwandosya and Matthew L. Luhanga

Although per capita consumption of commercial fuels in Tanzania remains low, the energy sector faces a number of difficult challenges. As in most other countries, energy policy formulation takes place in the context of great uncertainty, being the result of pressures exerted by conflicting interests, particularly with respect to fuel pricing. The Tanzania National Energy Policy was recently adopted after a process of studies and public hearings which spanned more than a decade. One of its principal goals is to reduce dependence upon imported petroleum fuels. The reliability of the electricity system and the financial status of the electric utility are also important issues. Despite the fact that many previous authors have emphasized woodfuel problems, at present the problem is limited to localized shortages. One of the most important obstacles facing the energy sector is the shortage of skilled personnel necessary to operate the sector. Keywords:Energydevelopment;Urbanization;Tanzania The energy utilization characteristics of individual countries are commonly considered to provide a good indication of that country's level of economic development. As the modern economy evolves, its energy requirements will increase. Figure 1 shows three energy-development curves developed by Colombo and Bernadini, which demonstrate almost identical shapes for most countries. 1 A common goal of developing countries is both to minimize the peak of the curve and to reduce the spread (timeframe) between peaking of energy demand and decline through the efficient utilization of energy. The effiThe authors may be contacted at the Ministry of Water, Energy and Minerals, PO Box 2000, Dares Salaam, Tanzania. 0301-4215/93/050441-13 (~ 1993 Butterworth-Heinemann Ltd

ciency with which energy is used characterizes the level of development of different societies. Tanzania, which is in the earliest stages of industrialization, would be located along the leftmost positive gradient of the curves shown in Figure 1. Its current efforts, to develop and sustain energy supplies and to manage demand so as to meet the present and future needs, are taking place against a background of economic hardship and increasing awareness of the grave threat posed by environmental degradation. This paper presents an assessment of the energy situation of Tanzania, its economic performance, policies, resource potential, institutional framework and energy balance. This presentation is used to provide background information about the country as part of the presentation of the results of the Tanzania Urban Energy Project. This project, supported by the Stockholm Environment Institute (SEI) and the Swedish International Development Authority (SIDA), examined energy use in the urban areas of Tanzania in detail. It paid particular attention to the situation relating to three case study cities: D a r e s Salaam, Mbeya and Shinyanga. The rationale for the project and its primary findings are summarized in the other papers found in this special issue of Energy Policy.

Economic policy in Tanzania The 1988 census estimated the total population of Tanzania to be 23.3 million, with an average growth rate of 2.8% per annum. The 1992 population is therefore estimated to be approximately 25 million, with an average population density of about 27 persons per square kilometre. Nearly 85% of the population can be classified as rural, living in about 8700 villages and towns (see Figure 2). Table 1 illustrates the contribution of the primary sectors of 441

Energy and development in Tanzania

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In contrast, the industrial base of Tanzania remains quite small. In fact, the industrial sector contribution to GDP declined from 12.4% in 1977 to 7.9% in 1987. In 1991 the value of the industrial sector's contribution to GDP was equal to Tsh20 680 million (US$110 million), a modest amount in absolute as well as in relative terms. In 1990 gross per capita income was estimated to equal Tshl6 020 (less than US$100), placing Tanzania among the least developed countries. Between 1961 and 1979 the economy grew at an average annual rate exceeding 4%. In response, the government's Long-term Perspective Plan 19812000, adopted in 1981, focused on the consolidation and expansion of the national economy. 2 This document optimistically envisaged that the economy would grow at an average rate of GDP of 6% per annum. The five-year development plan for 1980/811985/86 was initially instituted to implement the long-term perspective plan. However, between 1980 and 1985 the economy was characterized by a decline in agricultural and industrial production, escalating inflation and a consequent decline in the overall standard of living. In order to arrest the decline, the government adopted a structural adjustment programme (SAP) and the national economic survival programme (NESP), which effectively supplanted the 1980/81-1985/86 development plan. Under these programmes, all new development projects were stopped except for those deemed to provide the most immediate impact on the economy. However, neither programme yielded successful results. Continuing economic decline led to the

Table 1. Gross domestic product by subsectors (values in Tsh million at constant 1976 prices). Subsector

Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing and handicrafts Electricity and water supply Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, insurance, real estate and business services Public administration and other services Less: imputed bank service charges GDP at factor cost

442

1988

1989

1990

1991

12606 138

13183 139

14055 165

14696 240

2228

2399

2338

2439

574 1177

506 858

512 937

535 963

3236

3549

3520

3662

1643

1663

1697

1747

3435

3554

3630

3724

3343

3476

3552

3619

920

950

1038

1140

27460

28376

29368

30484

ENERGY POLICY May 1993

Energy and development in Tanzania

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Figure 2. Tanzania base map. implementation of the economic recovery programme (ERP), following the conclusion of protracted negotiations with the International Monetary Fund and the World Bank for emergency support. The major initial objective of the ERP was to increase GDP at an average annual rate of 4.5% between 1986 and 1991. Priority was given to actions which would be used to achieve a positive growth rate in per capita income, which would lower inflation, and/or help restore a sustainable balance of payments position. In particular, the ERP sought to: • increase food and cash crop production through use of corrective production incentives, strengthening the marketing system, promoting timely

