Power in Tanzania

Enhancing productive investments in power generation and incentivising cost-efficient energy production technologies in Tanzania

Summary:

In the past 20 years, the production and distribution of energy in Tanzania has faced enormous challenges including capacity shortages, lack of private investments, and low level of reliability of the power supply. The Tanzanian government has tried to remedy the situation by proposing several investments which have had limited impact so far. This is mainly due to the fact that structural problems affecting the sectors have not been tackled. First, the governance reform of TANESCO has proven extremely difficult given entrenched interests in the sector. Second, long-term large-scale productive investments in the power generation have been constrained by incentives misalignment and significant rent capture possibilities, while less efficient and more costly investments have multiplied.

The corruption issue:

As energy production supplied by TANESCO has always been far less than the needs, the government has been stipulating contracts with private energy producers; in such agreements, the private sector produces energy and sells it to TANESCO. It is inside these agreements that corruption may be present. The hypothesis we are making is that corruption has a negative and significant impact on power generation, as existing policies dissuade high-capability companies from entering the energy sector, expanding the existing production capacity and investing in alternative sources of power generation. Policies that discourage efficient generation also create incentives for corruption as less capable but politically connected companies engage in the construction of expensive cost-inefficient power plants and other wasteful expenditures.

Theory of Change:

IF: a) the relative profitability of productive investments in power generation can be raised by combinations of policies affecting the cost of long-term financing from IFIs b) cost-efficient energy technologies will receive a targeted and fiscally credible incentive c) targeted investments in captive power production plants (CCP) for industrial agglomeration are promoted via public-private partnerships (PPPs).

THEN: the supply of serious productive bidders for power projects with more cost-efficient technical bids will increase and a more diversified energy mix could develop, while new forms of targeted PPPs could emerge

BECAUSE: a) the credibility of the contracts for bidders without political connections (or even for bidders with political connections who have the technical and financial capabilities to participate in competitive technical bidding) will increase and they will support the enforcement of more transparent procurements and contracting rules in their own interest, also b) properly selected manufacturers could find investments in power generation plans in/for Export Promotion Zones profitable.

Research Methods:

Political economy analysis, case studies, process tracing, focus group discussions, econometric analysis.

Main Partners: Antonio Andreoni and Luca Tasciotti (SOAS), Donald Mmari and researchers of REPOA.

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