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Tanzania ERD5 workshop

Date
Time (GMT +01) 00:00 23:59
Part I: Opening and Introduction 1.1             Introduction

The workshop commenced at 10 am whereby the facilitator, Solomon Baregu, Assistant Research Fellow at the Economic and Social Research Foundation (ESRF), welcomed all participants and asked for their full participation so as to ensure that the goals of the workshop are met. He briefly explained that the workshop was organized to deliberate on the draft Country Illustration Report on “Finance and other means of implementation in the post-2015 context’; and to gather their perceptions on how external players can support national developments. Thereafter, participants were requested to briefly introduce themselves.

After the self-introduction, the facilitator then invited Dr. Hoseana B. Lunogelo, the Executive Director of ESRF and author of the Tanzania draft Country Illustration Report to deliver welcoming remarks.

1.2             Welcoming remarks

Dr. H. B. Lunogelo warmly welcomed the participants and stated that he was privileged to work with the Overseas Development Institute (ODI) and the four countries involved in the project. He reiterated that the purpose of the workshop was to obtain views on how to mobilize financial resources, especially to the energy sector to advance the Post 2015 Development Agenda in a sustainable way. Participants were encouraged to openly share their perspectives. After those few remarks, he welcomed Dirk Willem te Velde, a representative from ODI for opening remarks on the project.

1.3            Opening remarks on project

Dirk Willem te Velde expressed his gratitude for the opportunity to be part of and to co-host the workshop. He then proceeded to give background on the European Report on Development (ERD). He informed the participants that four ERD reports have been produced thus far and that they are now currently engaged in producing the fifth edition. The theme of fifth ERD report is on “Finance and other means of implementation in the Post 2015 Agenda” and follows on last year’s report. He stated that the overarching research question that the report seeks to address is “How can financial resources be most effectively mobilized and channeled and how can they be combined with non-financial means of implementation, to effectively support a transformative post-2015 agenda?”

The process commenced the end of last year (2013) with a steering committee that drafted the inception report. He informed the participants that other consultation processes are taking place with a number of professionals from developing countries, academia and post-2015 spheres. It was pointed out that the target group for the report was the European Union (EU) and member states to help them navigate on how to best mobilize finance for development. He concluded by thanking Dr. H. B. Lunogelo for the opportunity and hoped that meaningful deliberations will take place.

Following these remarks, Dr. H. B. Lunogelo invited the guest of honour to officiate the workshop.

1.4            Official opening speech

Eng. Hossea Mbise, the Commissioner for Energy, read the speech on behalf of the Minister of Energy Prof. Sospeter Muhongo. He conveyed to the participants that the minister had other equally pressing issues and therefore, it was regrettable that he could not attend. The commissioner delving into the subject matter professed that the energy sector is key to economic growth, evinced by gross domestic product’s (GDP) dependence on performance of energy. The status quo in contribution to GDP is 25 percent (2014) and is expected to rise to 56 percent by 2025.

The participants were informed that the energy sector is the fastest growing industry at a rate of 40 percent per annum. He further spoke about the National Energy Policy of 2003 and the reforms that the government is undertaking with Tanzania Electric Supply Company Limited (TANESCO) and Tanzania Petroleum Development Corporation (TPDC). It was stated that according to the World Bank definition, access to electricity is currently at 34.6 percent.

He noted that access level is higher than connection level which is 24 percent currently and is expected to reach 30 percent by 2015. Megawatt (MW) production is expected to rise from the current capacity of 582 to 3000 MW in 2015 as well. The commissioner underscored the persistent challenges in terms of financial flows to enable the industry to be a perpetual and sustainable contributor to economic growth.

The commissioner stated that energy will continue to pay a crucial role in transforming the economy. Most of the middle income countries have higher electricity per capita consumptions compared to Tanzanian’s present electricity per capita consumption of 100 kWh. Our target is to reach 236 kWh by year 2015, when our GDP per capita is expected to be USD 662. By year 2025, the consumption per capita will be close to 500 kWh. During this time, the connection level is expected to grow to 56 percent from the present 24 percent.