ENERGY POLICY May 1993

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crop collection and marketing, and direction of greater investment toward agriculture; increase foreign exchange revenues from export proceeds; rehabilitate the country's basic economic infrastructure especially in the transport, communications, energy and water sectors in order to support the production sector fully; raise industrial capacity utilization from 20% to 60% at the end of the programme, with the objective of increasing the industrial sector contribution to the GDP by channelling investment resources, especially foreign exchange, to key and productive industries; and minimize the gap between government revenue

443

Energy and development in Tanzania 50

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National energy policy Within the context of social goals regarding provision of basic needs and environmental considerations, energy issues emerge as key components of overall economic development. Energy is a crucial input into the development process. In order to facilitate national development, the articulation of energy development goals and objectives is important, as is the process leading to the evolution of national energy policy. Serious efforts to formulate an energy policy for Tanzania began in 1980 when the government of Tanzania sought the assistance of the Commonwealth Secretariat to review the performance, organization and strategies of the energy sector. These early efforts primarily yielded a series of reports. On behalf of the government, the International Institute for Environment and Development (IIED) compiled a report on Energy Policy in Tanzania. 3 This document was reviewed in 1981 by an interministerial seminar, which then made recommendations to the government on actions to be followed. Subsequently, a reassessment of existing energy strategies in the country was carried out in 1983 under the auspices of the United Nations Development Programme/World Bank Energy Sector Management Assistance Programme. 4 Their re-

444

port provided a framework for official and private sector assistance and investment into the sector. However, it was not until 1988 that the government formally established a task force on energy policy directed to develop draft proposals for a national energy policy and to advise the government on the implementation process. The Ministry of Water Energy and Minerals, the convenor of the energy policy formulation process, adopted a public hearing approach to the work of the task force. Each member of the task force was then designated the convenor for a particular energy subsector, holding seminars on major energy issues. The public at large, through private and public institutions, members of parliament, and selected individuals, was invited to present proposals orally and/or in written form to the task force secretariat. Finally, a national seminar on energy policy was held, in cooperation with the Tanzania Electric Supply Company (TANESCO), the Tanzania Petroleum Development Corporation (TPDC), and the Energy Research Project of the University of Dares Salaam, with the assistance of the Stockholm Environment Institute (SEI) and the Norwegian Agency for International Development (NORAD). This process helped arrive at a consensus that Tanzania's principal energy policy goal should be to enable the essential social and economic service of energy provision to support the implementation of national social and economic policies and plans. A central concern remains the fact that Tanzania is wholly dependent on imported supplies of oil. Although petroleum does not account for the largest share of final energy consumption, petroleum imports account for a substantial 40% of foreign exchange earnings. The dependence on imported oil and its impacts on the domestic economy are illustrated in Figure 3. Furthermore, the overall Tanzanian energy balance is weighted heavily towards biomass use. As a result, the minimization of

ENERGY POLICY May 1993

Energy and development in Tanzania Table 2. Electricity installed capacity (MW) 1950-90. Nature o f # a n t Diesel Steam

1950 1955 1960 1965 1970 1975 1980 1985 1990

7.23 15.29 20.16 29.29 70.88 100.78 73.48 146.14 159.96

0.75 0.62 0.37 -

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Hydro

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0.075 0.330 -

13.66 19.08 20.22 41.22 49.22 151.22 253.22 253.63 333.22

21.75 35.32 40.75 70.51 120.11 249.92 322.70 395.77 496.18

Source: TANESCO.

biomass use and reforestation in order to reduce and reverse deforestation and its ecological and social consequences are also important aspects of the national energy policy. 5 The major objectives of this policy can be summarized as: • e x p l o i t a t i o n of the a b u n d a n t h y d r o e l e c t r i c sources; • development and utilization of indigenous natural gas and coal resources; • escalation of petroleum exploration activities; • reduction in the pace of woodfuel depletion through the evolution of more appropriate land management practices and more efficient wood technologies; • provision of the continuity and security of energy supplies; • minimization of energy price fluctuations in order to contribute to general price stability, through strengthening and rationalization of energy supply sources, infrastructure provision, and maintenance of a rational energy pricing structure; and • investment in appropriate human resources for energy sector management and energy technology development. The principal thrust of the E R P has been toward the rehabilitation of social and economic infrastructure. Energy policy and the energy sector must respond to this orientation, at least over the short and medium term. Within this general timeframe, the energy sector programmes aim to promote or improve: • the efficient use of energy in the transport and industrial sectors; • the rehabilitation of the electricity system; • the rehabilitation and rationalization of the petroleum infrastructure; • the generation and distribution of electricity at affordable prices, commensurate with demand; • the development and dissemination of efficient

