Report No. 49b4}-1A

Tanzania: Issues and Optionsin the Energy Sector

November 1984

Report of the Joint UNDPWobrld Bank Energy Sector Assessment ProgramThis :dixcunent-has a restricted distribution. Its contents mav no.t be disclosedwithoutl auiberination from- the Gwvernrment, thie UNDP or the WVorld Bank.

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14 V

::JOINT U14DP/WORLD'BANK ENERGY SECTOR-ASSESSMENT PROGRAMREPORTS ALREADY ISSUED,

> .. , . ~ ~ ~~outrDate -Number,

Indonesia' November 1981 35543-IND; -Mauritius December: ' 981 ; 3510-MASKenya - May 1982 3800-KE Sri Lanka May 1982 3792-CEZimbabwe june 1982 3765-ZIM,f Haiti -June 1982 3672-HAPapua New Guinea June 1i982 3882-PNG

Burundi -June 1982 3778-BURwanda : June I1982 3779-RWMaLawi :August 1982 3903-MAL

Bangladesh October 1982 3873-BDZambia Januarv 1983 4110-ZATurkey February 1983 3877-TUBolivia April 1983 4213-BO

Fiji June 1983 4462-FIJSolomon Islands June 1983 4404-SOLSenegal July 1983 4182-SESudan JuLy 1983 4511-SUUganda July 1983 4453-UGNigeria August 1983 4440-UNINepal August 1983 4474-NEPGambia November 1983 4743-GMPeru anuary 1984 4677-PECosta Rica January 1984 4655-CRLesotho *anuarv 1984 4676-LSOSeychelLes January 1984 4693-SEYMorocco March 1984 4157-MORPortugal April 1984 4824-PONiger May 1984 4642-NIREthiopia JuLy 1984 4741-ETCape Verde August 1984 5073-CVGuinea Bissau August 1984 5083-CUBBotswana September 1984 4998-BTSt. Vincent andthe Grenadines September 1984 5103-STV

St. Lucia September 1984 5111-SLUParaguay October 1984 5145-PA

? ; E

FOR OFFICIAL USE ONLY

Report No. 4969-TA

TANZANIA

ISSUES AND OPTIONS IN TEE ENERGY SECTOR

NOVEKBER 1984

This is one of a series of reports of the Joint UNDP/World Bank EnergySector Assessment Program. Finance for this work has been provided, inpart, by the UNDP Energy Account and the Canadian International Develop-ment Agency through the UNDP; and the work has been carried out by theWorld Bank. This report has a restricted distribution. Its contents maynot be disclosed without authorization from the Government, the UNDP orthe World Bank.

ABSTRACT

Tanzania's economic crisis has led to a contraction in themonetary productive sector, reduced export earnings and a shortage offoreign exchange to purchase recurrent essential imports, including crudeoil and petroleum products. One objective of the Structural AdjustmentProgram (launched in November 1982) was to stimulate the deveLopment ofalternative indigenous energy sources while economizing on the use ofimported fuel. In this context, the discovery of significant quantitiesof natural gas off the coast presents Tanzania with some options whichcould influence further macroeconomic developments through their effecton the foreign exchange situation, notably by reducing imported petroleumproducts.

This report reviews Tanzania's energy resources, incLuding thenatural gas reserves. hydroelectricitv, biomass and coal deposits. Thereport then goes on to make demand projections for a fifteen-year periodfor each subsector (petroleum. electricity, coal, firewood and charcoal)using two macroeconomic growth scenarios. The main issues and optionsdiscussed include: optimal utilization of the natural gas reserves;least-cost system expansion and supply reliability in the power sub-sector; and increased fueLwood production. The report's recommendationsfocus particularly on investment options and strategies, technicalassistance requirements, institutional strengthening and energy con-servation.

ABBREVIATIIGS

CAMERTEC - Center for Agricultural Mechanization and RuralTechnology

CIDA - Canadian International Development AgencyEEC - European Economic CommumityESKAP - Joint UNDP/IBRD Energy Sector Management Assistance

ProgramFAO - Food and Agriculture OrganizationCTZ - German Agency for Technical CooperationIMP - International Monetary FundkfW - KreditanstaLt fur WiederaufbauKILAMCO - Kilva Ammonia CompanyMNRT - Ministry of Natural Resources and TourismMWEM - Ministry of Water, Energy and MineralsNORAD - Norwegian Agency for DevelopmentRUBADA - Rufiji Basin Development AuthoritySAP - Structural Adjustment ProgrammeSIDA - Swedish International Development AgencySTAMICO - State Mining CorporationTANESCO - Tanzania Electric SuppLy CorporationTARECO - Tanzania Rural Electrification CorporationTIRDO - Tanzania Industrial Research and Development

OrganizationTIPER - Tanzanian-Italian Petroleum Refining CompanyTPDC - Tanzania Petroleum Development CorporationTWICO - Tanzania Wood Industries CorporationUNDP - United Nations Development ProgrammeUNIDO - United Nations Industrial Development OrganizationUTAFITI - Tanzania National Scientific Research Council

This report is based on the findings of an energy assessment missionwhich visited Tanzania in June 1983. The mission comprised: R. Bates(Mission Leader), M. Kiwana (Report Coordinator), S. Chitale (CountryEconomist), E. Terrado (Renewables Specialist), H. Wagner (Forester), V.Mastilovic (Power Engineer), C. Schramm (Energy Economist), C. Poncia(Petroleum Economist), H. Burmeister (Industry and Energy ConservationSpecialist), C. Das Gupta (Refinery Engineer Consultant), and C. Mortimer(Cas Specialist, Consultant).

CURRENCY 0QUIVALENTS

1 Tanzania Shilling = US$0.082Tsh 12.18 = US$1.0 a/Tsh 9.33 = USS1.0 b/

MEASUREMENTS

Bbl BarreL of Oil = 0.15899 Cubic Meter; 42 USGallons: 35 Imperial Gallons

BTU British thermaL unit = 0.252 kilocaloriesBtuh British thermal unit/hourCF cubic foot = 0.02832 Cubic MeterCallon = 3.7853 LitreCWh Gigawatt-hour = 1,000,000 kilowact-hours(kWh)K (k) KiLo = 1,000km Kilometer = 0.62 miles = 1000 meterskV Kilovolt (kV) = 1,000 VoltskWh Kilowatt hours = 1,000 Watt HourslT/hr pounds/hourm cuoic meter = 6.289 barrelsMCFD thousand cubic feet

per dayMMCF milLion cubic feetMVA megavolt ampere = 1,000 kilovolt amperesMW Megawatt = 1,000 Kilowatts (kW)MWh megawatt hour = 1,000 kilowatt hoursTOE (toe.) tonne of oiL equivalent = 39.68 million BTUtonne metric ton = 1,000 kilogram (kg); 2,204.6

Pound (lb)Tpd tonnes per dayTpy tonnes per year

TANZANIAN FISCAL YEAR

Julv i - June 30

a! As of March 1983.b/ 1982.

ENERCY CONVERSION FACTORS

Fuel Million Kcal per Unit Physical Units per TOE

Liquid Fuels (tonne)Crude Oil 10.2 1.00LPG 10.8 0.94Kerosene 10.3 0.99Jet Fuel 10.4 0.98Gasoline i0.5 0.97Gasoil 10.2 1.00Industrial Diesel Oil 10.1 1.01Fuel Oil 9.8 1.04

Natural Gas (mmcf) 252 0.04Electricity (MWh) 86 x 10-2 4.0Coal (tonne) 5.6 1.82Fuelwood (tonne) 3.5 2.91Charcoal (tonne) 7.0 1.46

Memo Items

1 TOE = 10.2 million kcal = 40.5 miLlion BTU = 42.7 GJ1 kcaL = 3.968 BTU1 kcal = 4.19 x 10 v GJ1 MWh = 860,000 kcal = 0.248 TOE at 34% efficiency in thermal (oil)

generation

TAULE OF WNTBTS

Page

KEY ISSUES AND RECOMMENDATIONS ................................... .,i-xdi

I. ENERGY AND THE ECONOM,Y OF TANZANIA .........................s 1Recent Macroeconomic Situation............................ 1Overview of the Energy Sector. ..... ........... ....... ... 3Commercial Energy Sources ...... . ***S6C ................. 3Electricity ...................................... 6

9Noncommercial and Other Energy Resourceso................ 10

II. ENERGY RESOURCES .................. 2..... 12Introduction............................................. 12Petroleum and Gas....................................... 12Exploration Activities ................. ......... o . .... 12Gas Resources and Petroleum Potential .................. 14

Hydroelectric Power...o...............0* 15Potential ....... me................ ... see............ . mc....... ... 15Future Stutles........................................ is 18Hydrological Data ..................................... 19l

Coal..................................................... 19Resources .............................................. 19ProductiLon ..........e.....e...........ee.....e...e.....s 20Development Prospects ... 20

Fuelwood................................................. 22* 22Resources ...................................... 22The Deforestation .............. ...... .......... ... . 23

Nonconventional Energy .......................... 24Resources..* c....... ................ c. .c 24Surplus Softwood, Forest Residues and

Wood Processing Wastes ...... ... ... . ccc... 24Agricultural Residues.................................. 24Animal Wastes .. ccmcmm......................... 25Sugar Industry Residues.......... e. mc.................... 26Solar and Wind Energy.... m.ccmm.m.c.c..m.cmc.cmm.cc.... 26Geothermal Power and Uranium Deposits .................. 27

Conclusionee...m..m..c.m.cc.c.c..............mcme......... 27

III. DEMAND FORECAST SCENARIOS .. ............... ..... 99sesesese.. 28Introduction. mc..e.m.c....c..c.ce...c.ec..........................e.. 28Total Coumercial hrergy ................ ........................... me..... c 29Electricity ............... ............ ..... m. . 31Fuelvood. . ......... c. m.c......... mm...... ......... in................. 34

IV. ENERGY SUPPLY AND INTER-FUEL SUBSTITUTION . ................. 38Introduction ............................................. 38Petroleum Products .............. .... ... .. 39

Refining ................. ~~~39

Page

Distribution, Transport and Storage .................... 44Allocation Policy. .................... 45

Natural Gs.............. 46Methodology of the Economic Evaluation................. 46Overall Results ........ ....... 47Industrial Substitution Market .........................0 50Power Generation Market................... ......... *.. ...00 51Fertilizer Production ............................e.ge..o 53Methanol Production ........ 55Transportation. .*........ ............... *... 55

Mnazi Bay Reserves ................. 57Conclusions and Recommendations for Gas ................, 57

Electric Power........ ...... ................ 58The Least-Cost Expansion Program............ ........ 59Reliabil ty of Public Power Supply . .................... 63

Coalos.6........................ 66The Traditional Coal Market.... g.g. .g....... g.m.....@ 66Electric Power Generation............ ................ 67The Industrial Market ............. g......... 68The Coal Export Market.000. .. 0 .... eg gem....... ... g 69Reliability of Coal Supply ................g.........* ....... 69The Delivered Cost of Cosl............................. 70

Fuelwood.....o...g.. ... ... ... .. ....gmggggeg gg.. 72Nonconventional Energy.................. ................. 76Conclusions ............................................. 79Commercial Energy ...... .. .... .. ......... .... 79Noncommercial and Nonconventional Energy ............ 0... 84

V. DEMAND MANAGEMENT ..............................e........e... 86Introduction.. ........................................... 86Energy Pricing.........m... 86Petroleum Products .......... ........ ....... e.... . 86Natural Gas............................................ 87Electricdity .......... 00.0.0 ..................................... 91Coal and Fuelwood ... e................ 93

Energy Conservation in Industry.e.e..... e.e............. 93Fuelwood Conservation. .... Ce..U.eee.eeee.OSS e.e.c...... C 95

VI. INSTITUTIONS AND MANPOWER IN THE ENERGY SECTOR ............. 100Introduction ........................................ 100Petroleum, Power and Coal................................ 100Ministry of Water and Energy (MWEM) ...................... 100Tanzania Electric Supply Company (TANESCO) ....... goes 101Rufiji Basin Development Authority (RUBADA) ............ 102Tanzania Petroleum Development Corporation (TPDC)...... 102Tanzania-Italian Petroleum Refining Company (TIPER).... 103State Mining Corporation (STAMICO) ....................... 104

Renewablese....g.g..eeeCgmg.gee ...mo..g.meg. 105Forestry ...... see .............................. * ... 105Nonconventional .................. ...... .......... 106

Page

Sector Coordination and Planning ......................... 108An Institutional Framework for Cas ........... ....... 109

VII. INVESTMENT AND TECHNICAL ASSISTANCEIN THE ENERGY SECTOR ...................... ......... 112

Investment Requirements .... ........ ...... ........ ...... 112Technical Assistance ......... ........................... 116

ANNEXES

Annex 1 Energy Balance 1981 .................. . 121Annex 2 Regional Fuelwood Consumption Estimates (1981)...... 122Annex 3 Fuelwood Availability by Region g......... .... 123Annex 4 National Storage Facilities for Petroleum

Proutr.......... u c ts........fo.o. 124Annex 4(a) Petroleum Product Prices, June 15, 1984...... 4..... 125Annex 5 Illustrative Breakdown of Potential Gas Market

for Cases IV - VII 126Annex 6 Cas Supply Systems Selected for Economic

Evluton........ o . i.e .. o. 127Annex 7 Gas Supply Cost Estimat e. 128Annex 8 Gas Depletion and Long-run Marginal Supply

Costs for Cases I through V I I 129Annex 9 Economic Evaluation Summary of Cases Considered 130Annex 10 Potential Industrial Gas Market 131Annex 11 Economic Cost of Coal and Fuel Oil at Selected

Bulk Delivery Points (US$) ......................... o 132Annex 12 Tanzania Electric Supply Company Limited -

Tariff Schedule Effective Since Jan. 1, 1983 ....... 133ANNEX 13 TANESCO, Long-run Average Ineremental Costs;

SAP Scenario Data Base.. e .. ... . .. 135Annex 14 Village Afforestation Program Organization 136Annex 15 Urban Energy Plantation Project 137

KEY ISSUES AnD UECOIXDDfOI5S

The Energy Sector and the Economy

1. At the heart of Tanzania's present economic difficulties liesan acute shortage of "free" foreign exchange; 1/ the shortage hasresulted in falling agricultural production and low industrial capacityutilization. To deal with this situation, the Covernment launched astructural adjustment program (SAP) in 1982, which aims at alleviatingthe scarcity of foreign exchange and consequentLy stimulating agri-cultural production and increasing the degree of industrial capacityutilization (paras. 1.3-1.8).

2. The petroleum subsector occupies a key position in thisprogram. Althougb the consumption of petroLeum products represents onlyabout 7% of total energy consumption (Table 1), it accounts for more thanhalf of Tanzania's "free" foreign exchange, a proportion which has cisenrapidly since the Late 1970s. Hence, petroleum imports compete more andmore with other imports essential for economic growth. On the otherhand, the avaiLability of adequate supplies of petroleum products isessential to stimulate the monetized part of the economy. Industry andtransport consume nearly 80Z of all petroleum products (Table 2). If theSAP is effective, commercial energy consumption can be expected toincrease more than twofold between 1981 and 1996. These complexinterrelationships between the use of petroleum products, economic growthand foreign exchange resources pose a difficult issue of choice for theGovernment: how to achieve an optimal balance between the import ofpetroleum products and the import of other inputs necessary for economicrevival (paras. 1.11-1.16).

Table 1: FINAL ENERGY CONSUMPTION, 1981

Thousand Toe Percent

Fuelwood 7,950 88.1Charcoal 350 3.9Coal 3 0.0Electricity 59 0.6Petroleum 664 7.4

Total 9,026 100.0

1/ "Free" foreign exchange is defined as export earnings and foreign aidwhich is not tied to specific projects.

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Table 2: DISTRIBUTION OF PETROLEUM PRODUCTS BYCONSUMING SECTOR

Thousand toe Percent

Industry 143 21.5Conmerce 30 4.5Transport 372 56.0Households 76 11.5Agriculture 33 5.0Other 10 1.5

Total 664 100.0

3. At the same time, there is a growing crisis in the non-com-mercial energy sector. The wide gap between the current level of fuel-wood consumption (39.2 million m p.a.) and sustainable fuelwood produc-tion (16.0 million m3 p.a.) is Leading to severe deforestation inpractically all regions (paras. 1.23-1.24; 2.32-2.33). The potentialconsequences are severe, given the high population growth rate (3.3Xp.a.) and the fact that fuelwood (including charcoal) constitutes over90% of finaL energy consumption (Table 1). By the year 2000, theproductive capacity of the natural forests could be reduced by as much as25%. At that time, forced widespread use of cattle dung and agriculturalresidues would contribute to severe depletion of the agricultural soilsand drastically reduce their productive capacity. Consequently, moreland would be required to grow the same amount of food, thus increasingthe competition for land.

4. The Government is welL aware of the energy supply problem andone of the main SAP strategies is the development of indigenous energyresources; this would reduce the country's present dependence on importedpetroleum and decelerate the erosion of the nation's forest capital. Asecond element of the SAP is the setting of appropriate pricing policiesto recover the economic costs of supply and to regulate consumerdemand. In this context, it is encouraging to note that Tanzania hasabundant hydroelectric and coal resources; and substantial natural gasreserves have recently been discovered off the coast. Tanzania also hasan excellent forestry potential, although it must be carefully husbandedif it is to continue to play its important role in the energy sector.Other biomass resources, in the form of various residues and wastes, areconsiderable and solar and wind energy may offer some long-termpotential. Finally, there is evidence of geothermal activity and uraniumdeposits.

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Immediate Priorities

5. Based on its analysis of the various supply and demand options,the mission proposes the following immediate priorities for tacklingTanzania's energy problems:

(a) increase fuelwood production through better forestry practices,more efficient use of existing resources, research, trainingand more planting for energy applications (paras. 4.91-4.97);

(b) secure and protect the existing Songo-Songo wells (para 2.8);

(c) carry out certain essential but modest measures to make therefinery economically viable, including overdue repairs andreplacements, debottlenecking, fuel conse.-vation, a change inthe type of crude oil processed and a change in productrpecifications (paras. 4.7-4.13); without these measures,itwould clearly be preferable to shut down the refinery andimport all refined products (para. 4.14);

(d) improve the reliability of the power system to supportincreases in agricultural production and the degree ofindustrial capacity utilization, by strengthening andrehabilitating generation, transmission and distributionfacilities (paras. 4.61-4.69);

(e) continue with the extension of the main power grid which ispresently under way, to utilize as fulLy as possible existinghydroelectric facilities and the new hydroelectric plant underconstruction, with consequent savings in gas oil and industrialdiesel oil (paras. 1.20; 4.70);

(f) foster industrial energy conservation to reduce petroleumimports; and fuelwood conservation to reduce the pace ofdeforestation (paras. 5.20-5.35);

(g) carry out feasibility studies for developing natural gas as asubstitute for the use of fuel oil, industrial diesel oil andgas oil in domestic industry and in power generation (pa-as.2.11; 4.33-4.40; 4.52);

(h) do not commit a major part of the existing known gas reservesto a single high-risk export use, such as fertilizer produc-tion, without a contract which ensures that this use will pay agas price which more than covers the full economic costs ofsupply (paras. 5.9);

(i) adhere firmly to the economic pricing of energy in the domesticmarket and full cost recovery to manage properly the level ofenergy demand; to allocate energy demand efficiently betweendifferent fuels; and to mobilize investment resources (paras.5.1-5.19);

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(j) focus efforts of non-forestry biomass usage towards increasedsubstitution for fuelvood and imported petroleum products(paras. 4.98-4.105); and

(k) strengthen energy sector management and energy planning co-ordination, both at the level of overall sector planning andwithin the individual energy agencies (paras. 6.32-6.37).

Although not studied by the mission, the Government considers that highpriority should also be attached to increasing the storage capacity forpetroleum products in the region in view of the major problem with thetransport network and to rehabilitating the number of vehicles and shipsdedicated to petroleum products distribution. Furthermore thepossibility of obtaining petroleum supplies from neighbouring countrieson a short-term basis for the northern region should be investigated(paras 4.19-4.20) and attention should be given to streamlining theprocedures for making foreign exchange resources available toinstitutions in the energy sector (paras. 4.8; 4.25; 4.65-4.69). Themission's conclusions and recommendations with regard to dealing withpriorities (a)-(k) are considered under three headings: policy measures;investment options; and technical assistance requirements.

Policy Measures

6. The prices of all the main petroleum products are at leastequal to their economic opportunity costs, if the international (border)prices are converted at a shadow rate of foreign exchange of US$1 = TSb.18.5. Of course, the use of a higher shadow exchange rate would increasethe economic opportunity costs expressed in local currency terms.However, at the particular shadow rate assumed here, the government is ineffect levying a substantial tax on petroleum products as a whole. Themain policy question, therefore, concerns the extent to which petroleumproduct prices should be used as a vehicle for general tax purposes.Such a question is beyond the scope of an energy assessment report andrequires a careful evaluation of the effects of different taxation formson the economy as a whole, taking into account alternative methods ofraising tax revenues and their effect on resource allocation.

7. The pricing situation is less satisfactory in the electricitysubsector. Tariffs are not sufficient to meet TANESCO's medium-termfinancial requirements for internal cash generation; and the tariff levelis below the estimated average incremental cost of supply in the medium-term. 2/ The mission considers that the full economic implications ofTANESCO's present policy of a uniform national tariff should be reviewed,since it involves a substantial subsidy from users in the low-cost maingrid to consumers in the high-cost isolated systems and fails to give

2/ However, it is close to the long-run cost if the relativelyinexpensive gas-fired turbines become available in the early 1990s.

v

appropriate signals to the latter concerning the economic costs whichtheir consumption creates (paras. 5.11-5.13). Finally, there areinadequacies related to the internal structure of electricity tariffs.The mission therefore recommends that the Government take immediateaction on the tariff level, according to financial requirements, andsubsequent action to improve the structure and regional differentiationof tariffs, when the results are available from the study of long-runmarginal costs which is being financed under the Fourth Power Project(paras. 5.14-5.17).

8. Subject to detailed feasibility studies, natural gas couldbecome available in Dar-es-Salaam in the second half of the 1980s. Majordecisions will face the Government in gas pricing. Natural gas isexpected to enjoy a substantial cost advantage over other fuels. Whilesome of this advantage should be passed on to local industrial andcommercial users, to induce the desired substitution of gas for importedpetroleum products, the Government should aim to set gas prices above thelong-run economic costs of supply in order to generate tax revenues(paras. 5.6-5.8). A similar policy should be pursued with regard to theproposed fertilizer plant at Kilwa: in the mission's view, it isessential that the Government charge a gas price which covers the fulleconomic costs of supply - i.e. the sum of the direct (physical) costand the depletion cost -- plus a margin to capture for the Governmentsome of the high resource value of the gas (economic rent). In this way,the Government will avoid subsidizing a large export consumer and avoidcreating inequities in the treatment of local users (paras. 5.9).

9. Responsibility for energy supplies rests with a multiplicity ofagencies. The Ministry of Water, Energy and Minerals (MWEM) handleshydrocarbons, hydroelectricity, coal and uranium; the Ministry of NaturalResources and Tourism (MNRT) deals with fuelwood; while the PrimeMinister's Office also is involved with village woodlots and villageelectrification through its rural development responsibilities. Apartfrom being responsible for policy formulation, the Ministries supervisethe activities of various parastatals. In the case of MWEM, these are:the Tanzania Petroleum Development Corporation (TPDC); the Tanzania-Italian Petroleum Refining Company (TIPER); the Tanzania Electric SupplyCorporation (TANESCO); the Rufiji Basin Development Authority (RUBADA);and the State Mining Corporation (STAMICO). Finally, there areMinistries which have an important impact on the energy sector althoughthey are not directly responsible for energy supplies, e.g. theMinistries of Agriculture, Transport and Industry (paras. 6.1-6.28).

10. To ensure a more effective cenrral coordination between theagencies responsible for energy supply and a more integrated long-termplanning of energy supplies, the mission recommends the creation of asmall team of energy specialists based in MWEM and reporting to an Inter-Ministerial Energy Commission. The team would correlate and evaluateinformation on all proposals and projects involving large new energydemands and significant new energy supply prospects and options. Theexisting gap in planning and implementing work on non-conventional energy

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sources could be filled by the appointment of a renewable energy expertas a member of the energy planning team. The Energy Commission would bea newly-created committee of Principal Secretaries from all theMinistries with an important involvement in the energy sector, either onthe demand or the supply side. In light of the papers received from theenergy team, the Commission would take decisions for implementation bythe Ministry concerned or where necessary (e.g. if a major investment isinvolved or substantial disagreement exists within the Commission)prepare proposals for consideration at the Ministerial level (paras.6.29-6.34).

11. The new gas agency which wiLl be necessary to proceed with thecomiercial exploitation of Tanzania's gas reserves would be supervised byMWEM and could easily be integrated within this planning framework.Several organizational options are available for the new agency, rangingfrom a relatively autonomous corporation to a division of TPDC. Theresolution of this issue, requiring a policy decision by the Government,is urgent (paras. 6.36-6.40).

12. Development of the natural gas subsector will create more com-petition with TIPER for scarce manpower trained in hydrocarbons;remuneration policies for refinery staff will need to be reviewed toensure that they are competitive. Furthermore, TIPER's administrativeautonomy may need to be increased (paras. 6.15).

13. Forestry policy must focus upon: (a) an acceleration of theVillage Afforestation Program, by distributing more seedlings to farmers,expanding forestry extension services and introducing agro-forestryschemes; and (b) estabLishing plantations of fast-growing fueLwoodspecies, e.g. eucalyptus, near urban centers to help alleviate thefuelwood and charcoal deficit in urban areas. The Government has alreadyprepared programs under (a) and (b) and the mission recommends that theseschemes be refined and reviewed in light of the Government's financialand managerial capabilities. Measures will also be needed to promote theproper management and utilization of the miombo forests, which provide96X of the fuelwood supply (paras. 4.91-4.97).

14. The mission sees a less important role for non-forestry biomassresources except in certain applications which substitute these resourcesfor petroleum products and fuelwood. Government efforts in this respectshould focus on (a) expanding the use of residues as a supplementarycooking fuel; (b) concentrating the use of biomass power gasifiers insawmills and small ruraL power appLications; and (c) continuing theemphasis on biogas digesters in institutions (paras. 4.98-4.104). Whilesolar and wind energy are likely to have specific applications in thelong run, they do not warrant any significant priority in Governmentpolicy for the time being. Similarly, although it appears that Tanzaniahas geothermal resources, the mission would not recommend any majorexpenditures at present, given the large hydroelectric potential andnaturaL gas resources. Evidence also exists of uranium deposits whichmight eventually be exploited for export, but they are not economical forlocal use (paras. 4.105-4.106).

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15. Government policy towards energy conservation should supportefforts to impLement the recommendations of TIRDO's energy audits byproviding incentives and foreign exchange to allow industry to undertakethe required investments. Support should also be given to efforts toimprove the end-use efficiency of fuelwood in three specific areas: (a)improved charcoal making, through the use of improved kilns; (b) improvedhousehold charcoal stoves ("jikos"); and (c) tobacco curing, where simplelow-cost improvements to existing flue-curing barns could result insignificant reductions in fuelwood consumption (paras. 5.21-5.25).

Investment Options 3/

16. Natural gas has been discovered at Songo Songo Island, 220 kmsouth of Dar-es-Salaam. Proven reserves are 726 bcf, with an additional157 bcf probable and 223 bcf possible. A more recent discovery has takenplace at Mnazi Bay; further confirmation drilling is necessary but provedand probable reserves are conservatively estimated at 609 bcf (paras.2.8-2.9). While Mnazi Bay is too remote for immediate development forthe domestic market (it is close to the Mozambique border, some 460 kmfrom Dar-es-Salaam), it could be developed for export markets(fertilizers and methanol) or at a later stage serve as a supplementarysupply for Songo Songo (para. 4.50). However, the mission recommendsthat feasibility studies be considered urgently for the development ofSongo Songo, the construction of a transmission pipeline from Songo Songoto Dar-es-Salaam, the installation of a secondary gas distribution systemin Dar-es-Salaam, and the conversion of industrial plants in Dar-es-Salaam to use natural gas (paras. 4.33-4.35; 4.51-4.52; 7.3).

17. Aside from TANESCO's ongoing works reLated to extensions to itsmain grid (US$124 million through 1988) and under the Fourth Power Pro-ject (US$149 million) 4/, there will be a need to strengthen thetransmission, sub-transmission and distribution networks in the inter-connected system and to rehabilitate the Pangani River hydroelectricstations (US$169 million through 1991) (paras. 4.61-4.69; 7.2). Addi-tional generating capacity is unlikely to be required in the intercon-nected system before 1992. At that time subject to the outcome ofproposed feasibility studies new capacity could be located in or nearDar-es-Salaam and fired with natural gas supplied by a pipeline fromSongo Songo (US$30 million for 2x3OMW) (paras. 4.37-4.39; 7.2). Apartfrom the last item, all these investments can be expected to proceed ifthe financing is available, i.e. they should not be sensitive to the rate

3/ The figures for investment requirements in these paragraphs areexpressed in constant 1983 US dollars and should be regarded astentative.

41 The Fourth Power Project covers, inter alia, the Mtera hydroelectricscheme, a new system control center and rehabilitation of the Ubungodiesel power station.

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of growth assumed for electricity demand. Ongoing works and worksfinanced under the Fourth Power Project are for all practical purposescommitted; the provisions for rehabilitation and new works are to effectcost savings, improvements in system reliability and increases in thequality of electricity supply even with the existing level of demand. Ofcourse, if further adverse developments occur in Tanzania's overalleconomic situation, the Government and TANESCO may well face financialconstraints which, in turn, couLd compel TANESCO to reduce its investmentprogram. In that event, it will be necessary to estabLish priorities forthe financing and timing of individual components based upon a carefulweighing of political, social, economic, technicaL and operationalcriteria (para. 7.2).

18. To increase fuelvood production, the mission recommends aminimum energy plantation program for urban areas of 22,500 ha in a firstfive-year period (US$14 million) and 51,000 ha in a second five-yearperiod (US$32 million); the program should start immediately and wouldcost some US$32 million through 1991. Similarly, a minimum program ofvillage afforestation for rural areas would start with the planting often million seedlings in 1984; plantings could reach 42 million seedlingsby 1991 at a total cost of US$12 million for the period (paras. 4.93-4.97; 7.4).

19. Only modest investments are suggested for the refinery, tocover debottlenecking, repairs and replacements and the reduction ofinternal fuel consumption and losses. These investments (amounting toUS$10 million) are needed urgently to secure the safe and continuedoperation of the refinery and they have a short payback period (paras.4.7-4.14; 7.5). 51

20. The investment estimates in the preceding paragraphs aresawmmarized in Table 3; they should be regarded as tentative. They implya level of investment in the order of US$635 million in 1983 prices forthe period through 1991, i.e., less than US$80 million p.a. Thiscorresponds to about 2% of estimated 1983 GDP, which is reasonablecompared with other developing countries (para. 7.7).

Technical Assistance Requirements

21. BiLateral and multilateral agencies are already providingconsiderable amounts of foreign aid to the energy sector in Tanzania.Nevertheless, the mission identified a number of areas where furthertechnical assistance is required to assist Tanzania in defining andanalyzing the appropriate investment options and policy measures. Suchassistance should, whenever possible, emphasize training and the use ofTanzanian counterpart staff.

5/ Financing from the Italian Government is likely to be forthcomingfor some of these refinery investments.

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22. Feasibility studies should be initiated without delay for theconstruction and financing of a gas pipeline from Songo Songo to Dar-es-Salaam. While the objective would be to introduce natural gas as asubstitute for fuel oil in the industrial market, the sizing of thepipeline must take into account a possible use for natural gas as a fuelin power generation. Furthermore, the possibility of using compressed orliquified natural gas (CNG or LNG) as a substitute for gas oiL andgasoline in the transport sector is worth pursuing and should besupported by a preliminary feasibility study; if the study confirms thepotential for CNG or LNG, technical assistance is recommended for a pilotproject and full feasibility study (paras. 4.51-4.52; 7.11).

Table 3: ESTIMATED PUBLIC INVESTMENT REQUIREMENTSFOR PRIORITY OPTIONS TO 1991

(USS milLion, 1983)

Natural Gas- securing and protecting existing

Songo Songo wells 4- field development 6- transmission pipeline- secondary distribution 5- plant conversion 6

Subtotal 66

Electric Power- ongoing works 139- Power IV (ongoing) 196- reinforcement/rehabilitation and export 169- 60 MW gas turbines 30

Subtotal 504

Forestry- urban 32- rural 12

Subtotal 7Z

Refinery 10Industrial Energy Conservation 3Coal 8

Subtotal 21

Total 635

Note: Estimated investment requirements in this table are below thosein Table 7.1 since the former does not include certain lower-priority investment. The projected investments in gas woulddepend on the outcome of the feasibility studies in paras. 16 and22.

23. IDA resources included in the Fourth Power Project provide agood basis for tackling many of the issues faced in the power subsector:however, the study of long-range electric power development must examinecarefully the natural gas option for future power generation, along with

other possibilities; and in allocating the funds provided to rehabilitateTANESCO's power facilities, provision should be made to operate theUbungo station with natural gas in the event that it becomes available inDar-es-Salaam (paras. 4.54-4.60; 4.66). Additional technical assistanceis recomended to: review the present system of gathering hydrologicaland other related data; hire a water management expert to investigate theoperation of the Kidatu and Mtera reservoirs; rehabilitate the threesmall hydroelectric stations on the Pangani River; and finance dieselexperts to assist in carrying out the rehabilitation of some of thelarger generating stations in the isolated systems and to provide basictraining in the maintenance of diesel units (paras. 4.61-4.69; 7.12).

24. While some localized surveys of Tanzania's forestry capitalhave been conducted -- notably in Kilimanjaro, Tanga, Kilombero andTabora with Canadian assistance - no national forest inventory has beenmade to provide an accurate estimate of total forest resources: conseq-uently there is no reliable basis for planning. As a matter of highpriority, a national forest inventory should be carried out, supported byexternal technical assistance; it would need to be implemented on a con-tinuing basis, in order to assess the rate of deforestation over time andthe degree of success afforded by afforestation measures (paras. 2.31;7.13).

25. Despite the lack of a comprehensive national forest inventory,the present extent of the deforestation problem and the vital role playedby fuelwood in Tanzania's energy picture make it clear that urgent mea-sures are necessary to preserve and upgrade the forest resource.Technical assistance should support further investigation of the growthdynamics, productivity and utilization of the miombo forests,plantationing methods and the introduction of new species and fastregeneration techniques (paras. 2.33; 4.91-4.97; 7.13).

26. The mission recommends two important policy measures in theinstitutional area: the creation of a new gas entity and a planning teamof energy specialists (paras. 6.29-6.36). While a management study ofTPDC was compLeted in March 1982, there is the need for a follow-up studydevoted solely to resolving the issue of an institutional framework forgas and the associated manpower and training needs; technical assistancewould also be necessary to help with the implementation of a trainingprogram (para. 6.39). The expatriate advisers who would initially formthe core of the energy planning team -- at least for two or three years- would need to be funded by externaL donor agencies (para. 7.17).

27. The mission sees no immediate priority for domestic coaldevelopment, which will not be competitive with gas in Dar-es-Salaam;neither does it seem competitive with fuel oil at distances much beyond300 km from the coal-producing areas (paras. 4.83-4.87). Nevertheless,technical assistance should supporc two studies: the first would deter-mine more accurately the economic costs of delivering coal to theprincipal markets; the second wouLd examine in detail the coal marketwithin the Mbeya area, where coal should be competitive with other fuels

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(notably fueL oil and fuelwood) (paras. 4.88; 7.13). These studies,together with the results of the ongoing IDA Coal Engineering Credit,would provide basic information for eventually calculating the economiccost and value of coal; and decisions on possible future development(para. 5.18).

28. Outside technical assistance is required to provide furthersupport to TIRDO to continue with its work on industrial energyconservation. Such assistance could also help with a follow-up energyaudit program, the implementation of energy conservation measures whichrequire foreign exchange and the provision of advice to Government on theinstitutional aspects involved in establishing a coordinated energy con-servation program (para. 7.16).

Implementation of Options: A Scenario

29. The mission has worked through an illustrative demand/supplyscenario for the commercial energy subsector, using 1986, 1991 and 1996as reference years. Commercial energy demand was projected on theassumption that the SAP would be successfully completed, leading toadditional inflows of foreign exchange, starting in 1984. Commercialenergy supply was analyzed on the assumption that the key optionsidentified by the mission would be implemented. It was concluded thatmodest additional demands for coal could be expected -- primarily toprovide for Mbeya Cement Plant -- and satisfied from existing plans;electricity demands in the interconnected system could be met entirelyfrom hydroelectric sources and gas-fired plant throughout the projectionperiod under normal hydrological conditions; and gas substitution forpetroleum products could amount to 123,000 toe and 153,000 toe by 1991and 1996 respectively (equivalent to US$19 million and US$33 million p.a.respectively at constant 1981 prices). Petroleum products would still berequired for power generation in the isolated systems and to meet certainother demands, notably transport. The end result, with regard to productimports and exports, crude oil imports and the balance of payments issuimmiarized in Table 4. This shows that, even with the implementation ofthese key options, net imports of petroleum can be expected to increaseby 72% in physical terms between 1981 and 1996 and by 92% in value termsover the same period (paras. 4.108-4.111; Tables 4.8 and 4.9). The largeincrease in fuel oil exports over present levels (450%-600Z compared with1981) suggests that the economic options of maintaining the refinery inoperating condition or closing it down will need to be reexamined as thefacts become clearer regarding demand and prices in the internationalfuel oil market and the speed and extent of natural gas penetration.

30. The mission did not develop an equivalent quantified energybalance for the future with regard to the non-commercial energy subsectordue to the problems of measuring the impact of pursuing the variousoptions which have been identified. Even so, it is easy to see that anyplausible demand/supply scenario would demonstrate continueddeforestation. The estimated excess of fuelwood cons3umption over thesustainable supply of fuelwood in 1981 was 23 million m (para. 3). The

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mission projects that fuelwood consumption is likely to increase by 70Zover the period 1981-1996; while the projected savings from fue woodconservation are unlikely to amount to more than 3.5 million m by1996. At the same time, the mission concluded that the resources of theForestry Directorate and the- Government's funding capacity wereinsufficient even to eliminate the existing fuelwood deficit in urban andrural areas; hence the mission was constrained to recommend a program forestablishing urban energy plantations and extending rural woodlots whichis a bare minimum based on a rough judgement about Tanzania's forestryimplementation and funding capacity. The program would at best onlymatch the present deficit in urban areas -- and this with a lag -- withno provision for additional needs, while in rural areas even the presentdeiicit could not be met. The degree of overcutting in Tanzania will inconsequence increase; the only real question concerns the speed at whichthis takes place. This can only be mitigated by forced additional con-servation measures through increases in fuelwood prices and the distancesover which fuelwood must be carried (paras. 4.114-4.115).

Table 4: ILLUSTRATIVE PROJECTIONS OF PETROLEUM PRODUCT IMPORTS ANDEXPORTS AND CRUDE IMPORTS

(thousand toe)

1981 1986 1991 1996

Petroleum Product Imports (Exports)Gasoline 14 (16) 25 89Gas Oil 169 129 215 353Industrial Diesel Oil - 11 34 67Fuel Oil (55) (116) (189) (150)Other petroleum products 94 53 101 176

Net Petroleum Product Imports 222 61 186 535

Crude Imports 544 750 750 750

Total Net Imports- Quantity 766 811 936 1,285- Value (US$ million) 237 194 274 450

31. The mission concludes that bold, urgent and decisive measuresare required in the energy sector in Tanzania in the immediate future.These measures must cover both policy decisions and investment projectsand entail appropriate support from overseas technical assistance.

I. ENERGY AND THE ECONOMO OF TANZANIA

Recent Macroeconomic Situation

1.1 Tanzania has a land area of 945,000 km2 of which 498,000 km2 isarable (52Z). Its 1981 population was estimated at 19.1 million andgrowing at 3.3Z p.a.; 89% of the population is rural while the remaininglZ is concentrated in towns which, apart from the coastal region, arerelatively remote from each other. Sixty percent of the rural populationis estimated to be living below the absolute poverty income level ofUS$109 per capita. Agriculture is the mainstay of the economy; its sharein GDP is about 52%, while that of industry is 17Z 6/; the balance (31%)is accounted for by the services sector. Agriculture also provides 80Oof exports and 90% of national employment.

1.2 From independence in 1961 throughout the decade, the countrymanaged to achieve significant improvements in meeting the educational,health and other basic needs of the population. There was also satisfac-tory performance in the macroeconomic sense, with real CDP growing at4.4Z p.a. from 1966-72 and investment by nearly 20% p.a. Unfortunately,this was accompanied by relatively slow growth in the productive sector,especially agriculture (which grew by only 2.3Z from 1966 to 1973).

1.3 Since then, Tanzania'a economic situation has continued to de-teriorate. The economy has undergone a structural change away from themonetary productive sector into the subsistence and public services sec-tors. In 1982, per capita GDP in current terms fell by 10 7/ agricul-ture declined by 8.7% and industrial output fell by nearly 25Z while theservices sector recorded an increase.

1.4 As a result of the contraction in the agricultural and indus-trial sectors, export volumes declined. 8/ The situation was furtherexacerbated by declining international commodity prices for Tanzania'smain exports, and rapidly rising prices for essential imports, especiallypetroleum. As a result, terms of trade suffered losses of 2-3% p.a.between 1978 and 1982 (in spite of severe cutbacks on imports) and the

6/ Industry covers manufacturing, construction and mining.

7/ In 1982, per capita GDP fell to US$263 from US$291 in 1981. Thesecalculations were made using market prices and with officialexchange rates as the deflator.

8/ Exports of coffee, cloves and tea have stagnated between 1976-1982;cotton exports felL by 60%; sisal by 45Z; cashew nuts by 90Z; andtobacco by 47X.

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external current account deficit amounted to US$606 million by the end of1982.