According to the government the gas and oil industry is the fastest growing industry in the country and is expected to play a pivot role in the energy sector. Presently 40 percent of electricity generation is accounted by natural gas and with the completion of the 543 km gas pipe line from Mtwara to Dar es Salaam, gas contribution to the energy sector will be more prominent. However, the development of the oil and gas industry needs to be adequately managed through appropriate policies and legislation, as well as enhanced capacity development initiatives.

Tanzania has vast indigenous energy resources, including natural gas (present potential: 46.5 trillion cubic feet, coal (up to 5 billion tons), hydro (more than 4,700 MW), uranium and renewable energies (solar, wind, biomass, and geothermal) which will be exploited to meet the ever-growing demand for energy services. The country has embarked on promotion of alternative sources of energy in order to diversity power generation mix, and hence ensuring availability and reliability

The presenter concluded by stating that all the legal, technical and economic/fiscal interventions are geared towards attracting private investment and funding opportunities. Investment in the energy sector requires significant amount of money. In concluding an elaborate speech the commissioner hoped that the workshop will identify financial instruments to support sustainable development of energy in the country.

Part II: Key Presentations and Discussions 2.1 European Report on Development (ERD) 2014

The presenter, Dr. Debapriya Bhattacharya, Chairperson of Southern Voice and ERD Country Illustration Coordinator, extended his appreciation to the commissioner for; the substantive speech that set precedence in the debate for energy as a major enabler to help the country achieve its Post 2015 Development Agenda; and for providing the right context for the meeting. He also thanked Dr. H. B. Lunogelo for hosting the workshop, and proceeded to elaborate on the project.

The presenter gave a quick overview on the ERD report and explained that it was divided into three parts that are expected to address different aspects; (a) finance needs and flows; (b) the role of finance in promoting transformative change; and (c) implications for the post-2015 framework for development. He explained that the ERD report 2014 set out to look at finance gaps and implementation of the development agenda by examining trends in financial flows of developing countries in general, and how these flows can be used to address some of the development challenges (such as health, environment, energy, poverty, etc.).

He illustrated that studies on Millennium Development Goals (MDGs) financing needs helped raise Official Development Assistance (ODA) for social sectors and debt relief which allowed countries to increase on spending on poverty. However, the ODA gap filler models were problematic. Thus three intellectual shifts are needed; (a) to consider ODA amongst range of finance options; (b) to consider the policy context of finance; and (c) to consider the transformative objective. He informed participants that the aim of ERD is to address these issues through improved modelling and other appropriate methods.

He further indicated that there has been a notable trend of increase in domestic mobilization for resources to foster development initiatives; ODA has still been growing in support to the less developed countries. However tax was at the fore front followed by remittances then by foreign direct investment (FDI). He further noted that the cost of credit and lack of competition in the banking sector has led to higher reliance on FDI as well as higher tariffs on the tax base. It was established that the finance is available; therein the challenge is: what are the best policies to influence the financial flows for impact on development in fulfilling the Post 2015 Agenda.

The presenter mentioned other important areas of finance that need to be looked into: (a) Developing country private investments; (b) Global portfolio investments; (c) Other innovative finance mechanisms; and (d) Cross-cutting issues like climate finance, South-South flows and capital flight. He further explained that there are two means of implementation for achieving sustainable development; (a) financial; and (b) non- financial which includes general and specific policies.

He maintained that finance is flowing but effective mobilization and use of finance is constrained by a range of market co-ordination and governance failures. Additionally, he stressed that finance alone cannot buy sustained progress, but supports sustainable development transformations via enablers (factors of production, technology, governance and trade linkages).

The presenter concluded the presentation by noting the following:

·         There is need for a transformative post-2015 agenda (economic, social, environmental and governance elements).

·         ODA is still important for least developed countries, but aid alone not enough: a range of different public and private, domestic and international flows needs to be made available to developing countries, albeit with variability.

·         The need for more thought on how the financing for development framework can encourage better use and implementation of non-financial means of implementation.

·         Finance cannot deliver transformations, but it can help to enable them.

·         Globally finance might not be the main constraint: focus should be on mobilization/allocation and use of finance.

2.1.1 General comments and discussions by participants

There was emphasis from participants that greater outlook should be given to evaluate the potential of pension funds. It was also recommended that part of the funds could be used to finance rural electrification programmes. Light was shed on the need for the EU to support climate financing in the following areas: (a) Pilot programmes; (b) Forest investment programmes; and (c) Climate funding.