ENERGY POLICY May 1993

woodfuel conversion and utilization technologies; and • the supply of electricity to small townships and industries lying adjacent to the grid system. 6 The energy policy for Tanzania recently has been published and disseminated. It represents the culmination of work spanning over a decade with inputs from a number of organizations, governmental and non-governmental, external cooperating partners, e n e r g y users, e n e r g y suppliers and i n t e r e s t e d academics. The following sections summarize both the current status and problems encountered in the various energy supply sectors, paying particular attention to questions of pricing. Electricity supply and service In 1908 a small generator to supply electricity to the railway workshop and part of D a r e s Salaam was the first public supply of electricity in the country. In 1920 the government formed the electricity department as part of the railway system to run and maintain electricity supplies throughout the country. In 1931 the responsibility for the electricity supplies to D a r e s Salaam, Dodoma, 7 Tabora and Kigoma was given to Power Securities Corporation Ltd, a private firm. The D a r e s Salaam and District Electric Supply Company ( D A R E S C O ) , a branch of the mother company, was given exclusive responsibility for all aspects of electricity supply in four areas, including virtually everywhere in the country except for a radius of 100 km around the hydroelectric site at Pangani Falls. The Tanganyika Electric Supply Company ( T A N E S C O ) was given the right to develop Pangani Falls, and supply electricity to Tanga. Eventually D A R E S C O was absorbed by its major shareholder, the East African Power and Lighting Company (operating out of Kenya) and T A N E S C O was given the sole responsibility for generation, transmission and distribution of electricity in mainland Tanzania. T A N E S C O ' S system consists of an interconnected grid network covering 14 out the 20 provinces. Table 2 shows the growth of the electricity installed capacity between 1950 and 1990. The electricity generation capacity of T A N E S C O stood at 22 MW in 1950. By 1991 the total installed capacity of the system stood at 490 M W of which 333 MW was hydro based generation and the rest diesel generated. This historical growth is also depicted in Figure 4, which compares the trend of electricity production growth and the performance of the economy. The total number of units generated in 1991 from the facilities shown in Figure 5 was 1581 GWh. The T A N E S C O

445

Energy and developmentinTanzania 5000 4500

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4000

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3500

Wholesale

3000

Transport

2500

Finance

2000

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Figure 4. GDP composition and electricity production. Source: T A N E S C O .

transmission network comprises of 1600 km of 220 kV line, 1160 km of 132 kV line, 130 km of 66 kV line and 8200 km of 33 kV lines. Of the 1388 GWh consumed in 1991, 49% was used in the industrial sector, 33% in the domestic sector, 3.2% in agriculture and other sectors, 11% in the commercial sector and 3.8% by Zanzibar and the National Urban Water Authority. The TANESCO system energy losses are high; they average around 25% of the energy generated, where losses of the order of 13-15% would be justifiable. These additional losses have resulted from theft, ageing equipment, underrated equipment, erroneous meter readings, transformer over-

load, excessive reliance on low voltage lines, poor maintenance, substandard construction and maintenance, and the use of inappropriate materials. 8 This list of problems illustrates the combination of technical and non-technical reasons for these high losses. Clearly, some suitable strategy must be developed to reduce transmission and distribution losses to an acceptable level. Tanzania is a small consumer of electricity. In 1991 the consumption of electricity stood at 1388 GWh, with a per capita consumption of 55 kWh per annum. This per capita consumption is a mere 1.8% of the average for industrialized countries and only 5.5% of the average of developing countries'

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446

ENERGY POLICY May 1993

Energy and development in Tanzania Table 3. Current average price per unit of electricity, a

Tsh/kWh US$/kWh

1985

1986

1987

1988

1989

1990

1991

1992

1.97 0.12

2.94 0.06

3.96 0.05

4.16 0.03

6.82 0.04

10.1 0.05

12.85 0.06

16.35 0.05

a Conversions to US dollars made at the offical exchange rate for the years 1985-91.

consumption. In 1991 a total of 150 000 households were electrified. If we assume a high average of 10 persons per household, the total number of people who have access to electricity is a mere 6% of the total population.

Electricity tariffs. The average price of one unit of electricity across all tariff categories is shown in Table 3. T A N E S C O sets tariffs at levels which are intended to signal consumers as to the economic costs of supplying their electricity requirements. While the utility calculates its required tariffs on the basis of its long-run marginal cost (LRMC), prices are modified by the burdens imposed by various consumer categories on the system, equity considerations achieved through cross-subsidization, and bulk electricity sales agreements. Electricity pricing is affected by a number of additional considerations. First, T A N E S C O is constrained to meet various revenue requirements in order to satisfy specific financial covenants agreed with its lenders. For example, financial covenants for the most recent I D A credit on power rehabilitation required the utility to generate a 10% financial return on assets and to hold accounts receivable not in excess of 60 days. Such constraints work to adjust tariffs upwards. 9 Second, over 90% of T A N E S C O loans are denominated in foreign exchange. Devaluation necessitates frequent tariff increases, which affects the ability of consumers to pay. As a result, the number of days of accounts receivable are increased. Table 3 shows that although the average electricity price in Tanzanian shillings has increased eightfold between 1985 and 1992, this increase has not been able to match the rate of inflation and devaluation. Therefore, in dollar terms, the average electricity price in 1992 is less than half of what it was in 1985. Third, pressure from special interest groups lobbying the utility for assignment to cheaper tariff categories or for concessionary price considerations can affect pricing and revenues. Examples include the adoption of special agricultural and water tariffs, which were meant to be provide short-term assistance for economic recovery; requests to include hospitals in the same category as churches and

