Tanzania Electric Supply Company Ltd. TANESCO Tariff Review Application

Transcription

1 Tanzania Electric Supply Company Ltd TANESCO Tariff Review Application SEPTEMBER 2013

2 TANESCO Tariff Review Application TABLE OF CONTENTS Top Sheet Request for Regulatory Action... 1 Introduction... 2 Summary of the Application... 3 Requested Regulatory Action... 3 Summary of Proposed Customer Bills... 3 Current and Proposed Required Revenues... 3 Alternatives to a Tariff Adjustment... 4 Subsidies and Grants Received Current and Proposed Tariffs... 6 Current Tariffs... 6 Proposed Tariff... 6 Tariff Adjustment Factors Current and Proposed Customer Bills Tariff History Proposed Customer Benefits Corporate Financial Reporting Audited Financial Statements Projected Financial Statements Financial Implications if Not Approved Affirmation of Completeness Comprehensive Operating Information Corporate Business Plan Financial Plan Forecast of Customer and Energy Consumption ANNEX A: Audited Financial Statements ANNEX B: Corporate Business Plan (2013) TABLES Table 1: REVENUE REQUIREMENTS ( )... 4 Table 2: Status of Key Performance Indicators (KPI)... 5 Table 3: Grants and Subsidies ( )... 5 Table 4: Current Tariff Structure... 6 Table 5: Average Tariff Yield, Multi-Year Tariffs... 7 Table 6: Current and Proposed Tariffs... 7 Table 7: Current Tariff and Historic Evolution Table 8: Projected Financial Statments from Table 9: Comprehensive Operating Information Table 10: Customer and Sales Forecast ( )... 22

3 Top Sheet Request for Regulatory Action Legal name of the regulated entity Full address of regulated entity Authorized officer Company Business Date of Incorporation Tanzania Electric Supply Company Limited (TANESCO) Umeme Park Ubungo P.O. Box 9024 Dar Es Salaam Eng. Felchesmi J. Mramba Acting Managing Director (Direct) To generate, transmit and distribute electricity in Tanzania Mainland and sell bulk supply to Zanzibar and Kenya. The Company was incorporated in November, 1931 with an incorporation number 255 and later on issued with a license in February 1957 for 55 years which expired in February New licences for electricity generation, electricity supply and electricity distribution and cross border trading was issued in March 2013 for 20 years. Purpose of application Tanzania Electric Supply Company, Ltd. (TANESCO) respectfully requests that EWURA approve a Multi-Year Tariff Adjustment for three years effectively from October 1, The proposed average adjustments are 67.87% effective from October 1, 2013, 12.74% effective from January 1, 2014, and 9.17% effective from January 1, The average yield for sales of electricity by class in is specified in Table 5 of this application. It is proposed that these tariffs will apply to all sales made from 1 October The proposed adjustments for 2014 and 2015 are without automatic adjustments for inflation, currency fluctuation and change in fuel prices. A separate indexation mechanism has been proposed to cater for changes on quarterly basis from the effective date. Key arguments supporting proposed regulatory action The principal motivation for this tariff application is to cover TANESCO s cost of operations while complying with the Government policy of making sure that the population with access to electricity reaches 30% by Without such a tariff increase, TANESCO will be unable connect more customers and to provide the quality of service that customers deserve and which TANESCO seeks to provide. The unavoidable reality is that no enterprise can provide the service that its customers seek if it loses money on every unit of output that it sales. Signature of the authorized officer TANESCO Tariff Review Application 1