1.5 Although Tanzania received substantial import support fromforeign aid sources during the period, 9/ a high and increasing per-centage of this aid was "tied" to specific projects. This meant thatTanzania was overwhelmingly dependent on its own reduced export earningsto provide "free" foreign exchange i.e., funds to finance essentialrecurrent imports to revitalize its agriculture, industry and transportsectors (Table 1.3). The shortage of foreign exchange has resulted infalling agricultural production; poor maintenance of existing infrastruc-ture; and low capacity utilization in industry.

1.6 To deal with the economic crisis, the Government successfullynegotiated a Stand-by Credit Agreement with the IMF in 1980 (for up toUS$235 million in two years) with emphasis on restriction of domesticcredit expansion; reduction in debt payment arrears; and eventual agree-ment on an appropriate exchange rate policy. The Government alsolaunched a structural adjustment program (SAP) in November 1982, based ona report by the independent Tanzanian Advisory Group (TAG) which wasfinanced by an IDA Technical Assistance Credit. Its main objectivesare: (i) to reduce the rate of inflation through adjustment of thegovernment budget; and (ii) to achieve balance-of-payments adjustment toalleviate the scarcity of foreign exchange and consequent under-utili-zation of domestic production capacity. The main strategies are:(a) provision of incentives and support for exporters; (b) cutbacks inspecific future government recurrent and development expenditures;(c) rationalization of producer and consumer pricing policies; (d) in-creased efficiency in transport and marketing services; (e) stimulationof development of alternative domestic sources of energy while econo-mizing on the use of imported fuel; and (f) to ensure the effective useof external assistance.

1.7 However, important decisions still remain to be taken onmatters such as the exchange rate and real adjustment of agriculturalprices as well as preparation of specific action programs in key sectors(e.g. transport) which would have a measurable impact on production.Discussions with the IMF on a possible second standby arrangement havenot yet been concluded.

1.8 Tanzania will continue to face a very difficult situation -- onboth the domestic and external fronts - over the next three to fiveyears. To avoid further stagnation of economic activity and decliningper capita GDP, it will be necessary to continue emphasis on export per-formance, improved capacity utilization and import substitution whereverpossible. In this context, the discovery of significant quantities ofnatural gas off the coast presents Tanzania with some options which could

9/ 60% of total imports in 1982.

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materially influence future macroeconomic developments through theireffect on the foreign exchange situation. Investments in natural gascould lead directly to increased export revenues through fertilizer ex-ports (para. 4.41) or a reduction in import expenditures through substi-tution for petroleum products imports (paras 4.35; 4.38; 4.112). It willbe necessary to ensure that these investments are made in a way that willlead to the optimal utilization of the nation's gas resources.

Overview of the Energy Sector

1.9 In 1981, Tanzania's final energy consumption totalled about 9.0milLion toe of which 92% was in the form of fuelwood and charcoal IO/ andthe balance of 8Z was provided by hydroelectricity, coal and imported pe-troleum products (Table 1.1). The largest consuming subsector was house-holds (85%); followed by industry (10X) and transport (4%). The overallper capita consumption was estimated to be about 470 kgoe, comparable toother developing countries at similar levels of per capita income. ill

1.10 The gross supply of primary energy in 1981 amounted to about10.4 million toe, made up as follows (in thousands of toe): fuelwood,9,400 (90.4%); hydroelectricity, 180 (1.7%); crude oil 521 (5Z); andimported petroleum products, 277 (2.7%). A major part of the differencebetween gross supply and final consumption was caused by the substantialconversion losses involved in charcoal production (4 toe of dry fuelwoodto produce 1 toe of charcoal). Losses at the petroleum refinery werealso significant: 7-8Z as compared to worldwide refinery industry aver-ages of 3.5-4%. The energy balance in Annex 1 gives the gross supply,stock changes, conversion losses and net domestic consumption of energyin 1981.

Commercial Energy Sources 12/

Ceneral

1.11 In 1981, total consumption of comercial energy (8% of totalenergy consumption) was about 0.7 million toe or 38 kgoe per capita. The

10/ Fuelwood and charcoal are classified as non-commercial energysources.

11/ For example, Sudan 324 kgoe; Uganda, 350 kgoe (1980); Kenya, 430kgoe (1979); Zimbabwe, 720 kgoe (1980).

12/ The definition of commercial energy may be misleading, in that largequantities of fuelwood and charcoal are traded coimercially, but itis retained in accordance with convention and to facilitate inter-country comparisons.

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per capita consumption is low, even by African standards e.g., the comrparable figures for Kenya (1980) and Sudan are 120 kgoe and 58 kgoerespectively. Imported petroleum accounted for 91.6Z of 1981 commercialenergy consumption while hydroeLectricity contributed only 8Z and indi-genous coal only 0.4%. This demonstrates a high degree of reliance onimported commercial energy. The largest consumer of commercial energywas transport (51X); followed by industry (25Z); households (122); com-merce (62); agriculture (52) and others (1X). The minor share of con-sumption by households is a reflection of limited access to electricity(Para. 1.18) and a suppressed demand for cooking kerosene (Para. 1.14).Agriculture is also a minor consumer due to the relatively low level ofmechanization.

Table 1.1: FINAL ENERGY CONSUMPTION, 1981

(103 toe)

Electri- Petroleum ShareFuelvood Charcoal Coal city Products TotaL (2)

Industry 600 150 2 34 143 929 10Commerce - - - 12 30 42 0.5Ttansport - - - - 372 372 4Households 7350 200 - 13 76 7,639 85Agriculture - - - 33 33 0.5Other - - - 10 10 0.5

Total 7,950 350 2 59 664 9,025 100Share (Z) 88.1 3.9 0.0 0.6 7.4 100

1.12 Petroleum. Between 1975-82, total consumption of petroLeumproducts grew at an average rate of only 0.62 p.a. (Table 1.2) comparedto CDP growth of 3.0O per annum in real terms over the same period. Infact, total consumption has actualLy fallen in the last two years.

1.13 The stagnation was due primarily to a lack of foreign exchangeto purchase crude oil and petroleum products (para. 1.5); reduced eco-nomic activity; and underutilization of available capacity in transportand industry, which are the main consumers of petroleum products. In1981, the transport sector accounted for 562 of petroleum consumption;industry (222); commercial (5x); domestic (11%); agriculture (5x); andpower generation (12). Although the energy assessment mission did notquantify the scope for energy conservation in the transport sector, thepossibilities are obviously large in view of the high proportion ofpetroleum products consumed by transport, especially of gasoil bytrucks. The mission strongly recommends further study of energy

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conservation in transport using the assistance of the Energy SectorManagement Assistance Program.

Table 1.2: CONSUMPTION OF PETROLEUM PRODUCTS, 1975-82

(103 tons)

AverageAnnual

Product 1975 1978 1980 1981 1982 Growth(Z)

LPG 5.5 5.7 5.8 5.9 5.4 -Av. Gas 3.6 3.3 1.8 1.6 1.6 -10.9Gasoline 104.9 105.7 113.6 111.7 120.4 1.9Kerosene 68.5 96.8 77.5 75.5 68.9 -Jet 24.0 28.0 51.6 49.7 37.7 6.8Gas Oil . 205.1 218.0 259.3 242.6 243.7 2.5Industrial 2.

Diesel Oil 56.2 53.0 56.6 54.0 51.2 -1.3FueL Oil 143.8 115.1 119.2 122.3 109.1 3.9

Total a/ 611.8 625.6 685.6 663.2 638.0 0.6

a/ May not be exact with column totals due to rounding.5/ A mixture of gas oil and fuel oiL in a ratio of 97:3.

1.14 Although the average annual growth in gasoline consum ption(1.9X) exceeds the growth of petroleum products as a whole, it isbelieved that there is a supressed demand due to Government fiscalmeasures and rationing policy (para. 1.15). Similarily, gas oil isbelieved to be in short supply in the transport sector, even though itregistered the highest annual growth (2.5%). Kerosene consumption in1982 was actually lower than in any year since 1975. This gives a clearindication of an acute shortage of kerosene, especially given the annualpopulation growth (3.3%). 131 Availability of jet fuel dropped during1982 forcing some foreign airlines to cut back on flights to Tanzaniawhile Air Tanzania reduced its frequency of domestic flights. Consump-tion of industrial diesel oil and fuel oil declined over the period -

indicating reduced activity in the industrial sector. In so far as thereis suppressed demand for petroleum products, it is difficult to determinewhat part is due to (a) the general stagnation in economic activity and(b) the lack of foreign exchange to purchase crude and refined pro-ducts. 14/

13/ Kerosene is virtually unobtainable outside Dar-es-Salaam.

14/ Kerosene is a notable exception in that the lack of consumptiongrowth is due almost entirely to restricted supply.

1.15 At present, Tanzania has no indigenous supply of petroleum andimports all its oil requirements. Although petroleum is only 7Z of totalenergy consumed in 1981, it accounted for 91% of commercial energy andthus has a big impact on the monetary sector of the economy. In responseto the oil crisis of 1973/74 and 1979, the Government introduced controlssuch as restricted weekend driving and gas oil rationing which helped tosuppress the growth of petroleum imports (Chapter IV). However, therelative share of petroleum (crude and refined products) in totaL importshas been growing since 1978 (Table 1.3). At the same time Tanzania isfacing an increasing shortage of "free" foreign exchange to financerecurrent imports of which petroleum is a major constituent (para. 1.5).

1.16 Already petroleum accounts for 50% of "free" foreign exchange;any increase in petroleum imports would mean a reduction of other vitalinputs for the agricultural and industrial sector (e.g. spare parts) withobvious implications for economic activity. At the same time, there is ashortage of petroleum products for transport purposes compounded bydistribution problems. The question is how to achieve an optimal balancebetween importation of petroleum products and other inputs necessary foreconomic revival, given the anticipated short-term continuation offoreign exchange shortage (para. 1.8).

Electricity

1.17 Electric power consumption in 1982 amounted to 706 GWh (or 8%of total commercial energy) as shown in Table 1.4. The per capita con-sumption was about 36 kWh, which is rather Low. 15/ This reflects thedepressed sta=e of the industrial sector and the limited access to elec-tricity (about 3% of the population). 161 Industry is the largest userof electricity, accounting for about 55Z of sales in 1982; domestic saleswere 25Z, commercial (19%); and public lighting less than 1%.

Table 1.3: PETROLEUM IMPORTS COMPARED TO TOTAL IMPORTS, 1976-82

1976 1978 1980 1981 1982

1. Petroleum imports (TSh million) 935 991 2,148 2,100 2,7012. Imports from "free" foreign

exchange (TSh million) 4,441 5,956 5,881 5,256 5,3133. Total imports (TSh million) 5,841 9,349 10,874 9,573 9,2464. (1) as a Z of (2) 21 17 36 40 515. (1) as a Z of (3) 16 11 20 22 30

15/ Comparable figures: 90 KWh (Kenya in 1980); 60 (Sudan in 1981); and22 KWh (Ethiopia).

16/ The Government plans to establish a new organization to acceleraterural electrification through development of renewable energyresources, such as mini hydropower plants.

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Table 1.4: TANESCO ELECTRICITY GENERATION AND SALES, 1977-82

Average AnnualGrowth Rates

1977 1980 1981 1982 1977-80 1980-82

Generation (Gwh)Interconnected System 540 686 715 720 8.3 2.4Isolated Stations 82 110 107 108 10.2 -0.9

Total 622 794 823 828 8.5 2.1

Sales (Gwh)Interconnected System 442 627 630 604 12.3 -1.9Isolated Stations 74 101 120 102 10.9 0.5

Total 516 728 750 706 12.2 -1.5

Maximum Demand (NW)Interconnected System 91 118 124 118

Apparent Losses(Grid Only) (Z) 22.2 9.4 13.5 19.2

Note: The apparent losses for 1980 and 1981 are almost certainly in-correct, probably due to an over-reporting of consumption. Ac-tual losses are likely to be in the order of 15%. The energybalance in Annex I has adjusted total 1981 electricity consump-tion accordingly and reduced each consumer category "pro rata."

1.18 Between 1977 and 1980, consumption grew rapidly at about 12.8%p.a. (Table 1.4). Since then, despite an increase in the number ofconnections and growing domestic sales, total consumption fell by 1.5Z asa result of the deepening economic crisis. This was caused by, amongother things, Lower capacity utilization, and project completion delaysand cancellations in the industrial sector -- the main consumer ofelectricity. 17/ As a result, total peak demand in 1981 was only 150 MWas compared to available capacity of 296 MW (Table 1.5). These develop-ments have important impLications for existing power demand projectionsand future systems expansion plans (paras. 4.54-4.60).

17/ Industrial load factors fell from 1977 average of 44Z to 38% in1981. Only 22% of new industrial power consumption projected for1982 was actually achieved, due to project completion delays andcancellations.

1.19 At present, the power supply system of TANESCO (vhich providesabout 98Z of total power generated) 18/ consists mainly of an extensiveinterconnected grid in the east and northeast of the country serving theprincipal load centers, including Dar-es-Salaam, Morogoro, Arusha, Zanzi-bar, Moshi and Tanga. This system derives its power from 5 hydropowerplants and 2 diesel stations in a 80:20 ratio. About 77% of the presentinstalled capacity is at Kidatu Dam, which supplies Dar-es-Salaam througha 22OkV single-circuit transmission line passing through difficultterrain. Any failure of this line would lead to a severe breakdown onthe system, whose vulnerability is a cause for concern (paras. 4.61-4.63). TANESCO also covers 15 isolated service areas throughout thecountry, but mostly located in the northwest (including Dodoma, Iringa,Tabora, Bukoba, Kigoma and Mwanza) 19/); the southwest (Mbeya, Songea andTukuyu); and the southeast (Mtwara, Lindi and Nachingwen). TANESCO 'stotal installed capacity of about 370 MW comprises 247 MW hydro and 133MW diesel and gas turbines (Table 1.5).

Table 1.5: TANESCO BASiC DATA, 1981

Length of Power lines (kwi) Number of PeakInstalled Available and Voltages (kV) Connections Demand

I) (M) (11)

Interconnected System 313.0 260.4 3,961 (220,132, 81,556 122

66, 33, 11-kV)

Isolated Systems: Northwest 44.1 28.0 551 (33, 11-kV) 19,261 20Southwest 7.1 6.0 163 (33, 11-kV) 6,634 5.7Southeast 5.5 2.0 165 (33, 11-kV) 3,472 2.0

Total 369.7 296.4 8 4,840 110,923 149.7

a/ The difference between Installed and available capacity is mainly due to deratingdiesel statFons.

Source: Staff Appraisal Report 4050-TA, Fourth Power Project, Tanzania.

1.20 The isolated stations depend mostly on diesel-powered generat-ing plants; many of these plants are in a dilapidated condition due tolack of spare parts and they operate at a limited load factor due to lackof fuel oil (para. 4.69). It is TANESCO's policy to extend the grid

181 The remaining 2% is produced by captive power plants owned byprivate companies and parastatals under license from TANESCO.

19/ Over 50% of total isolated system capacity is located at Mwanza.

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system to replace most of the isolated stations in the northwest andsouthwest regions by the end of 1988. The policy is expected to: lowerTANESCO's own operating costs; promote diesel fuel import savings (esti-mated at about 50,000 toe in 1988); and encourage more industries tolocate in the interior in line with Government policy. In addition,TANESCO hopes to replace some existing capacity at Bukoba by hydropowersupplies imported from Uganda (para. 4.72). At present, the grid systemhas been extended as far as Nufindi; and further extension to Mbeya isexpected by 1985 (para. 4.54). The connection for the proposed Mterapower station to the grid is also under construction. 20/

Coal

1.21 Sales of coal in 1982 amounted to about 7,700 tonnes -- lessthan 0.5X of total comnercial energy consumption. 211 This emphasizesthe relatively minor role played by coaL in Tanzania to date as shown inTable 1.6 below. Due to supply constraints and limited distributionfacilities, current consumption is confined to the Mbeya region where thecoal deposits are situated. 22/

Table 1.6: COAL CONSUMPTION, 1977-82(tons)

1977 1979 1981 1982

Tea estates 360 4890 3470 6450Tobacco 15 680 120 -Others al 305 340 530 690!beya Ceoent Plant - - - 580

Total 680 5910 4120 7720

a/ Local hotels, hospitals and rural industries.Source: STAMIOD

1.22 Up to the present, the local tea estates have accounted for 801of sales. However, Kbeya Cement Plant is expected to require up to60,000 tpa at full capacity. This has implications for future production(para. 4.108).

201 Financed by CIDA and the Italian Government.

21/ Per capita cansumption of coal in Tanzania in 1982 was 0.4 kg ascompared to 9.3 kg in Malawi in 1981.

22/ For example, the tobacco growers in the Iringa region no longer usecoal because of difficult logistics and high transport costs.

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Noncommercial and Other Energy Resources

1.23 As elsewhere in Sub-Saharan Africa, forestry resources supplymost of total energy consumption (92Z in 1981). Fuelwood accounted for96Z of noncommercial energy, while the balance (4O) was provided by char-coal. Total fuelwood use 23/ of 39.2 million mj in 1981 was equivalentto a per capita consump%ion of 40 kgoe (2.03 m ), which was averagecompared to Sudan (3.7 m ) and Malawi (1.7 m3 ). The breakdown of thetotal for Tanzania by main consumer category and by region is inAnnez 2. The household sector accounted for 91% of nonco.mercial energywhile rural industries consumed the remaining 9Z.

1.24 The rural areas (89% of total population) depend almost exclu-sively on wood fuel for cooking and heating. The average household usesabout 1.7 1 per capita exclusively for cooking. Continued overcuttingand depletion of forest resources close to population concentrations hasdramaticaLly increased the distance travelled and time spent in collect-ing fuelwood (average hauling distance is about 3km; and average time perhousehold spent is more than 75 man-days). The urban population includ-i3g small scale industries and service facilities use about 6.4 milliona: of wood mostly converted into charcoal. Supply of charcoal to urbanareas is unreliable and expensive due to transport bottlenecks and theincreasing remoteness of charcoal-producing forest areas from urbancenters. This has resulted in charcoal prices beyond the reach of manylow-income urban dwellers while substitutes for charcoal (electricity,kerosene, LPG) are either not available or even more expensive.

1.25 Cqnversion losses involved in charcoal production from wood arehigh - 12mJ of solid wood are required for 1 ton of charcoal - becauseof the low efficiency of the earth kilns us d in the process. Industrialuse of fuelwood is also inefficient -- 50m of wood or more required tcure 450 Kg of tobacco. This figure is far higher than in Malawi (20mJof solid wood per 500 Kg of sobacco) which is also wasteful. A moresatisfactory ratio would be 15m of wood for 450 Kg of tobacco. Further,most household stoves in Tanzania are inefficient in the combustion ofwood or charcoal. It is felt that improvement in these three specificend-uses could produce a significant reduction in current fuelwood con-sumption, thus decelerating the rapid depletion of forest resources.

1.26 Tanzania also has considerable biomass resources (e.g. woodprocessing wastes, agricultural residues, animal wastes, molasses andbagasse) as well as solar and wind energy resources, which are consumedalmost entirely within isolated agro-industrial enterprises. Therefore,these resources make a negligible contribution to national energy

23/ Includes wood used directly and in form of charcoal.

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consumption. 24/ To a varying extent, possibilities exist for theeconomic utilization of some of these energy resources for household andindustrial purposes, which would help to reduce the demand for fuelvood(para. 4.98-4.107).

241 Consequently, they are not included in the 1981 energy balance.

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II. ENRGY RESOURCES

Introduction

2.1 Tanzania's indigenous energy resources are large and diverse,but have not yet been explored and exploited systematically. Commercialenergy resources include abundant hydroelectricity potential, substantialcoal deposits and the recently discovered natural gas resources off thecoast. All these can play a useful role in the Government's strategy todevelop domestic energy resources with the objective of reducing thecountry's present dependence on imported petroleum products. Tanzaniaalso has an excellent forestry potential which must be carefullyhusbanded if it is to continue its important roLe in the noncommercialenergy sector. Other nonconventional energy resources, such as agri-cultural residues, could be exploited to make a bigger contribution toenergy consumption and there is evidence of both uranium and geothermalpotential.

Petroleum and Gas

Exploration Activities

2.2 Exploration activities have taken place in Tanzania for severaldecades although the volume of completed work is quite low. Sedimentarybasins with hydrocarbon potential are concentrated in two areas: (i) theinland Rift Valley basins to the west, in which the geology and petroleumpotential are relatively unknown; and (ii) the eastern coastal basins,where most exploration to date has been done.

2.3 The only completed exploration work in the Rift Valley area hasbeen a reconnaissance aeromagnetic survey carried out by the TanzanianPetroleum Development Corporation (TPDC). This has confirmed the exis-tence of a sedimentary basin whose geology, however, remains almostunknown, and petroleum potential speculative. Further exploration invarious parts of the Rift Valley system (such as the projected regionalaeromagnetic survey on Burundi, Rwanda, Tanzania and Uganda, beingfinanced by the World Bank and the seismic study of Lake Victoria by DukeUniversity) is therefore required before any assessment of prospects forindigenous petroleum resources can be made.

2.4 First exploration of the coastal sedimentary basins was byShell and BP from 1950 to 1961. Four exploratory wells were drilled, oneeach on Zanzibar, Mafia and Pemba Islands and one on the mainland southof the Rufiji River. None of these wells encountered oil or gas presencesufficient to justify further drilling and both Shell and BP surrenderedtheir exploration licenses by 1964. TPDC was estabLished in 1969 withexclusive control of all petroleum rights in the country (para. 6.11) and

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in the same year the Government granted AGIP an exploration licensecovering essentially the same areas relinquished by Shell and BP. Later,AMOCO joined the venture on a 50:50 basis. Four deep test wells weredrilled, including Songo Songo I which struck gas in 1974; but itsreserves were then considered uncommercial. ALl four wells were laterabandoned and AGIP/AMOCO relinquished the area surrounding Songo SongoIsland to TPDC in 1976, though retaining a considerable portion of thecoastal basin (see Map). Offshore, Oceanic and other consortium made upof Phillips, Getty, AGIP and Hispanic Oil carried out seismic surveys in1975-77.

2.5 After 1978, exploration reached higher levels of activityfollowing a Government decision to accelerate exploration and to encour-age private participation. TPDC carried out inland seismic surveys northof Dar-es-Salaam, and the Mafia Channel in 1980; on Mafia Island andZanzibar Channel in 1981 and 1983. 25/ TPDC's main drilling effort wasappraisal of the Songo Songo gas field in which significant gas reserveswere proved up (para 2.8): Wells SS 2, 3 and 4 in 1978/79, with coopera-tion from ONGC of India; Wells SS 5 and 6 in 1980/81, followed by WellsSS 7, 8 and 9 in 1982/83 under two IDA Credits cofinanced with theEuropean Investment Bank and the OPEC Fund for International Develop-ment. 261 Other TPDC wells were in the Kimbiji area (40 km south-east ofDar-es-Salaam) following a gas discovery at a well drilled in 1982 atKimbiji East with the assistance of the Government of Algeria. Twoconfirmation wells were drilled: Kimbiji Main I with the assistance ofthe OPEC Fund, and Tancan I offshore with Petrocanada InternationalAssistance Corporation as financier/operator. Although much valuablegeological information was obtained, no sizeable gas reserves have beenconfirmed in the Kimbiji area.

2.6 ACIP/AMOCO drilled the Kizimbani weLl south of Songs Songo in1979. The well was dry and AGIP/Amoco relinquished 9,250 k in 1980.They carried out a 1,500 km marine reflection seismic survey on theirremaining 13,950 km2 coastal/shelf area and struck gas in Mnazi Bay WellI in 1982 (para. 2.9). Amoco has now withdrawn from the partnership butnegotiations are underway concerning future exploration/developmentactivity, since AGIP's present license is scheduled to expire inSeptember 1985 unless another well is drilled.

2.7 Following enactment of the Petroleum Act (Expl ration andProduction) Shell was awarded in 1981 a total of 71,793 km along theRuvu Valley Basin, an inland extension of the main coasta'l sedimertary

25/ Mostly financed by the Government of Tanzania with some assistancefrom Norway.

26/ The First Songo Songo Petroleum Exploration Project IDA Credit S-27-TA, and the Second Songo Songo Petroleum Exploration Project IDACredit 1199-TA.

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basin, extending south from Dar-es-Salaam across the Rufiji River. Esso"farmed in" with a 40% interest in 1983. An on-going program of seismicacquisition was started in April 1982. Under its work commitments,Shell/Esso is to drill two wells by September 1985. International EnergyDevelopment iorporation (IEDC) was awarded, in 1981, an exploration blockof 12,750 km covering the northeast coast, the Zanzibar channel and partof the island; seismic coverage started in July 1982. Societe NationaleElf Aquitaine (SNEA) was awarded a seismic option in 1983 on a shelf areaeztending from the TPDC Songo-Songo block up to and including the Mafiachannel and island and negotiations regarding further exploration arescheduled to begin shortly.

Gas Resources and Petroleum Potential

2.8 At present, proven gas reserves at Songo Songo are 726 bcf(about 20 million toe). 27/ To obtain an idea of the relative magnitudeof these reserves, it can be noted that Tanzania's total couuercialenergy consumption in 1981 was 0.7 million toe; assuming deliverabilityat 70 umcfd, Songo Songo proven reserves alone are equivalent to Tan-zania's total domestic comercial energy needs for the next 30 years at1981 consumption levels (para. 1.11). Additional probable reserves atSongo Songo are estimated at 157 bcf and possible reserves at 223 bcf(Table 2.1). Further, a number of structures have been identified inareas surrounding Songo Songo by utilization of acquisition andprocessing techniques including true amplitude processing; as yetundrilled, these structures may each contain an additional 50-80 befrecoverable gas reserves, according to recent estimates. Additionalinvestment, on a priority basis, is required by several of the Soogo-Songo wells (para 2.5) to safeguard existing reserves. Offshore, wells 3and 4 require approximately US$1.8 million to implement protectionmeasures against corrosion and marine collision harards. Onshore, wells5, 7 and 9 are leaking gas; repairs are estimated at U14$2.0 million (para7.3 (a)).

2.9 The most recent significant gas discovery was by AGIP/AMOCO atMnazi Bay. Only one well has been drilled; the data therefore are uncer-tain and and confirmation drilling is necessary. Any prediction of gasreserves beyond the current conservative estimate of 609 bcf proved andprobable reserves remains speculative.

271 Songo Songo reserves certified by Exploration Consultants Ltd.(ECL); TPDC's exploration advisers, August 1983.

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Table 2.1: NATURAL GAS RESERVES(bcf)

Songo-Songo Mnazi Bay Total

Proved 726 23 7495Probable 157 586 743Possible 223 - 223

Total 1,106 609 1,715

2.10 No oil discoveries have been made to date perhaps due to thelow level of exploration activity. However, as the accumulation andinterpretation of existing and new seismic data procedes, a number of newstructures have been determined (and certain of the earlier wells foundto have been off structure). This, plus the fact that several oilcompanies are continuing exploration activities, indicates significantprospects for further gas and possibly oil discoveries in thecoastallshelf/off-shore basins.

2.11 Although the natural gas supply situation is favorable involume terms, the geographic distribution of identified gas reservespresents problems in planning development for utilization in alreadyestablished industries. Proven gas reserves at Songo Songo are 220 kmsouth of the main ccwmercial energy consuming market of Dar-es-Salsam.Nnazi Bay reserves are even further south (460 km from Dar-es-Salaam).On the other hand, uncertainty remains about the outcome of explorationactivities at Kimbiji (40 km from Dar-es-Salaam) or whether oil/gas willbe confirmed to exist in the exploration blocks adjacent to Dar-es-Salaam. 28/ Therefore, plans for gas utilization in both domestic andexport projects must be discussed not only in terms of availability butalso with regard to a gas transmission infrastructure which should beplanned with the flexibility to accomodate eventual changes in flows ofgas from sources to utilization (paras. 4.51-4.52).

Hydroelectric Power

Potential

2.12 Although a detailed inventory of all Tanzania's hydropowerresources is not available, a number of studies have been prepared byforeign consultants covering the major river basins and possible largehydropower projects (para 2.14). The total hydropower potential has beenestimated to be about 20,000 GWh per year, with about 4,000 Ki of

281 Shell/Esso and IEDC are conmitted to conduct test drilLing in thisarea by 1985.

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installed capacity, of which 247 NW has been developed and 80 MW is underconstruction at Mtera on the Great Ruaha River (see Map). This projectis being partly financed by IDA Credit 4050-TA as the Fourth Power Proj-ect. 29/ Its main objective is to increase the electricity generatingcapacity of TANESCO to meet growth in power demand through 1990, by sup-plying power to the expanded interconnected system (paras. 1.21; 4.54).

2.13 The harnessed hydropower potential in Tanzania is concentratedon the Great Ruala River at the 200 MW Kidatu Hydropower station (para.1.20). The other existing hydropower plants are at Nyumba Ya Mungu(8 MW); Pangani Falls (17.5 MO); KikuLetwa (1.2 MW)e and Hale (21 KW).In addition, there are about 20 mini-hydropower stations with a totalcapacity of around 1 MW. The notable features of Tanzania's hydropowerpotential are great concentration of the resources (66Z in two projects);limited number of medium size (100-300 NW) projects; and many potentialsites for mini hydropower development.

2.14 The river basins with major sites suitable for hydropowerplants are shown in Table 2.2 below. So far, more than 100 sites forhydropower development have been identified. In addition to potentialmajor hydropower sites, Tanzania has a number of sites suitable for mini-hydropower plants. International aid agencies are actively investigat-ing about 30 sites with a total capacity of 50 MS for possible develop-ment. 30/ It would be appropriate to compare such development againstthe provision of diesel-powered stations (paras. 4.55-4.60). Finally,there are many possibilities for the development of micro hydro schemesbut no organized action to this effect.

2.15 Hydropower Development Studies. Studies of hydropowerresources have been carried out to varying levels of detail; in general,for all major hydropower projects, feasibility studies have been preparedand for some of them project design memoranda are available. Threestudies are of particular interest, covering the Rufiji River, theKilombero and Luwegu Rivers and the Kagera River. Studies of mini-hydro-power plants need to be completed, particularly those in remote andisolated areas.

29/ Other agencies involved in financing the project include France,Germany (KfW), Italy, Kuwait Fund, Norway (NORAD), and Sweden(SIDA).

30/ Norwegian Agency for Development (NORAD); Swedish International De-velopment Authority (SIDA); and KreditanstaLt fur Wiederaufbau (KfW)of West Germany.

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Table 2.2: RIVER BASIN SITES FOR HYDROPOWER PLANTS

Potential FirmRiver Project Capacity Energy Status

(NW) (Cwh)

Rufiji Stiegler's Gorge 2,100 5,920 FeasibilityUpper and LowerKihansi - 285 1,024 Prefeasibility

Upper Rubin ji - 55 160Maddle Ruhind- 500 1,472Lower RuhindJ. - 130 392 "Ikondo - 340 1,165Taveta - 145 547Tosomaganga - 10 40Ibosa Hill - 35 134Nginayo Hill - 42 163Lukose - 130 477Kagera Rusomo Falls 60 Feasibility

Kishanda Valley 180 PrefeasibilityMara - 90 ReconnaissanceWami - 120Nkive - 160Rumbila -Rumakali -Songve - 50Ntembe - 60Kalambo -Malagarasi - 100

2.16 Rufiji River. The largest hydropower potential in Tanzania ex-ists where the Rufiji River passes through Stiegler's Gorge. Developmentof this site is has been studied in detail by Norconsult, Norway. 311The Stiegler's Gorge site can be developed in stages to provide hydro-power and flood control for irrigation purposes. In vi;'.w of the veryhigh capital costs for the dam and power facilities (first phase aboutUS$900 million; whole development US$2,000 million in base 1983 prices)and present expectation that electricity demand will grow slowly, it isnot likely that this project could be economically justified for powergeneration for internal consumption in the period up to the year 2000(para. 4.56). The Covernment has established the Rufiji River BasinAuthority (RUBADA) which is responsible for implementation and managementof the project (para. 6.10). The designing of the power project is nowsubstantially complete and some tender documents have been prepared. Inaddition RUBADA has completed a number of studies to determine the costsand benefits of the non-power multi-purpose aspects of the project, suchas flood control, tourism, fishing and irrigation.

31/ The project had previously been studied by F&O and Coyne & Bellier,France.

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2.17 Kilombero and Luwegu Rivers. The Kilombero river is the RufijiRiver's main tributary in the South-West and accounts for about 602 ofthe Bufiji river's discharge at Stiegler's Gorge. Two apparentLy excel-lent potentiaL hydropower sites exist at Kihansi. Their combined capa-city is 285 MW generating an average of 1,024 GWh p.a., but requiringback-up capacity in the system because of limited storage and largeseasonal flow variations. These projects represent important hydropowerpotential in Tanzania and have been investigated to a pre-feasibilitystudy level. They might be suitable for phased development after theMtera hydropower project subject to their comparison with gas-firedplants (para. 4.57). These projects deserve further attention andjustify initiation of their feasibility studies and projects designs.The projects could eventually contribute to covering intermediate powerneeds before the large Stiegler's Gorge project becomes manageable. Thefeasibilitity study for the power projects on KilomberolLuwegu riverswould represent an important input in the analysis of the Long-rangedevelopment program of the power subsector (para. 4.54).

2.18 Kagera River. The hydropower potential of this river, whichfords part of the borders with Burundi, Rwanda, and Uganda, can be de-veloped at three sites: Rusumo Falls, Kishanda Valley and Kakano.Rusuno Falls, for which feasibility studies have been carried out wouldbe the initial development to give river flow control and water storage.Development of the river would involve various international agreements.An agreement between Tanzania, Burundi and Rwanda for joint developmentat Rusumo Falls was signed in 1977. This river is in the remote north-west of Tanzania, far from main load centers and the development of itspotential depends on the neighboring countries.

Future Studies

2.19 Present accumulated knowledge about hydropower resources inTanzania is adequate for long-range power development planning. However,more detailed and updated project designs are required, especially forhydropower plants to be built in the 1990s; rhus MWEM and TANESCO shouldsecure preparation of detailed design and introduce a mechanism for up-dating of costs. Despite the numerous studies of Tanzania's hydropowerpotential, the planning of additional new hydro generation has beencarried out with insufficient lead time to ensure its optimal develop-ment. A complete inventory should be establi bed with individual hydro-power schemes ranked by merit taking full account of transmission coststo load centres, in such a way so that the in-entory can be rapidlyverified and/or modified when new information from subsequent studiesbecomes available (paras. 4.54; 7.12).

2.20 As to subsequent investigations, the Government needs to definea program of required studies up to feasibility and project designstages, together with cost estimates for the studies. The program shouldrank the studies a: to priority and timing of execution, taking intoaccount financial, institutional and other relevant constraints as wellas the findings of the proposed least-cost power expansion programs(para. 4.54).

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Sydrological Data

2.21 The status of gathering hydrologicaL, meteorological, climaticand topographical data requires an independent expert's review in orderto verify the appropriateness of the available data and to propose neces-sary improvements. Therefore, it would be advisable to hire a hydrolog-ical expert to review the present system of collecting hydrological andother data as well as the quality of river flow measurements in order tooutline a course of action to be taken by MWEM to ameliorate the systemof gathering, processing and utilizing hydrological data (paras. 4.70;7.12).

Coal

Resources

2.22 The occurrence of coal in Tanzania was first reported around1880. However, little systematic work was undertaken until about 1930.At that time, some reconnaissance geological mapping took place,principally in the southwestern part of the country (see Map). No addi-tional work took place until 1949, at which time the Colonial DevelopmentCorporation (CDC) was invited by the then Government of Tanganyika toevaluate coal deposits of the country with a view to their economic de-velopment. This program extended from 1949 to 1957 and extensive geo-logical investigations were conducted. These investigations which in-cluded diamond drilling in the Ngaka, Mchuchuma and Songwe-Kiwira coal-fields, established the presence of coal in significant quantities but nodevelopment was attempted because of the limited market prospects.Tanzanian coal resources are estimated at about 1,900 million tons ofwhich 304 million tons are considered proven.

Table 2.3: COAL RESOURCES(million tons)

Field Measured Inferred Total

Ketewaka-Mchuchuma 186.6 495 681.6Songwe-Kiwira 35.0 595 615Galula - 53 53Njuga 126 126Liweta - 34 34Ngaka 97.7 152 249.7Nbamba Bay - 29 29I4hukuku 19 19Ufipa 17-57 17-57Lunecha -_ _

319.3 1,520 -1,560 1,824.3-1,864.3

Source: STAMICO, June 1983.

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2.23 Since 1966, geological effort has concentrated on two of thesecoalfields: Songwe-Kiwira, where the coal is classified as bituminousweakly coking, low in sulphur and phosphorous, ash content of 25-30% andwith calorific value of about 5,500 kcal/kg; and Ketewaka-Mchuchuma. wherethe coal is of higher calorific value (about 7,000 kcal/kg). However,attention has been focused on Songwe-Kiwira, because of its relativeproximity to transport infrastructure and potential markets, when com-pared to Ketewaka-Mchuchuma. 32/

2.24 Two exploration projects have been undertaken in the past sixyears: a geological investigation of the Songwe-Kiwira coal field by ateam from the People's Republic of China and a study into the feasibilityof developing the Nchuchuma coalfield by a consortium of Dr. Otto GoldGubH, Rodeco CmbH and Saarberg-Interplan GmbH. The latter work wasfinanced by the Federal Republic of Germany (GTZ). The primary objec-tives were the development of these coals for use in conjunction with thenearby iron ore deposits. Both these exploration projects have recentlybeen completed. At the time, the iron ore projects were found to beuneconomic.

Production

2.25 Present coal production is limited to one small undergroundmine, the Ilima colliery (in Songwe-Kiwira), which has been worked since1953. Production has been about 10,000 tons per year but is constrainedby lack of diesel fuel and spare parts. It appears unlikely that theproduction will be exceeded this year despite the fact that pillar ex-traction is underway. The block is nearing the end of its life and willcease production by early 1984 if the present production rate is main-tained. Exploration is about to commence so as to define another blockof reserves adjacent to the existing block for early development. If theexploration proceeds on schedule a new production unit could possiblystart in late 1984 increasing to about 50,000 tpy by 1988 (para. 2.29).

Development Prospects

2.26 As part of its strategy of developing domestic energy resourcesto substitute for imported petroleum products and to reduce deforesta-tion, the Government is looking to the coal sector to substitute for fueloil in industry and power generation and for fuelwood and charcoal indomestic uses. Several development options are being considered toincrease coal production.

2.27 Apart from the proposed new mine at Ilima (para. 2.25), thereare two other potential sites for future coal production. Both sites arelocated in the Songwe-Kiwira coalfield which, out of the recognized

32/ Songwe-Kivira is 87 Km from TAZARA railway on an already existingroad, while Mchuchuma is about 260 km from TAZARA with no road link.

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coalfields in southwest Tanzania, appears to have most potential for com-mercial development in the foreseeable future (para. 2.23). Detailedexploration of the Ivogo Ridge area of the Songwe-Kiwira coalfield(implemented and financed by the Chinese Government) has been completedand the results have been presented to Tanzania. This underground coalmining project is reportedly scheduled to commence production in 1986reaching full production of 150,000 tons per year in 1988. There is atpresent no reason to doubt this schedule.

2.28 An IDA Coal Engineer_ang Credit is presently financing theexploration of another site in Songwe ICiwira, Kabulo Ridge, which appearsto be an excellent prospect for development of an open-pit coal mine pro-ducing low grade coal suitable for industrial consumers and for powergeneration at lower costs than would be involved in an undergroundmine. The project's objectives are to provide the government with up-dated geological data on Kabulo Ridge; and to complete a feasibiLitystudy for a mine development if exploration results so warrant. It istoo early to postulate a firm production schedule, should an open-pitmine materialize; however, earliest production would probably be in 1990with an ultimate capacity of up to 300,000-500,000 tpy depending ondemand.

2.29 Table 2.4 sulmmarizes the production capacity which could bedeveloped in Tanzania up to 1990. Production costs for the proposed newIlima mine and the potential open-cast mine at Kabulo Ridge are expectedto range between US$25-30 per tonne of coal. 331 No information isavailable about expected production costs At the underground Ivogo Ridge(Kiwira) mine. However, it is reasonable to assume that these costs willbe in a higher range than those in Ilima or Rabulo, since mechanizedunderground mines are usually more expensive than open-cast mines.

2.30 Full production, however, will depend on the identification ofreliable buyers for the coal. The coal fields are relatively remote fromthe main energy-consuming centres - Mbeya is the only sizeable townwithin a 300 km radius -- and transport costs in Tanzania are high.Also, coal has not been available in sufficient quantities to make animpact on the general energy scene -- there is little awareness of coalusage tecbniques, apart from existing consumers of coal (para. 4.82-4.88). It will take a high level of coordination between the Government,coal-producing bodies, the transport sector and the industrial sector toachieve optimal use of Tanzania's domestic coal resource.

33/ 1982 prices.

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Table 2.4: POTENTIAL PRODUCTION CAPACITY('000 tonnes)

1983 1984 1985 1986 1987 1988 1989 1990

Ilima 10 5 10 20 30 50 50 50Ivogo -il nil nil 10 80 150 150 150Kabulo nil nil nil nil nil nil nil 50Total 10 5 10 30 110 200 200 250

Fuelwood

Resources

2.31 Tanzania has approximately 440,000 km2 of forestry resources(40Z of its land area). They are composed of 43.2 million hectares ofnatural miombo forest; nearly 950,000 ha of closed tropicaL forests;about 29,000 ha of planted trees in individual or communal woodlots andin schooLs; and about 60,000 ha of softwood and 6,000 ha of hardwood onindustrial plantions. The figures for the natural forest resource arebased on inventories in a few areas and have therefore a limitedaccuracy. 34/ Since no national forest inventory has been made to verifyestimates, there is no reliable data base for forestry planning purposes.A national forestry inventory should therefore have a high priority(para. 7.13).

