Energy Sector Management Capacity Strengthening
UNITED REPUBLIC OF TANZANIA
MINISTRY OF ENERGY AND MINERALS
PROJECT DOCUMENT
Energy sector management capacity strengthening
March, 2013
Energy Sector Management Capacity Strengthening
Project Summary
Project title:
Energy Sector Management Capacity Strengthening
Client:
Ministry of Energy and Minerals (MEM)
Implementing Agent:
Ministry of Energy and Minerals (MEM)
Project Period:
April 2013 – December 2015
Financing:
Consulting services for the implementation of the project requested to be financed on a grant basis by the Swedish Government through Swedish International Development Cooperation Agency (Sida)
Objectives:
The overall objective of the project isincreased access to modern energy services through enhanced availability, reliability and affordability of energy supplies that are friendly to the environment.
Expected End-of-Project Situation:
The Commissioner for Energy and Assistant Commissioners have the capacity to fulfil their responsibilities for management of the energy sector
Main activities
Advisory, training and mentoring support to the Energy Department Management Team on policy, strategy, planning (including energy demand forecasting), performance budgeting and performance reporting
Development of an Energy Management Information System
Estimated Budget
SEK 27 million
Table of contents
Project Summary
Abbreviations
1Context
1.1Background
1.2National Development Policies
1.3The Energy Sector in Tanzania
1.4Legal Framework
1.5Current institutional framework
1.6Prior and current assistance
2Project Justification
2.1The present situation
2.2Problem to be addressed
2.3Project relevance
2.4Project feasibility
2.5Expected end-of-project situation
2.6Beneficiaries
2.7Sustainability
3Proposed Institutional Framework
3.1Institutions involved
4Project Description
4.1Project scope and focus
4.2Overall objective
4.3Project purpose
4.4Expected outputs
4.5Activities
4.6Input and required expertise
5Project Implementation
5.1Implementation strategy
5.2Management and organisation
5.3Time schedule
6Monitoring, Reporting, Accounting and Audit, and Evaluation
6.1Monitoring
6.2Reporting
6.3Accounting and audit
6.4Evaluation
7Indicative Budget
7.1Budget
8Assumptions and Risks
8.1Assumptions
8.2Risks
References / Bibliography
Annex ALFA Matrix
Annex BList of Available Documents
Annex CTerms of reference (Project Document Preparation)
C.1Background
C.2Objective
C.3Outputs
C.4Consultant Tasks
C.5Timing and Inputs
C.6Reporting
Annex DCONCEPT NOTE ON “STRENGTHENING THE CAPACITY OF THE MINISTRY OF ENERGY AND MINERALS TOWARDS SUFFICIENT MANAGEMENT OF THE ENERGY SECTOR”
D.1Background
D.2LONG-TERM OBJECTIVE
D.3IMMEDIATE OBJECTIVE
D.4OUTPUTS
D.5PROJECT /PROGRAMME DESIGN
D.6IMPLEMENTATION
D.7MONITORING AND EVALUATION
D.8PROGRAMME FINANCING
D.9PROGRAMME DURATION
Abbreviations
EDEnergy Department
EDMTEnergy Department Management Team
EMISEnergy Management Information System
EWURAEnergy and Water Utilities Regulatory Authority
ITInformation Technology
JESWGJoint Energy Sector Working Group
JESRJoint Energy Sector Review
KPIKey Performance Indicator
MEMMinistry of Energy and Minerals
MTEFMedium Term Expenditure Framework
MTPMedium Term Plan
MKUKUTAMkakati wa Kukuza Uchimi na Kuondoa Umaskini Tanzania
OPMOxford Policy Management
PFMPublic Financial Management
PPDPolicy and Planning Department
PSTProject Support Team
REARural Energy Agency
TANESCOTanzania Electricity Supply Company
TPDCTanzania Petroleum Development Corporation
SEKSwedish Kroner
SidaSwedish International Development Agency
1
Energy Sector Management Capacity Strengthening
1Context
1.1Background
The Ministry of Energy and Minerals (MEM) is responsible for provision of coordination, supervision and guidance on energy sector issues through its Department of Energy. The MEM is expected to facilitate implementation of policies, legislation, projects, programmes and plans (e.g. Power System Master Plan and Rural Electrification Master Plan), with an objective of ensuring efficiency and effectiveness in services delivery.