4 Introduction On 9 th November 2011, Tanzania Electric Supply Company Ltd (TANESCO) submitted to The Energy and Water Utilities Regulatory Authority (EWURA) an Emergency Tariff Application for an urgent tariff increase averaging 155% across all customer categories, to be effective on 1 st January The Board of Directors of EWURA approved an emergence electricity tariff increase of 40.29% pending determination of the final tariff. The application of the emergence tariff was extended up to 14 th January EWURA opted to carry out a Cost of Service study which could be the basis for Multi-Year Tariff for TANESCO for the period between 2013 and A consultant, AF-MECADOS EMI from Spain, was engaged to develop a Rate Setting Methodology (RSM) for the Electricity Sector in Tanzania and a Cost of service study (COSS) for TANESCO. The study assumed the average hydrology (as opposed to the current situation which is dry hydrology) and recommended cost reflective tariff with increases of 33.8% for year 2013; followed by small increase of 0.85% in 2014 and 15.14% in year It was expected that, an Order of a Multi-year tariff would be issued and be effective from 15 th January, However, before issuing the Order, MEM advised TANESCO to withdraw the Tariff submitted in year TANESCO through advise given by MEM, requested EWURA to suspend implementation of the Cost of Service Study result and be allowed to continue using the existing tariff. EWURA considered the matter and issued TANESCO Tariff Adjustment Order No. TR-E in January 2013 by maintaining the tariff rates as approved by the TANESCO Emergency Tariff adjustment Order, TANESCO Tariff Review Application 2

5 Summary of the Application Tanzania Electric Supply Company Limited (TANESCO) is a Tanzanian parastatal organisation established in It is wholly owned by the government of Tanzania. Its business includes the generation, transmission, and distribution of electricity, and the sale of electricity to the Tanzanian mainland as well as bulk power to the island of Zanzibar. This tariff review application closely follows the format set forth in EWURA s Tariff Application Guidelines of 2009, including the specific request that the application be as succinct as possible. Requested Regulatory Action With this tariff review application, TANESCO respectfully requests that EWURA approve a Multi-Year Tariff Adjustment for three years from October 1, The proposed average adjustments are 67.87% effective from October 1, 2013, 12.74% effective from January 1, 2014, and 9.17% effective from January 1, The 2014 and 2015 proposed tariff is exclusive of inflation, currency fluctuation and change in fuel prices. We 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 Automatic adjustments to cater for inflation, currency fluctuation and change in fuel prices have been 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 bankability to donors offering concessionary loans/grants, to increase capacity needed to meet system peak demand, and to adequately fund R&M to ensure a consistent and stable supply of electricity. Summary of Proposed Customer Bills Average rate increases by class as of October 1, 2013 under the proposed tariff structure will be as follows: D1 Domestic: First 50 kwh/month 0%, over 50 units consumption 71% T1 General Use: 34% T2 Low Voltage: 71% T3 -- Medium Voltage: 90% T5 High Voltage (Zanzibar bulk tariff): 57%. The bill impact will not be identical for each class since consumption patterns for each customer class differs. Therefore, a share of cost is higher to customers whose consumption coincides (in time) with the peak demand of the whole system whereby the demand is met by dispatching the most expensive thermal power plants in the TANESCO system. Current and Proposed Required Revenues TANESCO s Tariff Model calls for the following increases in annual revenue from electricity sales for the coming three years: TShs billion from the fourth quarter (reflecting a 67.87% tariff adjustment from October 1, 2013); ,208.5 TShs billion (reflecting a 12.74% tariff adjustment from January 1, 2014); and ,603.9 TShs billion (reflecting a 9.17% tariff adjustment from January 1, TANESCO Tariff Review Application 3

