By : Tanzania’s strong relations with China go back to the era of Mwalimu Julius Nyerere and Mao Tse Tung. The Chinese ‘Dragon’ is now set to invest billions of dollars in the iron and coal mining sectors of the country that will last for more than a century
Isaac Haule (65), a subsistence farmer at Nkomang’ombe village in Ludewa district, can’t help to see the long standing Mchuchuma and Liganga projects which the public at large have been so eagerly waiting for take place saying they will usher in a new era in extractive industry in the country.
A father of five and a local government retiree, Haule says though the people are confident of the projects, but it’s likely Ludewa could be the new Chinese ‘embassy’ as China's Sichuan Hongda Company Limited is to invest US$ 3 billion in an iron ore and coal mining that will last for more than a century.
AN EMBASSY AND ENORMOUS COAL AND IRON RESERVES
“Forget the official embassy at Kajificheni (Hid Up) in the posh Oysterbay area in Dar es Salaam, or the market place full of ‘Made in China’ brands everywhere in the country, but the new China’s biggest ‘embassy’ will be here in Ludewa district where, according to government data, has massive coal and iron ore reserves that will last for more than 100 years,” he says.
However, he says implementing the twin projects will unlock the mineral potential in the country especially in extractive metallurgy, particularly the iron ore from Liganga which could lead to production of iron and steel and the ultimate growth of steel industry in Tanzania.
“Compared to the West, on my opinion, the Chinese are the best investors, we are quite sure the projects will succeed as there will be no politicizing,” he adds.
His opinion is echoed by Pius Ngeze, a ruling Chama cha Mapinduzi (CCM) cadre and former legislator for Ngara constituency in Kagera region, who sees the Chinese investment at the twin projects as vital for the nation’s economy regardless of the critics from the West.
“Since independence China has been helping our country, this is not the first time, compared to the West who have for years now been helping Africa, the Chinese are trustable. I’m sure even these projects will be a success,” he says.
Ngeze says, as far as globalization is concerned, the West need not to fear the Dragon in pumping up money to invest in Africa as the continent needs development after being left behind for years.
Tanzania’s 2014-2025 energy reform roadmap to success” In its recent Investment Policy Review the OECD cited energy in Tanzania as a “critical bottleneck” and that the problem of reliable energy was the top barrier to doing business in Tanzania. This view was echoed during the Tanzania panel at the Africa Energy Forum in Istanbul in June at which TANESCO and EWURA specifically addressed this point. It’s clear that project developers are keen to participate and that a multitude of funds are available to support them, however developers encounter the stumbling blocks of non-project financeable risk allocation in power purchase agreements and concerns with tariff structures. The issue of how to implement structural reform that would result in, rather than undermine, a streamlined project finance structure in Tanzania, providing predictable investment returns for investors and therefore confidence to funders is therefore hugely important to the market. Against this backdrop, the Ministry of Energy and Minerals (MEM) has published an Electricity Supply Industry Reform Strategy and Roadmap for 2014 to 2025 (the Roadmap). The Roadmap seeks to respond to private sector concerns with its key focal points being TANESCO operational and financial transformation, strengthening of the governance and performance of the sector and attracting private investment. The Roadmap has attracted headlines due to its reference that the proposed reform would involve investment of US$11.4 billion (US$1.9 billion per annum) of which 73.5% is allocated towards generation. Further, the Roadmap acknowledges that such funds cannot be raised by Government of Tanzania (GoT) and development funds alone, and therefore that private sector involvement is required, particularly in respect of generation. This reference has been accompanied by clear statements of recognition across the GoT energy sector that private sector involvement is required and that such involvement entails credible financial and institutional reform. Following the recommendations in a series of external consultants’ reports, the Roadmap proposes the staged unbundling of TANESCO, provision for TANESCO paying off its current debts, and the retirement of costly emergency power producers (EPPs). The Roadmap takes the long term view, focussing on an increase in installed power capacity to at least 10,000 MW by 2025, at which point the phased unbundling of TANESCO would be completed. The time periods are broken down into immediate term, short term, medium term and long term. In terms of structure, the electricity sector is set to transition from the current integrated monopoly model through to a single buyer model (with a separate state generation company and distribution companies), and thereafter to a retail competition model which should ensure competition and cost efficiency.
TUDY by Edenville Energy's proposed Rukwa coal-to-power project, suggest a possibility of generating over 300 MW. Under the proposals, the first phase would see the establishment of two 60 MW generation units, while the second phase would see the construction of two 120 MW units.
The London-listed group added in a statement yesterday that there was also an opportunity for rapid scale-up to the second phase in parallel with the increasing energy demand profile in the country.
Elaborating on the proposed first phase, Edenville announced an estimated project cost of $175-million with a modelled plant load factor of 80 per cent and an estimated project payback of between nine and ten years.
The feasibility study found that there were sufficient near-surface coal supplies, at a strip ratio of 1:1, to feed the 120 MW plant for at least 30 years.
Modelled on a flat tariff for all power produced, otherwise known as the base case, Phase 1 returns an estimated pre-tax net present value (NPV) of $220-million, with an internal rate of return (IRR) of 23.1 per cent, it noted.
If a commercial power offtake agreement with variable commercial tariffs for 40 per cent of the production was modelled, the project would return an estimated pre-tax NPV of $322-million, with an IRR of 27.8 per cent.
The average earnings before interest, taxes, depreciation and amortisation over the life of the project for the base case and offtake scenario were $58-million a year and $75-million a year respectively.
Based on a review of the available coal resources, the study revealed the possibility to develop a larger project beyond the first phase. There will likely be a second-phase development as power usage in the area increases over time, Edenville noted.
It added that Rukwa boasted several key positives which assisted development discussions, including a combined capital expenditure of $175-million for the power plant and mine, which equated to $1.45-million per MW.
A sustainable market for this level of power [also] ties in with official plans for power grid development and private enterprise, allowing the project to grow in parallel with the economic development of Tanzania.
Moreover, the option for commercial power offtake increases and diversifies the revenue stream, while development of commercial operations near to the project site drives growth and employment opportunities for Tanzania, said the group.
Edenville noted on Monday that key documents had also been submitted to the Tanzanian authorities to advance the technical and regulatory requirements to enable the project to be placed on the Tanzanian Power Master Plan and to advance technical and commercial discussions.
Delivery to the Tanzanian grid system depended, however, on the construction of the Western Transmission line, which was planned to pass within 12 km of the Edenville project site.
AfDB Approves U.S.$70.5 Million Budget Support Operation for Tanzania Energy Sector
May 22, 2015
SPONSOR WIRE The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, May 20, 2015, a loan of US $70.5 million to finance the Tanzania Power Sector Reform and Governance Support Programme (PSRGSP). The objective of the operation is to promote inclusive growth and enhanced economic competitiveness through power sector, economic and financial governance … (continue reading)
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