2.32 Theoretically the potential annual fuelwood production of theseforestry resources is in the order of 20 million m3; in 3practice, theactual fuelwood supply is much lower at abou= 16 million m (Table 2.5).There are three principal reasons. First, many of the forests are rela-tively remote from populated areas (para. 1.26). Thus, it is estimatedthat only 80% of the miombo forests are accessible for fuetwood coLlec-tion while the tropical closed forests (major producers of high valuesawn timber) are so remote from habitation that they are considered oflittle significance for fuelwood supply. Secondly, industrial planta-tions were habitually established in thinly-populated areas, where therewas less demand for agricultural land. Therefore the wood residuesproduced are of little use as domestic fuelwood, due to the long dis-tances from the plantations to potential consumers. However, the wood

341 Between 1971 and 1973, CIDA financed inventories in Kilimanjaro,Mtmara, Tanga, Kilombero and Tabora covering 2.8 million ha inreserved forest areas and 4.2 million ha in harvested forestareas. Jaakko Poyry carried out an inventory on 500,000 ha inAmani, Morojora, Handan and Kilombero.

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processing industries on the plantations could meet all their energyrequirements by using these residues if appropriate equipment wereinstalled (paras. 4.98-4.100). Thirdly, the Village AfforestationProgramme 35/ made a slow start. Communal woodlots were particularlyunsuccessful due to lack of interest. Individual woodlots and schoolplantations fared much better in that more interest was displayed by theindividual farmers and school children in planting and maintainingtrees. However, since most of these trees require seven years to reachmaturity, their impact on the rural fuelwood supply is still fairlysmall.

The Deforestation Problem

2.33 Annex 3 shows the annual sustainable amount of woodfuel supplycompared to actual consumption in 1981 on a regional basis. A summary isin Table 2.5, which shows the wide gap between the current level of fuel-wood consumption and the sustainable fuelwood production. The country iscutting two and a half times more fuelwood than the forests can supply ona sustainable yield basis. More than 23 miLlion m3 are taken every yearfrom the nation's forest stock depleting the equivalent of 0.5 million haof forest with severe consequences for further fuelwood supply and forthe ecological balance of the country. The Government is aware of theproblem and has already introduced some measures to counter the problem(para. 2.32). However, given the high population growth rate (3.3% p.a.)and the fact that over 90% of the population relies almost exclusively onfuelwood as a domestic energy source, further steps rust be taken imme-diately to slow down and ultimately halt deforestation (paras 4.91-4.95).

Table 2.5: ANNUAL SUSTAINABLE FUELWOOO SUPPLY,CONSUMPTION AND DEFICIT

Miombo Forest Woodlots Total Supply Consumption Deficit

(103 ha) (103m3/year) bl (103 ha) (10 m-/year) S/ (10 3m3/year) (103m3/year) (103 3*year)

34,549 15,064 29,069 524 15,593 39,103 23,510

a/ Does not include wood production of closed tropical forests and industrial plantations;miombo forest production is based on 80% accessibility.

b/ MAI (Mean Annual Increment) for Natural Forests = 0.5 m /ha.c/ MAI for Eucalyptus woodlots = 19 m3/ha.

35/ This program was launched by the Government in 1975 to help arrestthe rapid deforestation. Seedlings were provided by the ForestryDivision to villages and institutions to establish their ownfuelwood supply.

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Nonconventional Energy

Resources

2.34 Aside from fuelwood, Tanzania has considerable biomass re-iources in the form of forest residues, wood processing wastes, surplussoftwood, agricultural residues, animal wastes and sugar industry resi-dues. To a varying extent, possibilities exist for the economic conver-sion of these resources to energy for domestic and industrial purposes.Solar and wind energy may also offer some long-term potential but in thenear-to-medium term their applications are much more limited than bio-mass. While there is evidence of geothermal potential and uraniumdeposits, the mission sees no economic case for their development in theforeseeable future.There is also evidence of peat deposits in the Kageraregion which are being investigated.

Surplus Softwood, Forest Residues and Wood Processing Wastes

2.35 While most regions suffer supply deficits of fuelwood 36/ fromhardwood forests, utilization of softwoods for timber and pulp is wellbeLow the annual allGwable cut. The proportion of this softwood poten-tial that could be economically utilized for energy requirements amountsto some 200,000 m3 solid wood equivalent per year or about 23,000 toe 371per year after 1986 (Table 2.6). While this would make only a minorcontribution to overall supply (less than 0.3Z of estimated totalwoodfuel use in 1981), locally the utilization of such wastewood wouldhave a significant impact on overcutting. The major constraint toutilization of softwoods for fuel is the relative remoteness of softwoodplantations from population centers (para. 4.98).

Agricultural Residues

2.36 Coconut residues are probably the most significant agriculturalresidue in terms of potential energy. It is estimated that there areabout 120,000 hectares of coconut plantations along the coast and onZanzibar, Pemba and Mafia, which produced 175 million coconuts in 1980.This indicates an immediate potential for coconut shells and husks ofover 100,000 tons per year (28,500 toe), even after making allowance forcopra drying requirements. If improved techniques are applied to presenthectarage and the planned new hybrid plantations are established over thenext 15 years, the potential residues would roughly double to 200,000

361 "Fuelwood" in this context refers to wood from miombo forests andhardwood plantations, which constitute almost all wood burned inhouseholds or converted into charcoal.

37/ Assuming on the average, 2,670 kcal/kg and 0.6 tons/m3 for softwoodswith 40Z MC wet basis.

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tons (56,000 toe) per year. The stemwood from unproductive coconut treesis another potential fuel source estimated at 2.5 million tons (42,000toe) over a 20-year exploitation period (para. 4.104).

2.37 Cashewnuts yield large quantities of shells and husks which arepotential fuels. The projected capacity for 1984 is 113,60C tons of rawnuts, which could generate some 74,000 tons of residues per year. Afactory for producing 7,200 tons per year of briquetted charcoal in Dar-es-Salaam for export is expected to become operational soon (para.4M106).

Table 2.6: TOTAL WOOD RESIDUES AVAILABILITY

Annual AssumedPotential Utilization1986-90 Factor Availability

(,3) (Z) (toe)

Surplus Softwood a/ 500,000 20 16,000Logging Residues 70,000 40 4,500Processing Wastes 30,000 50 Z,400

Total 22,900

a/ From a SIDA study in 1982.

2.38 Maize residues are a waste disposal problem in the corn growingregions of Arusha, Tanga, Dodoma, Iringa and Mbeya. They are normallynot used for household cooking as they burn fast, are bulky and smoky. ASIDO/Twente University (Dutch) project was carried out to determine thefeasibility of using the cobs as fuel for small power gasifiers to runvillage grinding mills. The technical problems were considered manage-able but increasing capital costs and low utilization rates have combinedto make the systems uneconomic (para. 4.106).

Animal Wastes

2.39 Dung from animals could be converted to biogas fuel by anaero-bic digestion to supply an extra fuel resource for Tanzania. There isevidence of increased use of dried dung directly for fuel in wood-defi-cient rural areas but due to nitrogen loss this mode of utilization isobviously not to be encouraged. The theoretical potential is large:SIDO figures for 1980 indicate a cattle population of 14.8 million, 5.5million goats, 3.6 million sheep, 25 million chickens and about 10,000pigs. About 60Z of the cattle populaticn is concentrated in the regionsof Arusha, Mwanza, Mara, Dodoma and Tabora, most parts of which haveserious current or projected fuelwood deficits. Considering cattlealone, animal dung production would be about 50 million tons, if an

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average of 10 kg dung per head per day is assumed. However, the amwuntof dung that could be available for biodigestion is likely to be muchless if usage pattern, age of animals, ownership pattern, etc. are con-sidered. A conservative estimate of the potential indicates around 2.5million tons of collectible dung per year. Converted to biogas, theenergy production from this resource would be about 46,000 toe or roughly0.5Z of total fuelwood demand in 1981. Except for a few units in priv"cefarms, almost all of the existing 300 biogas installations in Tanzaniaare in institutions and community centers (para. 4.105).

Sugar Industry Residues

2.40 Bagasse produced from Tanzania's five sugar mills 38/ duringthe grinding season provides the main fuel for the mill boilers. How-ever, the present production rate of bagasse is not sufficient for theneeds of the mills and their associated plantations. Therefore there isno excess bagasse to generate additional electricity, e.g. for irrigationpurposes. 39/ Although a number of milL improvements could result inexcess bagasse, the grinding rates of the mills (even at full capacity)may be too low to justify the substantial capital investment needed toimprove plant efficiency.

2.41 Molasses is another by-product of sugar mills. Present produc-tion is about 70,000 tpy, of which 34Z ends up as waste. The Governmenthad intended to use this waste in an anhydrous ethanol plant to producegasohol. However, this project has been postponed, primarily because ofits narginal viability and lack of foreign exchangc for the large capitalinvestment (about TSh 160 million).

Solar and Wind Energy

2.42 Limited solar insolation and wind regime data indicate good po-tential for direct solar radiation. Aside from a few photovoltaic panelsused in repeater stations of the Tanzania Posts and TelecommunicationsCorporation and small-scale irrigation water pumping, there is no signi-ficant commercial use of solar energy at present. A number of experi-ments are being conducted by MWE and the University of Dar-es-Salaam inthe areas of water heating, pumping, distillation and cooking. There isprobably a more practical use for wind energy than solar energy throughsome 100 small water-pumping windmills currently installed throughout thecountry.

38/ Kilombero I and II, TPC, Mtibwa and Kagera.

39/ Tanesco is planning to supply electric power to Kilombero I and II.

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Geothermal Power and Uranium Deposits

2.43 There is evidence that Tanzania has geothermal resources.Typically, such resources can be expensive to deve'lop, they dischargesteam and hot water with a high mineraL content and they can become aserious source of pollution. In view of Tanzania's large hydroelectricpotential. and natural gas resources, the mission would not recommend anymajor expenditures to investigate or develop geothermal resources in theforeseeable future. Evidence also exists of uranium deposits. Eventu-ally, uranium might be exploited for export but it will not be economicalfor local use. 40/

Conclusion

2.44 In the medium term, the fuelwood resource will continue to bethe most important domestic resource for Tanzania's overall energy needsand more managerial effort and a higher budgetary allocation should bedevoted to its preservation. The natural gas reserves proved to datepresent an opportunity for Tanzania to become more self-reliant in comrmercial energy, should further exploration justify that a pipeline beconstructed to carry the gas to Dar-es-Salaam for use in industry andtransport. Additional hydroelectric capacity is not an immediatepriority in view of the ongoing Fourth Power Project; however some of theexisting capacity and the transmission and distribution network urgentlyneed major overhaul and rehabilitation. Coal and noncommercial energyresources (apart from fuelwood) can make only a minor contribution atpresent, although their respective roles can be expected to expand. Lackof long-term comprehensive data on solar insolation and wind regimes invarious parts of the country; the unavailability of proven and affordabletechnologies that could be disseminated; and the diffused intermittentnature of the resources themselves severely limit opportunities todisplace more easily handled conventional fuels.

40/ See "Energy Policy in Tanzania", Commonwealth Secretariat(Commonvealth Fund for Technical Cooperation), August 1980.

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III. DENAUD FORECAST SCUIARIOS

Introduction

3.1 A set of energy forecasts, covering the period 1981-1996 atfive-year intervals, has been produced, proceeding from the 1981 energybalance discussed in Chapter I. Total commercial energy demand wasprojected as a function of total real GDP (i.e. in constant 1978 prices),using a macroeconomic model; the share of electricity demand within thattotal was then estimated separately. The difference between the twofigures represents the demand which would have to be met from non-elec-tricity sources, i.e. from petroleum products, from coal and -- in thefuture -- from natural gas. However, as noted in Chapter I, the futurerecovery of the economy of Tanzania and its subsequent growth will dependcrucially on the outcome of the Government's structural adjustment pro-gram, which was launched in 1982, and on the availability of foreignexchange. Economic recovery will also entail improved management ofdomestic resources and a revitalization of exports. In view of theseuncertainties, the forecasts of comnercial energy demand employ twoalternative scenarios related to the underlying growth of the economy.The "SAP" scenario implies an average growth rate in GDP of 3.9Z p.a.over the decade 1981-91 and 6-7Z p.a. thereafter. The "Delayed SAP"scenario implies no growth in CDP until 1986, an average growth rate of1.8Z p.a. from 1986 to 1991 and 6Z p.a. thereafter. Noncomuercial energydemand currently consists almost entirely of fuelwood or charcoal. Asexplained in Chapter I, agricultural wastes and residues have not beeneffectively utilized by the population at large and in consequence werenot incorporated in the 1981 energy balance. Given the preponderance ofhousehold consumption in the total, it was postulated that the demand forfuelwood is mainly a function of population; the principal component ofnoncoumercial energy demand was then obtained from estimates of popula-tion growth, assuming a continuation of the present levels of per capitaconsumption. The relatively minor component associated with tobaccocuring was extrapolated from past trends, employing linear regressiontechniques.

3.2 Issues and options related to the supply of energy -- forexample, the extent to which natural gas and coal can be used to sub-stitute for petroleum products in meeting forecast commercial energydemands, the possible role of fuelwood plantations and the potential forincreasing the contribution of agricultural wastes and residues -- willbe considered in Chapter IV. The options available for influencingenergy demand - notably through interfuel substitution, appropriatepricing policies, industrial energy conservation and improved firewoodand charcoal stoves - are discussed in Chapter V.

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Total Conmercial EnerBZ

3.3 Projections of total commercial energy demand have been madefrom a macroeconomic model which assumes a 'SAP" scenario in whichTanzania undertakes a series of economic reforms which in turn aresupported by additional inflows of foreign exchange in 1984 (the firstyear of adjustment). The macroeconomic model then links CDP growth tothe free foreign exchange which is available for the purchase ofrecurrent imports, it makes the level of investment a function of theamount of project-tied aid inflows and it defines consumption as aresidual expenditure after deducting investment and net exports from GDP.

3.4 Aggregate GDP and investment projections are then estimated byapplying elasticities calculated from historical data to the free foreignexchange and tied aid respectively and considering 1984 as the first yearof adjustment. The results are in Table 3.1, which shows that aggregateCDP can be expected to grow rapidly in 1984, due to the fact that GDP hasfallen consistently for the last three years and the initial recovery canthus be expected to be fast. During 1985 and 1986, the growth rate ofCDP is 2X and 3X respectively; these are years in which rehabilitation ofthe export crops is carried out and output responds with a delay. Thereal recovery starts only in 1987, when exports reach about US$700 mil-lion in constant (1978) prices. By the end of the decade, CDP settles ata steady growth rate of 6Z to 7Z p.a.

3.5 Table 3.1 also breaks aggregate GDP into its sectoral compo-nents, by using historically observed shares and by exogenously specify-ing changes for future years reflecting the impact of the adjustmentprogram. The share of agriculture and industry increases while that ofthe social services declines.

3.6 Finally, Table 3.1 sets out projections of total commercialenergy demand by working from aggregate GDP through the following simplelinear relationship:

(Comuercial Energy Demand in toe) = (A) x (CDP in constant 1966prices)

The coefficient A is estimated from historical values at 0.066; therelationship implies an energy/CDP elasticity of one.

Table 3.1: PROJECTIONS OF NATIONAL ACCOUNTS AND COMMERCIAL ENERGY CONSUMPTION, 1984-1991 a/(TSh BILLIONS IN 1978 PRICES UNLESS OTHERWISE SHOWN)

1981 1984 1985 1986 1987 1988 1989 1990 1991

GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.2 41.3 43.7 46.9Indirect taxes 3.3 4.3 4.4 4.6 4,8 5.1 5.4 5.7 6.1GDP at market prices 35.3 37.7 38.5 39.6 41.9 44.4 46,7 49,3 53.0

Imports 7.9 7.1 7.3 7.4 8.0 8.5 9.2 9.8 10.6Exports 5.4 4.4 4.8 5.2 5.6 6,2 6.9 7.7 8.3

Investment 8.1 9.1 9.3 8.8 7.9 7.6 6.7 7.1 7.6Consumption 29.7 31.1 31.6 33.0 36.5 39.0 42.3 44.3 47.6

Growth rate of GOP (5) (7.0) - a/ 2,1 2.9 6.0 5,7 5.4 5.8 7.3

GOP at factor cost 32.1 33.3 34.0 35.0 37.1 39.3 41.3 43.7 46.9 °

Monetary GOP 25.0 26.6 27.6 28.7 30.8 33.0 34.7 37.1 39,9

Monetary GOP In agriculture - 6.5 6.8 7.4 8.5 9.4 9.9 10.5 11.3Monetary GOP In Industry - 2.0 2.4 2.8 3.3 3.9 4.5 5.2 5.6Monetary GDP In transport - 3.7 3.7 4.2 4.8 5.1 5.4 5.7 6.1Monetary GOP In Elec, & W. Supp, - 0,6 0.7 0.8 1.0 1.2 1.2 1.3 1.4Monetary GOP In construction - 1.5 1.5 1.8 1.9 2.0 2.1 2.2 2.3Monetary GOP In services - 12.2 12.4 11.7 11.2 11.4 11.6 12.2 13.1

Subsistence GOP 7.1 6.7 6.5 6.3 6.3 6.3 6.6 6.5 7.0

Commercial energy consumption(toe thousands) 725 812 830 855 906 958 1,008 1,065 1,145

g/ Aggregate GOP figures for 1983 are not available; therefore It Is dificult to compute GOP growth rate for 1984.

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3.7 It can be seen from Table 3.1 that the demand for commercialenergy increases from the current level of 725 thousand toe to 1,145thousand toe by 1991. Since -- under the adjustment scenario - theeconomy is expected to be in a steady state growth after 1990, energydemand is projected to grow at 6% to 7% p.a. from 1991. In the absenceof the adjustment which the "SAP" scenario assumes will occur from 1984- i.e. without the policy changes and without the supporting foreignexchange inflows - a "delayed SAP" scenario can be postulated in whichCDP remains stagnant at the present level and the total demand forcommercial energy also fails to grow for as long as the adjustment ispostponed. For the purposes of the demand forecasts, the "delayed SAP"scenario is taken as a situation in which the adjustment process isdelayed for five years and the projections of total commercial energyconsumption are, correspondingly, also lagged by five years. The result-ing projections of total commercial energy demand for the "SAP" and"delayed SAP" scenarios at five-year intervals to 1996 are summarized asfollows:

(Actual) -- (Projected)-1981 1986 1991 1996

"SAP scenario- demnd (103 toe) 725 855 1,145 l,569- average annual growth rate (Z)for each five-year period - 3.4 6.0 6.5

"Delayed SAP" scenario- demnd (10 toe) 725 725 855 1,145- average annual growth rate (X)for each five-year period - - 3.4 6.0

Electricity

3.8 An electricity demand forecast for the interconnected system(ICS) was prepared in 1982 at the time of the appraisal of the FourthPower Project. This forecast resulted in an average growth rate for theICS - including anticipated extensions to the north-west and south-westareas of the country - of 9.9Z p.a. over the decade 1981-91 and 52thereafter.

3.9 However, due to the continuing economic crisis in Tanzania, theactual demand figures for the ICS in 1981 and 1982 fell short of theforecast's expectations by 5X and 7% respectively. Therefore, themission has prepared an updated version of the Fourth Power Projectforecast, as shown in Table 3.2, by using actual power demand in the ICSfor 1981 and 1982 as a basis and an anticipated growth of 2Z during

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1983. 41/ After 1983, as the "SAP" scenario takes effect (para. 3.1),power demand in Zanzibar, the existing ICS and the anticipated extensionsof the ICS to the north-west and south-west areas of the country isassumed to grow at the rate of growth projected in the Fourth PowerProject forecast between 1984-93. Thereafter, the mission assumed totalICS demand to grow at 62 p.a.. This results in an average annual growthrate for the extended ICS of 7.4Z p.a.between 1981 and 1991 and 6.7Z p.a.thereafter. 42/ To obtain an electricity demand forecast for Tanzania asa whole, the mission has added a forecast of electricity demand in thosesystems which will remain isolated, also shown in Table 3.3. The basisfor estimating future demands in these isolated systems is not teliable;however, they accounted for only about 13X of total consumption in 1981and this proportion will decline significantly in the next three or fouryears, to perhaps onLy 3% in 1986. Such systems were therefore assumedto grow by the same rate as the existing grid (2Z p.a. in 1983; 6.7% p.a.in the decade between 1984 and 1993 and 62 p.a. thereafter). From Table3.3 the implied growth rates in electricity demand for Tanzania as awhoLe are 6.3% p.a. between 1981-91 and 6.7% from 1991-96. Although theforecasts were not derived explicitly from a set of macroeconomic pro-jections, it may be of interest to note that Table 3.3 leads to anelasticity of 1.6 between growth in electricity consumption and GDP overthe period 1981-91; thereafter, the figure falls to a little below unity.

3.10 The above-mentioned forecasts are primarily dependent on thesuccessful outcome of Tanzania's structural adjustment program and speci-fically on ezpansion of the industrial sector - the main consumer ofelectricity - by completion of new industrial projects and revitaliza-tion of existing industries tbrough increased availability of foreignexchange to purchase material inputS and spare parts. Should implementa-tion of the SAP be delayed, the industrial sector will continue to expe-rience low capacity utilization and deLays (and/or cancellations) incompletion of new projects; and implied low growth of demand for elec-tricity (para. 1.19).

41/ Actual interconnected system generation grew by 2.1% p.a. between1980 and 1982.

42/ The updated forecast uses a lower base (1981 actual demand was lowerthan had been expected) than in the Fourth Power Project forecastand does not assume significant growth until 1984.

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Table 3.2: PROJECTION OF ELECTRICITY GENERATION AND CONSUMPTION,1981-86

(GCh)

Generation ConsumptionInterconnected Isolated

Year System Systems Total Total

1981 715 107 822 7001982 720 108 828 7041983 742 102 844 7171984 816 93 911 7741985 884 90 974 8281986 1,015 31 1,046 8891987 1,092 33 1,125 9561988 1,175 35 1,210 1,0291989 1,264 37 1,301 1,1061990 1,362 40 1,402 1,1921991 1,467 42 1,509 1,283199-s 1,581 45 1,626 1,3821993 1,705 48 1,753 1,4901994 1,807 51 1,858 1,5791995 1,916 54 1,970 1,6741996 2,031 57 2,088 1,775

Crowth Rates1981-1991 7.5% p.a. 6.3% p.a.1991-1996 6.7% p.a. 6.7% p.a.

Notes:(1iFInterconnection is assumed to take place as follows: Iringa, Dodoma

and Mbeya - 1984; Shinyanga and Tabora - 1985; and Nwanza and Musama- 1986. However, more recent reports by TANESCO indicate the fol-lowing schedule: Iringa - 1984; Dodoma and Nbeya - 1985; Shinyanga -1985; Mwanza - 1987; and Tabora and Musoma - 1987. The change inschedule will affect the distribution of load between theinterconnected and isolated systems.

(2) Total generation is assumed to grow by 22 during 1983.(3) Consumption is derived from generation by assuming 15% losses in

transmission and distribution.(4) Recent information provided by TAJESCO shows that actual sales in

1983 were only 695 GWh. TANESCO's revised projections are 730 Glh -1984; 780 GWh - 1985; 852 GWh - 1986; 934 GWh - 1987; and 1,031 GWh- 1988.

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3.11 Therefore, the electricity demand forecasts in Table 3.2 areadopted as the "SAP" scenario; and a "delayed SAPn scenario is obtainedby lagging the "SAP" scenario for five years in accordance with themacroeconomic scenarios (see para. 3.1). The resulting projections aresummarized as follows at five-year intervals:

(Actual)1981 1986 1991 1996

SAP Scenario-- demand (GWh) 750 889 1283 1775-- average annual growth rate (X) - 4.9 7.6 6.7

for each five-year period

Delayed SAP Scenariodemand (CUh) 700 762 983 1419

-- average annual. growth rate (Z) - 1.7 5.2 7.6for each five-year period

Fuelwood

3.12 Total fuelwood consumption for Tanzania in 1981 was 39.2 mil-lion m3 of roundwood equivalent; Table 3.3 shows this consumption by mainuse and also distinguishes between firewood and charcoal consumption. Itcnn be seen that out of the total of 39.2 million m3, some 33.2 millionm was used directly as firewood and the remainder represented fuelwoodused to meet charcoal requirements, including fuelwood lost in the char-coaL conversion process. It can be seen further that the household sec-tor accounted for nearly 90X of total fuelwood use. For this reason, thedemand for firewood and charcoal has been projected to the year 1996mainly on the basis of anticipated population growth, assuming a contin-uation of the present levels of per capita consumption; however, theforecast for the tobacco curing subsector was made by extrapolating alinear regression of the time-series data from the period 1976-80. Theresults are in Table 3.3.

Table 3.3: ACTUAL A4PJFROJECTED CONSUMPTION OF FUELWOOD(10 m of roundwoood equivalent)

(Actual) - - - Projected - - -1981 1986 1991 1996

FirewoodHouseholds 30.6 36.0 42.7 50.9Tobacco curing 0.8 1.0 1.3 1.5Others 1.8 2.1 2.5 3.0

Subtotal (firewood) 335CharcoalHouseholds 3.5 4.1 4.9 5.8Tobacco curing - - - -

Others 2.5 2.9 3.5 4.2Subtotal (charcoal) Z84 77U 9.7 MTTotal FuelwoodFirewood plus charcoal 39.2 46.1 54.9 65.4

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Conclusions

3.13 The demand forecasts for total commercial energy, electricity,firewood and charcoal are brought together in Table 3.4, in terms of oilequivalents, along with the underlying projections for GDP and popula-tion. The item "other coomercial energy" is defined as total commercialenergy minus electricity. The same information is presented in Table 3.5in terms of the implicit annual growth rates by five-year periods. Itmust be emphasized that Tables 3.4 and 3.5 do not include demands fromany major new export consumers, such as fertilizers or methanol, whichasLe considered separately in Chapter IV.

3.14 According to Tables 3.4 and 3.5, per capita energy consumptioncan be expected to grow only slightly from the present level of 472 kgoeto 486 kgoe by 1996, under the "SAP" scenario; virtually no growth in percapita consumption would occur under the "delayed SAP" scenario. Percapita commercial energy consumption can be expected to increase somewhatmore rapidly - from 38 kgoe to 49 kgoe in 1996 -- under the "SAP"scenario, but it would actually fall if the "delayed SAP" scenario shouldmaterialize.

3.15 The implications of Tables 3.4 and 3.5 for Tanzania's balanceof payments and foreign exchange resources are more striking. Most sig-nificant is undoubtedly the component of commercial energy demand otherthan electricity, which at present is met almost entirely by imports,either in the form of crude oil or as petroleum products. Tanzania facesthe prospect that this component will more than double between 1981 and1996; even under the "delayed SAP" scenario, commercial energy demandother than electricity could increase by more than 60%. Unless majorefforts are made to extend the use of indigenous energy sources, in placeof imported oil, such increases will involve ever greater calls onTanzania's scarce foreign exchange resources. The future role of naturalgas in particular is clearly central to the formulation of a commercialenergy policy and the discussion of the uses of natural gas in domesticindustries and transport, presented in Chapter IV, takes on specialsignificance.

3.16 While currently Tanzania satisfies only a small proportion ofits electricity demand from imported petroleum sources, 431 the componentof commercial energy demand related to electricity also needs to beaddressed from the point of view of the balance of payments and foreignexchange. Tables 3.4 and 3.5 suggest that electricity demand willincrease more than twofold by 1996 under both scenarios. Further inter-connection of isolated systems to the main grid will permit fuller use ofindigenous hydroelectric resources and Tanzania should look towardsnatural gas as a possible feedstock in its power plants to minimize

43/ About 87% of generation was hydro-based in 1981.

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overall generating costs and fuel imports. These issues and options areanalyzed in Chapter IV.

3.17 Finally, the likely growth in both the electricity and non-electricity components of commercial energy demand means that it will bemore important than ever to ensure that consumers pay the full economiccosts of their increased consumption. The discussion of issues andoptions related to energy pricing policy and conservation in Chapter Vmust be viewed in that context.

3.18 The demand for noncommercial energy is assumed to depend mainlyon population growth, so that Tables 3.4 and 3.5 project the same overallincrease in noncommercial energy demand by 1996 -- in the order of 70Z -under both macroeconomic scenarios. Of course, demand will exhibit somesensitivity to the macroeconomic environment and the lower per capitaincomes implied by the "delayed SAP" scenario would have an impact onnoncomercial energy demand. However, the potential impact on demand ofimproved cooking staves -is judged to be more significant, as is theextent to which an imbalance between supply and demand will force con-sumers to travel greater distances to collect firewood. For thesereasons, the forecasts of noncommercial energy demand in TabLe 3.4 areconsidered a satisfactory basis for the analysis of the issues and op-tions in the noncommercial energy sector conducted in Chapters IV and V.

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Table 3.4: FINAL ENERGY CONSUWTION, GOP AND POPULATION1981-96 (Actual and Forecast)

8ase "SPA"I Delayed SAP"Year Scenario Scenario1981 1986 1991 199 1986 1991 1996

Demand (lO3 toe)Electricity 59 76 09 51 65 84 121Other commercial energy 666 779 1,036 1,418 660 771 1,024Total (commercial energy) 725 855 1,145 1,569 725 855 1,145

Firewood 7,950 11,200 13,300 9,400 11,200 13,300Charcoal 350 500 600 410 500 600Total (noncomoercial energy) 8,300 9,810 11,700 13,900 9,810 11,700 13,900

Total (all energy) 9,025 1.665 12,845 15,469 10,535 12,555 15,045

Per Capita Consumption (kgmo)Electricity 3 3 4 5 3 3 4Other commercial energy 35 35 39 44 29 29 32

Total (commercial energy) 38 38 43 49 32 32 36

Firewood 416 417 419 418 417 419 418Charcoal 8 18 19 19 18 19 19Total (noncoamercial energy) 434 435 438 437 435 438 437

Total (all energy) 472 473 481 486 467 470 473

GDP at Factor Cost (1978 prices)

Total (1O6TSh) 32.060 35,023 46,908 64,268 32,060 35,023 46,908Per capita (TSh) 1,675 1,555 1,756 2,021 1,424 1,311 1,475

Population (103) 19,137 22,519 26,712 31,804 22,519 26,712 31,804

Table 3.5: GROWTH RATES IN FINAL ENERGY CONSUMPTION, GDP AND POPULATION,1981-1996 (Actual and Forecast)

(% p.a. for each five-year period)

"SAP" "Delayed SAP"Scenario Scenario

1981-86 1991-91 1996-96 1981-86 1986-91 1991-96DemandElectricity 4.9 7.6 6.7 1.7 5.2 7.6Other commercial energy 3.1 5.8 6.5 -0.2 3.2 5.8Total (commercial energy) 3.4 6.0 6.5 0.0 3,4 6.0

Firewood 3.4 3.6 3.5 3.4 3.6 3.5Charcoal 3.2 4.0 3.7 3.2 4.0 3.7Total (noncormercial energy) 3.4 3.6 3.5 3.4 3.6 3.5

Total (all energy) 3.4 3.8 3.8 3.1 3.6 3.7

GDP at Factor Cost (1978 prices)Total 1.8 6,0 6.5 0.0 1.8 6.0Per capita -1.5 2.5 2.9 -3.2 -1,o 2.4Population 3.3 3.5 3.6 3.3 3.5 3.6

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IV. ENHICY SUPPLY AND IT ,ER-PUEL SUBSTITUTION

Introduction

4.1 At the heart of Tanzania's present economic difficulties liesan acute shortage of "free" foreign exchange; the shortage has contri-buted to falling agricultural production and low industrial capacityutilization (para. 1.5). For this reason, the availability of "free"foreign exchange played a central role in the macroeconomic model inChapter III and the projections of commercial energy demand whichresulted from it. Viewed in this light, the commercial energy sector asa whole and petroleum imports in particular are pivotal to Tanzania'sgrowth prospects. Petroleum imports represent 90Z of commercial energyconsumption and account for over 50% of "free" foreign exchange (paras.1.15-1.16). On the other hand, commercial energy has a major impact onthe monetized part of the economy and on future growth. True, thereappears to be no strong evidence that energy supplies have seriouslyconstrained growth during the decade which has passed since the first oilprice shock, although queues for petroleum products and other signs ofpetroleum product shortages have become apparent in recent months (para.4.22). Nevertheless, given the fact that industry and transport consumenearly 802 of all petroleum products, adequate future supplies of com-mercial energy will be necessary for Tanzania's economic recovery. Atthe same time, there is a growing crisis in the noncomnercial energysector. The wide gap between the current level of fuelvood consumptionand sustainable fuelwood production is leading to deforestation(para. 2.33). The consequences will be severe, as forestry resourcessupply over 90X of total energy needs (para. 1.25).

4.2 Certain essential ingredients of a national energy policy flowfrom these considerations. On the supply side, Tanzania has abundantcoomercial energy resources, including hydroelectric potential, coal andnatural gas. Subject to economic considerations and least-cost compari-sons, these should be used where possible to substitute for importedpetroleum. In that part of the energy market which will continue to besupplied by liquid fuels, there should be an appropriate balance betweenimported products and products refined locally; and future operation ofthe local refinery should allow for improvements in its basic efficiencyand economics. Fuelwood production must be increased through betterforestry practices and more planting. Biomass resources in the form ofvarious residues and wastes are considerable, but efforts must be sharplyfocussed on activities that address immediate energy problems: to sub-stitute for fuelwood or for imported petroleum products. On the demandside, the conservation of fuelvood and commercial energy must be empha-sized and pricing policies should be pursued which relate the prices ofdifferent energy supplies to their economic costs of supply. Energysupply and the inter-fuel substitution issues and options are discussedin the following paragraphs. The demand side is taken up in Chapter V.

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Petroleum Products

Refining

4.3 Present Situation. The Tanzanian-Italian Petroleum RefiningCompany Ltd. (TIPER) is the country's only petroleum refinery; it islocated on the outskirts of Dar-es-Salaam. Its principal facilitiesconsist of the main topping and desalter units (with capacities of 16,700bpsd), a catalytic reformer (3,500 bpsd), a naphtha and kero treater(5,000 bpsd), and a light naphtha merox unit (1,500 bpsd). In additionthere are steam gener ting units, diesel generators: tankage with a grosscapacity of 211,000 m (with an additional 45,000 l tank under construc-tion), and an offshore single buoy mooring system to receive crude ship-ments of up to 100,000 tons, which is also used for supplying the TAZAMAcrude oil pipeline. Although the TIPER facilities are in fairly goodcondition, lack of foreign exchange during recent years for spare parts,maintenance materials, etc. has caused the facilities to deteriorateseriously.

4.4 The refinery was designed for a throughput of 750,000 tpy ofIranian and/or Iraqi crude, yielding some 700,000 tpy of refined pro-ducts. While this capacity is adequate for current petroleum products'demand, the yield pattern of the refinery is not in baLance with thedemand profile, thus creating deficits in the lighter processing capabi-lities of the existing units in the refinery. The units' capabilitiesare limited to simple fractionation of the crude into their normal yieldcuts, with no possibility of converting the surplus fuel oil to offsetthe deficits in the lighter products. In recent years, in order to mini-mize the surpluses of fuel oil which have to be sold at depressed prices,the refinery has switched to the lighter crudes -- e.g. [urban and Qatar-- which have higher yields of lighter products per barrel and a lowerproportion of fuel oil compared to the design-basis Iranian and Iraqicrudes; however, the refinery's maximum output of refined products is nowlimited to 600,000 tpy when processing these lighter crudes. In spite ofthe change in crude processed, the imbalances have persisted. Further-more, due to stoppages and temporary lack of crude, the actual outputduring recent years was further reduced to some 520,000 tpy. With thislevel of output, TIPER satisfies about 60% of the domestic demand, com-pelling the country to import large quantities of light refined productsto meet the deficits while exporting fuel oil at depressed prices.

4.5 Table 4.1 compares Tanzania's consumption of petroleumproducts in 1982 with TIPER'S production and the resulting deficit orsurplus. It shows that imports of kerosene and gas oil are substantial,corresponding in 1982 to 48% and 54%, respectively, of consumption. Onthe other hand, 40% of the refinery's production of fuel oil and residuecannot be absorbed domestically and needs to be exported. Since crudeoil available to TIPER is currently further restricted due to foreignexchange shortages, the refinery's contribution to the Tanzanian demandin 1983 will be substantially reduced.

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Table 4.1: PETROLEUM PRODUCT CONSUMPTION, PRODUCTION ANDDEFICIT, 1982

(103 tons)

TIPER DeficitProducts Consumption Production (Surplus)

Liquid Petroleum Gas 5.4 4.8 0.6Gasoline 122.0 87.7 34.3Kerosene (including Jet) 106.6 55.8 50.8Cas Oil/Industrial Diesel Oil 294.9 136.0 158.9Fuel Oil, Residue, etc. 109.1 180.5 (71.4)

Totals 638.0 464.8 173.2

4.6 In addition to the imbalance between the refinery's productionpattern and the country's demand profile, the TIPER ref inery, like mostrefineries built prior to the 1973174 oil crisis, was designed to mini-mize capital costs at the expense of high energy consumption since thelatter at the time did not represent a significant portion of the operat-ing costs. TIPER's internal fuel consumption and losses range between 7Zand 8%, which is high compared to the prevailing industry norm of 3.5%-4Zfor refineries of similar configuration.

4.7 Principal Options. The mission has identified a number of highpriority options to address the above issues arising out of the refin-ery's present operations. The three principal options, which aredescribed in paras. 4.8-4.13, may be summarized as follows: (a) incurrelatively minor expenditures to improve operating efficiency, in parti-cular by reducing plant shutdowns and internal fueL consumption andlosses; (b) change certain product specifications; and (c) simple debot-tlenecking to increase the output of middle distillates, which are inhighest demand. If implemented, these options could improve the basicoperational economics of the refinery within its present configuration atfairly low cost.

4.8 Operating Efficiency. The refinery's operations are beingincreasingly jeopardized by the lack of spare parts and maintenancematerials, which cannot be obtained due to lack of foreign exchange.According to the mission's preliminary estimates, some US$4-5 millionwill be required to make the repairs and purchase equipment replacementsidentified by TIPER so far, including a boiler, shell and tube bundles,colimn trays, tank roofs, an instrument air compressor, and other items.These repairs and replacements should be made without delay to preventthe refinery from becoming inoperable, causing the need for potentiallycostly shut-downs.

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4.9 To improve the efficiency of furnaces, obsolete types ofburners need to be replaced, excess air controlled, high flare lossesreduced by repairing a compressor for gas recovery, steam traps replacedto reduce steam losses, and insulation replaced which has fallen intodisrepair. Minimum modifications such as these would cost someUS$500,000 and could result in net savings of as much as 1Z of the totalcrude intake, or about US$1.5 million per year. Additional savings of1X-2Z of crude intake (US$1.5-3.0 million) could be achieved by installa-tion of air preheaters and modification of heat-exchange systems at anestimated additional cost of about US$1.5 million. Engineering studiesfor such measures should be undertaken.

4.10 The refinery consumes 12,000 to 14,000 tpy of liquid fuel atits current output of 600,000 tpy. If output were raised to 750,000 tpy,as recommended in para. 4.15, internal liquid fuel consumption would riseto between 14,000 and 16,000 tpy. Of this, 12,000-14,000 tons of liquidfuel (in addition to the savings referred to in para. 4.10) could beeliminated by supplying the refinery with natural gas piped from SongoSongo or elsewhere, alLowing for one pilot burner on liquid fuel in eachfurnace to be kept in operation for. safety. 44/ Such a conversion wouldrequire burners in the refinery to be changed to suit natural gas underthe energy conservation scheme as referred to above, plus the instal-lation of a surge vessel and control system costing around US$500,000.Refinery demand for natural gas is there'ore included in Annex 10.Furthermore, by connecting the refinery with t^he public electricity grid,the internal consumption of gas oil for power generation could be reducedby about 1,700 tpy, with an annual foreign exchange saving of someUS$500,000. Such a connection would require laying a short-distance powerline across the Dar-es-Salaam harbor, estimated to cost about US$350,000.

4.11 Even though there is sufficient potential domestic demand, thefull utilization of LPG available from the refinery has been impeded dueto a shortage of cylinders, valves, regulators and other accessoriesneeded to market this product. Also, filling stations are not function-ing properly due to shortages of spare parts. As a result, large quan-tities of LPG have had to be flared at the refinery. Procurement of thenecessary equipment and spares should be given priority to eliminate thisunnecessary waste. The mission recommends that a Tanzanian official fromTIPER, preferably supported by local staff from one of the marketingcompanies, carry out a survey of the LPG market (existing and potential)as well as the present shortcomings of the system for producing, distri-buting and storing LPG, in order to identify the bottlenecks and con-straints, list and cost the equipment and spare parts which are neededand draw up a proposal for improving the LPG supply situation; theproposal should be sufficiently detailed and feasible for early imple-mentation.

441 According to recent information, liquid fuel consumption within therefinery has been replaced by internally produced light gases.

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4.12 Changes in Product Specifications. In order to increase therefinery's yield of middle distillates, two changes in the specificationsof products are suggested. First, increase the minimum recovery tempera-ture and cloud point of gas oil. Although this would increase somewhatthe pour point of industrial diesel oil, it could be remedied by additionof a chemical depressant. Secondly, increase the viscosity of fuel oil,thereby reducing by 50% the need for blending with gas oil or kerosene.The resulting increase in cloud point does not present a problem in atropical country except under low temperature conditions in the moun-tainous areas where any problem could be overcome by blending in smallquantities of kerosene with fuel oil when needed.

4.13 Debottlenecking. The mission made a high priority recommen-dation to increase TIPER's processing capacity of the lighter crudes bysimple debottlenecking. Installation of a pre-flash column could enablethe refinery to process 750,000 tpy, allowing a substantial increase inthe production of light and middle distillates. Such an installation,estimated to cost some US$3 million, could result in annual net foreignexchange savings of about US$6 million by increasing the production ofgas oil by 45,000 tpy, of gasoline by 39,000 tpy, and of kerosene by9,300 tpy, with only a slight increase in the production of residual fueloil.