6 TABLE 1: REVENUE REQUIREMENTS ( ) TANESCO(REVENUE(REQUIREMENT( YEAR(2011 YEAR(2012 OPERATING(EXPENDITURE (In(TZS(Million) (In(TZS(Million) ACTUAL DRAFT Own$generation$cost $$$$$$$$$$ 203,498 $$$$$$$$$$ 375,056 Purchased$electricity $$$$$$$$$$ 361,172 $$$$$$$$$$ 555,407 EPP* $$$$$$$$$$$$$$$$$ A $$$$$$$$$$$$$$$$$ A R&M $$$$$$$$$$$$ 24,264 $$$$$$$$$$$$ 15,679 Staff$costs $$$$$$$$$$ 133,883 $$$$$$$$$$ 161,368 Other$expenses $$$$$$$$$$$$ 95,284 $$$$$$$$$$ 102,034 Provision$for$doubtful$debts $$$$$$$$$$$$$$$$$ A $$$$$$$$$$$$$$$$$ A Sub(Total (((((((((( 818,101 (((((((( 1,209,545 FINANCING(COSTS Depreciation $$$$$$$$$$$$ 55,291 $$$$$$$$$$$$ 63,914 TANESCO$CIP $$$$$$$$$$ 396,106 $$$$$$$$$$ 438,132 Loan$repayment $$$$$$$$$$$$ 46,383 $$$$$$$$$$$$ 58,268 Long$Oustanding$Creditors$from$2011AAug$2013 Sub(Total (((((((((( 497,780 (((((((((( 560,314 TOTAL(REVENUE(REQUIREMENT (((((((( 1,315,881 (((((((( 1,769,859 Less(Revenue(from(other(sources GOVERNMENT$SUBSIDY $$$$$$$$$$ 186,285 $$$$$$$$$$ 157,416 LPP$Collection $$$$$$$$$$$$ 20,436 $$$$$$$$$$$$$$ 8,513 Other$Income $$$$$$$$$$$$ 87,761 $$$$$$$$$$$$ 60,779 Sub(Total (((((((((( 294,482 (((((((((( 226,708 REVENUE(REQUIRED((from(Sale(of(energy) (((((((( 1,021,399 (((((((( 1,543,151 Electricity$$Sales$A$GWh $$$$$$$$$$$$$$ 4,000 $$$$$$$$$$$$$$ 4,443 Required(Average(Tariff(yield((TZS/kWh) (((((((((((( (((((((((((( Approved$Average$Tariff$(TZS/kWh) $$$$$$$$$$$$ $$$$$$$$$$$$ PROPOSED(YEARLY(INCREASE(@(% Note((!EPP!expenditures!in!the!FS!is!included!in!Purchased!Electricity YEAR(2013 YEAR(2013 YEAR(2014 YEAR(2015 (In(TZS(Million) (In(TZS(Million) (In(TZS(Million) (In(TZS(Million) Jan(@Sept Oct(@(Dec Jan(@(Dec Jan(@(Dec BUDGET BUDGET FORECAST FORECAST $$$$$$$$$$ 215,293 $$$$$$$$$$$$$ 86,316 $$$$$$$$$$ 331,209 $$$$$$$$$$ 364,330 $$$$$$$$$$ 297,258 $$$$$$$$$$$$ 101,311 $$$$$$$$$$ 418,497 $$$$$$$$$$ 431,052 $$$$$$$$$$ 264,080 $$$$$$$$$$$$ 142,777 $$$$$$$$$$ 398,720 $$$$$$$$$$ 394,732 $$$$$$$$$$$$ 33,573 $$$$$$$$$$$$$ 11,191 $$$$$$$$$$$$ 98,719 $$$$$$$$$$ 157,950 $$$$$$$$$$ 118,616 $$$$$$$$$$$$$ 39,539 $$$$$$$$$$ 164,376 $$$$$$$$$$ 180,812 $$$$$$$$$$$$ 62,616 $$$$$$$$$$$$$ 20,872 $$$$$$$$$$$$ 98,181 $$$$$$$$$$ 109,963 $$$$$$$$$$$$ 12,587 $$$$$$$$$$$$$$$ 4,196 $$$$$$$$$$$$ 15,440 $$$$$$$$$$$$ 14,823 (((((((( 1,004,022 (((((((((((( 406,201 (((((((( 1,525,141 (((((((( 1,653,663 $$$$$$$$$$$$ 64,632 $$$$$$$$$$$$$ 21,544 $$$$$$$$$$$$ 94,794 $$$$$$$$$$ 104,273 $$$$$$$$$$ 326,070 $$$$$$$$$$$$ 108,690 $$$$$$$$$$ 403,201 $$$$$$$$$$ 448,992 $$$$$$$$$$$$ 69,268 $$$$$$$$$$$$$ 23,089 $$$$$$$$$$$$ 94,204 $$$$$$$$$$$$ 96,089 $$$$$$$$$$ 158,035 $$$$$$$$$$ 368,748 (((((((((( 459,970 (((((((((((( 153,323 (((((((((( 750,234 (((((((( 1,018,102 (((((((( 1,463,992 (((((((((((( 559,525 (((((((( 2,275,375 (((((((( 2,671,764 $$$$$$$$$$$$ 45,535 $$$$$$$$$$$$$ 91,069 $$$$$$$$$$$$ 18,000 $$$$$$$$$$$$ 18,000 $$$$$$$$$$$$ 14,689 $$$$$$$$$$$$$$$ 4,896 $$$$$$$$$$$$ 21,704 $$$$$$$$$$$$ 22,138 $$$$$$$$$$$$ 21,272 $$$$$$$$$$$$$$$ 7,091 $$$$$$$$$$$$ 27,204 $$$$$$$$$$$$ 27,749 (((((((((((( 81,496 (((((((((((( 103,056 (((((((((((( 66,908 (((((((((((( 67,887 (((((((( 1,382,497 (((((((((((( 456,468 (((((((( 2,208,467 (((((((( 2,603,877 $$$$$$$$$$$$$$ 4,124 $$$$$$$$$$$$$$$ 1,375 $$$$$$$$$$$$$$ 5,899 $$$$$$$$$$$$$$ 6,371 (((((((((((( ((((((((((((( (((((((((((( (((((((((((( $$$$$$$$$$$$ $$$$$$$$$$$$$ $$$$$$$$$$$$ $$$$$$$$$$$$ % 12.74% 9.17% Alternatives to a Tariff Adjustment The current tariff regime yields an average revenue of TShs/kWh, yet the revenue requirement target for TANESCO in 2013 is TShs /kwh. The shortfall of TShs/kWh (67.87%) severely restricts the ability of the company to provide the services required to meet its obligations to both its lenders and its customers. Without such a tariff increase, TANESCO will be unable to provide the quality of service that our customers deserve and which TANESCO wants to provide. It is therefore, reasonable to consider what steps TANESCO would take in the event that a tariff increase is not granted as requested. The following options would be considered: Delay self-funded capital investment. TANESCO has a program of internally funded investment which is targeted to improve company financial performance. Since the company s current financial condition does not meet lender s requirements to finance these investments. However, TANESCO does not believe that delay in these investments would realize an equivalent overall savings since loss reduction targets would not be achieved. Deferred repair and maintenance. In the recent past, TANESCO has spent only a fraction of the funds for repairs and maintenance (R&M) dictated by international best practice. The best industry practice requires 15 percent of revenues is the desired target for R&M expenditures; TANESCO s actual expenditure in 2011 was only about 4 percent of revenues. Continued deferral can only be expected to result in increased forced outages for both generating equipments and the T&D networks. TANESCO Tariff Review Application 4