Elaboration on the definition of Private Public Partnership (PPP) was implied to be two-fold in nature; (i) contractual relationship between private sector and government; and (ii) dialogue between private and public sector. The call for PPPs was echoed by the participants who recommended that PPPs should be advocated as in the cases of other countries with advance PPP advocacy which has proven a remarkable model in addressing some of the finance for development challenges.

Participants also urged a revision of policy options and questioned how available funds can be attracted to low income countries like Tanzania which has high interest rates. A need for greater competition with the banking sector was recommended. It was noted that donors managing funds and banks implementing have a mixed approach, whereby donors want to move from the grant side to the blending side. Further remarks stated that the global recession had affected the ODA flow (sovereign wealth fund, PPP, domestic resource mobilization).

With a new global agenda at hand, there were questions on: (a) Whether countries are prepared; (b) Have countries transformed; and (c) What policies have been useful in the transformation. Participants maintained that complementary policies and new instruments are imperative to influence financial flows to fulfill the development agenda. The discussion set precedence for consensus: (a) Finance and ODA is imperative but has to go beyond ODA; (b) Non-financial policies and complimentary policies (global institutions, participation and voice) are important; and (c) An increase in domestic resource mobilization is essential.

2.2 Tanzania Country Illustration Draft Report

Dr. H. B. Lunogelo gave a presentation on the Tanzania Country Illustration Draft Report. The report studied: (a) Trends in the country over the last two decades to pinpoint the main enablers that led to economic transformations; and (b) The feasibility of energy as a main enabler for advancing the Post 2015 Development Agenda whilst taking into consideration the financing options.

He noted that there has been economic diversification in the country with the manufacturing sector displaying a steady growth as a share of GDP from 2008 onwards. On the other hand, the contribution of the agricultural sector to GDP has been declining during the past ten years. This decline can have a negative impact on those dependent on the sector for their livelihood. However, productivity in the sector has been gradually increasing throughout the years. He also underscored that a wide gap still remains between urban and rural poverty with the latter being the most affected despite constant reforms and strategies to reduce poverty.

He further pointed out that though efforts are being made by the Government to increase the domestic tax revenue ratio to GDP, the resource gap between total expenditure and domestic revenue has been widening in recent years. Possible reasons of the finance gap can be attributed to government expenditure which has been increasing significantly and donor support to the country which has tripled since 1990. He illustrated that the country has been successful in resource mobilization which is reflected by the decline of net ODA as a percentage of Gross National Income (GNI) from 30 percent of GNI in 1992 to 10 percent in 2011.

The country has been successful in attracting FDI with FDI flows increasing to 8 percent of GDP in 2010. Likewise the value of FDI has increased from 400 million USD in 2000 to 1800 million USD in 2010. FDI has been effective in creating new jobs in the country. However, job creation via FDI has decreased from almost 110,000 jobs created in 2008 to 80,000 jobs in 2011. He also noted that the trend of debt to GDP ratio has been declining significantly since 2002 where debt ratio to GDP exceeded the 50 percent limit by almost 15 percent before gradually declining to 35 percent in 2007. According to the latest data available the ratio to GDP was 48 percent in 2012.

The presenter maintained that in order to continue to build on the post-MDG success it was imperative to focus on economic transformation within the country. One of the key transformations in the agenda is energy. He stated that Tanzania has considerable unexploited renewable energy resources for energy production and provision of energy services which include; (a) biomass, mostly firewood, charcoal and electricity from agricultural residue; (b) hydropower; (c) solar; (d) wind; and (e) thermal. Nonetheless, electricity production from renewable sources of energy has been decreasing over time. Data shows that renewable energy production as a percentage of energy has decreased from 93 percent in 2000 to 83 percent in 2011.

He then proceeded to elaborate on wind energy which is not yet being fully utilized in the country. The minimum requirement to produce energy, calls for wind speed not less than 4 meters per second. However, it was noted that although some regions such as Singida and Makambako have been discovered to have average speeds of 10-11 meters per second yet projects tend to take too long to materialize. Participants were informed that there are currently two potential wind power projects capable to generate between 50 and 100MW at Singida and that there are about 7 wind sites with potential for electricity generation. It is estimated that about 58 wind pumps have been installed in the country yet the potential has not been fully exploited, mainly due to the high initial cost of pumps.