MEM had an opportunity to get support from the Government of Sweden through Sida to implement a programme which helped to prepare MEM for its roles of private sector development in the energy market, providing stimulus for investment and growth, as well as regulating, monitoring and coordinating activities in the energy sector.
The previous capacity building under Sida covered broad areas as follows:-
(i)Support to MEM to establish Rural Energy Agency (REA); and Rural Energy Fund (REF),
(ii)Establishment of Universal Communication access Funds,
(iii)Assistance to the Government in the development of the power sector reform strategy and revision of Electricity Act,
(iv)Energy for Rural Transformation (ERT) programme support,
(v)Support for establishment of an environment unit to promote and monitor energy conservation and efficiency initiatives,
(vi)Capacity building and training to improve MEM competencies
(vii)Energy information management systems
The first areas were adequately addressed, and significant outcomes have been achieved, with the exception of an entity which can promote energy efficiency and conservation in the country. The last three items were slightly addressed and there is a feeling that more extra support would be appreciated. Many stakeholders through the Joint Energy Sector Review have the same opinion that the referred areas should be dealt with appropriately.
1.2National Development Policies
National development policies are presented in three core documents: Vision 2025, the 5 year National Development Plan, and the National Strategy for Growth and Reduction of Poverty.
In addition, the National Energy Policy of 2003 sets out policies for energy sector and sets the sector at the heart of national development policy.
Vision 2025
The Government has set out its long term vision for development together with economic and social policy goals in the Vision 2025. A key element of this vision is the development of infrastructure by public and private sector action and finance. Development of the transport networks and investment in energy, water and telecommunications are considered to be central to the stimulation of local and foreign investment and for creating wealth and employment generating activities.
National Development Plan
The National Development Plan (NDP) (2011/12–2015/16) “Unleashing Tanzania’s Latent Growth Potentials” is the formal implementation tool of the country's development agenda, articulated in the Tanzania Development Vision 2025.
The NDP sets three Operational Objectives for the Energy Sector
(i) Explore the possibility of utilising other potential of energy – e.g. geothermal, solar, wind, coal, etc;
(ii) Enhance Tanzania’s regional trade share by connecting to at least 50% of grids of its riparian countries; and
(iii) Improve the institutional management of power generation, transmission and supply.
TheNDP Goalfor the sector is to develop reliable, economically accessible and appropriately priced energy supplies to facilitate the development of other activities in the economy while ensuring environmental sustainability.
National Strategy for Growth and Reduction of Poverty (NSGRP) II
NSGRP II addresses the energy sector within Cluster 1 “Growth for Reduction of Income Poverty” with a focus that includes “affordable and reliable modern energy services” and highlights the need to increase installed energy production capacity to keep up with growth in demand and end power outages. The NSGRP sets operational targets for the energy sector that will support the achievement of NSGRP Goal 2 “Reducing Income Poverty Through Promoting Inclusive, Sustainable, and Employment- Enhancing Growth and Development”.
The related operational targets for energy are:
- Generation of electricity, utilization of capacity and coverage increased;
- Access to clean and affordable substitute for wood fuel for cooking.
National Energy Policy
The current policy framework for the sector is set by the National Energy Policy of 2003. The main goal of the policy is to improve the welfare and living standards of Tanzanians. The national policy objective for the development of the energy sector isto provide input in the development process of the country by establishing a reliable and efficient energy production, procurement, transportation, distribution and end-use system in an environmentally sound manner and with due regard to gender issues.
The core elements of the policy are to:
- Develop domestic energy resources which are shown to be least cost options;
- Promote economic energy pricing;
- Improve energy reliability and security and enhance energy efficiency; and
- Encourage commercialisation and private sector participation.
Environment and gender are key issues that condition the energy policy objective.