ENERGY POLICY May 1993

street-lights; and matchbox and paper producers' efforts to be considered agricultural consumers. Fourth, electricity prices are standardized throughout the country. As a result, electricity sold through the relatively inexpensive hydro based interconnected grid subsidizes power generated at isolated diesel stations. The price of electricity to consumers connected to these isolated systems fails to reflect its true costs. A fifth perennial problem affecting pricing is debt collection. T A N E S C O debtors can be grouped into three categories: government departments, parastatal organizations and private consumers. Of the three categories, it has been easier for T A N E S C O to collect and manage outstanding balances due from private consumers. Although much of this private debt has arisen from an unwillingness to pay, the rest is attributable to poor management. Despite T A N E S C O ' s shortcomings, a recent disconnection campaign against private consumers with large outstanding balances resulted in rapid liquidation of private sector debt. In contrast, public sector debt to T A N E S C O has been increasing. An agreement with the IMF and the World Bank on the economic recovery programme limited bank borrowing on the part of the government, as well as deficit financing. These measures, coupled with high interest rates, have compelled public enterprises and government departments to rely on 'borrowing' public services such as electricity and water. The net result has been a rapid accumulation of accounts receivable on the part of the Tanzanian utilities 'lending' these services. As of March 1992 electricity debts owned by the public sector stood at Tsh4.4 billion, or 20% of the total revenue earned in 1991. The public sector debt problem, which extends to parastatals, is one of the most intransigent problems undermining T A N E S C O ' s fiscal health.

Petroleum supply and distribution The Tanzanian Petroleum Development Corporation (TPDC) is a parastatal organization established in 1969 to be responsible for implementing and monitoring all petroleum plans and projects in the country. As well as importing oil, it carries out oil exploration in the country mainly through petroleum

447

Energy and development in Tanzania sharing agreements with external exploration companies. TPDC has 50% shares in the Tanzanian and Italian Petroleum Refining Company (TIPER), BP (Tanzania) and AGIP (Tanzania). It also has 33% shareholding in the T A Z A M A pipeline which feeds Zambia's Ndola refinery. Storage, transport and distribution of oil products in the country are activities left largely to local subsidiaries of multinational oil companies: BP (Tanzania) owned equally by BP (Africa) and TPDC is by far the largest company with 45% of the market share. AGIP (Tanzania) is also owned by AGIP (Africa) and TPDC. It has 23% of the market. Esso, Total, Caltex (Tanzania) and Shell (Tanzania) are private companies which are affiliates of offshore principals. BP(T) was the first oil company in the country. It started its operations in Zanzibar in 1900. Its Dares Salaam operations started in 1936. BP operated jointly with Shell under the Consolidated Petroleum Company. These companies separated in 1960 and were locally but separately incorporated. In 1970 they again merged under Shell and BP (Tanzania) Ltd. However, in 1982 BP took over the shares of Shell and the company became simply BP (Tanzania) Ltd. In 1990 Shell (Tanzania) Ltd was again locally incorporated as an oil distribution and marketing company. Esso Tanzania Ltd started activities in the country in 1951 and was formally incorporated in 1954. Caltex actually started petroleum marketing activities in Tanzania through agents in 1928. Total (Tanzania) Ltd started its operations in 1969 having been operating under Total Oil East Africa Ltd since 1955. AGIP(T) Ltd was established in Tanzania in 1966. Apart from the normal oil marketing activities, AGIP(T) owns and runs the only lubricating oil blending plant in the country with a capacity of 30 000 Mt. Petroleum pricing. Petroleum plays a central role in Tanzania's economy. It is by far the most important modern energy source, accounting for 92% of the total commercial energy use. By contrast, electricity accounts for a mere 7%. The transport sector accounts for about 42% of the petroleum products consumed in the country. The next most important petroleum consumers are industry (22%), households (11%), commerce (6%), and agriculture (5%). 1°

TPDC is the sole importer of petroleum products for Tanzania. In the petroleum sector, pricing is based on full cost recovery. The extent of crosssubsidies within this subsector depends on equity issues, short-term sectoral revival programmes, and factors such as illegal cross-border trade (in the case

448

of diesel fuel) and the prices of petroleum products obtainable elsewhere, such as jet fuel at competing international airports. The extent to which oil marketing companies can be involved in the process of price setting is a perennial debate which depends on their perceived ability to reconcile corporate and shareholder interests, on the one hand, and national interests, on the other. Not surprisingly, the pricing of petroleum products has important consequences for the economy and for the petroleum industry itself. For many years prior to 1992 the pricing of petroleum products was based on the output of the Tanzanian and Italian Petroleum Refining Company (TIPER). Landed costs of crude oil were used for the determination of net variable costs, to which were added net fixed costs arising out of TPDC capital costs. Fixed and variable costs were allocated to refinery products in order to arrive at ex-TPDC costs. To these were added TPDC margins, oil company margins, company overheads, dealer margins, delivery charges, and taxes and duties in order to arrive at pump prices. The above pricing procedure had a number of drawbacks. Product costs were calculated from crude oil landed costs only. Advantage was not taken of the relatively cheaper white products which can reduce the overall product landed costs. Furthermore, there was no in-built trigger mechanism in the event of large changes in product prices in the world market, currency devaluations or product transport. The current pricing framework is based on import parity prices of petroleum products modified by the total landed product costs, and has taken all these confounding factors into account. Although the trend is toward the minimization of subsidies, certain elements of cross-subsidy are still maintained. For example, excess charges on gasoline (motor spirit) are used still to subsidize the price of kerosene and diesel fuel. Current and historical product pump prices are shown in Table 4. Biomass fuels Fuelwood and charcoal are the energy sources used by the majority of Tanzanians in both urban and rural areas. Fuelwood is generally preferred in rural areas, mainly because it is obtained free. Charcoal is preferred in towns on account of its being easy to transport, distribute and store. It is almost smokeless and has a higher calorific value (30 MJ/kg) than fuelwood (15.5 MJ/kg). Woodfuel alone accounts for 92% of the primary energy consumed, while petroleum and electricity account for 7% and 1% respectively. The total consumption per annum of

