TIB Bank gives energy sector big boost

Posted on : Thursday , 29th October 2015

SUBSTANTIAL investment in the energy sector is set to increase electricity generation to make history the long overdue power blues that have been contributing to cost of doing business.
TIB Development Bank entered into a deal with the state owned Power Company (TANESCO) to release and arrange a syndicated loan aimed at putting new infrastructure, the transmission line from Somanga in Kilwa to Kinyerezi in Dar es Salaam. In the lucrative deal, the TIB Development Bank will disburse 20 million US dollars (over 40bn/-) to pave way for implementation of the project.

TIB Bank, as lead arranger will mobilise other funds from commercial lenders and pension funds. Tanesco’s Managing Director, Mr Felchesmi Mramba, said at the signing ceremony that the agreement with the development bank will help cut down dependence on hydropower to only 15 per cent after the Kinyerezi II and Kilwa energy projects become fully operational.

Currently, the country dependence on hydropower is over 60 per cent, thus creating a huge power deficit accompanied by rationing during dry season and increasing spending on alternative sources including the diesel generators. Tanzania is endowed with abundant energy resources such as natural gas, coal, uranium and renewable energies hydro, solar, wind, geothermal, bio-energies, tidal waves) but there is yet insufficient supply of modern energy services.

The sector faces considerable challenges namely funds mobilisation for investment, attracting private capital in the electricity sub-sector, increasing connection and access levels to electricity and diversifying energy resources for power generation. Other challenges include enhancing affordability and reliability of power supply and reducing power system losses both technical and non-technical.

“Upon the completion of putting the transmission line infrastructure from Somanga in Kilwa to Kinyerezi in Dar es Salaam, a total of 560 megawatts generated from gas will be pumped into the national grid,” he said.

Mr Mramba said the implementation of Kinyerezi II project is expected to kick start next month. Kinyerezi II will be developed by Japan’s Sumitomo Corporation and will have a capacity of 240 MW with the money sourced from the partnership between the government of Tanzania and Japan. Kinyerezi I completed and inaugurated recently by President Jakaya Kikwete was built by Norway’s Jacobsen Elektro with capacity of 150 MW.

As for the construction of Kinyerezi III and IV, the money will come from the partnership that will be entered between the governments of Tanzania and Chinese company. Tanzania’s Development Vision 2025 aims at making Tanzania to become a middle-income country by 2025. This implies that the income per capita has to increase from 640 US dollars to at least 3,000 US dollars.

To realise these targets, the country requires adequate, reliable, affordable and environmentally friendly electricity supply. As a result, the installed power capacity must increase from 1,583 MW (April 2014) to at least 10,000 MW by 2025 and transmission and distribution systems expanded. To address these challenges in the electricity sub-sector and attract the required capital, the government has embarked on reforming the Electricity Supply Industry (ESI).

Thus, the partnership with TIB Development Bank is the beginning of the state owned power company plans to re-build its capacity to be self sustainable and cut down over dependence on investment subsidies from the Treasury.

He said the agreement with TIB Development Bank has come at an appropriate time and is a good start in the journey to reduce dependency from the Treasury to run the firm commercially.

“The compensation process has started smoothly and the project is expected to benefit local communities along the transmission line from Somanga, Kilwa District to Kinyerezi, Dar es Salaam,” he said.

TIB Development Bank and Tanzania Electric Supply Company last week signed an agreement to disburse about 140 million US dollars (over 300bn/-) for the construction of a 400 kilovolt high voltage transmission line infrastructure covering 198 kms from Somanga, Kilwa District to Kinyerezi, Dar es Salaam. The transmission line will facilitate power connectivity from Kilwa energy project to make an additional 560 Megawatts to the National Grid.

TIB Managing Director, Mr Peter Noni, said in Dar es Salaam that TIB as lead arranger of the loan will provide 20 million US dollars (over 40bn/-) and the balance to be sourced from pension funds and some foreign banks.

The lead arranger or the mandated lead arranger is the investment bank or underwriter firm that facilitates and leads a group of investors in a syndicated loan for major financing. He said the compensation process to pay way for the project execution started this week (Wednesday), costing 40 million US dollars and the remaining 100 million US dollars for project execution.

“TIB board has already approved the project and start disbursing funds for first phase implementation of the two years duration project that will kickoff early next year,” he said, adding that the project will have two years grace period and eight years payback period.

Furthermore, the TIB boss said the bank provided financing in an innovative transaction worth 55 million US dollars to the Tanzania Petroleum Development Corporation (TPDC), to connect gas wells to the gas processing plant in Madimba to supply the Kinyerezi I gas power generation in Dar es Salaam.

The bank is trying to see how best it can reduce the cost of doing business and by dealing with the local and municipal councils in order to develop business parks, industrial parks, market centres, the projects where Small and Medium Enterprises (SMEs), the small scale operators, would be housed. If that is done then there are two advantages.

The first is we would be reducing the cost of entry into business and the second is that we would also be creating a market for them so it’s easier for them to sell their produce.