4.14 Refinery Economics. The above options can be implme'nted atfairly low cost within the refinery's present configuration to improvethe economics of TIPER's operations and save significant amounts offoreign exchange relative to the cost of imported products. On the otherhand, should the refinery continue to operate under existing conditions,as envisaged in TIPER's plan for 1983 (i.e., throughput of 642,800 tpy ofMurban and Qatar crudes), the cost of operations of the refinery wouldresult in a loss to Tanzania of about US$1.7 million over the cost ofrefined product imports. In the absence of Murban and Qatar crudes andwhen having to process the Libyan Es-Sider crude currently being pro-cessed or Angolan Cabinda crude which was being considered at the time ofthe mission's visit, annual Losses could reach US$14-17 million. Undersuch unfavorable circumstances, it would clearly be preferable to shutdown the refinery and to import all refined products. 45/

4.15 However, the mission concluded that the operation of TIPERwithin the current configuration of the refinery could be beneficial toTanzania by saving foreign exchange of some US$5 million per year overthe cost of importing refined products, provided certain measures areimplemented . These measures require: (a) processing 750,000 tpy ofcrude of a type optimal for the TIPER facilities; (b) undertaking overdue

45/ These estimates of refinery profitability are based on projectionsof international crude oil and international product prices (c.i.f.and at constant 1982 prices) and the actual fixed and variablerefining costs in 1982 (including fixed remuneration to TIPER).

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repairs (estimated to cost about US$4-5 million) as described in para.4.8; and (c) implementing energy conservation, process efficiency anddebottlenecking measures (estimated to cost about US$5.4 million), asdescribed in paras. 4.9-4.13.

4.16 Other Investment Options. The addition of a bitumen plantwould permit transformation of excess residual fuel -- which is nowexported -- into a product demanded locally. A feasibility study forsuch a project was completed by consultants in 1978 and in 1980 TPDC setup a wholly-owned subsidiary, Bitumen (Tanzania) Ltd, to promote theproduction of bitumen in a plant adjacent to the TIPER refinery. Theproject was later postponed since financing could not be obtained. Dueto its potential economic attractiveness, the viabiLity of this projectshould be studied again, particularly in view of the increase in residualfuel excess which would follow the penetration of natural gas (para.4.110). According to the mission's preliminary evaluation, a 40,000 tpyplant might cost some US$12-15 million and could result in annual netforeign exchange savings of some US$6 million. 461

4.17 In the longer term or. if demand for middle distillatesincreases above expectations, consideration could be given to studyingthe viability of installing simple secondary conversion facilities, suchas a thermal cracker with hydrogenation of distillate products; thiswould increase TIPER's capability to process a greater variety of crudesand increase the output of distillates while reducing the surplus resi-dual fuel production. Such facilities could require investments of someUS$30-35 million, and could increase the refinery's yield by some US$19million per year at a crude throughput of 750,000 tpy.

4.18 The recommendation made by consultants in 1979 to expand therefinery's capacity to 1.6 million tpy along with installation ofsecondary processing facilities (at a total cost at that time of US$337million) is not economically viable at this stage. The mission concludedthat before an investment of such magnitude would be justified, thedomestic demand for middle distillates would have to grow at an annualrate of some 3% from present levels for at least 15 years. If domesticcrude oil should be found and refined locally or if domestic demandconditions for refined products should change dramatically from thecurrent - essentially no-growth -- situation, the viability of expandingthe refinery's capacity should be reexamined.

46/ According to the most recent information available to the mission,the Italian government has expressed its willingness to provideabout US$4 million towards the investments described in paras 4.9and 4.13 and some US$20 million towards studies and construction ofthe bitumen plant.

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Distribution, Transport and Storage

4.19 There are five companies which market petroleum product. inTanzania. The companies (with their market shares in 1981) are: BP(48%), ACIP (26Z), ESSO (11%), CALTEX (9X) and TOTAL (62). 47/ Thegovernment owns a 50% share of BP and ACIP through the Tanzania PetroleumDevelopment Corporation (TPDC), while the other companies are entirelyunder foreign ownership. Since 1976, TPDC has been responsible forimporting all crude oil supplies; more recently, TPDC has also assumedresponsibility for importing petroleum products to make up any shortageof products refined by TIPER. Products are then supplied by TPDC andTIPER to the terminals, of the marketing companies in Dar-es-Salaam.From the Dar-es-Salaam terminals the marketing companies transport theproducts by road (73%), rail (18%) and sea (9Z) to their retail outlets,depots and stores throughout the country. 48/ Major transport problemshave been encountered with all forms of transport; the basic difficultiesare not peculiar to the transport of petroleum products but are part ofthe broader transport problem in Tanzania. Among other things, low-costmovement by rail has been hampered by inadequate facilities, in partic-ular a high proportion of tank wagons out of service; roads are in gen-erally poor condition and the road vehicle fleet suffers from a shortageof spare parts. Consideration shouLd be given to the possibility ofdelivering fuel to the northern region of Tanzania from neighboringcountries.

4.20 The storage facilities of the marketing companies appear to begenerally adequate for a developing country such as Tanzania, althoughtransportation problems frequently lead to temporary shortages. The dis-tribution of these facilities by region and by product is in Annex 4.National storage capacity for all products is equivalent to 70 days of1982 consumption. While 70% of this capacity is concentrated in the Dar-es-Salaam area, it is reported that most distributors have a storagecapacity of at least 25-30 days consumption in each region.

4.21 An eight inch oil pipeline was commissioned in 1968 to supplypetroleum products to Zambia and was later converted to transport crudeoil to the new Zambian refinery at Ndola. The Covernment of Tanzaniaowns one-third of the shares of the company which operates the pipeline(TAZAMA). All crude oil passing through the pipeline is owned byZambia. Insofar as the pipeline has been operating below its designcapacity, the option of using it in part to supply crude oil to Tanzanianconsumers in Morogoro, Iringa and Mbeya should be evaluated. These

47/ Mobil also markets a very small amount of products as well aslubricants.

48/ In an effort to improve distribution efficiency TPDC plans to buildand supply three bulk terminals at Mwanza, Tanga and Makambako withfinal distribution to be undertaken by the private companies.

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consumers may be able to use such supplies to substitute in part for someof the refined products which must be sent by road and rail from Dar-es-Salaam - a costly and unreliable distribution method. There would betechnical, legal and commercial problems to resolve but they should notbe insurmountable; a study is recommended to resolve these problems. Thepotential benefits could be significant. The study should be carried outby local experts in conjunction with TAZAMA, which has succeeded insubstituting crude oil for IDO in its pumping stations along thepipeline.

Allocation Policy

4.22 Until recently, there was no serious general shortage of petro-leum products in Tanzania, although shortages of specific products wereLikely to occur from time-to-time in particular areas. Since about thesecond half of 1982, these shortages have become more comon, especiallyoutside Dar-es-Salaam and especially for kerosene and gas oil. At thetime of the mission's visit, shortages had become fairly general in thecountry and affected most products; queues were noticeable, even in Dar-es-Salaam, and in some areas gasoline and gas oil were virtually unob-tainable, at least for short periods. The basic problem is the shortageof foreign exchange, although it is aggravated by the poor transpor.;system and occasionally some very localized storage problems.

4.23 Even prior to :hese general and often acute shortages, Tanzaniahad put in place an allocation policy for petroleum products. Alloca-tions are made by marketing company, by region and by end use. To deter-mine the potential demand, the five marketing companies provide TPDC withestimates of their product requirements for the next six months. TPDCreviews the forecasts, determines with TIPER how much can be satisfied bythe refinery and submits a request for foreign exchange to purchase crudeand products to the National Fuel Allocation Cosmittee in the PrimeMinister's office. The Bank of Tanzania, the Treasury, the Ministry ofTrade, the Ministry of Water, Energy and Minerals and TPDC are repre-sented on the Committee. Foreign exchange will then be allocated asavailable. Preference is usually given to crude with cuts pro-rat-'against products. Within the lump-sum foreign exchange allocation, TPDChas the right to select the product mix which it then notifies to thecompanies concerned. Each distributor receives product allocations basedon its historical sales of each product. For imports not made by TPDC,further application is again made by the company concerned to the Bank ofTanzania for the actual foreign exchange required to pay for an arrivingshipment. Usually the shipment is for the sole use of the importingcompany, but recently a sharing scheme has been established.

4.24 Allocations of products among regions are based upon historicaltrends, taking into account seasonal factors such as crop havesting re-quirements. Allocation of products within the regions is handled byregional allocation comhittees, on which the marketing companies arerepresented. Guidelines for allocation among customers have been laiddown by the government; highest priority is given to the transportation

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of goods for export, to agriculture and to essential services. In Dar-es-Salaam, gasoline is subject to rationing with various allowances beinggiven depending upon the type of vehicle. In addition, each passengervehicle has a certain retail outlet from which it is supposed to purchasegasoline. The use of private vehicles is banned on Sundays throughoutthe country. Vehicles owned by foreigners and certain other categoriesof local operators are not subject to these constraints. Service stationhours are restricted to 6 a.m. to 9 p.m., four days per week. Theserestrictions on driving, coupled with the rationing program and Limitedservice station hours, reduce overall consumption.

4.25 The allocation system appears to work reasonably well withinits limits. However, it is inevitably subject to increasing rigiditiesover time, inequities between marketing companies (who have differingproportions of "priority" consumers) and abuse. The mission stronglyrecommends that greater emphasis be given to pricing policy in allocatingthe scarce supplies of petroleum products (paras 5.2-5.6). Furtherattention could also be given to streamlining the procedures for makingavailable foreign exchange for crude and product imports. For kerosene,which has a particular social significance, a carefully formulated andcontrolled physical allocation system could be warranted.

Natural Gas

Methodology of the Economic Evaluation

4.26 The review of petroleum and gas ezploration activities inChapter II concluded that no oil discoveries have been made to date butthe natural gas resources discovered at Songo Songo and Mnazi Bay (paras.2.8 - 2.9) present an opportunity for Tanzania to become more self-suffi-cient in comerciaL energy should a gas pipeline be constructed to Dar-es-Salaa.. 49/ The mission therefore examined the various domesticoptions for supplying potential consumers in Dar-es-Salaam with naturalgas, including utilization as a substitute 'or fuel oil in the industrialmarket; as a feedstock for electric power generation in the intercon-nected system; and as a substitute for gas oil end gasoline in the trans-port sector. The analysis takes into account the ICDC study on naturalgas usage in Tanzania, although that report was prepared when substantialgas reserves were thought to be present at Kimbiji and before the MnaziBay discovery (paras. 2.5; 2.9). 50/ Explicit allowance is made for theGovernment's intention to allocate a major part of the available Songo

49/ About half of Tanzania's total commercial energy is consumed inDar-es-Salaam.

50/ "Opportunities for Natural Gas Utilization", International GasDevelopment Corporation (IcDC), April 1983.

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Songo reserves to a fertilizer plant at Kilva, which would earn directforeign exchange by producing fertilizers for export (para. 4.41); andsome observations are made on the possibilities for methanol production,either alone or in conjunction with fertilizer production (para. 4.44).The implications of using Mnazi Bay gas to supplement Songo Songo gas atsome future date were also considered. 51/ Given the uncertaintiessurrounding the future recovery of the Tanzanian economy (para. 3.1), thedomestic options were evaluated under two different macroeconomicscenarios: the "SAP" scenario from Chapter III 52/ and a "low growth"scenario which is intentionally more conservative than the alternative("delayed SAP") scenario of Chapter III in order to test the economicfeasibility of gas supply to Dar-es-Salaam even under adverse conditions.

4.27 In principle, a large number of combinations of gas demand andgas supply options could be considered, each associated with certain gasdelivery and gas reserve requirements, a specific layout of pipelinedelivery facilities and a particular cost. To reduce the number of casesto manageable proportions, it was decided to approach the problem byconcentrating on the most interesting combinations of industry and powerdemand, with and without fertilizer production and also with and withoutsupplementary gaq supplies from Mnazi Bay. Even so, seven cases wereevaluated in terms of their gas demands and required supplies (Annex 6).The corresponding benefits and costs of gas delivered to the Dar-es-Salaam market could then be caLculated; finally - since the seven casesin effect are a set of mutually exclusive projects for gas delivery toDar-es-Salaam - the mission derived net present values for each case.Fertilizer production and Hnazi Bay gas Pre included in the case studiesonly in order to evaluate their possible impact on gas supply facilitiesand investment costs, the availability of gas and depletion costs. 53/Since the mission regarded the methanol and t nsport sector options asespecially uncertain in the Tanzanian context, they are considered sepa-rately rather than as part of any specific cases.

Overall Results

4.28 Gas Demand and Required Supplies. Case I involves the con-struction of a pipeline from Songo Songo to Dar-es-Salaam to re-lace only

51/ An option that may not be necessary in view of the geologicalpotential for further gas discovery in locations of the coastalbasin less distant from Dar-es-Salaam than Mnazi Bay (see ChapterII).

52/ In which the GDP growth rate rises to 6% in 1984, slackens in 1985and 1986 and then settles at 6% p.a. from 1987 onwards.

53/ In assessing the costs applicable to the development of Mnazi Baygas, the mission did not take past development expenditures intoaccount.

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existing industrial fuel oil consumption, assuming zero growth in gasconsumption over the lifetime of the project. Case II adds electricitygeneration as projected under a "low growth" scenario. Case III evalu-ates the impact of using Songo Songo gas for fertilizer production aswell as industry and power, with demands for the latter two as under CaseI1, subject to overall gas availability of 725 bcf (with a daiLy deliver-abiLity of up to 100 mncfd). Cases I, 1I and III all assume zero indus-trial growth and "low growth" electricity demand. In contrast, Cases IV,V, VI and VII assume higher growth rates, reflecting the potentialresponse of the economy to a program of structural adjustment. Case IVposits high industrial and power demands with no fertilizer plant. CaseV adds in demand from the fertilizer plant, which reduces gas availabi-liry, so that power demand is treated as a residual. Cases VI and VIIhave the same demand scenarios as cases IV and V, but assume the avail-ability of additional gas from Mnazi Bay. Specifically, it is assumedthat proven and probable reserves of 609 bcf are available and suppliedthrough a future 10" pipeline from Mnazi Bay to the Songo Songo system.These last two cases can also be considered as being representative forsituations involving new gas discoveries. An illustrative breakdown ofthe industrial/power/fertilizer market is shown in Annex 5 for Cases IV-VII, along with a possible supply schedule for Songo Songo and Mnazi Bay.

4.29 Each case considered involves an increasing rate of gas con-sumption and required gas supplies. Hence, Cases I and VII form theenvelope of the set and merit particular attention. Case I is the mini-mum gas utilization case considered, with total gas consumption heldconstant throughout the time period at 8.4 mmcfd; no supplement would berequired for Songo Songo gas until well into the 21st century and deple-tion costs can therefore be ignored. Case VII represents the maximum gasutilization case, in which industrial and power gas consumption amount to29 mcfd by 1995 in addition to possible fertilizer consumption of up to66 mmcfd; by the year 2000, industrial and power gas consumption reach100 mnkufd and Mnazi Bay gas is introduced. 54/

4.30 Benefits. To estimate the benefits corresponding to each ofthe seven cases, the value of gas used by industry is taken to be thef.o.b. export price of the substituted fuel oil and the import price ofother products. Gas used for power generation is valued at the differen-tial between the costs of gas turbine generation and the costs of genera-tion by the next best available alternative, i.e. hydroelectric power(paras. 4.55-4.57 and Table 4.4). As stated in para. 4.27, fertilizerbenefits are not evaiuated in the case studies; fertilizer production isincluded only in order to evaluate its impact on gas supply facilities,the availability of gas and depletion values.

54/ Case I to VII are designed to fall within the overall productivecapacity of Songo Songo and Mnazi Bay Fields. However, detailedproduction and deliverability studies will be required before actualproduction begins.

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4.31 Costs. The estimates of pipeline capital costs for the sevencases are detailed in Annexes 6 and 7; the costs of common facilities areallocated between the Dar-es-Salaam market and the fertilizer plant inKilva in proportion to total gas consumption. However, in addition tothese direct costs of gas suppLy under the various options, the evalua-tion must take into account the depletion costs, namely the potential netvalue of the gas used under any of the options if that gas were insteadretained for some future use. This potential net value is determined bythe difference in the future marginal supply cost of the gas and the nextbest alternative fuel that would have to be utilized in the absence ofgas, discounted back to present value terms. The depletion and long runmarginal supply costs calculated for the seven cases selected for evalua-tion are detailed in Annex 8.

4.32 Net Present Values. The results of the anatyses are summarizedin Annex 9, which shows the net present values of gas delivered to theDar-es-Salaam market at a 12Z discount rate for each of the seven casesconsidered, before and after allowing for depletion costs. For complete-ness, Annex 9 also shows the corresponding benefit-cost ratios and esti-mated netbacks to gas in the industrial substitution and the power gen-eration markets. 55/ In all the cases anaLyzed, the net present valuesof the pipeline investments are positive, ranging from US$42 million toUS$299 million; similarly, the benefit-cost ratios exceed unity -- lyingbetween 1.73:1 and 4.37:1 - while the netbacks to gas in industry andpower (over and above the cost of gas supply) are positive, rangingbetween US$1.63 per mcf (Case I) and US$3.27 per mcf (Case VII). Con-sequently, the economic justification for a gas pipeline to Dar-es-Salaamis extremely robust for a wide range of assumptions concerning the degreeof gas utilization which can be envisaged. Even under the "zero growth"assumption for industry, with no gas-based power generation (Case I), theeconomic justification for a pipeline of at least 6" remains firm. Asgas utilization increases (through to Case VII), the argument strengthensfor increasing the delivery capacity of the pipeline system, by selectinga large diameter from the outset, or adding compression or building asecond pipeline eventually. The following paragraphs discuss theseresults in greater detail.

551 The netback value of the gas is defined here as the residual neteconomic value of the gas at the wellhead, after all costs of futuregas development, gas transmission and distribution have beendeducted from the opportunity value of the gas. The opportunityvalue is determined by the economic costs of alternative energyresources that would have to be used instead of gas. Netbacks areexpressed in le-velized US$ per mcf of gas, calculated with a 12%rate of discount.

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Industrial Substitution Market

4.33 Industrial consumers account for about 90X of the non-transportdemand for petroleum products in the Dar-es-Salaam area. The mission'ssurvey of these consumers established that their gas usage would belimited essentially to the replacement of fuel oil in boiler and furnaceapplications; the present consumption of fuel oil for such applicationsis estimated at 79.4 million liters p.a 56/ Individual demands, brokendown by location, are in Annex 10. Projections of future fuel consump-tion are a function of industrial production rates, after adjustment forconservation. Fuel consumption rates have been projected under the "SAP"scenario, assuming that production by the industries surveyed wouldincrease at the same rate as the sectoral GDP rate for each industry(e.g. the projected construction sector GDP was used for the Wazo Hillcement factory) (See Table 3.1). Energy consumption was then estimatedfor each industry, using sectoral elasticities, adjusted by potentialconservation measures and by proposed plant expansions. The results areshown in Annex 10. They indicate potential industrial gas demand in theDar-es-Salaam area of 11.6 mmcfd by 1987 rising to 21.5 mmcfd by 2,002.An alternative scenario has also been analyzed, in which industrialconsumption is assumed to remain constant at its 1982 level of 79.4million Liters, equivalent to 8.4 mmcfd. As stated in para. 4.26, thisscenario is intentionally more conservative than the "delayed SAP"scenario in Chapter III in order to test the economic feasibility ofconstructing a pipeline to Dar-es-Salaam even under adverse conditions.

4.34 The mission reviewed the design and costs of the facilitieswhich would be needed to supply gas from Songo Songo to Dar-es-Salaam,including alternative marine and land transmission pipelines and thedistribution network to industrial sites. Cost estimates includeprovisions for crossing the Rufiji River and the adjacent fLood plain.It was found that the clustering of industries around the city perimeterwould reduce spurline construction costs by limiting their number andsimplifying easement acquisition. As detailed in Annexes 6 and 7 forCase I, the projected capital costs of a pipeline designed exclusively toserve industrial demand under the "zero growth" scenario is about US$49million. 57/ If the supply system is expanded to accommodate both theindustrial and power gas demand under the "SAP" scenario, i.e. Case VI,

561 Equivalent to 75,225 tons or US$10.5 million valued at US$140 perton f.o.b. In addition, these industries consumed 3.3 cillionliters of gas oil and 0.4 million liters of kerosene.

5a7 Based on a 12" marine pipeline and a 6" land pipeline; the figureincludes distribution lines and connection and conversion ofindustrial consumers.

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the estimated costs of the supply system to Dar-es-Salaam rise to US$82million. 58/

4.35 As stated in para 4.32, the net present value of Case I ispositive; it follows that the construction of a gas pipeline with a dia-meter of at least 6" from Songo Songo to Dar-es-Salaam is economicallyjustified to supply gas as a substitute for industrial fuel oil consump-tion even with a zero industrial growth rate. Under the "SAP" scenario,a pipeline system of higher throughput capacity for increased industrialsubstitution and for power generation would be even more advantageous(Cases IV and VI). A further benefit of gas substitution - which has.not been included in the quantified results of Annex 9 - is improvedreliability of supply and reduced maintenance resulting from a cleanerfuel.

Power Generation Market

4.36 As in the case of industrial fuel oil consumption, the futuredemand for electricity in the interconnected system has been projectedfor the "SAP" scenario and a "low growth" scenario. The former is takenfrom Table 3.3 while the latter has again been derived under more con-servative assumptions than the "delayed SAP" scenario in order to testthe economic feasibility of supplying gas for power generation even underrelatively adverse conditions; specifically, it is assumed that electri-city demand in the interconnected system grows only in line with a growthin electricity demand for Tanzania as a whole of: 2Z p.a. in the period1982-88; 5% p.a. in the period 1988-92; and 6Z p.a. thereafter. Further-more, it is assumed that the isolated systems are interconnected with themain grid only in accordance with known plans.

4.37 Table 4.2 summarizes these two demand scenarios for the period1988-2000 and shows the point at which electricity generation from exist-ing facilities (including the scheduled Mtera expansion) should be sup-plemented. Additional generation capacity would be required by 1992 and1958 under the "SAP" and "low growth" scenarios respectively. 59/ Pro-jections under both demand scenarios are tentative only and will be re-viewed in detail by the study of the least-cost development of Tanzania'spower system provided under the Fourth Power Project (para. 4.53); thestudy will also analyze further the relative roles of hydro, gas and coalin meeting the projected demand. However, it is already possible tocompare the economic costs of gas turbine generation with alternative

58/ Including the costs of an expanded distribution network in the Dar-es-Salaam area; and connections and conversions of industrialconsumers. See also Annexes 6 and 7.

59/ Assuming that the relatively substantial diesel capacity would berelegated to standby use only, given its high costs relative to thegas-fired alternatives.

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hydro or coal, given present information. The economic costs of suppLy-ing gas for power generation, including depletion costs, are estimated tobe in a range between US$0.95 and US$2.21 per mcf, depending on the pro-jected demand level (Annex 8). Paras. 4.55 - 4.60 and Table 4.4 comparethese costs with the long-run average incremental generating costs ofseveral alternative types of generation plant: gas oil, fuel oil, hydroand coal. Even at the highest projected gas supply cost, gas-firedturbines couLd provide electricity at an average cost of USc4.8 per kWh,i.e. substantially below the estimated cost of the next-best alternative(USc7.4). While there are some preliminary indications that thedelivered cost at load centers of hydropower from some of the potentialsites in the Upper Rufiji Basin may be moderately lower, they stillappear to be significantly higher than those of gas-fired plants. At thelower gas costs average electricity expenses of gas turbines may be aslow as USC3.3/KWh. The true long-run marginal costs of gas-fired planswould be even lower if only the marginal gas pipeline capacity costsneeded to accomodate incremental gas supplies for power were counted.This is because a gas pipeline can be economically justified even withoutgas supplies to power plants (para. 4.32; and Annex 9, Case I). As theother gas scenarios (Cases II to VII) indicate the benefits of providinggas for power generation in Dar-es-Salaam are sufficiently great tojustify the construction of a pipeline to Dar-es-Salaam under both the"SAP" and "low growth" scenarios for power.

Table 4.2: PTROJECTED ELECTRICITY DEMAND AND SUPPLY IN THE INTERCONNECTED SYSTEM,1988 2000

(GMh)

"SAP" Scenario "Low Growth" ScenarioSupply from Supply from

Projected Existing Energy Projected Existing EnergyDemand Facilities Shortfall Demand Facilities Shortfall

1988 1,175 1,175 0 907 907 01989 1,264 1,264 0 952 952 01990 1,362 1,362 0 1,000 1,000 01991 1,467 1,467 0 1,050 1,050 01992 1,581 1,510 71 1,102 1,102 01993 1,705 1,510 195 1,169 1,169 01994 1,807 1,510 297 1,239 1,239 01995 1,916 1,510 406 1,313 1,313 01996 2,031 1,510 521 1,392 1,392 01997 2,153 1,510 643 1,475 1,475 01998 2,282 1,510 772 1,564 1,510 541999 2,419 1,510 909 1,658 1,510 1482000 2,564 1,510 1,054 1,757 1,510 247

Note: Doemand,supply and shortfall under the "SAP" scenario are from Table 4.3;the "low growth" scenario is described in pare. 4.36.

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4.38 The gas supply costs used in the calculation of gas turbinegeneration costs (Annez 8) are derived by sizing pipelines according tothe combined industrial and power demands and by allocating costs accord-ing to consumption. It should be noted, however, that even under theelectricity demand corresponding to the "SAP" scenario, gas for powergeneration would not be required until 1992. 60/ It is thereforepossible that gas supply costs could be reduced below those used tocalculate gas turbine electricity generation costs by limiting initialpipeline size and subsequently adding capacity. While adding compres-sors, or locating generating facilities at the coastal terminal of themarine pipeline and building a transmission line to Dar-es-Salaam, orbuilding a second pipeline to Dar-es-Salaam would all be more expensivein current dollar terms than oversizing the initial pipeline (see Annex7), the savings involved in deferring the investment might outweigh thatadditional expense, depending on the time lag. A detailed least-costsystems analysis will be needed to define the optimal initial layout(para. 4.52).

4.39 An added advantage of using gas for power generation in theDar-es-Salaam region would be to provide support for the interconnectedsystem in case of transmission line failures from Kidatu and !tera (para.4.61) or in case of a series of dry years, which could reduce the sys-tem's hydroelectric energy capabilities. In fact, a substantial thermalcapacity would allow the application of more liberal reservoir operatingrules (by reducing over-year minimum storage requirements) and therebyincrease average hydroelectric energy production because of lower reser-voir evaporation losses. No attempt has been made to include thesebenefits in the quantified results of Annex 9.

4.40 The economic analysis of gas supply for power generationassumes exclusively domestic demand under both electricity demand scena-rios. Should Tanzania choose to pursue the possibility of exportingelectricity to Kenya (paragraph 4.72), additional studies would benecessary to evaluate the relative costs of hydroelectric and gas-firedgeneration, together with an anslysis of transmission costs to the pointof interconnection; an assessment of the comparative costs of electricitysupply from Uganda would also be required. The mission suggests that theproposed least-cost development study provided for under the Fourth PowerProject should include at least a preliminary review of this option(para. 4.54).

Fertilizer Production

4.41 As described in para. 6.38, preparations have been in hand forthe past two or three years for the construction of a plant (KILAMCO) to

60/ Small quantities could be used in operating Ubungo as a thermalstandby although it would not be required under normal conditions(para. 4.66).

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produce 1,350 tpd of ammonia and 1,725 tpd of urea at Kilwa, located onthe coast about 25 miles south-west of Songo Songo Island, using gas fromthe Songo Songo field as a feedstock. For this purpose, the Governmententered into an agreement with AGRICO for the installation and managementof the plant and for product marketing. The Participatior Agreement isalready effective, and negotiations for obtaining the financing of theproject are reported by the Government to be nearing completion.

4.42 Supply of gas for fertilizer production at Kilva, if conceivedon a "stand-alone" basis, would require the construction of a 10" marinepipeline from Songo Songo to a coastal point and a 10" land pipeline toKilva to carry up to 66 mmcfd of gas. The costs of the 10" marine pipe-line are estimated at US$10.4 million and of the 10" Land pipeline toKilwa at US$9.8 million, while costs of field equipment and gatheringlines are estimated at about US$5.0 million (Annex 7). This is equiva-lent to US$0.32 per mcf. 61/ If the cost of comnon facilities is sharedwith domestic consumers Tpower and industry) according to relativedemands, these costs could fall to US$0.26 per mcf (Annex 8).

4.43 The direct costs of supplying gas for fertilizer production arelikely to be outweighed by the depletion costs appropriate to the pro-jected consumption for this use of up to 515 bcf, i.e., over 70Z of totalSongo Songo proved reserves. The potential net value of this volume ofgas if it were to be retained for some future use (para. 4.31) can bedetermined by the difference between the future marginal supply cost ofthe gas compared to the supply cost of the next-best alternative fuel,discounted back to present value terms. In the Tanzanian case, Mnazi Baygas currently represents the lowest-cost replacement fuel for depletedgas from Songo Songo although the prospects for proving future gasreserves in the structures in the vicinity of Songo Songo are believed tobe good. In the absence of an alternative use for the Mnazi Bay gas, thesupply costs are determined by the Mnazi Bay gas long-run marginal supplycosts, plus gas depletion costs when, in turn, Mnazi Bay gas is ex-hausted, 62/ plus any payments made in respect of past Mnazi Bayexploration expenditures. Use of Songo Songo reserves for fertilizerproduction would accelerate the point at which an alternative fuel sourceis required for other uses and, correspondingly, increase the presentvalue of Mnazi Bay gas supply costs. Assuming a zero value for paymentsmade in respect of past Mnazi Bay exploration expenditures, the depletion

61/ However, the economic cases considered in paras. 4.28-4.32 are forcombined gas delivery systems, where the costs of field equipment,gathering lines and the 12" marine pipeline are prorated betweenDar-es-Salaam and Kilwa consumption.

62/ The mission assumed that replacement for Mnazi Bay gas would behydro and/or fuel oil. However, it recognizes that there is alikelihood of future gas discoveries that would be economically moreattractive.

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value attributable to fertilizer production could amount to US$0.45 permcf. If Mnazi Bay can not be reserved for future use, depletion costscould rise to $1.07 per mcf (Annex 8). Discoveries of additional gas inthe vicinity of Songo Songo would lead to Lower depLetion costs.

Methanol Production

4.44 The potential methanol market is subject to many uncertainties,in view of current overcapacity of production and various technologicalproblems, such as the feasibility of high-level blending of methanol withgasoline and the extent of its corrosive effect on internal combustionengines. The mission understands that these matters are being addressedin a technical and marketing study which is now being carried out onbehalf of the Government; the study will analyze the feasibility ofmethanol production in Tanzania on a "stand alone" basis and in conjunc-tion with the proposed fertilizer plant at Kilwa. Pending completion ofthe study, the mission did not feel that it would be appropriate toevaluate the costs of gas supply for methanol production in Tanzania.

Transportation

4.45 Use of gas to replace gasoline or gas oil in vehicles offersthe prospect of substantial foreign exchange savings. The economic costof natural gas delivered to Dar-es-Salaam of up to US$2.21 per mcf(Annex 8) is less than one-third the cost of imported gasoline and gasoil (equivalent to USS 7.90 and US$7.40 per mcf respectively). Evenafter allowing for the costs of vehicle conversion and gas refillingstations, 63/ estimated to range between US$2.00 and US$2.20 per mcf(para 4.4757 CNG or LNG use in the Dar-es-Salaam area could be econo-mically attractive.

4.46 The technology for converting gasoline or diesel vehicles toCNG or LCG use is relatively straightforward, in that commercial experi-ences are found in Italy since the 1950. and in New Zealand, Canada andthe U.S. more recently; however, such experiences are limited to gasolinemotor cars converted to CNC and a lesser number of diesel trucks andbuses converted to CNG and LNG. So far, no car maker is marketing "shelfdesigned" CNC or LNG vehicles, so that existing engines have to be con-verted and a specific on-board tank added. In gasoline vehicles, actualgas substitution is total but immediate switch-back to gasoline moderemains possible. In gas-converted diesel engines, injection of some gasoil is maintained under the dual-fuel mode, which aLso permits immediateswitch-back to full gas oil consumption. As regards vehicular gas stor-age, gas fuel taLks have to be fitted to the vehicle, in the case of CNGin high pressure (up to 3,000 psi) cylindrical bottles (like oxyacetylenebottles) or in the case of LEG low temperature (-245 F) insulated cryo-genic tanks. The high strength CNG tanks and lesser compression cost

63/ Including spurlines and either compression or liquefaction.

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than liquefaction give CNG an advantage over LNG, but the higher weightof CNC tanks gives other merits to LNG, particularly in long-distancetransport, so that both conversion modes have preferred applicationswhich would only be determined by investigation under local conditions.As regards gas distribution, a spurline from main gas lines would be runto the gas refilling stations, where the gas would, in the CNC case, berepressurized as required and stored in large cylinders pending therefuelling of vehicles. In the LNG case, small liquifiers would be usedin place of compressors.

4.47 Based on Italian, New Zealand, Canadian and US experience, car,bus and truck CNC conversion costs range between US$600-70o per vehicleand CNG refuelling station capital costs between US$130,000 (compres-sion/dispensing station serving 250 vehicles) and US$1,000,000 (a centralcompression/dispensing station serving 500 vehicles and supplying CNG bytrucks to five satellite dispensing stations of 200 vehicles each). Thiswould be equal to US$450-800 per vehicle served. Depending on the numberand mileage of participating vehicles, field experience to date suggestsa total conversion, compression and distribution cost of US$2.00-2.20 permc f.

4.48 The mission undertook an illustrative economic analysis of aparticular gas application in transport, namely CNG use in the UDA publicbus service in Dar-es-Salaam. UDA operates 140 buses (to be increased to390 by 1984) from a limited number of storage, refuelling and maintenancedepots, thus permitting an enclave-type system control. The results ofthe analysis confirm, in the limited case examined, the expectationsarising from the differential in Tanzania between the economic costs ofnatural gas compared to imported gas oil. Specifically, an investment ofUS$1.4 million is calculated to yield an economic internal rate of returnof 41Z or a netback per mcf of gas consumed of US$3.42/mcf. In terms ofavailable gas reserves and deliverability, the UDA project would absorb0.5 mcfd compared to "zero growth" industrial demand of 8.4 mmcfd.

4.49 If a satisfactory CNG operation is established at UDA, con-version of other potential users would logically follow. Fleet opera-tions 64/ and the two railways would be prime candidates. Public CNGstations could be established in and around-Dar-es-Salaam. Potential CNGuse could reach 4 mmscfd by 1991, with corresponding benefits in the formof reduced gasoline and gas oil imports and corresponding savings inforeign exchange. Some orders of magnitude are shown in para. 4.112 andTabLe 4.10.. The mission therefore proposes a feasibility study ofCNG/LNG use in transportation; if recommended by the feasibility study, apilot scheme could follow to investigate this application of natural gasunder local conditions (paras. 7.3; 7.11).

64/ Involving, for example, government vehicles (gasoline and diesel),trucks and private buses.

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Nnazi Bay Reserves

4.50 The preceeding analysis considered one possible application ofthe Mnazi Bay gas reserves, namely as a supplementary source of supplyfor Songo Songo in the event that the combined demands on the Songo Songofield surpass available reserves. A further option, which should notconflict with this role, would be the small-scale production of CNG/LNCat Mnazi Bay to supply the larger townships in reasonable proximity tothe gas field. 65/ Most obviously, gas could be transported in com-pressed or liquified form by road to Mtwara (25 km), Lindi (100 km) andpossibly Nachingwea (200 km); the gas would mainly be used for powergeneration but there could be other small industrial and commercialapplications. While the capital costs of such a scheme might be fairlyhigh -- in the order of US$3-5 million - the scheme could be economic inview of the high cost of supplying petroleum products by sea from Dar-es-Salaam. The scheme could be put into effect quickly, utilizing theexisting discovery well and would have the added advantage of helping toevaluate the Mnazi Bay field reserves and deliverability, without imped-ing its further appraisal or development. 661

Conclusions and Recoimendations for Gas

4.51 The mission's analysis establishes that:

(a) a pipeline with a diameter of at least 6",to supply gas toexisting industry in Dar-es-SalAAm as a substitute for petro-leum fuels, appears to be economically justified, assuming thelevel of industrial production does not decline further (para.4.32) and that future exploratory efforts do not yield addi-tional gas resources with lower delivery costs to Dar-es-Salaam;

(b) the next increment of power generation capacity after comple-tion of the Mtera hydroelectric project is likely to be gas-fired (para. 4.37);

(c) when economic growth in Tanzania resumes, there will be oppor-tunities to increase the use of gas in industry and power

65/ Another option for Mnazi Bay gas is methanol production, which wouldconflict with its use as a supplement to Songo Songo gas (para.4.43).

66/ A similar project could be envisaged for Songo Songo, to shipCNG/LNG to such isolated markets as Zanzibar and Mafia Islands.Supplying these islands with petroleum products is also a high-costoperation. The project could be subsumed under the more ambitiousproject for CNG/LNC use in transport in Dar-es-Salaam if the latterproves to be justified.

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generation and correspondingly a larger initial pipelinediameter of 10" might be justified;

(d) the potential industrial and power demands for gas, even with-out fertilizer production, may be large enough to justifyutilizing gas from Mnazi Bay (should this field provecommercially viable) following full utilization of gas fromSongo Songo, unless new discoveries are made in the meantime;

(e) savings in foreign exchange due to reduced petroleum importscould be substantial under any scenario (para. 4.112); and

(f) the illustrative economic analysis of CNC use in pubLic busservices supports the expectation that the differential insupply costs between natural gas and imported liquid fuelscould make CNG use in transport an economically justifiedoption (para. 4.45).

4.52 In view of these conclusions, the mission recommends thatfeasibility studies for a pipeline from Songo Songo to Dar-es-Salaam beinitiated without delay, including marine and land surveys, design andengineering studies and financing arrangements. These studies should bephased in such a way that they can incorporate the results of the least-cost power development study (para 4.54); any further information onlikely growth rates in the Tanzanian economy; and the findings of anyadditional hydrocarbon exploratory efforts. For example, in this lastconnection, the mission was informed by the Government that there areprospects for encountering hydrocarbon deposits in the vicinity of Dar-es-Salaum. The mission further recommends undertaking a feasibilitystudy of gas use for transportation followed by a pilot scheme if theresults so warrant. Finally, it can be noticed that the mission'sconclusions on the natural gas subsector represent a logical developmentof those in the IGDC study with regard to the domestic uses for gas,bearing in mind an important change which has taken place in the gassupply situation since IGDC completed its work: while the Kimbiji reserve(which played a role in IGDC's analysis) can no longer be regarded ascommercial, a new discovery has been made at Mnazi Bay (para. 4.26).

Electric Power

4.53 The mission focussed on two key issues in the electricitysupply subsector. First, the least-cost expansion program for TANESCO'sinterconnected system has to be reexamined to take into account thelikely availability of natural gas for use in power generation. Such areexamination is taking place as part of the long-range electric powerdevelopment study which is being carried out under the Fourth PowerProject (para. 4.54-4.60). Secondly, the reliability of public powersupply must be addressed in all the main areas of TANESCO's operations:transmission, generation and distribution. Again, IDA resources included

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in the Fourth Power Project provide an initial basis for tackling thisissue; apart from about US$1 million allocated for the purchase of equip-ment and materials to rehabilitate the Ubungo diesel station, the creditsets aside funds to finance consulting services to carry out studies ofTANESCO's existing power generation and distribution facilities byJune 30, 1984 (paras. 4.61-4.70). Finally, the mission has provided soecomments on a third issue - international interconnections - whichultimately involves considerations which extend well beyond the confinesof the energy sector (paras. 4.71-4.73).

The L stC stExionProgm

4.54 With the construction of the Mtera hydroelectric projectscheduled for completion in 1988, there is no need for additional gener-ating capacity in the main grid until 1992 at the earliest, as shown inTable 4.3. Nevertheless, detailed planning of the system beyond thatdate should proceed without delay, if sufficient lead time is to beallowed to develop the generation sources which are shown to constitutethe least-cost solution. As a broad indication of a long-run strategyfor the development of the interconnected system, the mission made somepreliminary rough comparisons between the main generation alternatives:gas turbines operating on natural gas; hydroelectric plant; coal-firedsteam plant; and oil-fired diesels. The results - su mmarized inTable 4.4 - suggest that the most economic way of expanding the maingrid in the coming decade is to build a series of gas-fired plants in oraround Dar-es-Salaau.

4.55 Gas turbines using natural gas aS a fuel could produce electri-city at a long-run average incremental cost of USC3.3 to USC4.8 per kvh,with unit sizes ranging between 20 NW and 30 MW. These estimated costsare based on gas costs of US$0.95 or US$2.2 per mcf (para. 4.37). 67/including depletion allowance. 68/ Gas turbines appear to be the mostappropriate types of generating units to use, at least initially, giventhe low cost of the gas and its relative abundance. At a later stage,combined cycle plants could be installed to increase the physical effi-ciency of the plants. However, to justify the additional investment, theeconomic value of gas would have to increase substantially over currentlevels.

67/ Delivered to Dar-es-Salaam.

68/ It should be noted that the financial costs of gas to TANESCO couldbe higher because of the legitimate interest of the Covernment torecover the initial exploration and development expenses of theSongo Songo development as quickly as possible. Also, the very lowcost of the gas gives rise to substantial resource rents whichshould be captured by the Government, rather than TAMESCO'scustomers only. The issue of gas pricing to power and other marketsis discussed in Chapter V.

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4.56 Potential hydroelectric plants - as represented by varioussites (Table 2.2) are likely to have incremental generating (plus trans-mission) costs of between USc7 and USdlO per KWh, mare than double thosefrom gas turbine plant., even if load growth follows the "SAP" scenario.With lower growth, costs would be higher. Taking into account the lowercosts of future expansion at Stigler's Gorge, average generating costsare estimated to be about USC7.4/kWh, i.e. still some 55% higher than themost expensive gas option. Civen the very high initial capital require-ments of the Stigler's Corge project or any of the other potential sitesin the Rufiji Basin, compared to gas turbine plants -- which could beconveniently staged to fit demand growth (e.g. several hundred million USdollars as against US$9 million) - their utilization as the next addi-tion to the system is unLikely to be economically justified.

4.57 Prefeasibility studies by consultants have identified severalhydroelectric plants in the 'Jpper Rufiji Basin (para 2.14). Their long-run average incremental generating costs may well be lower than those ofStigler's Corge although the preliminary data available make it impos-sible to arrive at firm estimates at this time. However, they involvelong distances to the major load centers and they would require addi-tional transmission lines. The forthcoming power sector master plan willhelp to firm up these cost estimates and to rank these projects relativeto otber alternatives.