ENERGY POLICY May 1993

Energy and development in Tanzania Table 4. Petroleum product prices (Tsh per litre - US$ equivalent in parentheses), a

Motor spirit super Motor spirit regular Gasoil (diesel) Kerosene JET A-1 IDO FO

1985

1986

1987

1988

1989

1990

1991

1992

19.65 (1.15) 16.55 (0.97) 8.55 (0.50) 7.50 (0.44) 9.09 (0.54) 7.45 (0.44) 5.60 (0.32)

30.65 (0.77) 25.40 (0.64) 14.10 (0.35) 11.25 (0.28) 15.24 (0.38) 11.82 (0.30) 8.60 (0.22)

43.65 (0.56) 37.90 (0.49) 19.50 (0.25) 16.85 (0.22) 25.35 (0.33) 18.50 (0.24) 14.04 (0.18)

43.65 (0.56) 37.90 (0.49) 19.50 (0.25) 20 (0.16) 43 (0.36) 21.35 (0.18) 18.05 (0.15)

96 (0.68) 92 (0.66) 39 (0.44) 37 (0.26) 61 (0.44) 33.25 (0.23) 27.52 (0.19)

157 (0.76) 152 (0.74) 92 (0.44) 83 (0.40) 88 (0.42) 85 (0.41) 69.95 (0.34)

157 (0.68) 149 (0.65) 92 (0.41)) 83 (0.36) 65 (0.28) 85 (0.37) 60 (0.26)

190 (0.60) 180 (0.58) 118 (0.37) 91 (0.29) 94 (0.30) 118 (0.37) 60 (0.19)

Values in brackets are in current US dollars converted at the official exchange rate. Source: Ministry of Water, Energy and Minerals and TPDC. a

woodfuel is estimated at 27 million m 3, with the household sector accounting for 85% of the total. Numerous sources have used an average woodfuel consumption of 2 m 3 per capita per annum 11 and this figure, without any scientific basis, has been used almost as a standard. A number of studies carried out on specific areas would tend to support a lower rate of consumption, approximately 1 m 3 per capita per annum.12 The sustainable annual yield of woodfuel is estimated to be 18 million m 3. The forest areas and woodlands are therefore being harvested at a faster rate than they can regenerate. As a result, biomass in Tanzania cannot be regarded as a renewable source of energy. However, the estimates of woodfuel consumption, woodfuel demand, wood supply, tree stocks and yields are all extremely uncertain. For example, two studies on forest increment record a range of between 20 and 61 million m 3 in one study, and 150 million m 3 in another, t3 The total forested area of Tanzania is 44 million hectares. This is about 50% of the total land area. About 13 million hectares of the forested area is classified as forest reserves, part of which are used for the production of timber, poles, firewood and other forest products. Village woodlots are estimated to occupy an area of only 80 000 hectares. Woodlands, mainly miombo woodlands, occupy 29 million hectares. 14 Although the woodfuel issue has been highlighted as an important one, in comparison to other African countries, Tanzania has plentiful supplies of woodfuel. Nevertheless, this does not mean that there are no localized problems. The arid and semi-arid regions of Shinyanga, Mwanza, Tabora, D o d o m a , Singida and Arusha are characterized as woodfuel deficit areas. Furthermore, the assertion that on average Tanzania has a positive woodfuel supply

ENERGY POLICY May 1993

balance does not mean that the current supply potential is sufficient to meet future needs. The main challenge of woodfuel demand and supply management in Tanzania is therefore that of making sure that woodfuel supply is sustainable. The development of suitable strategies to ensure sustainable woodfuel supply has been addressed in the Tanzania

Forestry Action Plan 1990/91-2007/08.15 The most predominant use of wood in Tanzania is in the form of firewood and charcoal, mainly in household cooking and heating. Other uses are in small-scale industries for the generation of process heat. Tanzania consumes over 500 000 tonnes of charcoal annually. Much of this charcoal is produced using simple earth mound or pit kilns, with conversion efficiencies ranging between 10% and 20%. The charcoal produced is used in traditional cookstoves with rather poor heat transfer efficiencies (15-18%). Similarly, firewood used directly in traditional fireplaces delivers less than 10% of the primary energy contained in firewood. Although stoves and kilns are inefficient, other factors are involved in the poor utilization of woodfuel. These include insufficient drying of firewood, non-uniformity of charcoal, poor handling of charcoal resulting in too many unusable fines, and lack of a mechanism to extinguish fires after use. The development and diffusion of charcoal conversion and utilization technology can therefore make an appreciable contribution to the management of wood energy demand in the country. 16 A number of improved charcoal stove and improved kilns projects have been initiated. Efforts have centred around the design and production of doublewalled all metal stoves, metal ceramic stoves, and the dissemination and popularization of the half-orange and Casamance charcoal production kilns.