The presenter gave a brief overview on small scale hydropower which accounts for about 300 – 500 MW with only about 24 MW which have been developed thus far. He further stated that a United Nations Industrial Development Organization (UNIDO)/ Global Environmental Facility (GEF) project on mini hydro was launched in June 2012 which will develop micro/mini hydropower based mini-grids in Tanzania to increase access to rural electrification.

The presenter also addressed biomass energy which is the main source of energy in the country and accounts for more than 85.5 percent of total energy consumption. He highlighted that; (a) the country currently has an installed capacity of 33 MW from sugar, sisal and wood-based industries; and (b) that studies have revealed that the country has the capacity to generate more than 200MW of electricity per annum from sugar cane residues (bagasse), in four sugar factories.

He further emphasized on the importance of the discoveries of oil and gas for further growth in the economy. He pointed out that the country has enough gas to supply both the domestic market and liquefied natural gas (LNG) exports; and that further development and exploration of onshore/offshore reserves and prospects could meet domestic demand up to 2025. He maintained that both the domestic market and LNG exports need attention and support to deliver a stepping change in the Tanzanian economy.

He reported that studies recommend that the path for productivity improvements in Tanzania should be through a collaborative process that involves two main sectors: private and public sector. In this light, he recommended that the government should: (a) Create a conducive environment for business; (b) Develop and enforce standards (environmental, health and safety); (c) Improve access to markets; (d) Ensure fair competition in the economy; (e) Optimally utilize the scarce revenue for the benefits of the entire population in Tanzania; (f) Attract investments into key sectors through Economic Development Zones (EDZ) and trade corridors; (g) Create incentives for addressing sector-specific skills gaps through establishment of refunds on the skills development levy and facilitating the temporary import of foreign skilled labor; and (g) Develop a National Competitiveness Strategy which will build up on the existing initiatives in ensuring economic growth and poverty reduction.

To conclude he emphasized that specific interventions are needed in the energy sector to promote; private sector investment in low cost alternatives to replace use of firewood as source of energy; and low cost roll out of electricity connection in rural areas.

2.2.1 General comments and discussions from participants

From 2005 - 2012 the country had received billions of US dollars from donors, which has had a positive impact on transport, health, education. However, there are concerns over government finance deteriorating; government budget deficit is at 7 percent attributed to increased expenditure, borrowing internally and externally to finance service of debt of USD 2.5 billion.

It was proposed that an action-plan should be implemented and directed at public finance. In order to reinforce local capacity, it was suggested there should be a reduction in support. Although it was maintained that PPP would take time to be a sound option for finance to low income countries like Tanzania until 2020. Participants also stressed on the need of a more conducive environment to attract foreign investment.

It was the view of some that it is unrealistic to depend on the private sector alone to implement Post MDG targets as the sector is mostly profit oriented. Participants also cautioned that the first set of MDG should be mainstreamed to the second set MDGs (reconciling conceptual issues).

Part III: Private Sector Experiences in Financing Options

This section focuses on presentations by three domestic firms in the energy sector, sharing their experience, knowledge and financing options within the yet young industry. The presentations were followed by discussions and/or remarks.

3.1 Makambako Wind Power Project

The presenter, Alex Lemma notified the participants that when it came to the conceptualization of the project, there was no wind farm blueprint in the country for the prospective entrepreneurs to refer to. The rationale behind the conceptualization of the wind farm business entity was based on the fact of shortage of power in the country. The process involved collection of wind data for a year, and the choice for the location was based on local knowledge of wind potential in those areas. A major stumbling block was the financing of the project and technical expertise in wind engineering, whereby in the case of the former the firm relied on expertise from China and a Norwegian company which subsequently produced an inception report.