4.58 Coal-fired plants in appropriate sizes to fit projected loadgrowth are also unattractive economically, with an estimated long-runaverage incremental generating cost of USC9O6/kWh, even at the assumedlow coal price of US$25/ton (para 2.29). This cost is at least doublethat of gas-fired plants and in addition the location of a mine-mouthcoal-fired plant would be disadvantageous (para. 4.77).

4.59 Existing diesel plants are more expensive to operate than gasturbines using natural gas even if their capital costs are excluded fromthe analysis. The units at Ubungo would have operating costs of aboutUSC5.8/kWh (after rehabilitation) using fuel oil, if a specific fuelconsumption of 0.25 kg/kWh could be achieved. At the current averageTANESCO system fuel consumption rates of 0.35 kg/kWh, the cost would beUSC7.8/kWh. Similarly, existing diesel plants using gas oil would haveoperating costs of about USC10.7/kWh or UScl4.3/kWh with specific fuelconsumption rates of 0.25 kg/kWh and 0.35 kg/kWh respectively.

4.60 Given the relative costs in Table 4.4, there is a clear casefor using gas-fired plants as the next addition to system capacity. Afurther advantage of gas turbines would be their proximity to the majorload centers, which minimizes threats from transmission line failures andsimplifies load management procedures (paras. 4.61; 4.77). Constructionlead times, compared to hydroelectric or coal plants, would be dras-tically shorter and initial capital costs would be very low, even lowerthan those of diesel plants.

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Table 4.3: FORECASTS OF MAXIMIM DEMAND, ENERGY DEMAND, CAPACITY AND GENERATIONIN THE INTERfONNECTED SYSTEM, 1985-2000

("SAP" Sconalrio")

Capacity (M14) Generation (Gh) -

Max. Capacity EnergyDemand Gas Reserve c/ Deand Gas

Year (MW) Hydra Diesel Turbines Total (%) (GWH) Hydro Diesel Turbines

1985 155 244 97 a 15 356 130 884 884 - -1986 178 n 136 - 380 113 1,015 1,015 - -

1987 192 " " i n 98 1,092 1,092 - -1988 206 324 n n 457 122 1,175 1,175 - -

1989 222 133 " 454 105 1,264 1,264 - -1990 239 i " n 472 97 1,362 1,362

1991 258 " " 11 83 1,467 1,467 - -

1992 278 " 113 n 452 63 1,581 1,510 - 71

1993 299 " 45 482 61 1,705 " 1951994 317 it i 75 512 62 1,807 - " 297

1995 336 " 93 105 522 55 1,916 n n 4061996 357 a 120 537 50 2,031 " 5 21

1997 378 " 70 150 544 44 2,153 " 6431998 401 50 180 554 38 2,282 " n 772

1999 425 25 210 559 32 2,419 n n 9092000 450 324 - 240 564 25 2,564 1,510 1,054

a/ Assumes 40 MVI rehabilitated capacity at Ubungo, plus available firm and comaitted newcapacities at Dodoma, Iringa, Mbeya, Shinyanga, Singida and Tabora.

bl Includes available firm and committed capacities at Musoma and t4wanza, minus 3 MWretirements.

cl Reserve capacity margins remain high because of the existence of large diesel plant sparecapacity and the assumption that turbines fired by lower-cost natural gas would be utilizedinstead.

d/ Assumed to grow at 6% p.a. theruafter.

Table 4.4: ESTIMATED LONG-RUN AVERAGE INCiMENTAL GENERATING COSTS OF ALTERNATIVE POWER PLANTS AT LOAD CENTER

HydraExisting Diesel: Existing Dlesel: Oa Turbine (Stiglir's Gorge) vf Coal-Firod

Category Gas-Oil Fuel-Oil Low / High k/ Hlgh Load Growth - Ultimate Development 9/ Steam plant hl

Unit size, MW 0,4-4,5 0.4-4,5 4 7.5 20 20 100 100 100Basic Capital Costs 04SA(W n,a, nea. n.a. ne,o 450 450 1,945 1,030 1,900Construction time, Years n,a, n,a, n.a. n.a. I 1 7 ne,, 3Interest during Construction(101) S/kW n.a. n,.e n,.e n,o, 0 0 528 n.a. 196Total Capital Co5ts, S/kW W n.a. n.ea n.a. n,a, 450 450 2,473 n.e, 2,096O.M.&R/Year, S ofCapital Costs n,a, n,a, n,a. n,a, 6 6 1 n,a. 5tHeat Rate, BTU/kW 14,000 10,000 14,000 10,000 12,000 12,000 - 10,000Load Factor, S d/ 50 so 50 50 50 61 n.a. 50Fuel Costs, SM3TU - 8,4 8,4 3,95 3,95 0.95 2,21 - - 1.51 -/Useful Life, Years n,a, n.a. n.a. n.a. 15 15 50 50 30Annual Capital Costs $/kW n,, n.oa. n.oa. n.oa. 66 66 298 n.,a 260 NAnnual O.M.&R, S/kr 101 O 1t 101 c/ 101 c/ 27 27 25 n.a. 95Annual Fuel Costs - $/kW 526 368 241 153 50 117 - - 66

Average Bus Bar CostsUSf/kWh 14.3 10.7 7,8 5.8 3.3 4,8 10,6 7.4 9.6a/ Includes transmission costs to existing grld.b/ Includes Interest during construction.c/ Information provided by Ministry of Water and Energy,d/ Includes delivery costsgo/ Information provided by Minisiry of Water and Energy, adjusted to 1983 prices. First stage 400 MW only; subsequent phases would be less

expensive on a per MW basis.f/ "SAP" scenario; 400 MW capacity; first year of operation 1993, full capacity utilization by 2009.S/ Estimated average unit costs with full development given projected load growth.h/ From Tanzgnia Power Sector Study, February 1981,T/ 21,d x 10 BTU/Ton; S25/Ton,1/ Gas costs corresponding to Case VIl (see Annex 8).k/ Gas costs corresponding to Case 11 (see Annex 8).T/ There are some Indications that some other hydrosites In the Upper RufIji Basin may have lower bus-bar costs, varying between UStS and US$6

per kWh. However, because of thelr geographical location, additional transmission faciIlties would be needed to connect them with the majorload centers; this would Increase thelr costs,

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Reliability of Public Power Supply

4.61 The reliability of the interconnected system depends criticallyon a single-circuit 220-kv transmission line which connects Dar-es-Salaamwith the Kidatu hydroelectric station over a distance of 300 km(para 1.19). TANESCO's operating experience with the line has not beensatisfactory. The number of major line interruptions has varied fromthree to eight p.a. in the period 1975-1981. Problems have been causedby difficult access, extensive right-of-way clearing requirements,occasional bush-fires and corrosion. The section between Kidatu andMorogoro skirts the Mikumi National Park and the wild game pose a dangerto the maintenance crew. The access roads are bad and require frequentrepairs. Proper maintenance and monitoring are not possible due to thelack of suitable maintenance vehicles and equipment.

4.62 The reliability aspects of the 220-kV line have been studied byTANESCO and its consultants and various measures have been proposed toimprove the line's operational behavior. While TANESCO does not needadditional external help to maintain and operate its transmission lines,it does need equipment and materials. Furthermore, the reliabilityproblem would be alleviated with the provision of an additional connec-tion between Kidatu and Morogoro.

4.63 The 132-kV transmission lines and related transformer sub-stations also require extensive rehabilitation. Many elements of thenetwork - such as lightning arrestors, circuit breakers and instrumenttransformers -- need replacement. The scope of the rehabilitation workwill be determined as part of the rehabilitation study included in theFourth Power Project.

4.64 If there is a failure in the transmission line from Kidatu orif there is a dry year prior to the completion of the Mtera hydroelectricproject, the main support for the interconnected system would have tocome from the Ubungo power station in Dar-es-Salaam. The station haseight diesel generating units and one gas turbine. The gas turbine andfive diesel units are out of service while the remaining three dieselunits are significantly derated; the available output of the Ubungo powerstation is consequently only about 10 MW out of the total installed cap-acity of 60 MW. If the Ubungo station is to play an effective role as astandby plant for the main grid, these units will need full recondition-ing.

4.65 SWECO prepared a rehabilitation study of the Ubungo power plantin 1981; the study proposed an emergency overhaul to protect the gener-ating, units from further deterioration and to maintain them operationalduring the period of the main rehabilitation which would follow. Thetotal cost for both overhauls was estimated at TSh 80 million (US$6.6million). The Government of France has made a grant of US$5 million forthe rehabilitation of the five French-built diesel units; the rehabilita-tion of the other diesels and the gas turbine will be financed under theFourth Power Project (para.7.2).

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4.66 In view of the importance of Ubungo as a standby plant, themission confirms that it should be rehabilitated and properly maintained.Moreover, the mission also recommends that provision should be made tooperate the units with natural gas in the event that the gas pipeline isconstructed to Dar-es-Salaam and that natural gas supplies become avail-able after 1987 (para. 4.51). Assuming that the 60 MW installed capacityat Ubungo is fully rehabilitated and completely converted to gas and theplant is used as a stand-by at about 20% plant factor, the Ubungo Stationwould generate 100 GCh p.a., consuming 1.27 bcf of gas per year or anaverage of 3.48 mncfd. However, the economics of gas use for generationand the proximity of the plant to consumers might even justify the policyof using the Ubungo station in base load generation during the periodswhen hydro generation is not available, thus substantially increasing gasconsumption.

4.67 Reliability of power supplies to the main load centers wouldfurther benefit from rehabilitation of the three hydroelectric stationson the Pangani River. 691 A preliminary study has been carried out byMORAD, but a more detailed assessment is necessary and will be financedby Canada (CIDA) which is also funding a detailed evaluation ofadditional hydro on the Pangani River.

4.68 TANESCO's distribution network is suffering from a pervasivelack of spare parts, materials and service vehicles. Prolonged outages,affecting vital areas such as the greater Dar es Salaam water supplysystem, are becoming more and more frequent. The losses caused by theseoutages in terms of loss of production and sheer human suffering aremassive and urgent action is required to improve the reliability of thesystem. Studies under the Mtera loan agreement and with Japaneseassistance are getting underway to assess the magnitude of the problemsand to define appropriate courses of action. A detailed rehabilitativnprogram for the distribution networks identifying the relative priorityof the various needs, together with possible financing arrangements,needs to be defined.

4.69 The power stations in the isolated systems alL need urgentrehabilitation. Although the total installed capacity of the dieselunits in these systems is about 56 MW, only 38 MW are presently avail-able. About 50Z of the total installed capacity in the isolated systemsis at Mwanza (27 MW), of which only 8 NW are operational. While TANESCOintends to phase out most of these isolated stations by extending themain grid, work on interconnection is unlikely to be finished in the nextseveral years (para 1.20). Rehabilitation of serviceable diesel units istherefore urgently needed (para. 7.2). The mission recomends technicalassistance for the task, because local professional resources are notadequate; some basic training in the maintenance of diesel units is also

691 Hale (2 x 10.5 MW), Nyumba (2 x 4 MW) and Pangani Falls (3 x 2.5 MWand 2 x 5 MV).

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needed. The cost of rehabilitating the isolated diesel units is aroundTSh250 million (US$20 million). The work could proceed in two stages:the initial stage would examine a number of larger isolated powerstations and produce a detailed rehabilitation program and related costdata; in the second stage, the rehabilitation works would be undertakenunder a rolling program determined by the availability of funds and ofmanpower resources. In this way, the various lending and cofinancinginstitutions could periodically review the progress of the rehabilitationwork and determine whether further investment is justified. Initially,the rehabilitation work should concentrate on priority diesel stationswhich could be reconditioned without undue delay, e.g. Mwanza, Dodoma,Tabora and Mbeya.

4.70 The way in which the Mtera and Kidatu water reservoirs areoperated also affects the reliability of the power supply in the inter-connected system. The water management of these reservoirs has beenstudied by different consultants; their recommendations and suggestedoperational rules are not mutually consistent. The optimum use of thewater reservoirs in the interconnected system therefore requires furthercritical review and clear operational rules need to be formulated Themission proposes that TANESCO should obtain technical assistance to hirean experienced water management consultant to: (a) review the studiesalready completed; (b) investigate power supply reliability requirements;(c) assess local climatic and geophysical characteristics; and (d)recommend the proper operational strategy and rules to be adopted byTANESCO in managing its water reservoirs (para. 7.2).

4.71 A third issue in the electric power sector which merits commentis that of international interconnections. Generally, these serve twomain purposes: greater economy in power generation and increased reliabi-lity in power supply. During normal operation, generation facilities areshared, power interchanges take advantage of load diversity or availablelower-cost capacity and scheduled outages for maintenance are staggered;lower overall operating costs should result and capital investments fornew stations can be deferred. During emergencies, the systems sharespinning reserve capacity and thereby contribute to continuity ofservice.

4.72 In the case of Tanzania, three main opportunities offer them-selves. The first is the Kagera river basin development, which has beenextensively studied by consultants but may not be required for a numberof years (para. 2.18). Secondly, a limited interconnection with Ugandahas been envisaged, which would import up to 15 KW of low-cost energyfrom Uganda to Bukoba in the extreme north-western part of Tanzania; thisoption is currently being studied by consultants with funding from theEEC (para. 1.20). The third option - and probably the most interesting

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-- is a major interconnection with Kenya. 70/ Such an interconnectioncould materially benefit the main Kenyan system, which faces limitedenergy resources and rising long-run marginal cost; while theoreticallymaking possible the ultimate development of the large Stigler's Gorgesite or some other hydroelectric sites in the Upper Rufiji Basin at somelater stage, when the incremental power demand of both countries would belarge enough to absorb their output. Possible initial power importdemands by Kenya (in the early 1990s) could range around 30-50 MW with10-15 MW annual increments for the balance of the decade. InitialTanzanian power exports, therefore would have to start at a relativelymodest level. Furthermore, any power exports from Tanzania would have tocompete against potential increased power exports from Uganda.

4.73 In this context, various international organizations and asso-ciations have been involved in establishing and promoting power systeminterconnections and their knowledge and experience could be of value toTanzania. For example, the UN Economic Commissions for Europe and LatinAmerica heve been active for more than 30 years in power system inter-connections and their studies are sell documented. The Union f or theCoordination of Production and Transmission of Electricity (UCPTE)similarly has broad experience in power interchanges in Europe.The mission recommends that TANESCO contact the regional UN EconomicCommission and UCPTE regarding the scope and content of a possible inter-connection study as well as other activities needed to promote theestablishment of interconnections between Tanzania and neighboringcountries. Furthermore, in cooperation with the Government, TANESCOshould outline a specific action program concerning the feasibility,timing and evaluation of possible future power system interconnections.

Coal

4.74 The central issue in the coal subsector concerns the probablefuture demand for coal taking into account: (a) the geographical remote-ness of the coal-producing area from most energy-consuming centers; and(b) competition from alternative fuels (paras. 2.30; 4.78).

The Traditional Coal Market

4.75 The traditional coal market holds, at best, only limitedprospects for expansion in terms of its absolute size. In recent years,the tea estates constituted the largest outlet (Table 1.7) but they areconsidering switching from coal to fuelwood grown on their own planta-tions, for reasons of cost and reliability. However, they should remain

70/ A small-size 33-kY interconnection was constructed many years agobetween Tanga and Mombassa. The line is no longer operational andits status and condition are not known.

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a firm although relatively static market through the rest of the 1980s,because of the long gestation period associated with fuelwood planta-tions. Until 1979, tobacco curing was the second largest outlet forcoal; since then, the tobacco estates have discontinued coal use due tohigh transport costs and those costs can be expected to continue toinhibit the development of the tobacco curing market in the future, evengranted the overalL scarcity of fuelwood. Since 1982, the Mbeya cementplant has become an important coal consumer, capable of consuming up to60,000 tpy of coal. Its kilns are fitted to use both coal and fuel oilalthough it was hoped that the plant would run exclusively on indigenouscoal. However, during the next three years it may be necessary for Mbeyacement to use fuel oil or coal imported from Zambia in view of theexpected short-term constraints on the supply of domestic coal (TabLe2.4). Finally, the coal industry is unlikely to be able to look towardshouseholds and rural industries to absorb significant additional coalquantities. At least within close proximity to the coal mine, coal iscompetitive with charcoal in terms of price (TSh 40 per 100 kg for coalcompared with TSh 130 per 100 kg for charcoal); but price is not the onlyfactor in consumer choice. For cooking, coal has roughly the same heat-ing value as charcoal but it is smokey and much denser; also, the typesof cooking stoves and pots used by households are not suitable for coalburring. Coal distribution facilities are inadequate and there is insuf-ficient awareness of coal usage techniques. Therefore, it is unlikelythat local households and small enterprises will greatly increase theirconsumption of coal in the short-term without an intensive coal promotioneffort and the provision of suitable cooking equipment - unless charcoalprices increase sharply due to scarcity. Granted the modest potentialfor an increase in household coal consumption, such efforts may not beeconomically justified at present and may be better applied towardsimproving the efficiency of the traditional charcoal "Jiko" (paras. 5.31-5.33).

Electric Power Generation

4.76 Looking at the possibilities for finding new markets for coal,power generation would make the greatest impact. Tanzanian coal appearsto be technically suitable for use in power generation and TANESCO hasshown a clear interest in constructing a 100 MW mine-mouth coal-firedpower station capable of consuming up to 350,000 tpy, perhaps as the nextadditional increment of generating capacity after the Mtera hydropowerplant. Expected benefits were: (a) low anticipated production costs;(b) low construction costs for transmission lines, since the intercon-nected grid is expected to reach Mbeya by 1986; and (c) reduced vulner-ability of the present hydro-dominated power system in years of drought.

4.77 However, two recent developments have to be considered. First,the mission's projections for electrical Load growth indicate that noextra generating capacity will be required in Tanzania before 1992, evenunder the "SAP" scenario (para. 4.54). SecondLy, the recent discoveriesof natural gas seriously reduce the economic attractiveness of coal forpower generation. Average generating costs for gas-fired plants are

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estimated by the mission at about USc4.l/kwh, compared to average gener-ating cost of USC8.4kwh for a coal-fired plant, even at a coal cost ofUS$25 per ton. Other comparative disadvantages of a coal-fired plantare: (a) the Longer construction period; (b) higher initial capitalcosts; and (c) a higher risk of transmission line failures and more com-plex load management procedures (due to the relative remoteness of amine-mouth plant from the major load centers). Although a coal-firedplant should certainly be included among the alternatives to be con-sidered by the long-term power generation study being prepared under theFourth Power Project, the mission concludes that a coal-fired power plantis unlikely to be the next increment of thermal generating capacity inTanzania (para. 4.55; 4.58).

The Industrial Market

4.78 If it is confirmed that power generation holds no prospect as amarket for coal in the foreseeable future, the only other single largedomestic market would be in the industrial sector. This market is clear-ly more uncertain than that for power generation, given the present lowutilization of industrial capacity (30Z-35Z); it is also much moredispersed geographically, given the location of the industries which inprinciple are most suited for coal utilization. The Mufindi Pulp andPaper Mill has boilers which can use either coal or fuel oil but it hasrecently decided to modify its boilers further to consume tuelwoodbecause of the anticipated short-term supply constraint for domestic coaland the di"'icult logistics and high cost of imported coal or oil (paras.2.29; 4.87; 4.103). It remains to be seen whether the mill will switchto domestic coal, when the latter becomes available in sufficient quan-tities. A recent study recoamended that the cement plants at Wazo Hill(in Dar-es-Salaam) and at Tanga convert to coal use instead of fueloil. 711 However, indigenous coal in its unwashed form is not suitablefor irazo Hill; beneficiation would be necessary and there is insufficientknowledge about the coal quality characteristics to determine whetherbeneficiation of indigenous coal would be a worthwhile venture. Althoughthe Tanga factory can accept unwashed indigenous coal, the difficult log-istics of transhipment from TAZARA to TRC are a negating factor. 72/Other identified potential users include the brick-making industry atDodoma and the textile industry around Mwanza -- in the north-east of thecountry - but, here again the logistics factor and high transport costspresent problems (paras. 4.82-4.86).

71/ "Conversion from oil -to coal firing at Wazo Hill and Tanga CementFactories" by NORCEM engineering Co., 1982.

72/ Therefore, NORCEM has recommended the use of imported coal fromMozambique for Wazo Hill and Tanga.

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The Coal Export Market

4.79 Finally, in view of the bleak prospects for the domestic coalmarket, the possibility of coal exports needs to be considered. On aregional basis, preliminary analysis does not indicate a secure marketfor Tanzanian coal. Malawi, the nearest neighbor to the coalfield area,already imports coal of similar quality through established transportchannels from Mozambique, South Africa and Zimbabwe. Zambia also pro-duces its own coal. Uganda and Kenya are not significant coal consumersat present, although the latter is preparing a study to investigate itspotential for a major coal-conversion exercise.

4.80 On the international front, established producers such asAustralia offer better quality coal at more competitive prices (currentlyUS$46.0 per ton f.o.b.). Although some price projections indicate anaverage f.o.b. price of US$56.0 per ton by 1995, 73/ Tanzania's abilityto produce competitive coal will depend very much on its ability to mini-mize the costs involved in production, transport, storage and handl-ing. 74/ Other factors to be considered include the future levels ofeconomic activity in major coal-importing countries -- such as WesternEurope and Japan - and whether future oil price increases will stimulatea move towards more coal utilization in power generation.

4.81 Two particular factors have been touched upon in the precedingparagraphs in discussing the demand for coal: ti) the reliability ofsupply; and (ii) price competition in the industrial market from alter-native fuels. It is worth considering these two factors in more detail.

Reliability of Coal Supply

4.82 The transport sector would play a major role in assuring thereliability of coal supplies to potential users since the coalfields arerelatively remote from major industrial centers, with the ezception ofMbeya. There are several constraints to be overcome. First, shortagesof foreign exchange and import restrictions have caused a shortage ofspare parts and replacements for both the trucking and the railway sub-sectors. This has resulted in low operational efficiency and uncertaindelivery schedules all over the country. Therefore any large-scaletransportation of coal will require close cooperation between the mineofficials and the transport sector - as well as capital investment intrucking capacity, extra locomotive power and special bulk wagons.Secondly, the high cost of petroleum products is reflected in hightransport costs, especially for the trucking subsector. Consequently,

73/ These prices are expressed in constant 1981 price levels.

741 The Southern Africa Development Coordination Conference (SADCC) ispreparing a project in this context for its member countries as awhole.

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any shipment of coal to destinations further than Mbeya would have torely primarily on the railways and on TAZARA in particular. Thirdly, therailway networks are such that TAZARA serves only Mbeya and Dar-es-Salaamout of the major industrial centers, while the other main centers areserved by TRC (which has even more operating problems than TAZARA). Theonly interface between the two railway systems occurs at Kidatu and Dar-es-Salaam; thus any consignments of coal to the northern and centralregions would imply investment in intermediate storage and trans-shipmenthandling facilities at either interface as well as a greatly increasedrisk of delayed deliveries. For example, coal utilization at Dodomabrick works would require a 600 km journey via TAZARA; trans-shipment andthe likelihood of intermediate storage at Kidatu; plus another 400-500 kmby TRC.

The Delivered Cost of Coal

4.83 In assessing the competitive position of coal relative to otherfueLs in the industrial market, four principal elements need to beexamined: (a) ez-mine production costs; (b) bulk transport costs, i.e.from the mine to a bulk delivery point; (c) local distribution costs,i.e. handling, storage and transport at and beyond the bulk deliverypoint; and (d) conversion costs in the case of consumers whose equipmentis based on alternative fuels. The main competing fuels with domesticcoal in the industrial market are fuel oil, imported coal, and -- in thefuture in Dar-es-Salaam -- natural gas.

4.84 The precise level of ex-mine production costs which willprevail at each of the three potential mine sites can not yet be deter-mined but it was concluded in para. 2.29 that the lowest range is likelyto be US$25-30 per ton. Bulk transport costs will in most instances be amuch more significant component of the final delivered cost; hence themission has made a preliminary rough estimate of bulk transport costs andthe corresponding delivered cost for three significant destinations:Mbeya, Mufindi and Dar-es-Salaam; all lie on the TAZAkA line. Cor-responding estimates were made of the delivered cost of fuel oil to thesame three destinations. The detailed calculations are in Annex 11 fortwo cases, one making more pessimistic assumptions then the other aboutproduction costs per ton and transport costs per ton-km. Table 4.5 sum-marizes the results and expresses the cost of coaL (per toe) delivered toa bulk delivery point in the three destinations as a percentage of thedelivered cost of fuel oil (per toe).

Table 4.5: COAL COST AS PERCENTAGE OF OILCOST IN TOE

Destination "Pessimistic" "Optimistic"Case Case

Mbeya 32 29Mufindi 58 55Dar-es-Salaam 97 80

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4.85 In the absence of new plant installations specifically designedfor coal utilization, such as Mbeya Cement Plant or Mufindi Pulp andPaper MiLl, capital outlays with a foreign exchange component will benecessary for new coal-handling and storage facilities as well as forboiler conversion. Cenerally, the capital and operating costs of coal-fired boilers are higher than those of oil-fired boilers and to thatextent the delivered cost of coal should be substantially lower than thatof fuel oil. Although only a careful study on a plant-by-plant basis candetermine the exact relationships involved, the mission believes thatcoal is not likely to be competitive with fuel oil if its delivered costat the bulk supply point exceeds 70Z of that of fuel oil on an oil equi-valent basis. 75| If so, coal is not presently competitive with fuel oilin Dar-es-Salaaam. Probably, the utilization of coal for industrial pur-poses should not be undertaken at locations much further than 300 km fromthe coal-producing area (Annex 11). If international oil prices rise ata faster rate than those of coal, Tanzanian coal would become moreattractive at destinations further from the coal fields. According tocurrent price projections, the f.o.b. price of crude oil in 1995 will beabout US$39 per barrel -- expressed at 1981 price levels -- an increaseof 33Z over the present price of US$28.7. 76/ Such an occurrence wouldenhance the viability of conversion to coal for industrial consumers.

4.86 However, by that time natural gas is likely to have penetratedthe Dar-es-Salaam market at a cost which is even lower than the presentcost of fuel oil in constant price terms. According to missionestimates, the average gas supply cost (including final distribution andconnection/conversion costs) is not expected to be higher than US$90.3per toe and may be as low as US$37.3 per toe - depending on potentialdemand for gas in Dar-es-Salaam and on gas supply system chosen. 77/This is substantially below "optimistic" bulk delivery estimates forindigenous coal in Dar-es-Salaam of US$116.0 per toe, and the opportunitycost of fuel oil US$145.7 per toe (Annex 11).

4.87 Although imported coal would be competive with fuel oil forWazo Hill cement plant in Dar-es-Salaam, it is not competitive withnatural gas (cost of Mozambique coal c.i.f. Dar-es-Salsam is aboutUS$117.0 per toe). Inland, imported coal faces the same transport prob-lems and costs per ton-km as domestic coal. Therefore potential forimported coal is presently confined to coastal industries that are notsituated in Dar-es-Salaam e.g. Tanga Cement Plant (para. 4.78).

75t Cement plants are a notable exception in that they would incur muchlower conversion costs than other plants.

76/ World Bank projections, July 1983.

77/ Gas supply costs will vary according to anticipated demand and typeof gas supply system chosen, as discussed in paras. 4.29; 4.31 andAnnexes 6 and 7.

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4.88 In view of these limitations on the potential market for coalin the foreseeable future outside the Mbeya area, the coal subsectorcould only be expected to play any significant role in the nationalenergy sector in the long term. However, two studies are recomuended.Since the market prospects for coal are very sensitive to its delivereccost, the first would examine the economic costs of delivering coal tothe principal markets and consumers, in order to determine the economiclimits on coal distribution beyond the Mbeya area. The second wouldexamine carefully the market within the Mbeya area, to identify realis-tically the potential demand among industrial, commercial and householdconsumers, taking into account the costs of converting from other fuels(such as fuel oil and fuelwood). Furthermore, the IDA Coal EngineeringCredit (para. 2.23) should proceed as there is a need to appraise furtherthe Songwe-Kivira field to obtain a better idea of potential productioncosts. Following these studies, the economic potential for coal develop-ment can be further clarified.

Fuelwood

4.89 In Chapter II, it was estimated that there are about 44 millionhectares of miombo forestland, village woodlots and in ustrial planta-tions with a potential production of perhaps 20 million m p.a. Bowever,the Forestry Department estimates that only 80% of the miombo forestlandis accessible, so that the total supply of fuelvood on a sustainablebasis is only about 16.0 million m . Accordifg to Table 3.4, the esti-mated annual demand in 1981 was 39.2 million m , i.e. nearly two and one-half times the mean annual increment (MAI). The difference betweenannual consumption and the MAI represents overcutting and resulted in aloss of more than 23 million m3 from the nation's forest capital in 1981alone. In a non-project scenario,the current exploitation reduces theproductivity ofthe natural forest by 1.8%. Given an annual populationgrowth rate of 3.32, the sustainable output of the natural forest couldshrink to 75Z of its current output by the end of the century. Theproblem is further aggravated by competing claims on the land for agri-culture and livestock, since widespread use of cattle dung and agricul-tural residue depletes the agricultural soils and more land would berequired to produce the same amount of food.

4.90 Although global figures of this kind can be misleading, in thesense that the distribution of forest resources does not coincide withthe distribution of population, Table 4.6 shows that overcutting istaking place in 17 of the 20 regions of Tanzania. According to ChapterIII, assuming a continuation of the present levels of per capita consump-tion, population growth can be expected to increase the demand for fuel-wood by about 40X over the coming decade and by more than 50% through1996; meanwhile, in the absence of vigorous new initiatives, overcuttingwill increase and the MAI will progressively decline, with severe con-sequences for future fuelwood supply and for Tanzania's ecologicalbalance.

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Table 4.6: POPULATION AND FUBLWOOD SUPPLY, DEMAND AND DEFICIT, 1981

Population Supply Demand Deficit

(103) (103 m3) (103 m3) (103 m3)

Mwanza 1,585 117 3,176 3,059Mara 782 114 1,567 1,453Kilimanjaro 1,002 109 2,004 1,895Mtwara 812 215 1,627 1,412Kagera 1,167 240 2,339 2,099Tanga 1,121 493 2,256 1,763Shinyanga 1,504 592 3,024 2,432Pwani 533 464 1,085 621Arusha 1,069 606 2,141 1,535Dodoma 1,064 718 2,132 1,414Iringa 1,001 1,183 2,076 893Mbeya 1,205 1,334 2,480 1,146Kigoma 713 704 1,428 724Morogoro 1,024 1,096 2,052 956Tabora 973 1,768 2,340 572Ruvuma 629 1,300 1,420 120Rukwa 535 1,486 1,1O0 (385)Singida 670 1,403 1,348 (55)Lindi 553 1,650 1,112 (538)Dar-es-Salaam 1,195 1 2,395 2,394

Total 19,137 15,593 39,103 23,510

Note: The fuelwood figures are in terms of roundwood equivalent and aretaken from Annex 2 (Demand) and Annex 3 (Supply). The 1981 supplyis equated with the mean annual increment. Figures in parenthesisin the "deficit" column represent a surplus.

4.91 Given limited funds and manpower resources, time constraints(rotation takes five to seven years) and the high costs of estabLishingfuelwood plantations, it is unlikely that Tanzania would be able to meetits fulwood demand by plantations alone. The total deficit of 23 mil-lion m (para. 4.89) would require plantations of 1.3 miLlion ha in ruralareas and 250,000 ha near the cities. Over a period of 20 years, thisrepresents an annual plantation program of 75,000 ha. In light of thecurrent plantation activities of only 6,200 ha p.a. for the entirecountry, the mission believes that Tanzania is not prepared for such alarge program. Hence, the mission recommends setting up gradually theeducational, organizational and financial structure which is necessarybefore wood production can be increased to the required level.

4.92 Forestry research in Tanzania - as elsewhere -- has not yetbeen able to deveLop appropriate Low-cost planting or reproduction

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systems, agro-forestry schemes and satisfactory management of naturalforests. Worldwide efforts are now underway and it is likely that in thenear future cost-efficient and ecologically sound technical packages forfuelvood can be offered. The mission recommends that Tanzania parti-cipate in these research efforts, which should also be supported byspecific training programs. Research should focus on increasing biomassproduction in plantations, agro-forestry schemes and natural forests bydeveloping: (a) faster reproduction; (b) better genetic selection;(c) cloning; (d) tissue cultivation; and (e) improved silvicultural man-agement, such as optimal spacing, thinnings and timing for harvesting.Training should: (a) equip staff to carry out local adoption trials andan expedient application of research results; and (b) be improved toenable the technical, operational and managerial staff to handle the newkind and the larger size of the task.

4.93 In parallel with these efforts, the mission recommends that theCovernment improve the organization and implementation of fuelwood pro-duction schemes based on the current state of the art. Two main initia-tives must be strongly encouraged:

(a) first, although overcutting is reducing steadily the extent ofthe miombo forests, it should be recognized that they willremain the chief source of fuelwood supply for many years tocome and in consequence their productivity should be increased.The Forestry Directorate of MNgT estimates the MUI of miomboforest to be in the range 0.5 m to 1.0 m of solid wood, whichis equivalent to a growth rate of only 1X-2Z p.a. There isevidence that, with proper silvicultural management, outputcould be doubled on a sustained basis. For examole, while themiombo forests represent the best balanced botanical associa-tion of tree species, some reduction in the number of treespecies may be warranted to support the most productive types;also, enrichment plantings with fast-growing species and theintroduction of cutting cycles would help to maximize the woodproduction of certain key species. However, existing knowledgeof the growth dynamics and productivity of the miombo forestsis limited; more research into increasing the MAI is recom-mended (e.g. through improved silvicultural management prac-tices, protection of the resource a*d control of cutting withinthe MAI). Furthermore, efforts should be made to increase theaccessibility of the miombo forests beyond the present level ofabout FtOZ (para. 7.14);

(b) secondly, the village woodlot program, in contrast to the com-munal woodlots, appears to have achieved some limited successin recent years although little support was provided by aninadequately staffed end underfunded extension service. 78/

781 The response to communal woodlots was disappointing and will nolonger be pursued on a national scale.

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The Government was able to distribute nearly 80 million seed-lings over a period of 8 years concentrating on individualfarmers, villagers and schools. As a result of the favorableresponse of farmers, the Government has recently established aVillage Afforestation Division (para. 6.20) wbich will increaseseedling production and extension efforts. Although the basicadministrative infrastructure is now in place for a rural wood-lot program the mission believes that the farmers would do muchbetter if the following support could be provided: (a) im-proved technical packages with better adapted genetical mate-rial for maximizing wood production; (b) inclusion of nitrogenfixing trees into the farming systems; (c) integrating exten-sion for fuelwood and agro-forestry into the agricultural ex-tension service. Forestry specialist input should be providedby subject matter specialists for agricultural extension.Assuming that 0.5 ha would provide 8 m of wood per year on asustained yield basis for a family of 5, as little as TSh6O(for tools) and about 25-27 man/days (for establishment andmaintenance) would be required. However, with the currentmethods and productivity of species now used, the rural areaswould need to plant more than 100 million seedlings per yearover a twenty-year period. Seedling production costs alonewould amount to TSh6O million.

4.94 In contrast to the rural areas, cities require large-scaleplantation blocks in their close v .cinity. It is estimated that thecurrent urban deficit is 4 million mi p.a. which would require 250,000 haof plantations. A 20 year program would require an annual investment ofat least TSh 94 million.

4.95 There appears to be a need for an improved strategy of revenuecollection, higher fees, and an increased investment in revenue collec-tors. The mission recommends: (a) that a study be conducted of revenuecollection practices by both Government and local authorities to recon-mend improvements in methods and control and distribution of staff;(b) that the fees for wood be raised from the current level of aboutTSh6.4 per m3 for wood from natural forests and TSh2.9 per 3 for woodfrom plantations to the replacement value of about TSh60 per m (the rateat which this can be done will depend on the rate at which better controlof the resource can be achieved) and that during this period market woodprices in urban areas be carefully monitored; (c) that a substantialincrease in budgetary allocations by Treasury for forest guards/revenuecollectors be voted to reduce access to free wood in Covernment Reserveareas.

4.96 As explained in paras 4.92-4.93 above, a program for rural andurban plantations would cost about TShi54 million p.a. This seems hardlyrealistic, given the annual budget of TSh3O million for the VillageAfforestation Division and the fact that already more than 95% of thetotal development and recurrent budget of the Forestry Directorate as awhole is financed by foreign assistance. Nevertheless, the mission

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believes that, given the fuelwood crisis which would indirectly affecthealth and nutrition, a case could be made for greatly increasing thebudget of the Village Afforestation Division, if foreign aid covers atleast 95Z of the rural and urban afforestation cost over the next fiveyears.

4.97 Therefore the mission proposes a first-phase program whichwould strengthen and increase the production and distribution of seed-lings and include research, training, studies, improved extension, pricemanipulation, legislation, silvicultural management of natural forestsand a comparatively modest plantation program. Such a program would laythe groundwork for a comprehensive second-phase fuelwood program in theearly 1990s and should be carefully attuned with other priorities in theforestry sector. Studies (covering land capability, forest inventory andrevenue coLlection), a research program (yet to be defined in detail) andtraining programs would cost in the order of TSh200 million. Other com-ponents whose cost has not yet been quantified should be (a) evaluationof potential charcoal and/or biomass briquetting in regions with under-utilized forests to supply urban markets; (b) production and distributionof improved charcoal stoves; and (c) associated institutional arrange-ments (paras. 5.25-5.33). The afforestation program, while modest, isrealistic, given the existing financial and manpower resource con-straints. It consists of two components. First, a rural woodlot com-ponent starting with the production and distribution of 10 millionseedlings p.a. and reaching a level of 30 million seedlings by year 5,which would have a baseline cost of TSh7O million for those years. 79/The second component would deal with plantations for urban supply offuelwood and charcoal; planting could start with 1,500 ha in the firstyear and reach 7,500 ha in year 5. The baseline cost for five yearswould be TSh170 million (para 7.4).

Nonconventional Energy

4.98 The net availability of surplus softwood, logging residues andwood processing wastes should amount to at least 23,000 toe annually inthe coming decade, even under very conservative assumptions (para. 2.35).In addition, coconut residues (shells, husks and stems) could contribute50,000-60,000 toe p.a (para. 2.36). While these energy resources areoften remote from the main population centers and they could contributeonly a very smaLl percentage to the gross energy supply, 80/ a programfor their exploitation is worth pursuing since they would substitutedirectly for fuelwood and imported petroleum products -- notably gas oil.

79/ This includes funds for research, development and improvement of thetechnical package for maximizing the biomass production and for anexpanded extension service.

80/ Less than 1Z of even the 1981 gross energy supply.

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4.99 In the vicinities around the supply sources, e.g., in a coconutprocessing area, the use of residues as a supplemental cooking fuel isalready likely to be practiced to some extent; efforts should be directedtowards substantially expanding the quantity and modes of usage. Forother areas, the main constraint to substitution will be transport costs.The focus of the program should therefore be towards the conversion ofresidues into charcoal and the development of a distribution system forthe product. The mission supports the recommendations which have alreadybeen made along these lines by SIDA to: (a) conduct energy marketstudies in five areas with the largest projected softwood surplus 81/;(b) identify appropriate methods for making charcoal and briquets fromresidues and for distributing the fuels to specific markets; and (c) con-duct a comprehensive study of the resources potential, conversion tech-niques and markets for coconut industry residues (para. 2.36).

4.100 Attention should also be focussed on the possibilities forutilizing woodwastes and crop processing residues right in the industrieswhere they are produced as replacements for gas oil consumption (paras.2.35-2.38). The second priority should be given to the exploitation ofsurplus softwood and logging residues which, for transport reasons, wouldbe a more expensive fuel than mill residues. In terms of availabletechnologies, direct combustion systems using stean are well-proven andshould generally be considered for applications above 500 kw. Forapplications beLow 500 kW, as in small sawmills, gasifiers may be a moreeconomical option. While gasifiers are commercially available fromseveral sources, the technology is not as well proven as that involved inconventional steam systems. Moreover, wood, wood charcoal and cc-onut-shell charcoal are the only biomass fuels that are known to work wellwith present equipment. Hence, any conversion program involving gasi-fiers must be preceded by a demonstration phase aimed not only at fami-liarizing end-users with the technology but also at developing trainedmanpower for maintenance work. In the initial phase, it would be prudentto limit fuel use to charcoal only. Despite energy losses in carboni-zation, charcoal is a much easier fuel to employ in gasifiers (primarilydue to simpler gas cleaning requirements), thus reducing the risk offailure of any conversion project.

4.101 in this respect, the mission supports a SIDA/TWICO projectwhich was started in late 1982. The project is intended to demonstratethe use of biomass power gasifiers for sawmills and small rural powerapplications. A 10-25 kVA charcoal-fed gasifier imported from Sweden isbeing instalLed at Arusha Fibreboard Ltd. for testing. Although the mainfocus of the gasification project is the conversion of diesel engines inTWICO sawmills to dual-fuel operation, it is planned to look as well atopportunities to apply the technology to small-scale irrigation and theelectrification of remote rural areas.

81/ Buhindi-Rubya-Rubare; Meru-Kilimanjaro-Usa; Shume-Magamba; Kwatere-Kiwira; and Ukaguru.

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4.102 Unlike stationary power gasifiers, gasifiers for vehicles arenot viewed by the mission as an application that could become practicalfor Tanzania in the near term, except possibLy for lorries used fortransporting charcoal from forest sources to urban markets. In thisinstance, transport fuel availability coincides with the need to haul theproducts.

4.103 For direct combustion, efforts should be made to identify otherconversion opportunties similar to those in the Mufindi Pulp and PaperMill (para. 4.78). A recently approved Bank project will finance theconversion of the power boiler at the Mill, which was originally designedto use coal and oil, to enable it to use wood and logging wastes. 82/ Atfull operyting capacity in 1988, the boiler would be utilizing some250,000 m /yr of softwood and wood residues from the Sao Hill planta-tions. FinaLly, biomass resources may become economic fuel options forelectrifying some remote rural -areas of the country. For Ukerewe Islandoff Mwanza, the government plans to determine the feasibility of utiliz-ing softwood from the Rubya plantations to generate electricity. Preli-minary estimates indicate the availability of enough surplus pulpwood inthe area to sustain up to 3 MW. The delivered cost of diesel in theisland exceeds TSh 10,000 per ton (early 1983). The remoteness of theIsland from the main grid combined with the availability of surplussoftwood in existing plantations in the site may make the dendrothermalpower option economic. In the mainland, however, the proximity of mostrural areas to the main grid and the need to estabLish short-rotationfuelwood plantations to provide sustained wood supply to the power plantwould very likely make dendrothermal electricity a more costly alterna-tive than natural gas or hydroelectric power.