The National Energy Policy requires:
- environmental impact assessment for all energy programmes and projects;
- promotion of energy efficiency and conservation as a means towards cleaner production and pollution control measures;
- development of alternative energy sources including renewable energies and woodfuel end-use efficient technologies to protect woodlands;
- environmental standards for exploration, production, conversion, transportation, distribution, storage, and fuel end-use;
- promotion of gender equality within the energy sub-sectors both on the demand andsupply side;
- education and training for women in all energy aspects;
- awareness on gender issues concerning men and women’s social roles in the energy sector, including training on appropriate technologies; and
- awareness and advocacy on gender issues in the energy sector
1.3The Energy Sector in Tanzania
Tanzania’s energy balance is almost exclusively biomass-based fuels. Fuel-wood, both in the form of gathered firewood and charcoal, is the main source of energy in both urban and rural areas and is supplied primarily through informal economic activity. Formal sector, commercial energy sources including electricity, coal, oil and gas account for less than 10 per cent of the primary energy used. Population growth and economic activity growth have increased energy demand rapidly over the past 20 years. More than 80 per cent of energy is consumed in rural areas.
Electricity generation is mainly hydro-based. Thermal (gas and oil fired) plants provide electricity primarily for peak loads but will increasingly become part of base load particularly from natural gas. Renewable energy technologies in use include, improved stoves, improved charcoal production techniques, solar, biogas and wind.
Domestic energy sources of all forms are abundant but mostly undeveloped.
1.4Legal Framework
The Electricity Act (2008) regulates generation, transmission, transformation, distribution, supply and use of electricity energy; cross-border trade in electricity; and planning and regulation of rural electrification. The Act mandates the Minister to provide supervisory and oversight in the electricity supply industry. The Minister is responsible for: developing and reviewing and publishing Government policies; reorganization and restructuring of the industry to attract private sector investment; Rural Electrification Strategy and planning through the Rural Energy Agency (REA); and, provision and sourcing of funding for the Rural Energy Fund. The Act empowers the Energy and Water Utilities Regulatory Authority (EWURA) to award licences, approve and enforce tariffs and fees, approve licensees’ terms and conditions, and approve initiation of the procurement of new electricity supply installations. In addition, the Act empowers EWURA to: protect customer’s interests through the promotion of competition; promote access to, and affordability of, electricity services; promote least-cost investment and the security of supply; and promote standards of quality.
The Petroleum Act (2008) regulates importation, exportation, transportation, transformation, storage and wholesale and retail distribution of petroleum and petroleum products in a liberalised market. The Act mandates the Minister to advise the Government on petroleum supply policy matters and supply strategies and to coordinate all legislative and regulatory proposals relating to petroleum supply. The Act empowers EWURA to perform technical, economic and regulatory functions, including issuing, renewing, suspending or cancelling construction approvals and operational licenses and charge and to collect fees and levies, among others.
The Petroleum (Exploration and Production) Act (1980) regulates the exploration and production of petroleum including gas and specifies the supervisory and licencing powers of the Minister and the Commissioner for Energy. The Ministry of Energy and Minerals is drafting a Gas Supply Bill, to provide guidance on gas industry development in Tanzania.
The Energy and Water Utilities Regulatory Authority Act (2001) establishes EWURA and its mandate. It charges EWURA with the duties of, among others: promoting effective competition and economic efficiency; protecting the interests of consumers; protecting the financial viability of efficient suppliers; and, promoting the availability of regulated services to all consumers. With regards to its functions, the Act mandates EWURA to: issue, renew and cancel licences; establish standards for goods and services; establish standards for the terms and conditions of supply of goods and services; to regulate rates and charges;to monitor the performance of the regulated sectors in relation to levels of investment, availability, quantity and standard of services, the cost of services, the efficiency of production and distribution of services; and in the case of petroleum and natural gas, to regulate transmission and natural gas distribution.