In terms of financing, the Norwegian Embassy, through the Norwegian Agency for Development Cooperation (NORAD) grant funded 50 percent of the feasibility write-up. The entrepreneurs embedded in the project had to muster additional funding from personal revenue streams to finance the project. Tanzania Investment Centre (TIC) and other government ministries were supportive in terms of suitable land allocation and the Ministry of Mineral and Energy played a mitigating role. External financing in this case was inevitable as they had to seek equity loan from the African Development Bank (AfDB), Bank of Africa, and Stanbic Bank.

3.1.1 General comments and discussions from participants

Participants were in agreement that the initiative is a great renewable source of energy and could be the cheapest in the long run. They also observed that a lot had been spent on emergency power purchasing per day (4 billion Tanzanian Shillings per day). It was thereby implied that such expenditure could be curbed and re-allocated to finance projects of this nature for long term profitability. It was also observed that there are persistent bureaucratic challenges especially in cases were a public entity for service provision is trying to cater to the same target group.

3.2 Consumer Clean Energy Products and Post-2015 Development

Dan Code from ARTI Energy begun the presentation by stating that ARTI Energy is a social enterprise established in 2007 with a mission to identify quality clean energy products and market them to the Tanzanian consumers with support of quality sales and service. He informed participants that their current product range includes solar lights & systems, improved cook stoves and charcoal briquettes.

He gave an overview of the energy consumption in a typical low-income household in Tanzania as inefficient and expensive due to the absence of affordable alternatives. Only 15 percent of households have access to electricity with the majority dependent on kerosene for lighting, whilst 95 percent of households rely on biomass for cooking. The presenter underscored that traditional household energy consumption restricts both individual and community development by adversely affecting; (a) health; (b) the economy; (c) the environment; and (d) education. Therefore, ARTI’s primary goal as a social enterprise is to distribute products that promote development through their effectiveness in addressing these habits and their impacts on the lives of Tanzanians.

In terms of financing, the enterprise receives trade finance terms from its suppliers to enable the purchase of stock levels. Financial accessibility of their solar products in the country is improved through the current VAT exempt; and their cook stoves have also received carbon finance and access to carbon credits through the supplier Envirofit. Critical investments prior to commercialization of charcoal briquettes were grants that they received from World Bank, Energy and Environment Partnership (EEP) and Nordic Climate Facility (NCF).

He also mentioned that the difficulty for small-medium sized enterprises to access affordable financing, outside of some trade finance damages their ability to provide stock credit on favorable terms to its dealers. Additionally a difficult financing environment also inhibits access to the working capital required to take invest in scaling a clean energy distribution network to the level required to meet demand, particularly in rural and difficult to reach areas of Tanzania.

He concluded by recommending the implementation of policies to address key barriers such as; (a) market spoilage and quality concerns; (b) financial accessibility; and (c) continued access to international carbon markets and credit programs.

3.2.1 General comments and discussions from participants

Participants acknowledged that the area lacked the necessary attention from the government and that the sub-sector could benefit from government subsidies and carbon credit programs. The initiative was lauded for being a social initiative trying to cater for the segment that cannot afford the alternative and for trying to ensure that their appliances to a pragmatic degree are environmentally friendly.

3.3 Mapembasi Hydropower: A 10 MW Small hydro Power Project

The presenter, Francis Songela informed participants that Mapembasi Hydropower Company is a 10MW small hydroelectric power plant along the Ruhudji River in Njombe which was officially inaugurated by the President of the United Republic of Tanzania, Hon. Dr. Jakaya Mrisho Kikwete on the 20th of October 2013. The objective of the company is twofold; (a) to connect 5000 households,180 Small and Medium Enterprises (SMEs), 1 tea factory and 12 rural institutions in 6 villages; and (b) to feed excess power into TANESCO’s main grid under the Small Power Purchase Agreement (SPPA).

He went on to inform the participants concerning the company and its start up. He stated that the company is a project Special Purpose Vehicle (SPV) formed by Njombe Resources Development Company (NRDC) with equity investors VS Hydro Private Limited of Sri Lanka and Evolution One Fund of United Kingdom. The project investment cost has been estimated to be 29.18Mn USD. To fund the investment a loan of almost 20.40 million USD was requested alongside and equity contribution from NRDC and the government Ministry of Energy and Minerals (Rural Energy Agency).