4.104 The German agency GTZ appears to be involved with TANESCO andMafia Coconut Ltd. in a planned feasibility study to convert the TANESCOgenerating station at Mafia Island from diesel to producer gas, using thecoconut residues which abound on the island. Some 10,000 tons ofresidues are believed to be available on an annual basis, in principlesufficient to meet the total energy demand of the island. Similar planshave been discussed for Pemba Island and Zanzibar but these appear to bein an even earlier stage than the Mafia study. These plans, while worthpursuing, must be carefully evaluated in conjunction with the futuredevelopment of large-scale alternative energy supply sources in thevicinity, such as natuiral gas.

4.105 Chapter II concluded that the theoretical energy potential ofanimal wastes is considerable, i.e. in excess of 46,000 toe p.a (para.2.39). Such wastes, if converted to biogas, could substitute for fire-wood for cooking in areas with a high concentration of cattle. Probablythe major constraint on the wider use of biogas is the high capital

82/ IDA Credit No. 875-TA, Mufindi Pulp and Paper Mill - TechnicalAssistance and Energy Conversion Project.

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investment required. In Tanzania's case, there is also a high foreignexchange requirement for importing the steel needed for fabricating gasholders. SIDO gobar gas plants ranged in cost from TSh5,400 for a unitwith 2 m3 capacity to TSh35,000 for a unit of 20 m3 in 1980. The currentpjice rangje is TShl6,200-112,500 for installations with a capacity of 1m to 45 m . At present prices (as shown in Tabl 4.7), the cost perthousand useful kilocalories of biogas from a 3 m family-sized plantwould be. around TSh4.4, excluding operating and waste disposal costs,compared with TSh3.6 for wood used in traditional stoves, TSh2.9 forcharcoal used in unimproved "Jikos" and TSh1.8 for kerosene bought at theofficial rate of TSh4.75 per liter. Cooking costs with biogas becomecompetitive with fuelwood only at digester sizes well above 10 m3. Thepresent emphasis, therefore, on institutional installations is wellplaced, although future installations should aim at higher capacities.More efforts should also be directed towards identifying suitable appli-cations of biogas for productive rather than consumptive purposes, e.g.running engines.

4.106 From the discussion in Chapter II, it is seen that there islimited scope for residues generated from the cashewnut, maize and sugarindustries to contribute to national energy supplies. The conversion ofcashewnut residues to bricquetted charcoal in a proposed factory wiLlresult in a costly fuel suitable only for export; the use of maize cobsfor village grinding mills has not proved economic; capital investment inthe sugar industry to generate surplus electricity from bagasse isunlikely to be justified; and a project to produce power alcohol frommolasses by-product has been shelved due to its marginal viability (para.2.37-2.38; 2.40-2.41).

4.107 For solar and wind energy, the immediate applications arelikely to be limited to the areas of solar water heating and wind pumping(water supply). The objective should be a substantial expansion in thenumber of these modest but proven applications rather than expand re-sources on highly experimental ones. Research should be oriented towardsdefining feasibility in specific sites and in adapting available hardwarerather than conducting broad technology studies. With regard togeothermal energy and Tanzania's possible uranium deposits, the missionenvisages no economic case for their development to serve domestic energyneeds in the foreseeable future (para 2.42-2.43).

Conclusions

Commercial Energ

4.108 The mission has quantified the impact of implementing thevarious supply and inter-fuel substitution options for the commercialenergy subsectors which have been discussed in Chapter IV. The 'SAP"scenario is taken as the basis for projections of commercial energydemand, using the years 1986, 1991 and 1996 as reference points. Final

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demands for total commercial energy and the split between electricity andother commercial energy are from Table 3.5.

4.109 Commercial energy demand other than electricity would be metfrom coal, petroleum products and natural gas. Illustrative materialbalances for the petroleum subsector are set out in Table 4.8. Thefollowing assumptions are used in constructing the Table:

(a) given the limited role seen for coal, provisions of 17,29 and36 thousand toe for coal supply in 1986, 1991 and 1996 respec-tively would be ample to satisfy demand 83/; supplies of thatorder could easily be made available within the present plansfor expansion at the Ilima coLliery and the proposed mine atIvogo Ridge; hence, the final demands to be met from petroleumproducts and gas in 1.986, 1991 and 1996 would be (in thousandsof toe): 762, 1007, and 1383 respectively;

(b) these final demands can be converted to petroleum productequivalents using typical relative market shares for thedifferent products observed in the recent past 84/;

(c) the refinery processes 750,000 tpy of crude of a type optimalfor the TIPER facilities and the various measures to improveefficiency identified in para. 4.15 are implemented;

(d) natural gas becomes available after 1986 but before 1991;

(e) industrial gas demand substitutes for gas oil, IDO and fueloil, according to the quantities identified in para. 4.33 andAnnex 10; and

(f) no provision is made for CNG/LNC use in transport.

4.110 Electricity demands in the interconnected system are assumed tobe met entirely from hydroelectric sources and gas-fired plant throughoutthe projection period (Tables 4.2 and 4.3). Consequently, petroleumproducts -- in the form of gas oil and IDO -- are required only tooperate the diesels in the isolated systems, according to the demandprojections in Table 3.3. The corresponding consumption of gas oil/industrial diesel oil is added to the requirements for final petroleumproducts' consumption in Table 4.8, assuming that diesel plants in theisolated systems are rehabilitated as proposed in para. 4.69.

83/ The increases are primarily to provide for the Mbaya Cement Plant.

84/ Before significant constraints on the supply of specific productstook effect.

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Table 4.7: COMPARATIVE COOKINS COSTS

Kcal End-Use

Fuel Unit Cost per Unit Efficiency Cost

(TSh per unit) % (TSh per 103 kcal)

Wood kg 1 3,500

(traditional stove) 8 3.6

(improved stove) 15 1.9

Charcoal kg 4 7,000

(traditional stove) 20 2.9

(improved stove) 30 1.9

Kerosene 1 8,000 30

(official price) 4.75 1.8

(black market price) 10 3.8

Biogas m3 5,400 50

(3 X ssize) 11.8 4.4

(45 *3 size) 4.4 1.6

LPG kg 5.65 10,800 50 1.1

Electricity kWh 0.75 860 70 1.25

Notes: 1. Firewood prices are the average for Dar-es-Salaam; prices are lower in village

markets.

2. For biogas, the following assumptions are used: capital cost at 3 m3 capacity-

TSh2O,000; at 45 mn capacity-TSh112,500; gasholder - 35% of cost, replaced every

10 years; pipelines and accessories - 30% of cost, replaced every 15 years; di-

gester I ifetime - 30 years; 0 & M - 5% of cost/yr; discount rate - 12%; cattledung - 45 I gas/kg fresh dung; retention time 50 days; ratio: 1:1; 360 days/yr.

3. The residential electricity tariff has been used, with consumption over 100 kWn

per month.

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Table 4.8: PETROLELRM SUBSECTOR MATERIAL BALANCES: 1986, 1991, 1996(Petroleum Product Equivalents In 103 toe)

LPG, Av, Gas, Gaso- Gas Industrial Fuel Total ProductKerosene, Jet line Oil Diesel Oil Oil Equivalent

1986 Final Consumption 152 130 282 61 137 762Refinery Production 99 146 153 58 253 709

Deficit (Surplus) 53 (16) 129 3 (116) 53

Gas Substitution _ - - - - _

Deficit (Surplus) 53 (16) 129 3 (116) 53

Electricity Generation - - - 8 - 8Imports (Exports) 53 (16) 129 11 (116) 61

1991 Final Consumption 201 171 373 81 181 1,007

Refinery Production 99 146 153 58 253 709

Deficit (Surplus) 102 25 220 23 (72) 298Gas Substitution 1 - 5 - 117 123

Oeficit (Surplus) 101 25 215 23 (189) 175

Electricity Generation - - - 11 - 11

Imports (Exports) 101 25 215 34 (189) 186

1996 Final Consumption 276 235 512 111 249 1,383

Refinery Production 99 146 153 58 253 709

Deficit (Surplus) 177 89 359 53 4 674

Gas Substitution 1 - 6 - 146 153

Deficit (Surplus) 176 89 353 53 (150) 521

Electricity Generation - - - 14 - 14

Imports (Exports) 176 89 353 67 (150) 535

Notes: 1. The total for -Final Consumption" is "Other commercial energy" demand in Table3.5 (from the "SAP" scenario) minus allowances for coal of: 17,000 toe (1986);

29,000 toe (1991); and 36,000 toe (1996).

2. Total final consumption is divided into product equivalents by taking typical

relative market shares in the recent past, as follows: gasoline, 17%; gas oil,

37%; IDO, 8%; fuel oil, 18%; and others, 20%.

3. Refinery production assumes the improvements described in para. 4.15 which would

reduce refinery losses to 5.5% (41,000 tons).

4. Gas substitution converts gas into product equivalents on the basis of heat

content (1 toe = 40.5 mcf).5. Gas substitution is assumed to be for gas oil rather than 100 although in

practice it would be a mixture of the two.

6. Petroleum products in electricity generation are needed only in the isolated

systems. The fuel is supposed to be 100, converted at 0.25 kg/kWh (after

rehabilitation of the diesels) to meet generation requirements as follows: 31

GWh (1986); 42 GWh (1991); and 57 GWh (1996).

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4.111 Imports and exports of petroleum products are derived in thefinal line for each reference year in Table 4.8. To these must be addedcrude oil imports of 750,000 tpy to obtain total petroleum imports in1986, 1991 and 1996. Table 4.9 summarizes the results and converts theminto US$ value equivalents to illustrate, in broad terms, the implica-tions for the balance of payments; actual US$ values for 1981 areincluded for comparison.

4.112 Gas substitution has the effect of reducing net petroleumproduct imports by 123,000 toe and 153,000 toe in 1991 and 1996 respec-tively; these reductions are worth US$19.0 million and US$32.7 million inforeign exchange savings. Even so, net imports of petroleum in physicalterms compared with 1981 climb by 8%; 25%; and 72% in 1986, 1991 and 1996respectively; the corresponding changes in value terms are: -17% 85/;+16%; and +92%. The implications for the refinery of the illustrativecalculations in Table 4.8 are that the foreign exchange savings comparedwith imports are likely to be reduced below the level stated in para.4.15. Although the output of each product from the refinery is heldconstant in Table 4.8, a higher volume of residual oil must be exportedrather than used locally as fuel oil following gas substitution; and thef.o.b. value of residuaL exports is less than the c.i.f. value of fueloil imports. To the extent possible, the mission recomends that bunkersales be increased to minimize the adverse affects of extra residualexports. However, even if bunker sales remain constant, the refinery'sforeign exchange savings are substantial unless the world market condi-tions for residual exports significantly depress the price. 86/

4.113 The conclusions concerning the likely trend in the future valueof net petroleum product imports give a considerable added emphasis tothe potential benefits which could be associated with the utilization ofnatural gas in the transport sector. Table 4.8 makes no allowance forthe penetration of CNGILNG in the market for gasoline and gas oil. Asstated in para. 4.49, if a satisfactory CNG operation is established inthe UDA public buses, the conversion of additional buses and of otherusers -- notably cars, trucks and perhaps railway locomotives - couldfollow. An illustative scenario of the potential impact is instruc-tive. The assumed objective is to convert 7,500 cars/light vehicles and3,100 buses/trucks in Dar-es-Salaam by 1995. To reach the objective:

85/ The decline in 1986 is due to projected declines in world prices forcrude and petroleum products between 1981 and 1985.

86/ For example, if the price differential between imported fuel oil andexported residual is as high as US$35 per ton, while bunker salesremain at the 1983 level, the refinery's foreign exchange savingswould be reduced by the following amounts in 1986, 1991 and 1996respectively; US$0.7 million; US$2.5 million; and US$1.8 million.Furthermore, local production of bitumen could increase the value ofexcess residual fuel oil.

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(a) conversion kits or dual-fuel engines are imported, starting at 350units in 1985, peaking at 1,100 units in 1990 and decreasing to 550 unitsbetween 1993 and 1995; (b) local conversion capacity increases to 500units per year by 1993; and (c) after 1995, the number of new gas-con-verted vehicles increases at 5% p.a. By the late 1990s, imports ofalready - converted engines would become negligible. Conversion oflocomotives to gas could start on a demonstration scale in 1989, build upto a significant level by 1993 and increase at 5% p.a. after 1995. Underthese conditions, natural gas usage in the transport sector and the cor-responding savings in petroleum products could be as shown in Table 4.10.The magnitude of these savings -- even though they are calculated beforededucting the foreign exchange costs of the conversion exercise -- demon-strate the desirability of pursuing seriousLy and expeditiously a feasi-bility study and pilot project for gas application in transport.

Table 4.9: NET PETROLEUM IWORTS, 1981-96

1981 1986 1991 19969uan- . Quan- Quan- Quan-tity t Value - tity / Value -/ tity alw - tit 2/ Value

Net Product Imports 222 94.2 61 35.8 186 90.0 535 226.1Crude Imports 544 142.5 750 158.2 750 183.7 750 224.2

Total 747 236.7 811 194.0 936 273.7 1,285 450.3

a/ Quantities given in 103 too.b/ Values measured by 1o6 USS. Values are calculated from the Individual product

quantities in Table 4.8 using World Bank projections (in constant 1981 terms).

Noncommercial and Nonconventional Energy

4.114 The quantitative impact of the various options which have beenpresented for the noncommercial energy subsector is difficult to ascer-tain. Potential supply sources are scattered, with individual sourcesbeing often comparatively small and remote; decision-taking is decen-tralized; there are long lags between inputs and outputs, notably inforestry; knowledge of the growth dynamics and productivity of thenatural forests is limited; data on nonconventional energy is sparse andunreliable; and the logistical/management problems are formidable. Insome cases, it is difficult to know if the options can be implemented atall; in most cases, it is hard to say when the results might materializeand how large they will be. Therefore studies and technical assistancehave been recommended to reduce the uncertainties.

4.115 The program for establishing urban energy plantations (para.4.89) and extending rural woodlots is a bare minimum, based on a roughjudgment regarding the capabilities of the Forestry Directorate, the

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Government's funding capacity and the receptivity of the population. Itwould at best only match the present deficit in urban areas -- and thiswith a lag - with no provision for additional needs, while in ruralareas even the present deficit couLd not be met. Since forests takeseveral years to mature for cutting and since overall fuelwood demand isprojected to increase by 701 through 1996 (Table 3.4), deforestation willcontinue and even escalate, mitigated only by the results of improvedfuelwood conservation (Chapter V).

Table 4.10: ILLUSTRATIVE SCENARIO OF NATURAL GASUSAGE IN THE TRANSPORT SECTOR

1986 1991 1996

Cas Substitution (mmcfd)

cars/light vehicles 0.05 0.86 1.51buses/trucks 0.14 2.47 4.46railways - 0.67 2.43

Savings in Gasoline

10 toe - 7 1210 US$ - 2.5 5.0

Savings in Gas Oil

103 toe 1 27 60106 US$ 0.3 8.8 22.9

4.116 The estimated potential for utilizing nonconventional energysources is largely theoretical and often speculative. In some cases, itis difficult to know if the options can be implemented at all; in mostcases, it is hard to say when the results might accrue and how large theymight be. The recommended studies and technical assistance are anecessary basis for improving the situation. Nevertheless, it is evidentthat nonconventional energy sources can substitute for conmercial energyand fuelwood only to a negligible extent during the period of projectionin Chapter III -- certainly less than 2X of total energy consumption.

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V. D3KAND NANAG3IEUT

Introduction

5.1 Three central conclusions were reached at the end of ChapterIV. Even if the various energy supply and interfuel substitution optionswhich the mission analyzed and recommended are implemented: (a) petroleumimports will rise considerably through 1986 over existing levels, both inphysical and value terms; (b) deforestation will continue and even esca-late; and (c) nonconventional energy sources can substitute for commer-cial energy and fuelwood only to a negligible extent in the next 15years. It remains to look towards demand management to mitigate, as faras possible, the consequences of these conclusions. It will be necessaryto adhere firmly to the economic pricing of energy and full cost recoveryto manage properly the level of demand; to allocate energy demand effi-ciently between different fuels; and to mobilize investment resources.Industrial energy conservation and fuelwood conservation should befostered to reduce petroleum imports and the pace of deforestation. Thescope for energy conservation in transport, while not discussed here,also warrants further study (para. 1.13).

Energy Pricing

Petroleum Products

5.2 Petroleum product prices have been revised several times inrecent years; the latest revisions were announced on August 18, 1983,following price adjustment two months earlier. The latest prices,including their build-up from the refinery or c.i.f. import level, are inTable 5.1. 87/ For comparative purposes, they were converted into US$per liter at both the official and the shadow-priced rates of exchange.

5.3 Relative product prices show significant distortions betweengas oil and gasoline, with the latter exceeding the former by more than100% in the case of premium gasoline. Given the deficit position of thecountry in middle distillates, it could be argued that this price-spreadshould be narrowed in order to bring about a better demand balancebetween these two fuels. However, the argument would have to assume thatusers have a free choice between diesel-powered or gasoline-poweredequipment and vehicles. In Tanzania, given its severe import restric-tions, relative fuel prices are unlikely to have any significant effecton equipment choices. The latter are determined by the existing stockplus import licences for new vehicles or repLacement parts. Policies

87/ Following the recent devaluation of the Tranzania shilling, petro-leum product prices have been revised, effective June 15, 1984, asshos- ,n Annex 4a.

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affecting imports are likely to have a greater impact on these choicesthan fuel prices.

5.4 As can be seen from Table 5.2, the prices of aLl the mainpetroleum products are at least equal to their economic opportunitycosts, delivered in Dar-es-Salaam, i.e. the international (border) pricesconverted at the shadow-exchange rate of US$1 = TSh 18.5. 88/ In fact,the Covernment is in effect levying a substantial tax on petroleum pro-ducts as a whole and on gasoline in particular. For example, if the 1982product mix had been sold at the prices now prevailing, the total neteconomic surplus would have amounted to about TSh 0.9 billion, or about22Z of wholesale prices including taxes. The only major policy question,therefore, concerns the extent to which petroleum product prices shouldbe used as a vehicle for general tax purposes and as a device for curbingfurther the foreign exchange expenditures on petroleum imports. Such aquestion is beyond the scope of an energy assessment report and requiresa careful evaluation of the effects of different taxation forms on theeconomy as a whole, taking into account alternative methods of raisingtax revenues and their effect on resource allocation.

5.5 Posted product prices vary to some degree by location. Forexample, premium gasoline, which costs TSh 13.15/litre in major regionalcenters, costs TSh 13.35/liter at Chalinze, TSh 13.55/liter at londoa andTSh 13.95/liter at Njombe. Regional gas oil prices vary between TSh5.45/liter at Dar-es-Salaam and other major regional centers and TSh 7.30in Sumbawanga. Similarly, posted kerosene prices for lighting range fromTSh 5.35 in regional centers to as much as TSh 6.70 in Tundema. Despitethese differential charges, transportation costs are not fully covered,because prices are uniform at the 16 major regional distribution centersin the country. The freight and equalization funds are used to pay foractual transport cost differentials (see Table 5.1).

Natural Gas

5.6 Natural gas may become available in Dar-es-Salaam after 1986.Based on the preliminary cost estimaces in Chapter IV, the averagedelivered cost of gas, including appropriate depletion allowances,expressed in US$ and 1983 price levels, could range from US$0.95 per mcfto US$2.23 per mcf, depending on gas markets, pipeline sizes, the actualcost of gas at the well-head and the availability and cost of replacementgas from other sources (Annex 8). This range of economic cost is wellbelow that of alternative fuels, including the equivalent costs of hydro-electric power. Consequently, the mission recommends that gas prices beset above the long-run economic cost of supply, in order to generate taxrevenues for the Government and to reflect the high resource value of thegas (economic rent).

881 The only exception is LPG, a minor product. Of course, the use of ahigher shadow exchange rate would increase the economic opportunitycost expressed in local currency terms. The recent devaluation hascaused the official exchange rate to convert to US$1=Tsh 18.5.

Table 5.1: THE STRUCTURE OF PETRALEUM PROOUCT PRICES AS OF 8/16/63(TSh. per liter unless shown otherwise)

Cost & Gasoline Gasoline Jet Gas Industrial FuelCharges LPG a/ Prelum Regular Fuel Kerosene Oil Diesel Oil oil

Ex-TPDC Cost Price 4.389 5.812 4,251 4.269 4.269 3,754 3.674 1.946TPDC Kiloaco Export Fund 0.150 0.150 0.150 0.150 - 0.150 0.150 0.150Ex-TPDC Price 4.539 5.962 4.401 4.419 4,269 3,904 3,824 2.096Company Overheads 0.270 0.270 0.270 0.270 0,270 0.270 0.270 0.270Company Margins 0.157 0.154 0.154 0.154 0.154 0.155 0.154 0.071Oepot to Depot Frelght Fund 0.170 0,170 0,170 0.170 0.170 0.170 0.170 0.170MSP MSR Equalization Fund b/ - 0.450 0.450 0.450 - - - -Bonded Wholesale Price 5,136 7.006 5,445 5.013 4.863 4.499 4.418 2.607Sales rax 0.350 5.551 4.553 0.500 0.165 0.700 0.700 0.700 1Wholesale Prices Ex-All Depots 5.486 12,557 9,998 5,513 5.048 5.149 5S118 3.307 con'i lvery Charges 0.650 0.050 0.0'0 0.050 0.050 0.050 - 0.050Dealers MargIn 0.264 0.543 0.492 - 0.252 0,251 - -

Retail Ex-AII Depots 6.600 13.15 10.550 - 5.350 5.450 - -

USS/Liter c/ 0.540 1.080 0.860 0.460 0.440 0.450 0.420 0.280Shadow-Priced USS/Liter d/ 0.360 0.710 0.570 0.300 0.290 0.290 0.280 0.180

Note: Prices ore uniform at each of the maJor 16 distribution polnts throughout the country. Added freight chargesapply for outlying areas.

a/ Price per kg.b/ MSP * Motor Spirit PrexluH; NSR * Motor Spirit Regular.cl At official exchange rate USS1.00 * TSh 12.20,d/ At shadow-exchange rate USS1.00 = TSh 18.50.

Source: TPDC

Table 5.2c ECONOMIC COSTS AND OFFICIAL PRICES Of PETROLEUM PROOUCTS

Ex-Refinery Net Net SurplusRetall Price Plus Ditterence Between f/ 1982 or Loss

Product --------Economic Costs a/------------ Price all Taxos C/ Cost and Prices Consumption 1982 Base

(US$/Ton) (USS/Liter) (TSh/Liter) b/ (TSh/Liter) c/ (TSh/Liter) (TSh/Llter) (Tons) (Million TSh)Crude 213.44 - - - - - -LPG o/ 309.49 0.31 5.74 6,60 4,89 -0.65 5,404 -4.6Gasoline Premium 309.49 0.30 5.55 13,15 11.96 *6.41 69,700 603,8GasolIne Regular 30W.49 0,30 5.55 10,55 9,40 t3,65 50,703 263.8Jet fuel 208.82 0.24 4.44 5,56 4.92 #0,01 68,877 40.3herosene 298.82 0.24 4.63 5.35 4,45 +0.01 37,706 0.5Gas Oil 281.74 0,25 4.63 5.45 4.60 -0.03 243,681 -8.7Industrlal Diesel Oil 261.74 0.23 4,26 5,12 4,52 *0.26 51,220 15.ifuel Oil 140.08 0.15 2.70 3.36 2.80 *0.10 109,118 11.4 1

~0Net Economic Surplus rsh 921.6

d/ Economic cost Is the Internationdi or border price, i.e. c.i.f. value for all products except Industrial diesel oll and fuel oll, where f.o.b.values are taken.

b/ Converted at economic bhadow exchange rate of USS1.00 z Tsh 18.5.c/ From Table 5.1.d/ August 1983 ex-refinery prices egcluding company overhead and margins, plus all taxeb.e/ Unit prices per Kg.t/ Column 6 minus column 3.

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5.7 For industrial and commercial gas users, prices should be setat least equal to the economic cost of fuel oil, presently aroundUS$3.66/mcf equivalent or TSh 68/mef (shadow-priced). The current marketprice of fuel oil is TSh 91/mcf equivalent (TSh 3.615/liter). A priceset between these two benchmarks would raise additional revenue for theGovernment while providing users with a cheaper, cleaner and more reli-able fuel. Although the netback value of gas in the power subsector iseven higher than in industrial uses, the mission recomnends setting gasprices to TANESCO for electric power generation equal to the pricescharged to large-scale industrial users.

5.8 Gas prices for compressed natural gas (CNG) applied to thetransportation sector would have to be set at a level below that ofalternative fuels, i.e. gas oil and gasoline, since the use of CNG wouldimpose additional costs on the users of gas-fueled vehicles - in termsof equipment costs, more frequent refueling stops and reduced carryingcapacity. As stated in para. 4.49, the approximate netback value of gasas a fuel for diesel buses is estimated at about US$3.42/mcf. In theunderlying analysis, gas prices of US$2.40/mcf were used, while a cost ofabout US$0.75/mcf was attributed to added vehicle costs. Hence, themaxim. price that should be charged for CNG at the filling station isUS$6.65/mcf or TSh123/mcf (shadow-priced), which compares to current gasoil and regular gasoline prices of TShl23/mcf and TSh300/mcf respec-tively. Because some positive incentive should be created for the usersof gas oil and gasoline to switch from petroleum fuels to gas, a somewhatlower price at the filLing station would appear to be more appropriate,say TSh9O-l00/mcf. A significant source of tax income would remain forthe Government without eliminating the financial incentive for vehicleusers to convert to gas. 89/

5.9 With regard to the proposed fertiLizer plant at Iilwa, themission's view is that the same basic principle should be followed asrecomended for the domestic market in para. 5.6: the Kilamco fertilizerplant should pay a price for natural gas which covers the full economiccosts of supply - i.e., the sum of the direct cost and the depletioncost - plus a margin to capture for the Government some of the highresource value (economic rent) of the gas. In this way, the Governmentwill avoid providing economic subsidies to fertilizer production andcreating serious inequities in the treatment of domestic as opposed toexport consumers. Following this principle, the price charged to ferti-lizers, expressed at 1983 cost levels, would have to exceed -- as a bareminimum - US$0.71 per mcf if Mnazi Bay gas can be reserved for futureuse or other cost-equivalent gas can be made availabLe and if at least210 bcf of Songo Songo gas are available for domestic use. The bareminimum of US$0.71 per mcf is made up from a direct cost of US$0.26 permcf plus a depLetion cost of US$0.45 per mcf, and assumes a zero value

89/ This does not foreclose the option for the Government to make gasuse mandatory for certain vehicles in gas-accessible regions.

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for payments made in respect of past Mnazi Bay exploration expendi-tures. If Nnazi Bay is not available for future use, the price chargedwould have to exceed US$1.33 per mcf, i.e. a direct cost of US$0.26 permcf plus US$1.07 per mcf depletion cost (see paras. 4.42-4.43 and Annexes5 and 8). Of course, these prices and costs would have to be regularlyreviewed and adjusted over time for inflation.

Electricity

5.10 Uniform pover tariffs apply throughout the country; a substan-tial subsidy is therefore paid by users in the interconnected system tothose served from isolated plants. According to financial cost data for1981, the average cost per kWh ranged from TCl9.94 in the Arusha Districtto TC47.07 in the Moshi District; the average was T¢35.21 for the inter-connected system as a whole. At isolated stations, average costs variedfrom TC83.11 in Iringa to Tc453.78 in Mafia; the average was T¢150.22 forisolated systems as a whole. The end result was that TANESCO's cost forall systems was TC50.75 per kWh, i.e. about 44Z higher than the averagefor the interconnected system alone. In the future, however, operatingcosts in many of these now-isolated systems will fall significantly asthe various new transmission lines - presently under construction orscheduled - are completed.

5.11 TANESOD's tariff schedule, shown in Annex 12, has been in forcesince January, 1983. Energy charges, without the tax, range from a mini-mum of TShO.50lkWh (USC4.1) for domestic users to a maximum of TSh2.50(USC20.5) for small- to medium-sized commercial users. In addition,large industrial and commercial users with consumption in excess of10,000 kVh/year are subject to demand charges of TSh. 75/kVa orTSh.80/kVa respectively. All tariffs, for either energy or capacity, aresubject to minimum charges. Because no detailed cost, consumption andrevenue detaiLs are available for either 1982 or 1983, analysis of actualrevenue flows by consumer class is not possible.

5.12 A uniform national tariff does not give appropriate signals toelectricity users in high-cost areas about the costs created by theirconsumption. On equity grounds, it may be argued that this is a properredistribution of burdens among power users living in different areas.However, such income-distributional objectives should be limited to mini-mum supplies, i.e. so-called "life-line" rates. From a strictly economicpoint of view, once the minimum supply level has been provided, tariffsshould reflect the actual local costs to promote an economically effi-cient regional allocation of power-using activities.

5.13 A second question relates to the internal structure ofTANESCO's tariffs. Charges for domestic users, at TC50/kWh for the first100 kWh/month and TC75/kWh thereafter, are lower or as low-as those forhigh-voltage industrial users, who, however, have to pay additionaldemand charges. By comparison, tariffs to commercial users below 10,000kWhlmonth are far higher, amounting to TC250/kWh. The latter charges arediscriminatory relative to the marginal costs of supply while domestictariffs are subsidized.

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5.14 In terms of income distributional objectives, the subsidy todomestic users may well be misplaced. There were only about 104,000 do-mestic connections in 1982, consuming an average of about 140 kWh/month;in a country which has a population of more than 19 million, electricityusers are clearly relatively affluent. On the other hand, the high com-mercial power tariffs to businesses will be passed on in the form ofhigher prices to all consumers; many will be among the urban poor who donot have access to electricity but obtain their necessities from thesecommercial establishments. The mission consequently recommends that thestructure of electricity tariffs be reviewed and gradually revised toreflect more appropriately the costs of supply.

5.15 Overall, the current level of tariffs and revenues is insuf-ficient to cover either the long-run incremental costs of supply orTANESCO's financial requirements. Although TANESCO increased its tariffsby some 50%, effective January 1, 1983, to yield an expected average ofTC 97.5/kwh, tariffs are still insufficient to meet the establishedfinancial target of creating enough internal cash to cover at least 25%of total capital expenditures until 1986 and 40X thereafter. To meetthese objectives, another tariff increase of 20% is called for by January1, 1984; this will raise the average to TC 117/kWh. 90/ Furtheradjustments will be required thereafter to maintain the agreed-uponfinancial cash-flow targets.

5.16 The mission has estimated the long-run incremental costs ofTANESCO's system. These estimates, shown in Annex 13, are necessarilyapproximate. Detailed studies will commence soon under the pricing studyfinanced as part of the Fourth Power Project, the results of which are tobe available by July 1985. The mission estimates that the long-runaverage incremental cost of the TANESCO system is about TSh 0.98/kWh,taking into account the system expansion plans to the year 2000 andassuming that the high-growth demand scenario would prevail (Table 4.2).Although this level is only slightly above the estimated 1983 averagerevenue per kWh, TANESCO faces severe problems in the short to mediumterm, due to the high level of ongoing investments and the low rate ofgrowth of demand; average incremental costs between 1983 and 1991 aremuch higher and amount to TSh3.70/kWh, i.e. almost four times theexpected average 1983 revenue per kWh. This is basically a cash flowproblem and results from the heavy investment program on tile one hand andthe projected low load growth on the other hand. Averas,e revenue flowsto cover expenses during this period would be lower. but still well inexcess of the estimated long-run average incremental costs ofTshO.98/kWh. According to TANESCO, the average tariffs. would have toincrease by 40X-70Z to cover financial costs. The mission recommendsthat urgent attention be given to cash flow projections and requirements

90/ This was implemented in January 1984 and the average revenue nowstands at abouc TC 120/kWh.

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as part of the marginal cost pricing study under the Fourth PowerProject.

Coal and Fuelvood

5.17 The mission has not pursued the questions of coal and fuelwoodpricing beyond a broad statement of principles. In the former case, toolittle is known about production costs from new mines and more work isrequired to collect basic data. With regard to fuelwood pricing, theessential problem lies in finding practical measures to impose stumpagefees; this requires an intimate knowledge of field and cultural condi-tions which is not available to the mission.

5.18 At the level of principle, coal prices should cover the long-run marginal costs of production and distribution, including mine devel-opment and transport infrastructure. Given the large resource potentialrelative to demand, a depletion allowance for coal is unlikely to be jus-tified. Wood produced in non-gazetted natural forests has no direct costwhile the direct cost of wood produced on forest reserves is negligible.However, a stumpage fee is justified to cover the full replacement costof wood ready for harvesting, whether that wood i produced in planta-tions or natural forests. The stumpage rate per m. of firewood would bea function of the degree of overcutting, according to the followingformula:

(x-y)c

-were: x = total annual cut (in m3 ); y = annual sustainable yield (inm ); and c = replaceme3t cost per *3. At the present level ofovercutting (23 million m' p.a.) and with the investment costs shown inAnnez 15, th! stumpage rate (1983 price levels) would be in the order ofTSh 60 per mi (para. 4.91).

5.19 The results of the two studies recommended in para. 4.88 alongwith those expected from the IDA Coal Engineering Credit should form asufficient basis for STAHICO to analyze the relationship between thelong-run marginal costs of coal and coal prices. Action to adjust coalprces can be taken after that analysis has been carried v-.. While somefurther analysis of the replacement cost of fuelwood is desirable, thefirst priority is for the Forestry Directorate to commence a study of theimplementation problems involved in levying stumpage fees; technicalassistance should not be necessary.

Energy Conservation in Industry

5.20 Energy consumption by the industrial sector has been depressedin recent years due to low capacity utilization. Even so, it accountsfor 24% of petroleum products' consumption and 55% of the electric power

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used in the country as a whole. Should capacity utilization return to amore normal level and should the large projects now under construction becompleted - especially projects in the cement, glass and textile sectors- then the industrial sector could be expected to increase its consump-tion of fuel oil, industrial diesel oil and electricity substantiallybeyond the 1982 levels of 102,000 tons, 46,000 tons and 388 GWh respect-ively. Hence, the possibilities for making more efficient use of energysupplies in the industrial sector are worth examining carefully.

5.21 So far, there have been no coordinated comprehensive effortstowards industrial energy conservation in Tanzania, with the exception ofa series of energy audits undertaken in 1982-83 by the TanzanianIndustrial Research and Development Organization (TIRDO). No otherpolicies or institutional arrangements are in place to promote or provideincentives for energy conservation measures. TIRD0 was formed in 1979with the assistance of UNIDO and funded by UNDP. Its activities includeresearch on coffee processing, the development of natural dyes for indus-trial use, the use of tea seeds in the manufacture of vegetable oil, andthe development of an experimental kiln for the conversion of agricul-tural wastes into charcoal, combustible gases and wood tar. TIRDO hasalso provided engineering advice on the development of the chemical andfood industries in Tanzania and is setting up instrumentation and otherlaboratory facilities.

5.22 Since 1982, TIRDO has conducted an industriaL energy audit pro-gram - covering 12 companies in Dar-es-SaLaam - and provided recommen-dations for energy conservation, initially on a very basic scale. 91/These recommendations cover matters such as insulation, the repair ofleaking valves, simple heat recovery schemes and furnace efficiency im-provements as well as general housekeeping practices. Due to fundinglimitations, the initial audit program has come to a close; however, itis hoped that additional audits can be carried out shortly, possiblysupported by external technical assistance (para 5.24).

5.23 The results of the first 12 audits indicate that, with rela-tively minor investments, industries can save some 13Z of their enrcgyconsumption. If this percentage is applied even to the present depressedlevel of industrial consumption of petroleum products, the annual foreignexchange savings to be obtained from measures such as the ones recom-mended by TIRDO could reach some US$3.5 million. Savings might reachUS$7 million per year under more normal conditions of capacity utiliza-tion and taking into account the petroleum products' demand of the newindustrial projects still under construction. Although the initialaudits did not specify the cost of the identified energy savingsmeasures, it is estimated that these would be minor and would pay forthemselves generally in a year or less.

91/ As of July 1984, TIRDO had carried out audits on 30 companies.

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5.24 In view of the substantial potential and high pay-off for theidentified energy conservation measures, the mission recommends that theGovernment implement a series of measures to be included in a comprehen-sive industrial energy conservation program. These measures should coverthe provision of appropriate incentives and legislation to encourageenergy-saving investments as well as financial support to ensure that theavailability of funds will not be a constraint in the execution of theenergy-saving investments previously identified. The mission also recom-mends that the Government consider strengthening TIRDO's activities,which should be organized as the nucleus within the country to deal withenergy-saving matters, including the creation of a team of experts inthis field. The main functions of TIRDO will be: (a) to provide theGovernment with studies and advice in the field of energy conservation,including the establishment and monitoring of a comprehensive and well-coordinated energy conservation program as well as setting relatedpolices and incentives; (b) to provide interested enterprises with tech-nical assistance and specialized advisory services on the more technicalaspects of energy conservation, such as retrofitting, waste heat recoveryand modifications and changes in processes; (c) to execute "subsectorsurvey" and "energy audLts" to identify the uses and sources of energy atthe plant level, the areas where waste occurs, the most economicallyattractive energy-saving opportunities, and to recommend measures andinvestment programs for typical firms in the industry, both in the shortand long-term; (d) to provide courses and training for engineers, energycoordinators and energy managers from enterprises carrying out energysaving programs and of technical institutions and universities; (e) toprepare energy conservation manuals and handbooks for the most importantsubsectors of industry; (f) to carry out research and development onenergy conservation technology and execute worthwhile demonstrationprojects; (g) to collect, exchange and disseminate statistical informa-tion on energy use; (h) to monitor the progress and results achieved bythe country in the various aspects of energy conservation; and (i) tocarry out promotional campaigns to elicit interest by consumers to takeenergy-saving actions. A vigorous campaign should start as early aspossible, use all media and be sustained for a period of at least two tothree years to be effective. The campaign should include the publicationof educational pamphlets and booklets. If the approach is followed,TIRDO will operate as a National Energy Conservation Center. It isrecommended that the Government obtain outside technical assistance toreorganize and implement TIRDO's activities along the lines detailedabove.

Fuelwood Conservation

5.25 A significant reduction in current fuelwood consumption couldbe achieved by improving the efficiency of three specific end-uses:(a) the conversion of wood to charcoal; (b) the combustion of wood orcharcoal in household stoves; and (c) the use of wood in tobacco-curingbarns. The options available in these three areas are discussed in the

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following paragraphs and an estimate of the projected savings which couldbe achieved in the period through 1996 is in Table 5.3.

5.26 Charcoal is produced almost entirely in earth kilos andrequires some 6 million m3 of wood (Table 3.4). The earth pit or moundmethod of making charcoal has an efficiency of only 8-1OZ (weight ofcharcoal product over weight of air-dried wood input). Brick or metalkilns, which effectively conserve the heat of carbonization and improvegas circulation, can attain uF to 20-25Z efficiency. Therefore, annualsavings of some 3-4 million m of wood are theoretically possible if allcharcoal is produced in improved kilns. While such savings in practiceare unlikely to be fully attained, the magnitude of the potential indi-cates that efforts to improve wood utilization should be accorded highpriority.

5.27 A number of improved kiln designs have been employed success-fully in other countries, most notable of which are the Brazilian beehivekiln and the TPI pg rtable metal kiln. Beehive kilns are normally builtto take about 50 m of wood charge each and are often installed in bat-teries of 20-40 units at strategic sites in the forest. Each unit yieldsabout five tons of charcoal per cycle 3f about 10 days. The portablemetal kiln is usually fabricated in 6 m capacity (2 cylinder type) andrequires 2-3 days per cycle.

Table 5.3: PROJECTED SAVINGS FROM FUELWOOD CONSERVATION

(106 m3)

1986 1991 1996

Improved Charcoal Making 0.18 0.42 0.74Improved Charcoal Stoves 0.04 0.16 0.32Improved Wood Stoves 0.30 0.70 1.60Improved Tobacco Curing 0.18 0.41 0.75

Total 0.70 1.69 3.41

Notes: 1. The proportion of 1harcoal produced in kilns yiel3ding 1 ton ofcharcoal from 9 m of wood (compared with 12 m in 1981) isassumed to increase as follows: 102-1986; 20%-1991; and 30%-1996.

2. The proportion of urban households using improved charcoaljikos is assumed to increase as follows: 5%-1986; 15Z-1991; and25X-1996. The efficiency of the traditional "jiko" is 20Z,compared with 35Z for the improved "jiko."

3. The proportion of rural households using improved woodstoves isassumed to increase as follows: 2%-1986; 5%-1991; lOZ-1996.The efficiency of the traditional woodstove is 8% compared with15% for the improved stove.

4. Savings from improved tobacco curing methods are from Table5.2.

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5.28, Both kilns have obvious advantages over the traditional earthkilnas, including the following: (a) average yields of 20-25% (weightbasis) can be anticipated; (b) better quality charcoal is obtained (lessbrands and fines and minimal contamination with earth and stones);(c) more days of operation are possible during the rainy season; and(d) less supervision is needed. The net effect is the production oflarger quantities of higher quality charcoal in any given time period.The portability of the TPI metal kilns is an additional advantage. Afteroperation at one site, they can be rolled to another location by twoworkers. While the beehive kiln is normally used for a much longer time(sometimes years) at one location, it can also be relocated to anothersite without substantial loss of the original bricks. The principaldisadvantage of these kilns is the capital investment required. A 6 mmetal kiln would cost around US$2,000 to build in Tanzania and wouldrequire foreign exchange, since the material has to be imported. Thebrick kilns could be built for much less per unit of capacity; even so,they cost more than earth mounds, which have virtually no capital invest-ment. Another disadvantage applicable to both of these improved kilntypes is that the wood charge must be reduced to small pieces to fitinside the kilns. In the earth mound, the system size is simply enlargedas needed.