The Rural Energy Act (2005) establishes the Rural Energy Board, Rural Energy Fund (REF) and REA to be responsible for the promotion of improved access in the rural areas and to provide for grants and subsidies to developers. Government’s role in the sector, which includes facilitating and promoting investment, is stated as better managed by an agency which is independent but accountable to it, the Rural Energy Agency. The duties of the minister include the formulation, coordination and application of the national energy policy; the appointment of the Board; and guidance of policy nature. The Act requires the Board to report to the Minister with an annual and audited report of the REA’s activities and operation of the REF. REA is mandated to: act as the executive body and Secretariat of the Board; propose criteria for selecting the Trust Agent of the REF; and prepare, and submit for Board’s approval, application procedures, guidelines, etc. The mandate of the REF is to: provide grants towards the capital costs of project implemented by private and public entities, co-operatives, and local community organisations; technical assistance and capacity building to qualified developers; and financial assistance.
1.5Current institutional framework
The Energy Department of MEM currently comprises five sections: (i) Electricity, (ii) Upstream Hydrocarbons; (iii) Downstream Hydrocarbons; (iv) Renewable Energy and (v) Energy Development. An Assistant Commissioner reporting to the Commissioner for Energy leads each section. The Energy Department is currently considering establishing a section to deal with Energy Conservation and Efficiency.
MEM has three implementing agencies: TANESCO, TPDC and REA.
TANESCO is a private corporation 100 per cent owned by the Government. TPDC is a development corporation, which holds shares in and receives some revenues from petroleum and gas companies. REA is charged with the channelling of monies from the Rural Energy Fund to rural energy development projects. In addition TANESCO acts on behalf of REA in the provision of electricity to some rural areas through extension of the grid electricity supply to rural areas.
The Chairmen of the Boards of the three implementing agencies report to the Minister for Energy and Minerals. The Permanent Secretary is ex officio a member of the Board of each agency but in practice this role is delegated to the Assistant Commissioners for Electricity (TANESCO), Petroleum and Gas (TPDC) and Energy Development (REA).
The minerals function of MEM is managed by a Commissioner for Minerals. The Minerals responsibilities of the Ministry will not be supported directly by this project.
While coal is formally classified as energy in the Classification of Functions of Government the Minerals department currently manages it. This arrangement will be subject to review as proposals for projects for development of coal fired electricity generation become more concrete.
1.6Prior and current assistance
The World Bank is preparing a project to assist the Government to strengthen its capacity (i) to manage development of its natural gas resources in an efficient, transparent, accountable and sustainable manner, and (ii) to enhance the Government’s capacity to implement large and complex power generation projects on a public-private partnership (PPP) basis. The proposed project has three major components: (A) Petroleum Policy and Legal Framework; (B) Strengthening Institutional Sector Management, Coordination and Governance; and (C) Education & Skills Development.
Sida Tanzania has previously supported institutional development the energy sector and this support was central to the establishment and operation of the Rural Energy Agency and the Rural Energy Fund.
MCA-Tanzania is funding a project of support for an assessment and review of energy subsidies and the development of an energy subsidy policy.
2Project Justification
2.1The present situation
MEM’s management and staff and other energy sector stakeholders are of the view that the current management of the energy sector is insufficient. Insufficient management has, directly and indirectly, resulted in:
- slower than planned progress in the implementation of energy sector development plans, particularly in the electricity sub-sector for the achievement of greater provision and use of, and access to energy,
- continued low energy use,
- load shedding; and
- resort to unplanned, expensive emergency power generation projects.
This has brought widespread criticism of MEM’s management of the energy sector and calls for rapid improvements in sector policy, strategy, planning and budgeting.
The management and staff of the Energy Department believe that they can bring about those improvements but will need advisory, training, and mentoring support over a two to three year period to make those improvements.
2.2Problem to be addressed
The problem to be addressed is that the Energy Department MEM does not currently have the capacity to fulfil its responsibilities for management of the energy sector through its own actions and through oversight of its implementing agencies: REA, TANESCO and TPDC. The current problem will be exacerbated as requirements for sector management increase with the expansion of the natural gas sub-sector.
The causes of this management problem have been identified by the Energy Department management and staff as follows.
1. An out-dated policy framework. The National Energy Policy of 2003 and its subsidiary sub-sector policies need to be updated to take account of recent and likely future developments in the energy sector.
2. An out-dated strategy framework. As policy is updated the sub-sector strategies and master plans will need to be revised to reflect changed policy.