He then proceeded to outline some of the social, environmental and economic benefits derived from hydropower; (a) better and longer lighting services, thus improving education, health and other social services; (b) increased economic activities; and (c) climate change mitigation –the project’s annual emission reductions ~26,280 tCO2.

The presenter concluded by mentioning some challenges that were encountered; (a) credit enhancement; (b) bankability of SPPA as the current SPPA is not good enough to attract foreign investors and commercial banks; and (c) lack of local technical capacities. He also stressed that the main focus of the country has been on developing local capacities in large hydropower, natural gas and thermal and less on renewable energy, particularly small hydropower.

3.3.1 General Comments from Participants

A great example of how non-governmental organization (NGOs) or domestic resources can be mobilized to start up the initiative but challenges persists when it comes to fully funding the project. A vibrant and more competitive financial sector may help deal with some of the issues of high interest rates. The EU should continue to support and enhance environmental sustainability.

Part IV: Financing Options Post-2015 in Tanzania 4.1 MAMS Modelling

Due to time constraints Dirk Willem te Velde gave a very brief overview of the presentation. He started the presentation with an introduction to Maquette for MDG Simulation (MAMS) and mentioned that the motivation behind design: (a) The need for an economy wide, flexible price model; and (b) Although the standard computable general equilibrium (CGE) model provides a good starting point, it must be complemented by a satisfactory representation of ‘social sectors’.

He informed the participants that MAMS main originality stems from the inclusion of human development services and their impacts on the MDGs and other aspects of social and economic performance. He then proceeded to elaborate on the MAMS structure and outlined the main building blocks of the model; (a) activities; (b) Institutions; and (c) markets. The presenter then explained the different approaches to the following scenario analyses; (a) financing and achieving post- MDG targets; and (b) shocks, transfers and financial deepening.

He thereafter illustrated the tradeoff between infrastructure and human development in Tanzania before concluding with a sensitivity analysis on public expenditure efficiency in Tanzania.

4.2 Brainstorming on financing options post-2015 in Tanzania

At this juncture of the workshop Dirk Willem te Velde asked each participant to share their individual thoughts on financing options for Post 2015 agenda in Tanzania based on experience and the presentations. The remarks by the array of participants were as follows:

-          Focus should be on long term concessional predictable financing synergies in policies

-          Involvement of government agencies and how they can help investors

-          Finance for infrastructure social health, especially for rural sector

-          Gender sensitive finance

-          Adequate consideration for environmental impact (synergies between goals)

-          Policy protection

-          Resource mobilization technical assistance

-          Capacity building (investment by the EU)

-          Improve recognition of social and environmental impact, created by specific projects

-          Financial market very fertile area for capital flight, illicit trade, the government should keep an eye open

-          did no understand sentence Legal framework for investor to enter into mutual beneficial joint venture

-          Increase efficiency of resource mobilization

-          Support  domestic resource mobilization, the PPP has a lot to contribute

-          Local/International for promoting energy initiative

-          Governance system that works in a practical sense

-          Case studies of transformations (Energy Sector)

-          Linking local resource mobilization to the best performing sector

It was proposed that a policy brief on “Institutional bottle-necks the private sector is facing” should be written.

4.3 Vote of thanks and closing remarks

Dirk Willem te Velde thanked the participants for their attendance and valuable contributions, and fruitful deliberations. He thanked Dr. H. B. Lunogelo for his work that he and his team at ESRF have done in preparing the report and hosting the workshop.

Dr. H. B. Lunogelo also expressed his gratitude for the attendance and everyone’s contribution which would go towards enhancing the Tanzania Country Illustrations Report. He also thanked the ODI team for their support, and thereafter welcomed the participants to have tea and network before they part the venue.

Description

Organised by the Economic and Social Research Foundation

Venue: Golden Tulip Hotel, Dar es Salaam

Tanzania has begun an energy transformation to modernise the energy system from traditional fuels, such as coal and wood, which contribute to climate change and deforestation through renewable and low carbon energy options and energy efficiency technologies. The workshop discussed financing of the energy transformation and other means of implementation, within the wider context of sustainable development. The Minister for Energy and Minerals was the guest of honour alongside academic experts and private sector representatives, who discussed financing options that have been vital to energy transformation in Tanzania.

Golden Tulip Hotel, Dar es Salaam