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Tanzania hit by costs of public-private partnerships

  • Cost of energy public-private partnership has added $200 million to Tanzanian government debt at same time as electricity prices have been hiked to among the highest on African continent

Read our 3-page briefing in full: Public-private partnerships and the financial cost to governments: Case study on the power sector in Tanzania

Resisting full privatisation of its state-owned electricity company (Tanesco) under the World Bank/IMF structural adjustment programme in the 1990s, Tanzania was nevertheless compelled to ‘liberalise’ electricity generation. This meant opening up power generation to independent power producers, whose electricity Tanesco must then purchase, through a series of Public Private Partnerships (PPP).

But these ‘partnerships’ with private companies have left Tanesco, the Tanzanian state and its people mired in debt, litigation and government resignations against a backdrop of alleged corruption, whilst costs to the consumer and government have significantly increased.

Tanzania's largest city, Dar es Salaam (Flickr / www.bbmexplorer.com)

Tanzania’s largest city, Dar es Salaam (Flickr / www.bbmexplorer.com)

The first PPP with Independent Power Tanzania Limited resulted in litigation over unreasonably high prices and irregularities in the procurement process, before a single watt of electricity had been generated. And, when generation did start in 2002, under the terms of the PPP deal, Tanesco was forced to make payments way above the value of electricity produced. The ongoing dispute resulted in protracted court action over a 10-year period and significant legal costs to the state-owned company.

Meanwhile, the next PPP deal in 2004 was for electricity generation by a ‘private’ power plant (Songas), majority owned by Globeleq, which at that time was in fact wholly owned by the British Government through the CDC group plc. Within a few years, despite these two power producers representing less than 30% of national generating capacity, payments to them were costing Tanesco around 90% of its total income from consumers, prompting critical comments from the Tanzanian Controller and Auditor General.

Notwithstanding these problems, a third PPP deal was struck in 2006 for ‘emergency power provision’ with private company, Richmond Development Corporation, but accusations of irregularities again surrounded this deal. A Parliamentary Select Committee report found that Richmond did not have the expertise or capacity to deliver under the deal, procurement regulations had been breached, evidence of embezzlement and possible corruption.

As a result, the Tanzanian Prime Minister and two other ministers resigned and the President dismissed the entire cabinet. A new government then ordered Tanesco to cancel the contract, but regardless of the serious irregularities highlighted in the parliamentary report, Tanesco was ordered to pay over $120m compensation to the new owners of the company by the ICC International Court of Arbitration.

Losses by Tanesco arising in large part from excessively high charges for privately generated electricity under these PPPs, legal costs and damages have resulted in substantial borrowings, which are underwritten by the Tanzanian taxpayer. Direct budget transfers from the government to cover Tanesco losses have added at least $200m to Tanzanian national debt, whilst consumer tariffs have been hiked to be among the highest on the African continent.


Countries

Tanzania, United Republic Of, United Kingdom
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