449

Energy and development in Tanzania

Coal development The Kiwira Coal Mine (KCM) falls under the responsibilities of the State Mining Company (STAMICO). The discovery of coal in Tanzania was first reported towards the end of the 19th century. In spite of this early knowledge of its existence, little development has occurred, mainly because of the inadequate transport linkages between the coal fields and major population centres. Coal reserves are estimated at about 1900 million tonnes with 304 million tonnes which could be considered proven. Indigenous coals are typically subbituminous to bitunimous and are part of the high-ash coal seam found throughout southern African. The Kiwira Coal Mine was inaugurated in 1988 and is now operational, with a capacity to produce 150 000 tonnes of coal per year. The mine is, however, faced with problems related to liquidity and finance. The main consumers of Kiwira coal are the Mbeya Cement Factory and the Southern Paper Mills in Mufindi. Although these two enterprises initially did not want to purchase Kiwira coal on account of its high ash content, KCM has been able to rectify the ash problem, reducing the ash content of coal produced from 28-30% to below 25%. Unfortunately for KCM, both the cement factory and the paper are presently facing severe financial problems and cannot buy KCM coal. Efforts are under way to expand the customer base for the Kiwira coal and also to include expanded household use of coal; but so far no plans have progressed beyond the preliminary stages.

Strategic issues As is the case in many other countries, energy policy and strategy formulation in Tanzania continues to be an exercise in reconciling conflicting positions and perspectives, all the while trying to find a common and pragmatic denominator. Long-term goals and considerations are frequently jeopardized in this process. A number of such issues were considered during the policy formulation stage and will continue to characterize the debate through strategy formulation and implementation. Foremost among such issues is the need to develop indigenous resources against the background of a weak economic environment. In the late 1970s and early 1980s the economy deteriorated, largely because of a decline in agricultural and industrial production. The resulting economic recession and balance of payment constraints led to significant capacity underutilization across nearly all industries and a severe shortage of goods and services. Measures undertaken as the result of the ERP since 1986

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have generated steady improvements in the national economy with the result that electricity consumption has increased at an average annual growth rate of 10% over the past five years. A number of sectoral and subsectoral energy programmes have been identified as being important to the attainment of energy and economic policy objectives. An implementation programme drawing upon a pool of identified projects has been drawn up for the period 1990 to 2005.17 This programme is estimated to cost about US$3.62 billion in total, with 90% of these costs being constituted by foreign exchange. Approximately 40% of programme revenues are to ge targeted to investment in electricity and 55% in the petroleum and natural gas subsectors. Because total foreign earnings for 1991 were US$408.8 million, the injection of capital through soft loans, grants, commercial loans and private sector initiatives will be necessary to bring about even a portion of the programme. Clearly, this conflict between necessity and ability may affect the timeframe for the implementation of the programme. A second area of concern is the role of market forces in an imperfect market system. Issues related to energy pricing, including the setting of electric tariffs, will continue to dominate the energy debate in Tanzania for the foreseeable future. In the case of biomass, issues centre around the need to improve efficiency, protect the environment and monitor prices. In the case of electricity pricing, debate centres on issues such as the proper extent of government intervention (utility autonomy); the use of cross-subsidies; and the problems of nonprofitable cost centres, run away operational and maintenance utility costs, currency stabilization, and improving the debt collection and billing processes. In the case of the petroleum sector, the issues revolve around the role of the multinational petroleum companies, the continued use of crossproduct subsidies and the continued operation of the refinery.

Institutionalframework The Ministry of Water, Energy and Minerals (MWEM) through its Department of Energy is responsible for policy formulation, evolution of strategies and master plan and overall management and supervision of the sector. The Department of Energy has four divisions: petroleum and gas, electricity, energy development and planning, and new and renewable energy. It retains the responsibility for oversight of the other energy sector agencies. These other institutions include the Tanzania Elec-

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Energy and development in Tanzania

tric Supply Company (TANESCO), the Tanzania Petroleum Development Corporation (TPDC), the State Mining Company (STAMICO), oil distribution and marketing companies, and the Zanzibar State Power and Fuel Company (ZSPF). There are numerous other organizations, governmental and non-governmental, involved in energy development in the country, primarily in areas such as research, development, and dissemination activities focused on new and renewable sources of energy. For many years energy supply and services organizations have been working as discrete entities, without any linkages to one another. Oil distribution and marketing companies have operated an informal coordinating mechanism especially when presenting to the government or TPDC issues such as company margins, which affect their profitability. They have acted in a concerted manner in efforts to minimize the role of TPDC in petroleum matters in the country. They have, nevertheless, of late taken interest in issues of energy development in the country and have contributed positively to the energy policy debate. TPDC and TANESCO have also operated within the confines of their sectoral responsibilities. Areas of common interest and common responsibilities are now emerging. One such area is the development of Songo Songo and Mnazi Bay gas reserves. In 1974 a discovery well drilled on Songo Songo Island, some 200 km south-east of D a r e s Salaam, and subsequent wells, confirmed the existence of gas. A field with 29 billion m 3 of recoverable high quality natural gas has been proven at Songo Songo. In 1982 Mnazi Bay gas was discovered. Although not yet delineated, Mnazi Bay gas is estimated to be of the same order of magnitude as Songo Songo gas. Presently, TANESCO and TPDC are working together to develop both fields. A gas gathering system at Songo Songo, followed by a 20 km marine pipeline and a 200 km overland pipeline will form the basis of a project to deliver gas to D a r e s Salaam for conversion into electricity (200 MW) for use in the TANESCO grid and a future interconnected Kenya/Tanzania network. TANESCO and TPDC are also working together to develop Mnazi Bay gas field as a nucleus of the local south-eastern electricity grid covering Mtwara, Lindi and Ruvuma regions. Another area that has stimulated cooperation among institutions in the energy sector is electrification. It is also an area of bitter exchanges between TANESCO and the industrial sector. In case of the latter, heavy industries claim that electricity bills account for sometimes well over 50% of production costs, whereas TANESCO contends that on average