5.29 The Forestry Directorate is contemplating the promotion of theso-called "Casamance" kiln, which has been shown to have good results intests in Senegal. The Casamance kiln is a modified earth mound fittedwith a metal chimney that draws gas from the bottom portion (reversedraught). The capacity could be varied as needed. Discarded oil drumsare used for the chimney assembly. To reduce volatiles in the charcoalproduct, provision is often made to draw the condensates out (from thebottom part of the chimney). Significantly higher yields (about 20X)than traditional methods have been reported with the Casamance kiln.Unlike the brick and metal kilns, there is hardly any capital cost forthe Casamance kiln and it could be the primary type of kiln promoted in acharcoal production improvement program.

5.30 Wood and charcoal usage in household stoves is the second end-use area where large savings may be possible. Data from the ForestryDirectorate indicate that 30 million i3 of fuelwood are burned directlyin stoves and 1.2 million tons of charcoal in traditional metal "jikos."Fuelwood is used almost exclusively in rural homes, most of it in thesimple three-stone type of stove. Charcoal usage for cooking, on theother hand, predominates in urban homes (80-90%).

5.31 The energy efficiency of the three-stone stove is generallyregarded to be roughly 8-10% whereas the efficiency of the traditionalcharcoal "jiko" has been measured at around 20Z. A number of ceramic ormud stove designs, with enclosed combustion chamber and means to controlairflow (e.g., the Louga Stove), have efficiencies roughly twice that ofthe open fire; if used instead of the three-stone stove, wood savings ofup to 50X are possible in principle. Similarly, an improved version ofthe charcoal "jiko" -- the "Umeme" Stove, developed in Kenya - is

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reported to have an efficiency of about 35%. Used instead of the tradi-tional "jiko", charcoal savings of up to 40% are possible.

5.32 Uhfortunately, there has been little success in past effortsanywhere to encourage the large-scale use of improved stoves in place oftraditional ones. In Tanzania, major difficulties can be expected in anyattempt to convert traditional wood-burning stoves in rural areas. Theimproved versions are physicaLly and operationally different, requiringadjustments in cooking practice. They will also entail some capitalinvestment where there used to be none. Largely for these reasons, itmay be more effective to focus initial efforts on the promotion ofimproved charcoal "jikos" in the urban areas. Apart from its insulatedchamber, the higher efficiency "Umeme" stove looks very similar to and isoperated in essentially the same manner as the traditional metal. "jiko."Although the "Umemee" stove costs about twice as much, this is notexpected to be a deterrent if conensurate savings in charcoal consump-tion could be satisfactorily demonstrated. The traditional metal "jiko"is bought by households at about TSh 100 each - about US$8- and is usedfor one to three years.

5.33 To give an idea of achievable savings, a modest program can beenvisaged which targets 2-5% of urban households by 1986 and 15-25% by1996; this translates to a minimum of 6,500 improved charcoal stoves dis-seminatel by 1986 and about 115,000 by 1996. T e annual savings could be40,000 m wood equivalent by 1986 and 320,000 ma by 1996.

5 34 The third significant wood end-use is in tobacco curing. Thetobacco industry consumed about 0.8 million m3 of wood in 1981, i.e.about 2% of total fuelvood consumption and 15X of non-household fuelwooddemand (Table 3.4). Most of this wood was used in flue-curing barns;half of these barns were in tobacco farms in the Tabora region. Ruvuma,Iringa and Nbeya follow Tabora in terms of tobacco production and hencewood consumption for flue curing. The wood deTand for the tobaccoindustry is projected to reach about 1.5 million mi by 1996 (Table 3.4).Among non-household fuelwood uses, only local brewing approaches themagnitude of tobacco curing, but since much local brewing is on anindividual family scale, often illegitimate, it would be extremelydifficult to infLuence for fuelwood conservation purposes. Hence, thetobacco industry would be the logical focus of any program intended toimprove fuelwood end-use efficiency in the industrial sector.

5.35 Official estimates indicate that 50-60 m3 of stacked wood areused in present barns to cure 450-500 kg of tobacco. The figure appearsto be abnormally highA Neighboring Malawi, for example, has a consump-tion rate of 18-20 m of stacked wood per 500 kg of tobacco cured inexisting, unimproved barns. Even so, a recent evaluation of Malawi'stobacco industry concluded that consumption could be reduced to a figureas low as 12 m3 by simple, low cost improvements to existing barns.These include rebuilding furnaces, adding grates and doors and installingcontrollable tOp and bottom ventilators. Other more elaborate improve-#iSksW1iit.vStgiflg flue and chimney configuration, installing forced

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draft systems or adding insulation would reduce wood consumption evenfurther but wouLd aLso need larger capital investments. It is reasonableto conclude that by 1996 a gradual improvement in Tanzania's tobaccocuring barns could reduce the wood consumption rate to perhaps 15 m ofstacked wood per 450 kg of tobacco cured, merely by making simplemodifications to the present system. Even assuming that the presentefficiency of flue curing is as high as 30 3 of stacked wood per 450 kgof tobacco cured -- rather than 50-60 m as suggested by officialestimates - the savings over current practice would be roughly 0.75million m3 solid wood equivalent per year by 1996 as shown inTable 5.4. A summary of the projected fuelwood savings which could beachieved from improvements in the three end-uses discussed above hasalready been presented in Table 5.3. While efforts to bring about thesesavings are worthwhile and firmly supported by the mission, they must beseen in perspective, i.e. relative to the degree of overcutting in theforestry subsector. The difference between annual consumption and thImean annual increment of forests in 1981 exceeded 23 million m(para. 4.89-4.90); overcutting will increase as consumption increaseswith population. In contrast, even by 1996, 3rojected savings fromfuelvood conservation are barely 3.5 million m?. The savings fromfuelwood conservation can therefore contribute only a small percentage tothe required reduction in the overall fuelwood deficit. It will benecessary to look to energy plantations, other biomass and fuelvoodpricing to try to produce a further impact on the remaining deficit.

Table 5.4: PROJECTED WOOD SAVINGS IN TOBACCO CURING THROUGHIMPROVEMENTS IN FLUE-CURING BARNS

1981 1986 1991 1996

Total Production(106 kg) 18.9 25.2 31.4 37.5

Normal WoodRequir ment(106 m )0.76 1.01 1.26 1.50

Reduced WoodRequir Imnt(106 m ) 0.83 0.85 0.75

Notes: 1. Productivity is assumed to be: 530 kg/ha in 1981; 600 kg/ha in1983; 700 kg/ha in 1991; and 800 kg/ha in 1996. 3

2. Wood consumption in unimproved barns, expressed in m stackedwood per 450 kg tobacco, is estimated to be: 30 in 1981; 25 in1986; 20 in 1991; and 15 in 1996.

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VI. INSTITUTIONS AND MANPOER IN TME ENERGY SECTOR

Introduction

6.1 Responsibility for energy supplies rests with several differentagencies. The Ministry of Water, Energy and Minerals (MWEM) handleshydrocarbons, electricity, coal and uranium. The Ministry of NaturalResources and Tourism (MNRT) deals with fuelwood, through its ForestryDirectorate, while the Prime Minister's Office is involved with the de-velopment of village woodlots and, to a lesser degree, village electrifi-cation, through its rural development responsibilities.

6.2 The Ministries are responsible for overall policy formulationin their respective subsectors, they present options to the Cabinet andthey arrange financing for large projects. Also, they supervise theactivities of the parastatals under their jurisdiction. As far as thecommercial energy sector is concerned, MWEM supervises the TanzaniaPetroleum Development Corporation (TPDC), the Tanzania-Italian PetroleumRefining Company (TIPER), the Tanzania Electric Supply Corporation(TANESCO), the Rufiji Basin Development Authority (RUBADA) and the StateMining Corporation (STAMICO). It is envisaged that MWEM will also super-vise the Tanzania Rural Electrification Corporation (TARECO) and a gascorporation (CASCO) if and when they become effective.

6.3 Apart from the above agencies, which have direct responsibili-ties for energy supplies, the policies and actions of other Ministrieshave a direct or indirect influence on the energy sector. For example,the Ministries of Agriculture and Livestock Development affect forestryand hydroelectric resources through their land use policies while theMinistries of Transport and Industry deal with major energy users.

6.4 The following paragraphs review the main agencies which nowexist in the energy sector, as listed above. Subsequently, two parti-cular institutional issues are identified and addressed: (a) the needfor improved coordination between these agencies, to bring about betterlong-term energy planning; and (b) the question of setting in place aninstitutional framework capable of developing rapidly and effectivelyTanzania's natural gas resources along the lines proposed in Chapter IV.

Petroleum, Power and Coal

Ministry of Water, Energy and Minerals (MWEM)

6.5 Four divisions report to the Permanent Secretary in MWEM:(a) Project Preparation; (b) Construction and Maintenance; (c) ManpowerDevelopment and Administration; and (d) Planning. Of these, only thelast deals with the supply and demand situation in the energy sector.

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The first two divisions are concerned exclusively with potable watersupply while the third has a limited personnel function. However, evenin the case of the Planning Division, the responsibilities include wateras well as energy so that the energy sector itself receives only limitedattention. At the time of the energy assessment mission, there were fourexpatriate advisors working on energy issues. One of them had full timeresponsibility for the energy sector. Furthermore, MWEM has not deve-loped capable local staff to oversee its responsibilities in the petro-leum sector. The Planning Division evaluates the projects which passthrough the Project Preparation Division and it approves those projectsproposed by the parastatals which require public money; where the para-statals are self-financing a project, the Ministry needs only be informedalthough it can suggest that the funds be applied elsewhere. TheMinister is the Chairman of the Boards of TANESCO, TPDC and RUBADA.

Tanzania Electric Supply Company (TANESCO)

6.6 TANESCO was founded as a private company in 1931 and acquiredby the government in 1964. It is a state-owned enterprise with a totalstaff of about 6,300. Through comprehensive management and staff devel-opment programs, supported oy SIDA and IDA, and through a "twinning"arrangement with the Electricity Supply Board of Ireland (ESB), TANESCOhas developed its own managerial staff and reduced expatriate staff fromabout fifty to six. The remaining expatriates are specialists andadvisors employed mainly in connection with the construction of largepower projects and for the overhaul of special equipment where localexpertise and knowledge have not yet been developed.

6.7 TANESCO established a training system in the early 1960s andhas now developed a sound long-term staff training program. Key elementsin this have been: (a) the founding by TANESCO of its own TechnicalTraining Institute in 1968, which as been assisted by SIDA; (b) trainingcomponents in IDA-financed projects since 1975; and (c) the "twinning' ofTANESCO and ESB since 1977, whereby TANESCO staff members have beentrained in Dublin and given subsequent on-the-job training with ESB or insimilar utilities in the UK and the USA. Between 1976 and 1981 TANESCOsent 50 staff overseas to obtain engineering degrees. The Fourth PowerProject provides approximately US$1.2 million for further training ofengineering, financial and managerial staff. IDA should continue tosupport TANESCO's staff training efforts through the visits of IDA'seducation and training specialists.

6.8 Despite progress in developing its manpower capabilities,TANESCO depends largely on external consultants' services for its powersystem planning and analyses. Improvements have been made in thePlanning Department but further efforts are necessary to developTANESCO's own capabilities in load forecasting and the preparation ofinvestment programs. At present, the power subsector lacks an effectivemechanism for the regular collection and collation of comprehensive dataand for their presentation in a consistent and usable form. The PlanningDepartment should bring this information together as a basis for more

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effective. subsector planning. The mission recommends that TANESCO con-sider the design of a comprehensive training program to: (a) provide itsstaff with the necessary tools for formulating development plans;(b) identify priorities in the power subsector; and tc) set policies forelectricity pricing and conservation. Some of the funds provided fortraining under the Fourth Power Project could be applied to this purpose.The mission further recomuends that TANESCO gradually introduce basicplanning models and obtain the necessary computational facilities toprocess the required data input. The studies of the long-range develop-nent program and of the management of the power subsector agreed underthe Fourth Power Project should produce recommendations and a proposedcourse of action to develop and improve TANESCO's planning capabilities.

6.9 TANESCO's organization also needs to be examined to find waysof improving its quality of service and operationaL efficiency. It isfor this reason that the management study mentioned in para. 6.8 wasincluded in the Fourth Power Project. TANESCO has agreed to employconsultants to complete the study by June 30, 1985 and to implement theagreed recomwendations of the study by January 1, 1986 after taking intoaccount IDA's comments. The mission envisages no further need for tech-nical assistance related to TANESCO's institutional arrangements.

Rufii Basin Develoupment Authority (RU=ADA)

6.10 RUBADA was created under the Rufiji Basin Development AuthorityAct of 1975 to develop the catchment area covered by the Rufiji River.An important reason for its creation was that it would adopt a multi-purpose approach to planning, with an emphasis on regional development,especially agriculture. In fact, much of RUBADA's effort has been con-centrated on hydroelectric development, in particular the Stigler's Gorgeproject, with financial support from NORAD. Insofar as RUBADA has thestatutory right to construct, maintain and operate hydroelectric plantswithin the area of its jurisdiction, there is clearly the potential forfuture overlap with TANES0O, although up to now RUBADA has employed onlya small staff to work on power; its activities have been confined tostudies and it has relied mainly on consultants. However, before anyfuture actions are taken to develop hydroelectric schemes presentlycoming under RUBADA's jurisdiction, the relationship between RUBADA andTINESCO should be resolved and the potential for inefficient duplicationof scarce technical and managerial resources should be avoided. Theorganization study agreed under the Fourth Power Project should resolvethis issue and also ezamine the relationship between TANESCO and theproposed new institution for rural electrification (TARECO). The studyis to be prepared by December 31, 1984 and the recomendations imple-mnted by December 31, 1985, after taking into account the comments ofIDA.

Tanzania Petroleum Development Corporation (TPDC)

6.11 TPDC was established in 1969 under the Public CorporationAct. Its objectives: (a) are to develop an adequate industrial base for

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the oil industry; (b) to explore for and develop petroleum resources,including natural gas; (c) to carry out the standard activities of anoil company, including procurement of supplies, refining, distributionand storage facilities; (d) to acquire interests in projects or enter-prises associated with the exploration and production of petroleum;(e) to hold exploration and production rights; (f) to contract for, holdequity in or participate in oil concessions, franchises and licenses; and(g) to manage parastatals or other legal entities transferred to theCorporation.

6.12 In conformity with the above objectives, TPDC: (a) carries outexploration for oil and gas under production sharing or joint ventureagreements (e.g. with AGIP, Shell and IEDC) and as an operator (e.g. atSongo Songo and Kimbiji) (see Chapter II); (b) acts as the Government'srepresentative in the management of TIPER (para. 6.14), BP (Tanzania) andAGIP (Tanzania), in which the Government holds a 50Z interest, and alsoin the management of TAZAMA, in which the Government owns one-third ofthe shares; Cc) is the sole importer cf crude oil in Tanzania, whileleaving the distribution of petroleum products to the f.v, marketing comrpanies (para. 4.19); and (d) the petroleum sector, notably the KILANCOfertilizer project (para. 4.41 and 6.38), a bitumen plant (para. 4.16)and a lube blending plant.

6.13 TPDC has seven directorates: Exploration and Production;Research, Development and Planning; Marketing and Operations; ManpowerDevelopment and Administration; Secretary; Finance; and Auditor. Thefirst of these monitors exploration activities under the productionsharing agreements and has direct responsibility for exploration acti-vities where TPDC is the operstor. The experience gained by TPDC as anoperator at Songo Songo has been valuable in building its capacity tocarry out its monitoring responsibilities, although it may need strength-ening in the financial area. However, the mission would not in generalrecoamned extending TPDC's activities as an operator; rather, it shouldrely more on the joint venture type of activity with international oilcompanies. On the gas marketing side, the mission concurs with the find-ings of the recent consultants' study 92/ that TPDC is not properlystaffed to take over a major project for producing and distributingnatural gas; considerable institution-building efforts will therefore berequired in that direction and the mission has elaborated a number ofideas and options in paras. 6.38-6.43 below.

Tanzania-Italian Petroleum Refining Company (TIPER)

6.14 In 1961, the Italian company AGIP reached an agreement with theGovernment to construct a refinery across the harbour in Dar-es-Salaam.TIPER was incorporated in 1963 and the refinery was commissioned in 1966,

92/ "The Financial and Management Structure of TPDC", CommonwealthSecretariat (Technical Assistance Group), March 1982.

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with a capacity of 600,000 tpy; foLlowing debottlenecking, the capacitywas increased to 750,000 tpy in 1970. The Government acquired 50Z of theshares from ACIP in 1967. Under a contract between TPDC and TIPER, thelatter processes crude oil for a fee based on actual cost plus remunera-tion. This remuneration is supposed to be paid to ACIP as a dividend(after payment of corporate taxes) but in fact no dividends have beenremitted since 1977. The petroleum products produced in the refinery onbehalf of TPDC are then sold to the five marketing companies.

6.15 When the refinery started operations, there were 69 expa-triates; training programs were initiated, through TIPER's own trainingcenter and by sending some technicians to Italy for specialized train-ing. As a result of these efforts, there are now only six expatriatestaff - including the Managing Director - out of a total staff of442. However, limitations imposed on TIPER's staff remuneration havecontributed to the loss of well-trained and motivated staff and manage-ment and limited the company's ability to attract suitable replacements;this has affected TIPER's operating efficiency. The problem is likely tobe aggravated further as Tanzania's natural gas subsector expands andcreates further competition for scarce manpower (see paras. 6.38-6.43).Policies with regard to remunerating refinery staff need to be reviewedand action is necessary to correct the staffing problem. Lack of auto-nomy has restricted TIPER's ability to obtain adequate technical assis-tance from its foreign shareholder, ACIP, with which there is currentlyno formal agreement on the provision of services. The problem in aggra-vated by the failure to remit dividends to ACIP. It is recommended thatthe Government increase TIPER's administrative autonomy and reactivatethe technical assistance arrangement between TIPER and AGIP to enable therefinery to continue to function on a sustained and efficient basis.

State Mining Corporation (STAhICO)

6.16 STAMICO.was created in 1972 to take over the mining companieswhich had recently been nationalized. STAMICO is responsible for thedevelopment and exploration of the country's mineral resources, includingcoal; it directly oversees mine project work, up to the point of comer-cial production; and it trades in mineral markets on behalf of its sixoperating subsidiaries. Hence, STAMICO has wide responsibilities in themineral sector and coal represents only a small part of its activities.

6.17 STAMICO has a total staff of 335. There is a staff trainingprogram but the numbers involved are small: only 17 persons were sent oncourses in 1982 (10 abroad and 7 Locally). The proposed IDA CoalEngineering credit (para. 2.28) bas identified training needs forSTAMICO's technical staff and - even more critically - for its finan-cial and accounting officials. The mission has no specific proposals forfurther technical assistance to STAMICO in view of the training componentof the IDA credit and the limited expansion of the coal subsector whichis envisaged.

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Renevables

Forestry

6.18 The Forestry Directorate within MKRT has overall responsibilityfor the development, protection and conservation of forests. All forestreserve plantations are owned by the State through the Forestry Director-ate. Management of forest resources on non-gazetted public land iscarried out by Regional Development Directorates (in the Prime Minister'sOffice) through the Regional Natural Resources Officer, who is respon-sible for all technicaL matters concerning forestry and other naturalresources at the regional level. Technical and development mattersrelating to forestry and other natural resources at district level arehandled by a District Natural Resources Officer, who is responsible tothe District Development Director.

6.19 Five divisions report to the Director of Forestry, who headsthe Forestory Directorate: (a) Forest Industries; (b) Village Afforesta-tion; (c) Management and Development; (d) Research and Training; andCe) Survey and Inventory. The first of these is mainly responsible forthe development of industrial plantations, logging and transportation,and mobile sawmills. The second was recently separated from the Manage-ment and Development division and can be expected to play a prominentrole in the supply of fuelwood to the rural and urban areas. While thelocal community has the main responsibility for afforestation and con-servation programs, it is supported by the Government with free inputssuch as seedlings and advice. Annex 14 shows how the village afforesta-tion program is organized. Experience with the program so far indicatesthat only individual farmers and schools responded favorably and success-fully; community plantations were a failure.

6.20 The Village Afforestation division has a staff of 85 technicaland other professional people; the budget in 1983 was about TSh 30 mil-lion. This level of funding and staffing is judged to be inadequate todeal with the fuelwood crisis. The division needs short-term externaltechnical assistance to strengthen its planning, evaluation and implemen-tation capacities.

6.21 The Management and Development Division is principally con-cerned with the management of gazetted forests, water catchment and soilconservation. However, it will have to pLay a more active role in thefuture in the provision of technical assistance for non-gazetted forestareas. As explained in Chapter IV, there is a critical need to increasethe productivity of the natural miombo forests. The Management andDevelopment Division should take a firm initiative to protect theresource, to control cutting and to increase productivity by improvedsilvicultural management; it should act in close cooperation with theResearch and Training division, which has formal responsibility forforestry research.

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6.22 The Research and Training Division includes two units whichdeal with silviculture and wood utilization (based at Lushoto and Moshirespectively). A Forestry Research Institute is now being formed; it isintended to be an autonomous body with a board of directors and sevencenters specializing in: forest management (Lushoto); timber and forestengineering (Moshi); low-land afforestation (Kibaha); plantation silvi-culture (Sao Hill); miombo woodland (Tabora); arid zone forestry(Dodoma); and southern zone silviculture and management (Rondo). Thedivision is also responsible for coordinating training activities.Formal non-professional training takes place at the Olmotony ForestTraining Institute, which offers a two-year certificate course forcandidates for Forest Assistant positions and a two year diploma coursefor Assistant Forest Officer positions. The Forest Industries TrainingInstitute (FITI) at Moshi offers short courses (six weeks) to workers inthe Forestry Directorate. The University of Dar-es-Salaam's Faculty ofAgriculture, Forestry and Veterinary Science at Morogoro offers a threeyear program leading to a Bachelor's degree and higher degrees inForestry.

6.23 Finally, the Survey and Inventory division is responsible forall surveys, mapping, and inventory work of the Forestry Directorate.This section will need to be strengthened to improve its planning andtechnical skills and its equipment will have to be improved to assistwith a large-scale wood-based energy program (para. 2.31).

Nonconventional Energy

6.24 The research and development (R&D) and technology disseminationactivities on renewables which are now being carried out in Tanzania arelargely uncoordinated and do not appear to be linked to any long-termprogram with set goals and priorities. Two types of activity are beingconducted: (i) research and technology adaptation work; and (ii) fieldtests and dissemination. Little of the work on nonconventional energycan be classified as "commercialization" activities. R&D and technologyadaptation work are mainly carried out in the University of Dar-es-Salaam- including the autonomous Institute for Production Innovation (IPI) -

and at the Centre for Agricultural Mechanization and Rural Technology(CAMERTEC) in Arusha, a parastatal which was formed by a merger of theformer Arusha Appropriate Technology Project (AATP) and Tanzania Agricul-tural Machinery Testing Unit (TAMTU) Pilot projects and disseminationwork are mainly conducted by agencies in the line ministries. TanzaniaNational Scientific Research Council (UTAFITI) is essentially an advisorybody, but it has involved itself in the actual implementation of pilotactivities, through the Dodoma Rural Energy Project. Some pilot acti-vities are externally financed (e.g., the SIDA/Tanzania Wood IndustriesCorportion (TWICO) gasification project) and assisted by residentexperts.

6.25 The University of Dar-es-Salaam conducts several "hardware" and"software" research projects in nonconventional energy (windmill design,solar stills, selective coating Eor solar collectors, photovoltaic pumps

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etc.). They are mostly geared to the thesis requirements of students andcarried out on individual basis; the pace is consequently slow and theirrelation to specific government programs is undefined. The choice ofresearch fields is understandably not often based on national considera-tions. For instance, selective coating research carried out by thePhysics Department is unarguably useful for academic purposes but may notbe a priority research area in the context of Tanzania. Nevertheless,given its existing facilities and highly qualified faculty of variousdisciplines, the University has the strongest potential to fill the majorrole for R&D on nonconventional energy, including not only technoLogydevelopment but also the conduct of economic studies and market surveys.

6.26 CAMERTEC's intended role is more on technology adaptation,initial dissemination and extension. Biogas digesters, windmills, solarwater heaters and improved cooking stoves are among the renewable energytechnologies with which the Center has concerned itself. There is,however, little recent evidence of work on hardware being conducted.CAMERTEC in the past (as AATP) has installed several biogas digesters andwindmills. It does not seem to have looked as much at the importantareas of improved charcoal making and household stoves. A Lorena stovemay be seen at the Center but there are no available performance data.Much of CAMERTEC's present lethargy is due to the inadequacy of financialand staff resources needed to sustain an effective level of operation;there is also a real need for a more coherent program direction and moreexpert advice on the specific technologies.

6.27 UTAFITI's role is closer to that of a coordinative body forrenewable energy research and development than any other agency inTanzania.. Membership is drawn from the University, the various lineMinistries and the private sector. The Council's role is to coordinateall types of scientific research and to advise the Government on researchand development priorities and fund allocations for that purpose. Forvarious reasons, this role has not been pursued as well as it should, atleast as far as renewables are concerned. Most. research and pilotactivities being implemented today do not appear to have emerged fromUTAFITI-defined priorities, but rather from the special interests ofexternal aid agencies or, in the case of the University, the academicinclinations of its faculties. There is little regular monitoring of theprogress of such work by UTAFITI. However, a research co-ordinatingcommittee has recently been formed with membership drawn from variousgovernment agencies.

6.28 Apart from the obvious need to infuse more resources into workon nonconventional energy, there is a crucial need to develop a long-termplan for research, demonstration and technology dissemination; the planshould: (a) set realistic goals; (b) identify a sequence of specificactivities and projects; and (c) delineate implementation responsibi-lities among the few relevant agencies in the country.

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Sector Coordination and Planning

6.29 The preceding paragraphs have identified a multiplicity oforganizations operating in the energy sector with a lack of any effectivecentral coordination. In the future, it will be essential to anticipateadditional demands from existing and from major new energy users and toensure that the long-term planning of energy supply is carried out on amore integrated basis.

6.30 Consideration should therefore be given to the creation of asmall team of energy specialists, with access to information andappropriate computer support. The energy team would comprise aneconomist, a financial analyst and possibly an engineer with a broadexperience in the energy field and would: (a) prepare and regularlyupdate an overall energy plan (including the maintenance and circulationof updated energy data and supply-demand balances); (b) receive informa-tion - as a matter of right - on all proposals and projects involvinglarge new energy demands and significant new supply prospects andoptions; (c) evaluate these proposals, projects and options in theirenergy aspects on strictly economic, technical and financial grounds; and(d) prepare papers summarizing its evaLuations and concLusions and submitthese papers to an Inter-Ministerial Energy Commission.

6.31 The Energy Commission could be a newly-created committee ofPrincipal Secretaries from all the Ministries with an important involve-ment in the energy sector, either on the demand or the supply side -notably NWEM, MNRT and the Ministries of Transport, Works, Industry,Agriculture and Planning which would meet on a regular basis. In lightof the papers received from the energy team, the Commission would eithertake decisions for implementation by the Ministry concerned or wherenecessary (e.g. if a major investment is involved or substantial dis-agreement exists within the Commission) prepare proposals for consi-deration at the Ministerial level.

6.32 The team of energy specialists would in effect serve as theCommission's Secretariat and for convenience would be located withinMWEM; access to or by the Principal Secretary of each of the concernedministries to the Secretariat would, however, be direct and as ofright. The Secretariat could be attached to the existing PlanningDivision, but that Division would need to be reorganized and its respon-sibilities redefined since its present mandate is too wide, encompassingwater as well as energy (see para. 6.5).

6.33 A major problem in establishing the energy team is expected tobe staffing. Initially, the mission envisages the core team members tobe expatriates but it is essential that they work directly with Tanzaniancounterpart staff as soon as possible. A search to find these counter-parts would, therefore, be a matter of high priority. As a start, a con-sultant should be employed for, say, three months to: (a) draw up de-tailed terms of reference for the energy team and the Energy Commission;

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(b) specify the working methods, supporting documentation and computingprograms and equipment necessary for the energy team; and (c) define theformal administrative procedures for the energy team, the EnergyCommission, and the relationships between the Energy Comuission, theenergy team, individual ministries and Cabinet. The consultant couldalso help to find the individual expatriates, their Tanzanian coun-terparts and the sources to finance them. 93/

6.34 The serious gap in planning and implementing work on nonconven-tional energy sources could also be filled by appointing an adviser inMIEM with particular expertise in renewables. He would work closely withUTAFITI and could be an integral part of the energy planning team pro-posed in para 6.33. He would draw up a long-term program of work alongwith implementation strategies. The program would be institutionallyoriented and it would define the links between the different agencies anddelineate their specific roles. The implementation strategies mustrecomiend measures to strengthen the coordinating role of UTAFITI and theimplementation roles of CAMERTEC, the University and other relevantagencies. There are reasonable prospects for obtaining the services ofsuch an adviser through bilateral agency grants.

An Institutional Framework for Gas

6.35 In light of TPDC's responsibility for developing Tanzania'snatural gas resources and promoting industrial projects which are basedon the petroleum sector, the Government and TPDC in May, 1981, signed anagreement with a U.S. company (AMRICO) to form a jointly-owned company,the Kilwa Anmnonia Company (KILAMCO). The company would use the SongoSongo gas reserves to produce ammonia and urea for fertilizers in a plantlocated at Kilwa Masoko, 25 miles from the Songo Songo gas field (para.4.34). The agreement envisaged that TPDC would create a wholly-ownedsubsidiary (GASCO) to produce and deliver the gas to KILAMCO. CASCO isnot yet operational and in any case the agreement is conditional onsuccess in raising finances for the fertilizer project. So far, thefinancing package has not been put together.

6.36 However, whether or not the fertilizer project goes ahead, itwill be necessary to take effective steps in the near future to set up anappropriate gas irstitution if the mission's recommendations to proceedwith commercial production of the Songo Songo field and the constructionof a gas pipeline to Dar-es-Salaam are to be implemented; there would

93/ The essential features of the proposals in paras. 6.33-6.36 aresimilar to those proposed in the U.N. study "Energy Planning inTanzania" (Department of Technical Cooperation for Development),September, 1982.

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also be merit in having a gas entity established at an e:rly stage if thesuggested demonstration program for the use of gas in vehicles is carriedout.

6.37 From experience elsewhere, there are several options concerningthe role and the precise responsibilities which can be given to anational gas utility. At one extreme, GASCO could act on behalf of TPDCand fund, build, own and operate the field production and pipelinefacilities; it could also purchase gas at the well head for resale tofinal consumers. At the other extreme, GASCO might simply be a divisionof TPDC, which would retain full ownership of and responsibility forfield production and pipeline facilities and for the gas in transit.While the latter type of organization would minimize the risk of dilutingscarce manpower, and save bureaucratic duplication, this may not be asignificant factor to the extent that GASCO's activities would becompletely different from those of the existing TPDC and would thereforerequire different peopLe. Basically, GASCO would be an operating utilityas opposed to a petroleum exploration and development company.

6.38 In setting up an institutional framework to develop Tanzania'snatural gas resources, consideration should be given to a "twinning"arrangement, whereby a similar institution in a developed or developingcountry would enter into a negotiated long-term agreement for: (a) theestablishment of a stable professional relationship in matters oftechnology transfer; (b) the training of managers, operators and otherstaff; (c) the review of studies given to third parties or completedinternally; and (d) advice on development plans, investments, accounting,gas purchase and sale contracts, price structure, market penetration,assistance to consumers for gas conversion, and other operatLonalquestions. Gas consultants are usually in a less favorable position torender such services than utilities themselves, since the latter haveactual experience in operating a system. Obviously, "twinning" agree-ments require from the counterpart agency in a developed country someconcern for the needs of developing countries and not simply the questfor financial benefits. The "twinning" arrangements between TANESCO andESB (paras. 6.6-6.7) demonstrate that such a form of cooperation can behighly successful.

6.39 Similarity between institutions means that the size and com-plexity of their gas operations should not differ widely. Preferencewould therefore be given to a counterpart gas utility from either a smallor medium country or from a large country if the utility's activity is ata regional or community level. There would also be lessons arising outof the ways in which the counterpart utility has organized the properrepresentation of generally conflicting interests (e.g., between gassuppliers and consumers and the gas utility itself) through appropriateconsulting bodies, gas promotion programs, contractual arrangements andpricing policies.

6.40 The management study completed in March 1982 (para. 6.13) pro-vides sound advice on a number of aspects related to the financial and

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management structure of TPDC. In the mission's view, there is a need fora follow-up study devoted specifically to resolving the issue of anappropriate institutional framework for gas production, distribution andmarketing in Tanzania. The study should consider the whole range ofavailable options, including a "twinning" arrangement, and make clearrecommendations on: the type of institutional framework to be adopted;how the entity should be created and staffed; and how it should take overthe Songo Songo production facilities, construct the gas pipelines andmarket the gas (including pricing arrangements). Therefore, there wouldbe an urgent need for the Government to take a decision on these recom-mendations. Technical assistance is recommended to finance the study andthe training of personnel which would be necessary to staff the entity.If the Government is already attracted to the "twinning" approach, anappropriately selected "twin" might carry out the study or, alterna-tively, the "twin" should be involved as soon as possible in implementingthe Government's decisions. Preparation of terms of reference for thestudy could be financed under the UNDP/IBRD Energy Sector ManagementProgram.

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VII. *IVESTMENT AND TECHNICAL ASSISTANCE IN THE ENERCY SECTOR

Investment Requirements

7.1 The mission has examined the likely future investment require-ments for the energy sector up to 1991, in light of the demand forecastsprepared for the "SAP" scenario in Table 3.5 and the energy supply andinterfuel substitution options analyzed in Chapter IV. The conclusionsare discussed below and the results (in 1983 prices) are in Table 7.1.The principal investments identified by the mission to be carried outthrough the public sector are in the electricity, gas and forestry sub-sectors. Some investments are also recommended for the refinery but theyare modest and prbmise a rapid payback period. In the coal subsector,STANICO appears to be proceeding with additional investments but theyalso should be modest in the period under review. Finally, some supportfrom the Government's investment budget may be required in the noncon-ventional energy subsector; the amounts should not be large in relativeterms - since most of the funding would logically come from privateresources - and they are therefore not taken into account in Table 7.1.

7.2 In the electric power subsector, works related to the FourthPower Project are expected to cost US$196 million, including: (a) thecivil, mechanical and electrical works for she Mtera hydroelectric scheme(para. 4.54); (b) a new system control center; and (c) rehabilitation ofthe Ubungo power station (para. 4.65) and other systems components (para.4.69). Other ongoing works (mainly extensions to the main grid and otherdistribution faccilities) could amount to US$139 million. Financing forthe Fourth Power Project and most of the components of the ongoing workshas been arranged. In addition, a provision of US$169 million has beenmade in this report for rehabilitation and other works comprising:(a) transmission, including a second 220-kV link from the Kidatu toNorogoro (para. 4.62), transmission interconnections with Kenya andUganda (para. 4.72) the 132-kV system (para. 4.63); (b) the Pangani Riverhydroelectric stations (para. 4.67); and (c) TANESCO's distribution net-work (para. 4.68). Finally, investment in new gas turbine generatingcapacity, to be commissioned in 1992, is likely to cost US$30 million(corresponding to 2 x 30 MW). These turbines may not be needed until thelatter part of the 1990s however, if the 'SAP' program does not materi-alize soon. Most of these investments can be regarded as independent ofthe actual growth rate of future power demand, in the sense that theyshould go ahead -- whether electricity demand grows according to the'SAP' scenario or at some slower rate -- subject only to financial con-straints. In the mission's view, ongoing works and those financed underthe Fourth Power Project are for all practical purposes committed; theUS$169 million provided for rehabilitation and new works are to effectcost savings, improvements in system reliability and increases in thequality of electricity supply even with the existing level of demand.Hence, out of the total investment of US$504 million for the electricpower subsector in Table 7.1, only the US$147 million for the Mtera

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hydroelectric plant and the US$30 million provided for new gas-basedgenerating plant are directly dependent for their economic viability onthe growth rate assumed for electricity demand. Of course, it is crucialto emphasize that -- if Tanzania's overall economic situation does notimprove -- the Government will face severe financial constraints which,in turn, could compel TANESCO to reduce its desirable investment pro-gram. For this reason, the mission considers it extremely important forthe Government and TANESCO to establish detailed priorities for indivi-dual projects' financing and timing; these priorities should be basedupon a careful weighing of financial economic, technical social andoperational criteria. An important input in this process -- as far asthe economic, technical and operational aspects are concerned -- will bethe long-range power development study and the power system rehabilita-tion study currently being carried out under the Fourth Power Project(para. 4.53). It is clear, for example, that certain aspects of rehabi-litation are vital to maintain reliable power supply and avoid the dis-ruption of productive activity and human well-being that results frompower outages. Ultimately, of course, the Government and TANESCO jointlymust decide on priority rankings and the specific components that mayhave to be delayed or deLeted from the program to keep within obtainablefinancial resources.

1.3 In the gas subsector, the major investments will be devotedto: (a) securing and protecting the existing Songo Songo wells (US$4million); (b) the final development of the Songo Songo gas field (US$6million, including necessary associated design and simuLation studies);(c) the construction of a transmission pipeline from Songo Songo to Dar-es-Salaam (US$45 million, including preparatory work leading to a deci-sion on the pipeline's diameter and engineering); 94/ (d) the instal-lation of the secondary distribution system in Dar-es-Salaam (US$5 mil-lion); and (e) conversion of industrial plants in Dar-es-Salaam to usegas (US$6 million, including spurlines and tertiary works). 95/ In-vestment costs for CNG supply in transportation and possibly to isolatedmarkets (such as Zanzibar and Mafia Island) are more difficult to esti-mate. Equipment to ship CNG from Songo Songo to Dar-es-Salaam might costUS$4 million; conversion of the UDA bus fleet under a pilot scheme couldadd a further US$4 million (including related technical assistance andstudies). If the pilot scheme is successful, further vehicle conversionand the building of filling stations could amount to US$20 million from1986-1991 (including more technical assistance and necessary vehiclesurveys) (paras. 4.51-4.52). Finally, the mission includes a notionalUS$3 million to set up a small CNG or LNG shipping project at Mnazi Bay.

94/ The figure excludes transmission to Kilwa, which is assumed to bepart of the investment for the KILAMCO project.

95/ Item (d) might be financed privately or under short-term governmentloans.

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Table 7.1: ESTIMATED PUBLIC INVESTMENT REQUIREMENTS FOR THE ENERGYSECTOR TO 1991

(US$ million at 1983 prices)

US$ millionPower a/Ntera hydroplant, Control Center and Rehabilitation 147(Ubungo and other facilities) 26

Engineering and Consultancy Services 20Studies and Training 3

Committed Expansion Program:- Transmission 124- Distribution and Isolated Systems- (Newola/Masesi, Kilimanjaro, Mini-Hydro) 43- Rehabilitation and Miscellanous 72

TNRehabilitation of isolated power Stations 20New, gas-based generating plant 30Transmission network reinforcement andexpansion (Kidatu-Morojoro; Northwest) 30

International Interconnections 45Rehabilitation and Miscellaneous 44

Total Power Sector 504Gase-curing and protecting existing Songo Songo wells 4Final development of Songo Songo 6Transmission pipeline to Dar-es-Salaam 45Secondary distribution in Dar-es-Salaam 5Plant conversion in Dar-es-Salaam 6CNG supply from Songo Songo 4Conversion of UDA bus fleet (pilot scheme) 4Further vehicle conversion 20CNG supply from Knazi Bay 3

Subtotal 97ForestryUrban plantations 32Rural woodlot program 12

Subtotal 44OtherRefinery 10Industrial Energy Conservation 3Coal 8

Subtotal 21Total required investment for the energy sector to 1991 666

a/ With the exception of the-new gas-based generation facilities, powersector investments are composed of already committed projects oressential rehabilitation needs that will be minimally affected --whether or not the "SAP" scenario materializes.

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7.4 It is difficult to project physical targets and associatedinvestment requirements in the forestry subsector, but para. 4.96proposed a minimum plantation program for urban areas which would startat 1,500 ha in year one and reach 7,500 ha p.a. by year five. Theprogram implies planting a total of 22,500 ha and 51,000 ha in the firstand second five-year periods respectively. A detailed breakdown ofplantation costs for a one-hectare model is in Annex 15, resulting in acost of about TSh 7,500 (US$615) per ha. 96/ Total investment in thefirst and second five-year periods of the program would correspondinglycome to TSh 170 million (US$14.0 million) and TSh 384 million (US$31.5million) respectively. Assuming that the program of urban energy plan-tations could be underway in 1984, investments of US$32 million are pro-vided as a minimum requirement in Table 7.1. Similarly, in para. 4.97,the mission proposed a minimum program for rural areas which started withten million seedlings and reached a level of 30 million seedlings by yearfive. The program implies total investment of TSh 70 million and TSh 130million in the first and second five-year periods respectively. Againassuming that the program would start in 1984, the mission includes aninvestment of US$12 million in Table 7.1. It should be clear, however,that these suggested programs represent only a first step in dealing withthe pervasive and growing seriousness of the fuelvood/household-fuelproblem. Added studies and regional resource inventories are urgentlyrequired to identify the seriousness of the situation on a region-speci-fic basis and to define additional programs (e.g. increased and improvedcharcoal operations in more remote areas, utilization of wastevood, con-servation programs in crop drying activities, etc.) that could be deve-loped. The mission expects that far greater efforts than those outlinedhere will be necessary within a few years in order to deal with theproblem.

7.5 Modest investments were proposed for the refinery in ChapterIV, to cover debottlenecking, equipment for repairs and replacements andthe reduction of internal fuel consumption and losses (see para. 4.15).The mission attaches a very high priority to these investments, totallingroughly US$10 million, as they are urgently needed to secure the safe andcontinued operation of the refinery and they are expected to have a shortpayback period. If external sources of financing cannot be found quick-ly, the Covernment should make those investments as an additional equitycontribution to TIPER. The mission also suggested in Chapter IV thatstudies be carried out on the viability of installing small secondaryconversion facilities and on the addition of a bitumen plant adjacent toTIPER. Investment in the projects themselves would have to await the

961 Some studies in the U.S. indicate that the figure could be as low asUS$400 per ha. See "Production of Woody Bifuels from Mesquite"(Caeser Kleberg Wildlife Research Institute). A figure of US$615per ha for Tanzanian conditions is not unreasonable in comparison.

