Sh1.6 trillion loss: Can the country afford it?

 However, if the request sails through and get Ewura’s nod, Tanesco will register a loss of Sh86.76 billion at the end of the year followed by an annual profit of Sh282.24 billion in 2014 and Sh314.29 billion in 2015, according to a projected 2013-2015 statement of comprehensive income

In Summary

The projected borrowing will also fall from Sh91.92 billion in 2013 to Sh205.59 billion in 2014 and Sh309.66 billion in 2015.

Dar es Salaam.Tanzania Electric Supply Company (Tanesco) claims that it would post a loss of Sh1.6 trillion ($1 billion), between October 2013 and December 2015, if its request to raise power tariff by 90 per cent hits a snag.
In its application submitted to the regulator, Energy and Water Regulatory Authority (Ewura), Tanesco wants a tariff increase of 90 per cent, meaning electricity consumers will have to dig deeper into their pockets to light their homes, produce goods and engage in other key economic activities.
The proposed rise would be implemented within three years—from October 2013 to 1 January, 2015.
The cash-strapped and debt-laden state power utility, Tanesco, has applied for an increase in the power tariff of about 68 per cent effective 1 October this year.
The company, in September, applied for a three-year consecutive raise of power tariff by an average of 67.87 per cent effective 1 October this year, 12.74 per cent effective from January 1, 2014 and 9.17 per cent effective January 2015.
The most affected customers if Tanesco’s application is granted to the letter would be those in category D1 whose consumption of electricity exceeds 50 units per month.
This group would pay Sh467 per unit up from the current Sh273, an increment of 71 per cent.
The Citizen couldn’t independently verify Tanesco’s claims that it would post such a huge loss within a period of twenty seven months.
But, in its application to Ewura, which The Citizen has seen the copy, Tanesco claims that if the tariff increase request will not be approved, it would have financial implications including a projected consecutive loss of Sh76.5 billion, Sh641.3 billion and Sh897.8 billion in the next 27 months.
“Furthermore, Tanesco will not be able to meet its operational expenses, invest on its infrastructure and consequently fail to deliver quality services to its customers,” states the cash-strapped power utility in its application.
The financial loss may also reduce Capital Investment Plan (CIP) expenditure and make the 250,000 customer connections goal unlikely to be achieved.
Tanzania’s household electrification rate will not reach national target of 30 per cent, Tanesco claims.
However, if the request sails through and get Ewura’s nod, Tanesco will register a loss of Sh86.76 billion at the end of the year followed by an annual profit of Sh282.24 billion in 2014 and Sh314.29 billion in 2015, according to a projected 2013-2015 statement of comprehensive income.
The projected borrowing will also fall from Sh91.92 billion in 2013 to Sh205.59 billion in 2014 and Sh309.66 billion in 2015.
The projected financial statement, however, indicates that even if the revenue will improve, Tanesco will not manage to clear its accumulated losses.
The accumulated loss is expected to slow from Sh1.17 trillion at the end of 2013 to Sh891.87 billion in 2014 and Sh577.58 billion in 2015, the statement shows.
Tanesco also receives grants and subsidies from the government and development partners as support for its power projects whereby from January 2011 to July, this year it got a total of Sh813.8 billion.
According to the power utility, failure to approve the 90 per cent tariff adjust, Tanesco would face business risks due to its nonfulfilment of contractual obligations and increased debts.
By July, this year, Tanesco’s creditors outstanding was Sh449.0 billion, according to details obtained by The Citizen.
“If tariff application is not granted, this situation may lead to legal action, tarnish our business image and goods and service providers refrain to do business with Tanesco,” it claims.
On November 9, 2011, Tanesco submitted to Ewura an emergency tariff application for an urgent tariff increase averaging 155 per cent across all customer categories, to be effective on January 1, 2012.
But Ewura board of directors approved an emergence electricity tariff increase of 40.29 per cent that was extended up to January 14, 2013.
Instead of implementing cost of service study (COSS) that proposed a-33.8 per cent tariff increase for 2013, as commissioned by Tanesco, the ministry of Energy and Minerals advised the firm to maintain the tariff rates throughout the year.
And now, Tanesco requests that Ewura approve a Multi-Year Tariff Adjustment for three years from October 1, 2013.
Tanesco also proposed that the revenue requirement from 2013 be reviewed and adjusted to cover for changes in approved revenue requirement and carried forward for the subsequent year (2014) and the same should be applied for 2014.
Automatic adjustments to cater for inflation, currency fluctuation and change in fuel prices have been also proposed to take place in quarterly basis and the effect to be applied across all customer categories.
These adjustments will enable Tanesco to fund its operational costs, capital investment program, to demonstrate its liquidity to donors offering concessionary loans/grants, to increase capacity needed to meet system peak demand, and to adequately ensure a consistent and stable supply of electricity.