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electricity bills account for less than 10% of production costs. In 1990 the Tanzania Industrial Research and Development Organisation (TIRDO) carried out a study on electricity costs on production in industries. The main findings of the study were: • 84% of the industries surveyed had a ratio of electricity cost to production costs which was about 10% ; • in about 80% of the companies surveyed the ratio of electricity to production decreased with increase in capacity utilization; • the results of the study revealed that the majority of the industries had avoidable losses or made uneconomic use of electricity.IS Until recently, the pricing of industrial products was controlled. As such, the inability to sell at nonprofitable levels meant that any increase in tariff could not immediately be passed on to the consumer. The energy policy debate has brought an awareness among energy supply and service institutions of direct linkages or synergies. An electrified village or town brings with it the possibility of less use of wood and oil, whose demand is suppressed. There is thus a vested interest in the petroleum sector supporting efforts aimed at electrification. This was a rationale in the founding of the Rural Electrification Fund, to which non-electricity energy organizations will also contribute. H u m a n resource d e v e l o p m e n t

An integrated approach to energy planning and development is a recent phenomenon in most developing countries. In fact, most energy ministries and energy departments were established only in the aftermaths of 1973 and the 1979 oil-price hikes. Prior to that, what was referred to as energy planning was associated with electricity utility planning, on the one hand, and oil company marketing strategy, on the other. Even after the establishment of the Department of Energy in Tanzania in 1985, human resource capacity building has been largely influenced by the oil and electricity subsectors. In the absence of plentiful and available trained manpower, the government has assembled the core manpower of the energy department mainly from these subsectors. In this transition period it has not been easy to depart from the compartmentalized subsectoral focus in m a n p o w e r development. However, this state of affairs is changing with time due to improved training programmes and a better overall understanding of the role of energy in developing countries. Human resource development in energy focused

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public enterprises has centred around the implementation of development projects. Since 1987 the Department of Energy has been implementing a programme to strengthen its staff, using the resources under the International Development Association (IDA) credit for the Energy I Project. The energy department has also used projects under collaborative arrangements with outside institutions for improved training and personnel development, as have TPDC and TANESCO. In cases where overseas training has been required, this utilization of project funds has helped overcome the constraints posed by the acute shortage of foreign exchange. While this approach has undoubtedly been beneficial to these institutions, the project funding orientation has its shortcomings. Project funding concentrates more on short-term requirements in order for the disbursement to take place during the project lifetime. In some cases, training programmes have had to be cancelled or curtailed when projects ended prematurely. A programmatic approach to human resource development is needed to develop the humanpower required to fulfil the objectives of the national energy policy. Non-governmental organizations, including oil marketing companies, have also been active in human resource capacity building. In the case of marketing companies, activities in this endeavour have been dictated more by corporate interests than by deliberate desires to strengthen or improve the indigenous work force. A survey carried out by the authors in 1991 on expenditures on training among oil marketing companies using own funds, showed a wide disparity. BP (Tanzania) and AGIP (Tanzania) accounted for 90% of foreign exchange requested and spent on training among oil companies. The other companies accounted for the remaining 10%.

Tanzania Urban Energy Project Historically, development has been associated with urbanization. In Tanzania, the proportion of the population in the rural areas has been dropping from 97% in pre-independence to 95% in 1965, 85% in 1978 and 75% in 1988. This fraction is expected to decrease even further by the turn of this century. D a r e s Salaam, the capital, saw its population increase from 250 000 in 1967 to nearly 1 million in 1978 and 1.3 million in 1988. This rapid growth of the urban population is profoundly affecting both the national energy balance and the physical environment. The demand and supply of commercial energy is heavily skewed toward the urban sectors. This spectacular growth of the urban population

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has introduced a distinct character in urban energyuse patterns. The preference of the bulk of the urban population for traditional fuels has led to the increasing commercialization of woodfuel supplies. Increases in income levels have led to shifts in energy usage patterns from woodfuel to nonrenewable fuels, such as kerosene. Rapid urban growth has also led to an increase in energy demand for transport from rural to urban and within urban areas. It has led to the growth of small, informal industries within the urban areas. An increase in the purchasing power of people has resulted in shifts in fuel choice and patterns of energy demand. This rapid rural to urban growth has led to the growth of sprawling housing estates in the urban peripheries. The Tanzanian Urban Energy Project was designed to investigate the issues of urbanization and energy use for Tanzania. Three cities were selected as case study cities for the investigation: D a r e s Salaam, Mbeya and Shinyanga. D a r e s Salaam was chosen for the study because it is the primate city, serving as the commercial and industrial capital of Tanzania. Mbeya, a secondary or intermediate city, is a municipality and was the fourth largest city in the country in 1988. It serves as a hub in the provision of energy to the agriculturally rich southern highlands of Tanzania. Shinyanga has been chosen because it ranks in the hierarchy as a tertiary city and is located in an area of severe woodfuel shortages due to a fragile ecology. Most project efforts entailed the collection of original data, relying on survey and interview analysis techniques. The results of the project are summarized in the remaining papers of this issue.