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outcome of those studies and would be considerably larger (US$42-50million); they are not included in Table 7.1. 971

7.6 The mission has adopted a very cautious approach to the coalsubsector and is not proposing any substantial investments, certainly notprior to the outcome of the Coal Engineering Credit and the studies out-lined in para. 4.88. Consequently, possible future investments in IvogoRidge and Kabulo Ridge are excluded from Table 7.1. However, anticipatedexpenditures under the Coal Engineering Credit (US$7 million) and anestimate of STAMICO's investment in the expansion of Ilima (US$1 million)are included in Table 7.1.

7.7 The investments in gas development and forestry projects areparticularly tentative and would depend on the outcome of feasibilitystudies proposed separately. The estimated investment requirements forthe energy sector as a whole in the eight-year period to 1991 totalUS$666 million in 1983 prices or nearly US$85 million per year. Thiscorresponds to about 2Z of estimated 1983 CDP, which is reasonablecompared with other developing countries. About 752 of total energysector investment would be for electricity supply.

7.8 The discussions of industrial energy conservation (paras. 5.20-5.24) shows that significant energy savings may be available at relative-Ly lov investment costs. It is recommended that a fund of about US$3million be established to finance the foreign exchange costs of suchenergy conservation measures.

Technical Assistance

7.9 Bilateral and multilateral agencies are already providing con-siderable amounts of foreign aid to the energy sector in Tanzania. Fromdiscussions in the field and information obtained by the UNDP residentmission in Dar-es-Salaam, the m-..sion put together a listing of currenttechnical assistance activity. For example:

(a) CIDA has so far approved C$2 million for a pre-engineeringstudy for the Dodoma-Mwanza portion of TANESCO's interconnectedsystem extension plan. An additional C$0.4 million has beenapproved to finance the updating of the 1981 Power Sector

97/ According to the most recent information available to the mission,the Italian government expressed its wilLingness to provide aboutUS$4 million to finance investments for debottlenecking and improve-ments in energy efficiency, and US$20 million to update the studiesof the bitumen plant and its actual construction.

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Study. 98f CIDA was also responsible for the funding of theexpatriate advisor responsible for the energy sector in SWE(para. 6.5) and has agreed to fund a replacement. CIDA is alsofinancing a small study of sc e of TANESCO's distribution lines(para. 4.68). Finally, CIDA has provided C$0.05 million for ahydrology study for the Great Ruaha River system;

(b) The United States Agency for International DeveLopment (USAID)has so far committed US$0.4 million over the last two years forthe training of 6 Tanzanian students in conventional energy,energy management and alternative energy technology;

(c) The European Economic Community (EEC) has provided, under thefirst Songo Songo Petroleum Exploration Project (para. 6.1),funding for the petroleum exploration economist seconded toMWEM and for several studies. EEC is also financing a study ofelectric power interconnection between Tanzania and Uganda(para. 4.72);

(d) The Technical, Industrial and Economic Cooperation Agency(ACTIM) is sponsozing the training in France of TANESCOengineers;

(e) The Finnish International Development Agency (FINNIDA) hasprovided US$1.7 million to fund four experts for the ZanzibarAfforestation Programme;

if) SIDA is involved in studies concerning alternative uses forsoftwood for energy purposes on plantations (para. 4.100) andis investigating Tanzania's rivers as to minibydro powerpotential together with NORAD and KFW (para. 2.14);

(g) The IDA Coal Engineering Credit (para. 6.17) includes aprovision for training assistance for STAMICO's technical,financial and accounting staff; and

(h) Through the Fourth Power Project, IDA, together with the othercofinanciers (France, KFW, Italy, Kuwait Fund, NORAD and SIDA)has provided about US$2.7 million equivalent for training ofTANESCO's engineers and managerial staff; and for consultancyservices for supervision and carrying out of studies (paras.4.54, 6.8-6.9).

(i) NORAD has provided 44 million Kroners a four period to fund apetroleum sector program which includes petrolem explorationand operational support to TPDC.

98/ Carried out by Acres International.

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7.10 Even though there is already substantial teclnical assistanceactivity in the energy sector as described above, the discussion inChapters II, IV, and V identified a number of areas where furtherexternal assistance is required. Among these, the mission has selectedthe items described in the following paragraphs as having the highestpriority.

7.11 In the petroleum subsector:

(a) Engineering studies should be undertaken to investigate ways ofimproving TIPER's operating efficiency (paras 4.8-4.11). 99/

(b) Immediate assistance is required to evaluate the possibility ofincreasing TIPER's capacity by simple debottlenecking (para.4.13); 99/

(c) The 1978 study to construct a bitumen plant to utilize excessfuel oil from TIPER should be reexamined (para. 4.16) 99/; and

(d) on a longer-term basis, consideration should be given tostudying the viability of installing simple secondaryconversion facilities at TIPER (para. 4.17);

Ce) The possibility of using present excess capacity in the TAZAMApipeline to supply crude oil to inland towns as a partialsubstitute for refined products should be evaluated (para.4.21).

7.12 In the natural gas subector:

Ca) Preparatory work on a gas transmission pipeline and distri-bution system should be undertaken and will require externalfinancing (para. 4.52 and 7.3 (b));

(b) Evaluation of the possibilities of CNG/LNG supply from Songo-Songo to Dar-es-Salaam and from Mnazi Bay to Mtwara-Lindi isrequired (paras. 4.50-4.51; 7.3); and

(c) The UDA experimentation feasibility study and pilot study willrequire technical assistance (para. 4.49 and 7.3).

7.13 In the electric power subsector:

(a) The studies of hydroelectric facilities carried out so far needto be updated extended to the feasibility level for those com-ponents likely to form part of the least-cost power expansion

99/ Italian financing is likely to be available to finance at least partof these items.

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program and ranked by merit in a complete inventory (para.2.20);

(b) An independent study is necessary to review the present systemof gathering hydrological and other data (para. 2.21);

(c) A more detailed assessment of the rehabilitation needs of thesmaller hydroelectric plants is needed (para. 4.67);

(d) Rehabilitation of serviceable diesel units and basic trainingin maintenance of dieseL units is urgently required (para.4.69);

(e) The optimum use of the water reservoirs in the interconnectedsystem merits further critical review (para. 4.70); and

(f) The possibility of power export to Kenya should be carefullyevaluated (para. 4.72).

7.14 In the coal subsector, studies should determine the economiclimits on coaL distribution and the effects of conversion costs, etc. onthe attractiveness of coal as a fuel input (para. 4.88).

7.15 In the fuelwood subsector:

(a) The Energy Sector Management Assessment Program (ESMAP) shouldbe used to help the Government in defining the components of anappropriate first phase progzam (including proposals forinstitutional arrangements such as that described in para.4.96).

(b) A national forestry inventory is urgently required (para.2.31).

(c) Existing knowledge of the growth dynamics and productivity ofthe miombo forests (Tanzania's main fuelwood source) needs tobe extended (paras. 4.91-4.92);

(d) Training programs are required to equip local staff to imple-ment effectively the research results and handle the Largerplanting programs which will be required in the future (para.4.91).

7.16 Concerning non conventional energy sources, there is a need toinvestigate further the possibilities of converting industrial plantationresidues into charcoal (para. 4.99); and solar and wind energy in speci-fic areas (para. 4.107).

7.17 ESMAP assistance is recommended to help with demand managementby financing:

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(a) Further support to enable TIRDO to operate as the nucleus ofindustrial energy conservation activities (para. 5.24).

(b) A continuation of the existing energy audit program (para.5.22); and

(c) ' study to identify and evaluate measures to improve theefficiency of energy use in the transport sector (para. 1.13).

7.18 Various forms of technical assistance are urgently needed tofoster institutional and manpower development, notably:

(a) A framework for an energy planning team in MWEM must be created(paras. 6.33-6.35) and its initial staff must be funded,including an expert in renewables, (paras. 6.36-6.37);

(b) A detailed study is required to determine the appropriateinstitutional framework for gas production, distribution andmarketing (para. 6.43), the term of reference for which couldbe prepared under ESMAP; and

(c) There should be training of staff for a new gas entity.

Annexg I

ENERGY BALA4CE 1961(1000 tonnos of oil egulvalent) .

Frimar Enwrgy Sacondary EnercyPetroleum Products

Crude Aviation b ollne InwFueluood c/ Coal Hydro Oil CharcoaI d/ Electrlclty / LPO Gas FDphts Kerosene GO 100 FO Other Total Total

Gross Supply

Productlon 9,400 3 180 9t5olmporte 544 5$ 16 39 173 21 284 624Stock Chargsy ((3 (23) (73 5 3 (73 (33 2 (17 (3(1Total Available 9,400 2 180 521 28 21 42 166 (3S 2 21 277 10,30

onverslonPetrolew Rflnlng (4771 6 29 99 35 74 62 172 477 0Charcoel Production (350) 350 0ElectrlcitY ~naratlon (ISO) 208 (1) (16) (1111 (I 02Conversion Losses 11*1001 (443 ((393 (1,283)Tranmlssion and DIstrIbutlon

Losses tlO) (10)Not Supply Avallablo 7,950 2 350 s9 6 57 120 77 239 43 163 21 726 9,007

Exports Ci) (23 (43 333) (403 (401Bunker SOles (223 (223 (223Nrt DomestIc COnsuotlon ,7950 2 350 59 6 36 II 77 235 43 (08 21 664 9.025

ConMutlon bv SectorIndustry 600 2 10 34 1 5 16 27 91 3 (43 929

o_nsrct 12 17 13 30 42Trsnsport 52 1(3 1 iB5 2 is 2 372 372HDuseholds 7,350 200 13 5 71 76 7,639Agriculture 25 0 2 35 55

Discrepancy and ROundIng Error 4 3 (63 6 2 I Ia 10

/ I toe a 10.2 mlillon kllocalorles./ Incr"se shown as neative.

d fuelvood Is converted at 5,500 Koal/kg at 25% moisture content and 700 kg/c.h arcoal Is convorted at 7,000 Keal/kg. It Is assumod that 12 o) of wood yields one ton of charcoal In the traditlonal earth kliln.

/ Electrlc poer losses are believed to be higher than reported, probably due to ovwr-raporting of consupt1on. Therefore, totai electrlclty consumPtion hus been adjusted and *ach coniuwrcategory has been reduced 'pro-ratae.

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Annex 2

REGIONAL FUgLWQOD CONSUMPTION ESTIMATES (1981)(10 m solid wood equivalent)

…---------…--- Consumption--- ---------… --PopuLgtion Tobacco Other Rural

Region (10 ) Household a/ Curing b/ Industries c/ Total

Nwanza 1.585 2.821 - 0.355 3.176Mara .782 1.392 - 0.175 1.567Kilimanjaro 1.00 1.780 - 0.224 2.004Mtwara .812 1.445 - 0.182 1.627Kagera 1.167 2.077 - 0.262 2.339Tanga 1.121 1.995 0.010 0.251 2.256Shinyanga 1.504 2.677 0.010 0.337 3.024Fwani .533 0.949 0.017 0.119 1.085Arusha 1.069 1.903 - 0.239 2.142Dodoma 1.064 1.894 - 0.238 2.132Iringa 1.001 1.782 0.070 0.224 2.076Mbeya 1.205 2.145 0.065 0.270 2.480Kiguma .713 1.269 - 0.159 1.428Morongoro 1.024 1.822 - 0.230 0.052Tabora .973 1.732 0.390 0.218 2.340Ruvuma .629 1.119 0.160 0.141 1.420Rukwa .535 .952 0.029 0.120 1.101Singida .670 1.193 0.005 0.150 1.348Lindi .553 .984 0.004 0.124 1.112Dar-es-Salaam 1.195 2.127 - 0.268 2.395

TotaLs 19.137 34.1 0.760 4.29 39.1

a/ Includes wood used directly and in form of charcoaL.b/ Only tobacco curing and tea drying have regional data available.

However, tea drying toiaL is relativeLy small (.037). Tobacco curingneeds estimated at 30 m stacked wood/450 kg tobacco cured.

c/ Includes wood used directly for pottery (0.264), brickmaking (0.10), fishsmoking (0.17) and tea drying (.037), as well as wood equivalent ofcharcoal used for blacksmiching, rural industries and the service sector(2.5).

Source: Kaale (1982), Nkonoki (1983), Openshaw (1983) and mission estimates.

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Annex 3

FUELWOOD AVAILABILITY BY REGION

Region Miombo Forest a/ Woodlots Total

MAI MAI

('000 ha) ('000 m3/year) ha b/ ('000 m3/year) c/ ('000 m3/year)

Mwanza 142 87 1660 30 117Mara 126 75 2147 39 114KilimanJaro 88 80 1003 29 109Mtwara 434 28 379 7 215Kagera 458 222 1022 18 240Tanga 846 479 802 14 493Shinyanga 1326 533 3289 59 592Pwani 889 458 304 6 465Arusha 979 579 1551 28 606Dodoma 1168 672 2547 46 718iringa 2474 1130 2914 53 1183Mbeya 3158 1294 2206 40 1334Kigoma 1815 687 927 18 1096Morogora 2494 1078 979 18 1096Tabora 4514 1748 1120 20 1768Ruvuma 3314 1265 1989 35 1300Rukwa 3774 1447 2182 39 1486Singide 2844 1382 1146 21 1403Lindi 3706 1646 232 4 1650Dar - - 65 1 1

Total 34,549 15,069 29,064 524 15,593

a/ Does not include closed tropical forests and industrial plantations and areais based on 80% accessibility.

b1 Sixty percent survival rate estimated by FD.c/ 18/u /yeer/ha - MAI (Moan Annual Increment).

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Annex 4

NATIONAL STORAGE FACILITIES FOR PETROLEUM PRODUCTS(Kiloliters)

IndustrialKerosene/ Gas Diesel Fuel

Location Gasoline Gasoline Jet Oil Oil Oil

Dar-es-Salaam 11,627 7,436 9,904 56,435 4,319 8,891Mtwara 1,637 1,636 8,791 8,742 242 -Zanzibar 223 357 233 470 - -Tanga 524 323 514 1,749 - 13Moshi 284 383 319 504 162 153Arusha 471 - - 497 92 125Musoma - 2,651 67 350 134 -Nvanza 346 693 467 1,438 362 440Bukoba 171 213 215 215 52 -Kigoma 1,493 730 - 1,658 - 326Tabora 149 357 137 546 51 -Dodoma 83 255 76 254 83 -Kimamba - 43 43 54 54 -Mikuni 97 271 95 740 196 -Morogoro 297 54 116 286 - -

Total 17,402 13,016 20,976 73,938 5,747 9,948

ANNEX 4(a)

PRICE BUILD-UP OF PETROLEUM PRODuCTS(TSH PER LITRE UNLESS SHOWN OTHERWISE)

Effective June 15, 1984

LPG a/ MSP b/ MSR 3/ JET-Al IK GO IDO FO

1. Ex-TPOC Cost Price 6,389 . 7.8116 6,2608 5.919 5.919 5,254 5.124 3,3962, Kilamco Fund 0.150 0.150 0.150 0.150 - 0.150 0.160 0.1503. Ex-tPDC Price 6.539 7,9616 6.4108 6.069 5.919 5,404 5.274 3.546

4. Company Overheads 0.270 0.270 0.270 0.270 0.270 0,270 0,270 0.2705, Company Margins 0,157 0.154 0.154 0,154 0.154 0.155 0.156 0.0716. D/D Freight Fund 0.170 0.170 0.170 0.170 0.170 0,170 0.170 0.1707. MSP/MSR/T,E,F, - 0,450 0.450 - - - - -8. In-Bond Wholesale 7,136 9.0056 7.4548 6.663 6,513 5,999 5.868 4.057

9. Sales Tax 1.00 6.5514 5.5532 1,00 0.685 1.20 0.95 0.9510, Wholesale Price 8.136 15.557 13.008 7,663 7,198 7.199 6.818 5.007

II. Delivery Charges 0.85 0.05 0.05 - 0.05 0.05 0 -12, Deaol.rs Margin 0,264 0,543 0,492 - 0,252 0,251 - -13, Retail Prices 9,25 16,15 13.55 - 7.50 7,50 - -

a/ Price per kilogram.b/ MSP = Motor Spirit Premium; MSR a Motor Spirit Regular.

Annex S

ILLUSTRATIVE BREAKDON OF POTENTIAL UAS 1MAKET FOR CASES IV-VII a/

(1) (2) (3) (4) (5) (6) (7) (8) ('9 (10)Ind. + Power Ind. t Powe Supply for Fert. Supply for Ind.

Industrlal industrlal Powr Power Ind. + Power Cumulative + Fort. (Scngo Sonqo only) f/ and Power ofYear _cf/d _cf/d beftyr bet/yr bet/yr bef/yr bef/yr bcf/yr bef/yr

Son.Son. ItBoy

1987 11.6 4.23 - - 4.23 - 23.83 19.6 4.23 -(988 12.0 4.36 - - 4.38 8.61 23.98 I 4.38 -1989 12.5 4.56 - - 4.56 13.17 24.16 I 4.56 -1990 13.0 4.75 - - 4.75 17.92 24.35 4.75 -1991 13.5 4.93 - - 4.93 22.85 24.53 4.95 -1992 14.0 5.11 1.01 0.37 5.48 28.33 25.08 I 5.48 -

199M 14.6 5.33 6.73 2.46 7.79 36.12 27.39 I 7.79 -1994 15.3 5.58 9.75 3.56 9.14 45.26 28.74 I 9.14 -1995 16.0 5.64 135.34 4.87 10.71 55.97 30.31 I 10.71 -

1996 16.7 6.10 17.12 6.25 12.35 c/ 68.32 31.95 I 12.35 _1997 17.5 6.39 21.15 7.72 14.11 82.43 33.71 I 14.11 -

1998 18.2 6.64 25.36 9.26 15.90 98.33 35.5 I 15.90 -

1999 19.0 6.94 29.89 10.91 17.85 116.18 37.45 I 17.85 -

2000 19.8 7,23 34.66 12.65 19.88 136.06 39.48 I I 2.03 02001 20.6 7.52 39.73 14.50 22.02 158608 41.62 I 4.172002 21.5 7.65 45.07 16.45 24.30 182.38 43.9 I 6.452003 22.4 8.18 50.77 18.53 26,71 209.09 46.31 I I 8.6

2004 23.3 8.52 56.77 20.72 29.24 2M8.33 48.84 17.65 11.392005 24.3 8.68 63.15 23.05 31.93 270.26 51.53 I 4.57 27.362006 25.4 9.25 69.92 25.52 34.77 305.03 54.37 1- 34.77

I I I I I 1 1 54.37 19.66 -

2013 1 I I I I 34.77 _ _

2018 1 I I I I 722.27bk/d/ I _ _ 2021 25.4 9.25 69.92 25.52 34.77 826.58 34.t7 - - 34.77

Totals n.mo 266.96 nee. 559.62 626.58 826.58 1330658 510.00 210.00 616.58

Explanatory Ibtes

a/ The table shows gas allocation under Case VIl, I.e., using Songo Songo and Inaul Say ms for Industry, ower and fertilizer. VarIatlonsundor Cass IV, v and VI are decorlbed In the following footnotos. The definItlon of all cases Is In Annex 6.

k In Case IV, Songo Songo gas Is exclusively allocated to Industry and pww reaching a maxim at 34.77 bct/yr In 2006 as shown In column6, until 2010 when avallable ressrves of 725 bef would be exhausted as shown In coat n 7.

of In Case V, the Introduction of fertilizer ans Songo Songo gas for Industry and power Is lioted to 210 bef. This allocatlon Is shown Incolumn 6 untIl I$6 whon It reaches 12.35 bef/yr and then continues at that level until 2006, when a total of 210 bef would have been usedup. The balance of 510 bet goes to fertilizer.

LI Case VI Is the same as Ca" IV. except that when Songo Songo gas runs out In 2016, suoply Is continued from lVnal By et the sa" rate,35.77 bef/yr. until Ih.aul Dy gas Is In turn exhausted by 2036.

q/ Case VIl allocotes the same volme of gas to Industry and poer as Case VI, except that the addition of fertilitor means Sonqo bongtreseves ro oexhusted by 2013 and Mnaul Bay reserves by 2021.l/ To prsntation assu"s that 100% of fertillier production requirements would be met from Sonqo Songo. f Mnazi Bay qas uwo Introduced,pipollne costs mIght be reduced by allocating nail by gas exclusively to fertillizr production until 50nqo 50npo resarves wreexhausted.

- 127 -

Annat b

rAS SUMY S'S SEUB R eOuc eAuMM

Goth Qltm edw CAP. -4 QWtche Swurlo CG trd (umcVd) qauodtlo (f/d) ($o1

sow sawo gpti.bg Uum12- MNarim Ppelin

I ODI TmhI cry (8A) 6" taid piph1U* 16.8 49.3D9t d1tbtrib (26 mf4d)

SS gmtrbhf linesAdditlamil pwduhtion facltiUtu12' 1rim Pipelim

1 LW 1i r. -stry (BA) 10- lId pipslz 59D. 73.3mm1 Pbw (50.7) d/ 1M dimtribiam (37 infd)

caw. 0im.

*ditimmi pu nn fatlmS ISS lnrie iu IO 1D0 16.512- r ltpel"lj"e

ni L, M I1 nay (8A) 8" lid pipelSneDel POWr (5.5) MM Mstridbm (37 'afd) 3 34.0 40.1

xw./Im. I

KLba FPrtiier (55) 10' Lid pipsUn. to Im 66 9.8

atuma pco&ctua facutee * add.iml.tny ym. 21 & 26

12? N ptp: Uz. I 100 81.9 el

TV SAP 11I&ty(54 0 a ES IMY 05) W Lwd gia 1sDM P,W (69.9) + Md 10r PlpUamad

bo tei ywr14 I

Ss gm%Nfrg1iuuAdkiLdami pcudon facif I

V SAP +ad. wl inys. 21 &26 1 100 20.7IZ matim pimlam

D 94 In&tty (16.7) Er Id p4mie I 34 41.8aM Pw (17.1) M 5 distrabuim (37 _:Ifd) |

0XM./rar6

Mm Fertilizer (55) 10" 11d pipeline to KU1 66 9.8

Ss IIz Inry (25-4) hKIn e I InCME TV IO0 81.9 e/

VI soP UK ?mr (69.9) ta I

? Da by go (34.8) BOuzI by facideU (field,n fo 2,018 12 lad pipiUn eM cawluI) 95 3.1 el

SS IMarim A I Scm1 tV 100 tl.9 1 f

-i IAuMT (25.4) lad ]vII SAP mm1P3Mer (69.9) D4 ]

alm ay. (55) 10" lad pipele to %1 66 9.A

t IIy So C348) 1-zI bty faities (feld,a frw 200 ir lid gpli d cmp=ea) 95 24.2

E to in ci tdie am tbom of ain uy._ pwto ulth Sowp Sp fadltid , -l- pipeline, adppln fr N byt ihr m1 to Inch _utzu pip_in ad or feilil.kelp tcmedt SI bond an 30D d dpalwy pmm to 1 aid 700 psd to Khm.Sj ct meu frm a tp aet i d In neins 10.

A n 1wis czinod - a uid ebmoei7g cRn Wan= of Sup Sain oa.In ti _ fie V i, acom ofaf I SyMM C mA dldM at 12 r VWer.

- 128 -

Annex 7

GAS SUPPLY COST ESTIMATES

Intrastructure Components (Cost in USSOOO)

(a) Fields

(1) Songo Songo Gathering lines 2,904Additional production facilities 2,096

Booster 2,000

Additional well 15,000

(11) Mnazi Bay Field Exploration 15,000

Gathering Lines 3500

(b) Plpeline - Diameter 6" 8" 10" 12"

Songo Songo to coastal point (20 km) 8,815 9,504 10,363 11,543Coastal point to Oar-*s-Salaam (206 km) 24,615 29,751 35,678 -

Second pipeline (same route) 22,023 25,447 29.300 -

Compression (40% Incroased capacity) 3.125 3,925 4,825 -

Coastal point to Kilwa (63 ki) - - 9.777 _

Mnazi Bay to Kilua Pipeline (255 km) - - 45.873 a/ 49,572

Compression (40% increased capacity) 24.000

c) Doar-es-Salaam Distribution Network - Total capacity (MMCFD) 26 37 100

Cost 5.037 5395 1.4,396

Cd) Dar-es-Salaam Consumer's Connection and Oonversion

Area bl 1 2 3 4 5 6

Spur lines to indlvidual factories 30 90 200 300 200 100

Replacement burners and facilities 210 270 1,300 3,400 200 400

Total Cost: between 6,700 (as shown) and 5,200

(*) 220 KV Poner Transmission Line:(Coastal point to Dar-es-Salaam (206 kn) 22,700

Note:a/ The 10" design includes a 2 x 1,000 hp compressor station.b/ See Annex 10 for location.

- 129 -

Annex 8

GAS DEPLETION AND LONG RUN MARGINAL SUPPLYCOSTS FOR CASES 1 THROUGH VII

Long Run MarginalDepletion Allowance Supply Costs

Industry Power Fertilizer Industry Power Fertilizer- ------ US$ per mef ---

Case I a/ 0 n.as. n.a. 2.23 n.a. n.eaII b/ 0.10 0.10 n.a. 2.11 2.11 n.a.

III cl 0.10 0.10 0.19 1.45 1.45 0.26IV d/ 0.15 0.18 n.a. 1.04 1.04 n.ea.V e/ 1.15 1.18 1.07 0.95 0.95 0.26

VI f 0 0.03 0.03 n.a. 1.06 1.06 n.a.VII jI 0.03 0.03 0.45 0.92 0.92 0.26

Ex~planatoryr Notesa So go Songo lasts indefinitely -- no depletion costs. Supply costs

allocate 12" marine and 6" land pipeline to industry.b/! Sogo Songo lasts to 2035 - minimnl depletion costs. Supply costs

allocate 12' marine and 10" and pipeline between industry and powerprorate to coosumption.

c/ All added depletion costs assigned to Kilamco Fertilizer Plant. Ifpotential domestic gas demand were to grow from a maximum of 21.7bscflyear as assumed in Case II to 35.0 bsef(year by 2015, thedepletion costs for Kilamco would Increase to $0.30/mcf. Annualaverage gas consumption by Kilamco assumed to be 12.75 bscf/year(75Z capacity utilization). 71% joint costs of supply allocated toKilamco.

d/ Songo Songo gas lasts until 2018 to be replaced by hydro and fueloil in power and industry respectively.

el Potential domestic demand as in Case IV but limited to a maximum of12.35 bscf/year and exhaustion by 2006 due to Kilauco allotment.

f/ With Mnazl Bay gas as back-up; no compensation payments to Mnazi Baygas concessionnaires.

g| As in Case VI but vith Kilamco consumption added.

Annax 9

ECONONIC EVALUATIONSIR4ARY OF CASES CONSIOfRED

DimO t_ Netback (USS me) e/ Project kWP ProjectIndustry Power KilIaco eoall BbY of Dar b/ Industry Power CUSS -111) Benefit/Cost Rbtlo

Case / Low u High Low High Wlthout With Without With Pipeline dpin. no dpin. dpin. no dpin dpin. no dpin. dpin. no dpin.

I X 0 X X 6 1,63 1.63 n,ae n.e. 42.1 42.1 1.73 1.73 1II X X X X 10 1.65 1.75 2.25 2.35 80.6 84.6 1.89 1.94

III / X X X X 8 2.31 2.41 2.89 2.99 107.8 IIIs. 3.0 3.07 CIV X X X X 10 + 10 2.67 2,82 3.22 3.40 291.2 298.3 3.93 4.01v X K X S 2.76 2.91 3.01 3.19 160.7 169.7 3.99 4.16VI X X X X 10 2.80 2.83 3.16 3.19 288.2 291.1 3.91 3.93VI X X X X 10 2.91 2.94 3.27 3.30 299.9 301.6 4.37 4.40

E See Annex 10 for gas demand projectlons for Low Growth gas demand seonarlo (Cases 1-111). Annox 5 for hlqh qrowth ocs demand scenarlos ICnse IV-Vil)./ Sen Annox 7 for breakdown of system costs for eah case.l See Annex 8 for breakdown of economlc costs (depletion and long run marginal costs).

y The Increased costs of deplotion due to the addition of the Kllasao Fertilizer plant have ben asslgnod to the latter (AMnex 8). This leaves depletloncosts of domestie gas consumptlon unchanged with respect to (Cases 11, IV and VMe.

- 131 -Annex 10

POTENTIAL INDUSTRIAL GAS MARKET

"Low Growth Scenario" b/1792 Fuel Oil Nat Gas "SAP" Scenario

Consumption Equiv, b/ 1987 1991 1997 2002-2007

(mill. ltrs.) (mmcfd) (mmcfd)

Area I - Congolamboto AreaTanganyika Dyeing S weaving 3.7 0.27 0.36 0.39 0.39 0.39Kilimanjaro Textiles 2.28 0.24 0.34 0.44 0,44 0.44

0.51 0.70 0.83 0.83 0.83

Area 2 - Ubungo Industrial Site

Friendship Textiles 8.53 1.17 -1.46 1.76 1.76 1.76New Textilb Producer - - 0,21 1.15 2.15

Other Consumers 0.08 0.01 0.02 0.03 0.05 0.071.18 1.48 2.00 2.96 3.98

Area 3 - Wazo HillTanzania Cement 34.04 2.64 3.97 4.16 4.16 4.16

Area 4 - Pugu Road Indus. AreaKI00 6 1.21 1.11 1.50 2.14 3.061Aluminum Africa 2.8 0.28 0.40 0.65 0.95 1.23Metal Box - 0.02 0.04 0.08 0.10 0.14Kibo Paper 1,09 0.16 0.28 0.31 0.35 0.41Bobby Soap - 0.01 0.01 0.02 0.03 0.06Coast Textiles 0.36 0.04 0.06 0.06 0.06 0.06Tanzania Sheet Glass - 0.72 0.98 1,41 2.02Light Source - 0.04 0.08 0.14 0.26Other Consumers 2,5a 0.32 0.61 1.12 1.60 2.30

2.04 3.27 4.80 6.78 9.54

Area 5 - Central Dar es SalaamTanzania Breweries 3.32 0.30 0.36 0.37 0.72 0.72Commercial & Instit. Consumers 0.20 0.25 0.35 0.50 0.72

0.50 0.61 0.72 1.22 1.44

Area 6 - TIPER Refinery 14.74 1.53 1.53 1.53 1.53 1.53Total 79.44 8.40 11.56 14.04 17.48 21.48

a/ Constant at 1982 consumption levels.b/ Conversion factors of 1 million liters/year of fuel oil = 0.1041 mmcfd. The equivalent gas figure

also includes 3.31 ml of oil and 0.384 ml of kerosene.

- 132 -

Annex 11

ECONOMIC COST OF COAL AND FUEL OIL AT SELECTED

BULK DELIVERY POINTS (USS)

------ ---- Coai --

Road Rail --- Fuel Oil ----

Production Transport Transport Total Total

(per ton) (per ton) (per ton) (per ton) (per toe) (per toe)

A. "Optimistic, CaseMbeya 25.0 6.5 - 31.5 56.7 192.5

Mufindi 25.0 4,3 25.0 54.3 97.7 176.8Dar-es-Salaam 25.0 4.3 35.0 64.3 115,7 145.7

B. "Pessimistic" Case

Mbeya 30.0 13.0 - 43.0 77.4 239.2

Mufindi 30.0 8.5 28.0 66.5 119.7 208.0

Dar-es-Salaam 30.0 8.5 40.0 78.5 141.3 145.7

Notes: 1. Conversion factors are: one toe = 10.2 million kcal; one ton of coal = 5.6million kcal: one ton of fuel oil = 9.8 million kcal.

2. Econonmic cost of fuel oil is the f.o.b. export price ex Dar-es-SaIaiam (USS140

per ton).

3. Coal shipments are at the rate of 50,000 tpy.

4. Road transport costed at: USf5 per ton-km ("optimistic" case) and UStlO perton-km ("pessimistic" case).

5. Coal deliveries to Mbeya require road transport only (distance of 130 km).

Coal deliveries to Mufindi (300 km) and Dar-es-Salaam (900 km) require road*ransDart from m1ine to railhead followed by rail. Fuel oil is delivered by

road from Dar-es-Salaam to all points: Mbeya, 900 km and Mufindi, 600 km.

6. Rail costs are based on direct estimates of the incremental economic costs of

locomotives, wagons ana operations.

7. For both coal and fuel oil, the cost exclude handling, storage and transDort

costs from the bulk delivery point to individual consumers. Conversion costs

also are not included.

- 133 -Annex 12Page 1

TANZANIA ELECTRIC SUPPLY COWPANY LIMITEDTARIFF SCHEDULE EFFECTIVE JANUARY 1, 1983

TARIFF NO. 1 DOWESTIC

Applilcable to premises used exclusively for domestic and private residential purposes.

Step: 1 First 0-10 kWh minimum charge Shs 13 = USS1.072 Next 90 kWh: I 50 cents per kWh = f4.A1Ah3 In excess of 100 kWh i 0.75 per kWh = f6.2/kWh

TARIFF NW. 2

Applicable to premises where business or trade is conducted where consumption Is less than10,000 units.

Step: 1 First 0-15 minimum charges Shs 50 = USS4.112 Next 485 units 6 2.50 per kWh = "20.5AkWh3 In excess of 500 units 1 1.75 per kWh = *14.4AkWh

TARIFF NO, 3

Applicable to premises engaged In production of any article or commodity or Industrial

process where consumption Is less than 10,000 units.

Step: I-Flrst 0-100 kWh minimum chargesShs. 150/ = S12.32

2 Next 900 kWh 9 1.10 per kWh = f 9.0/kWh3 In excess of 1000 kWh 0 1.00 per kWh = f 8.2/kWh

TARIFF ND. 4

Applicable to premises as in Tariff No. 3 but where the consumption Is more that 10,000units per *eter reading period.

Maximum Demand Charges

For the first 0-80 KVA, minimum charge: Shs 6,000 = S492.61In excess of 80 KVA 8 Shs. 75 per KVA = S6.16/KVA

Unit Charge

All kWh 9 0.70/kWh = 15.7/kWh

TARIFF NO. 5 COMMERCIAL

Applicable to premises as in Tariff No. 2 where consumption Is more than 10,000 kWh permeter reading period.

- 134 -

Annex 12Page 2

For the first 0.120 KVA, minimum charge: is Shs. 9,600.00 = 1788.186KVA

In excess of 120 KVA Shs. 80 per KVA = 6.57/KVAUnit Charge

n I units e 0.75 per kWh = S6.2/kWh

TARIFF NO. 6

Applicable to Street Lighting, Religious Organization like Mosques, Churches, Temples etc.

and other chartiable organizations.

All units e 0.90 per kWh $7.4/kWh

Exchange Rate: US1.00 = T.Sh. 12.18

Note: A sales tax of 5Z was suDerimDosed on all tariffs in Julv, g18t.

A^ne II1

TANESCO, UNJ4 AVEAGE IIICERDTAL COSTS SAP SCEIIARIODATA BASE

lTIh. Nilli4 n, 191))

TOTAL ANNIAL IIlDEIETAL

TEMR -~~~~~~~~~66 PROJECTED ISDt4ENTAL CAPITAL. ET'ENOIT-J- - -- INRININTAL 0PNATINO, MAINTEMACE, REPAIR A AoINIISTRAtIVTE COST, SH1)1- tOAT101NEXPENSES PRICED OWHN P

0istelbution Total fInanclal Total MIpus Gs TurbIne, Total Pre5st ValueCngolng ower IV Trenselaslap ( bat Troanlers A Prleo Ofneraetlg Trhns- Olstri- bPltal CaOstsn Culvalant In es Turblsoe Traielsslon I BMWsalorha.qf lMtora4l.k Rhabilattlon c Baesid/ Gofttloaatn bct / s PlenntS elssloft&/ butlan Shadow PrIcd I/ each year / Ri4dron O0 / Fuel .1' Dlatrlbvtlani/ Operatloasi/

19J3 446 1I 603 404 ISO 471 I 1 480 171904 3"I 240 550 1380 929 1240 1075 2 2 1079 id1965 12 400 660 172 $52 II3 969 ' 9 971 911966 S6 601 251 962 645 561 715 6 9 730 1i1967 91 625 330 1046 101 935 749 4 a to 771 2991968 95 457 220 T75 Ila 6a1 535 9 0 It 562 3421969 104 1 300 405 271 362 273 9 11 iS 316. 4311990 114 350 614 Sil 415 303 9 1 17 543 3291991 loG 400 750 445 596 412 9 Is 19 433 6341992 21S 160 186 564 X2 9 2 13 16 21 5S9 7461993 259 106 160 505 m33 9 22 69 is 24 4*7 912

1994 239 105 169 514 316 9 31 129 19 26 556 9741995 121 53 I66 ffO 253 9 52 Il 21 29 464 ltS31996 239 lag 166 531 255 9 60 226 23 3? 605 11fl1997 230 l1S 204 549 222 9 75 276 24 54 642 1310199S 259 106 213 556 179 9 90 334 26 37 S75 14491999 239 106 2n 56? ISO 9 ¶05 394 29 40 707 15662000 560 160 246 766 Be 9 120 456 31 42 747 1751

MET PRESENlT YALUES 11.070 15,293SALES (GENERATION MINUS 15t LOSSESI 11,2I 9AVERAV E If9sN1tAL COSTS PER WMA SOLD TSW 03

lET PRES1T VALUES 1903-1991 CtlLY 3611 1.152AVERAGE RA 4 IN llffAL COSTS PER MRlt 'OD, 19S3-I991 PERIcO OILY 1h. 1.69

1r/ Prat Table 7.10F ro. Tablo 7.1at Vrams rable 7.1d Ieludoe tao.s, duties nd priec eontlngnclas

A Averag adjustmnt tactor for taexs, duties and price cctIsaeals 331 of total mpndltures as r Fourth Pover Project SAN, Moeo 6.B aead on gratIng ewweslo progres of table 4.S IASOiAV Ifrstalled.

j/ U2OOhd of IncrenRtal generwtlag copacity.

ISOOAV o Iner_mantel peah d_and.!J Ieo u exchana cte UStl.00 - TSb. 18.5 appileable to 85 ol totol eapltal ax,pnditural wvlqht .rehanqe rate U511.00 * TS5. 17.74.

Ausul equvlolent presant value of ensultlsed capItal expenses fran each base yer to the year 20001 life exactancl^e, Iydres 50 years, oa turbInet 15 years$ all other: 35 vaer.h/ framg Fourth Pter Project. SAR, Mnax 14.AY Pram Table 4.4f SI.95f6TU, het rate 12,000 ITUTWXH.f To 199) vrrag Fourth Poer Project. Posem

101 thereeltar assid to greu at 530 of growth of sales.

. Fras Frth Ptowr Projact. Anaex 101 thereafter assumed to grov at 335 of growth of sales.2/ from table 4.2. OSAP SceUrlo.

- 136 -

Annex 14

VILLAGE AFFORESTATION ORGANIZATION

Requirement CollaborateLeveL Main Duties of staff with

Village VFR - to be selected Attend ViLLage Dev.Forestry by the village. seminars (2-3 Committee,Representative Represent the weeks) school, etc.(VFR) village in forestry

and conservationwork, organize andimplement the work

Ward Forest Assist the VFRs in 2-3 months Ward levelAttendant (FA) the wards, distri- basic course development

bute supplies, give in forestry, councilsadvice, study the conservationareas and extension

Division Assist the FAs in 2 years formal Division levelForest the Division. training in developmentAssistant Distribute supplies, forestry, organizationsCDFA) give advice, collect conservation

info, prepare plan and extension

District Prepare plans, Diploma holder District levelForest Officer budgets, write or Degree development

reports, distribute holder organizationssupplies

RegionaL Compile reports and Degree and Regional levelForest Officer plans from the dis- some years development

tricts. Purchase or practice organizationsother equipment fromFD

Forest Dept. Coordinate the AdministratorVillage Affo- country-wide FLCD Forestorsrestation Div. activities Sociologist

Anthropologist

- 137 -

Annex 15

URBAN ENERGY PLANTATION PROJECTOne Hectare Model

Unit a/ Quantity Cost

SurveysLabor MD 2 50Material Tsh 5 5

Transport of SeedlingsLabor MD 1 25Seven ton truck KM 5 15Trays Tsh 9 9

Site PreparationLaborClearing MD 20 500Piling, burning MD 15 375

Machines and Implements94 hp well tractor Hrs 3.9 324Plough Hrs 2.4 7Harrow Hrs 1.5 6

PlantingLaborStacking MD 2 50Planting MD 8 200Fertilizer appLication MD 1 25Beating up MD 3 75

MaterialsNPK fertilizer Kg 200 600Borate Kg 60 480

WeedingLabor

Year 1 MD 2 50Year 2 MD 2 50Year 3 MD 1 25

Material and Implements78 hp wheeL tractorYear I Hrs 3 204Year 2 Hrs 3 204

3,279Seedlings 1600 960Overheads and Infrastructure 3,300

7,539

a/ MD = man-days.

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~TAiNZANIA-% ~~~~~~~~~~~~~~~~~~~~~~~ENERGY RESOURCES,

A s~~do l~~ond0o

PLANNED0R UNDER 'EXISTINGA ANGA CONSTRUCTION QESTINS

0 U' So oHydroaMo_nyonl A DiesUl

NRANSMISSIO -LINES000 MA -- -*- ~~~~~~~~~~~~~~~~~~~~~220 k

-132UvA ~~~wQo~~WO - EL- 12 umrin Coble

Kilos D~~~~~* AR ES SALAAM 41110 IrCoa[ ~F elds

Mtera t ~~~~~~~~~~~KIMBIJI WAELLLA R~ERE

… --- Possible Pipeline Routes,o E-xploratory Well

* Gas Fields

-Railways

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J ~~~~~ONGO BONGO Internotional boundaries

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