Conclusion This paper has presented an overview of energy issues in Tanzania. In terms of commercial energy demand, the dependence on imported petroleum in an economy starved of external earnings is one important feature of Tanzania's energy system. The relative instability of the electricity system and the fiscal weakness of the electric utility are also important considerations requiring attention. The continued reliance on traditional biomass fuels is a problem in some areas of the country at present: in the future, woodfuel shortages will be more widely spread unless households begin switching to modern fuels. The national energy policy has addressed itself to all of the issues in a public-hearing context. However, none of these problems has simple solutions: concerted efforts over a long period of time will be required to solve them.

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Energy and development in Tanzania

The 1990 energy balance shows an extremely heavy dependence upon biomass fuels. Petroleum and electricity and, in due course, natural gas, have organizations responsible for production, procurement, transmission and delivery of services. Data pertaining to these sources are reasonably good and to the extent the companies allow, it is available on request. On the other hand, data and information on biomass availability and use are scarce, and where available, have wide margins of error and can be location specific. The absence of detailed knowledge, data and information on urban energy use has been one of the reasons behind the inception of the Tanzania Urban Energy Project. It is our intention that these results should be useful to researchers working not only in Tanzania, but in other developing countries as well. Both Amy W. Hosier and Dick Hosier helped prepare this paper for publication. The final contents are the responsibility of the authors alone. 1U. Colombo and O. Bernardini, A Low Energy Growth Scenario and Perspectives for Western Europe, 2030, Report prepared for the Commission of European Communities, Panel on Low Energy Growth, Rome, 1979. Government of Tanzania, Long Term Perspective Plan, 19812000, Government Printer, Dares Salaam, 1981. 3Commonwealth Secretariat, The Energy Policy in Tanzania, International Institute for Environment and Development, London, 1980. 4United Nations Development Programme/World Bank, Tanzania: Issues and Options in the Energy Sector, Energy Sector Management Assessment Program (ESMAP), Washington, DC, 1983. 5Government of Tanzania, The Energy Policy of Tanzania, Government Printer, Dar es Salaam, 1992. 6Ibid.

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7The initial electricity system at Dodoma was fuelled by firewood, contributing to the early and lasting deforestation of the Dodoma area: see L. Lewis and L. Berry, African Environments and Resources, Unwin, Hyman, Boston, MA, 1988, p 242. 8S.L. Mosha, 'The electricity sector in Tanzania', Seminar on the National Energy Policy for Tanzania, held in Arusha, Tanzania, 10-14 September 1990, Stockholm Environment Institute, Stockholm, 1991, pp 71-82. 9In practice, the maximum rate of return achieved has been 4% and accounts receivable by June 1992 were on average of 75 days of sales. 1%. Barongo, 'Petroleum and energy options in Tanzania', in Proceedings of the Seminar on the National Energy Policy ¢br Tanzania, held in Arusha, Tanzania, 10-14 September, Stockholm Environment Institute, Stockholm, 1991, pp 55-70. llSee B.K. Kaale, Five-Year Plan for Village Afforestation, Dares Salaam: Tanzanian Forestry and Beekeeping Division, Ministry of Lands, Natural Resources and Tourism, 1983; also, I. Kikula et al, Report to Support Village Afforestation in Tanzania, Institute of Resource Assessment, University of Dares Salaam, 1983. ~ZFood and Agriculture Organization of the United Nations, Tanzania Fuelwood Consumption and Supply in Semi-Arid Areas, FAO/SIDA Forestry for Local Community Development Programme, Rome, 1984; also, see Margaret Skutsch, Why People Don't Plant Trees, Resources for the Future, Washington DC, 1983. 13Government of Tanzania, Tanzania Forestry Action Plan 1990/ 91 - 2007/08, Ministry of Lands, Natural Resources and Tourism, Dares Salaam, 1989. 14See M.J. Mwandosya and M.L. Luhanga, Energy Use Patterns in Tanzania, University of Dares Salaam Press, Dares Salaam, 1983; also see E.M. Mnzava, Tree Plantation in Tanzania: A Voice from the Villagers, FAO/SIDA Tanzania Forestry Project, Dares Salaam, 1983. 150p cit, Ref 13. 16M.J. Mwandosya et al, Development and Diffusion of Wood Energy Conservation Technologies in Tanzania, mimeo, Ministry of Water, Energy and Minerals, Dar es Salaam, April 1992. 17Government of Tanzania, Energy Masterplan and Programme, 1900-2005, Ministry of Water, Energy, and Minerals, D a r e s Salaam, 1992. ~STanzania Industrial Research and Development Organization, Report to TANESCO on Electricity Use in Selected Industries, mimeo TIRDO, Dares Salaam.

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