7 Increase business risks. TANESCO has always been under-recovering for every unit sold including the period since our last tariff application in 2011; this has resulted in non fulfilment of contractual obligations and increased creditors outstanding to TZS billion by July If tariff is not granted, this situation may lead to legal action, tarnish our business image and goods & service providers refrain to do business with TANESCO. TABLE 2: STATUS OF KEY PERFORMANCE INDICATORS (KPI) Table 2. shows actual performance for 2012 and up to July 2013 on KPI targets for TANESCO set by EWURA in year 2012 Tariff Order and projections up to Key$Performance$Indicators$2012$5$2015 Objective KPI Target 2012$ Actual 2013$Actual$ up$to$july 2013$ Target 2014$ Target 2015$ Target Increase(access(to(electricity New(customer(connections 100,000 88,996 88, , , ,000 Increase(reliability(;(SAIFI((220/132/66kV) Trips/Feeder/Month <( <(2 <(2 <(2 Increase(reliability(;(SAIFI((33/11kV) Trips/Feeder/Month <(2 <( <(2 <(2 <(2 Increase(reliability(;(SAIDI((33/11kV) Minutes/Feeder/Month < <(2 <(2 <(2 Increase(reliability(;(CAIDI(in(DSM,(Arusha,( Minutes <( <(10 <(10 <(10 Kilimanjaro(and(Mwanza((220/132/66kV) Increase(reliability(;(Voltage(variation( % ±(10 ±(10 ±(10 ±(10 ±(10 ±(10 (220/132/66kV) Increase(reliability(;(Voltage(variation(in( % ±5 ±(5 ±(5 ±(5 ±(5 ±(5 DSM,(Arusha,(Kilimanjaro(and(Mwanza( (33/11kV) Decrease(Transmission(Losses %(of(energy(sent(out(lost 5.50% 6.24% 6.17% 5.50% 5.50% 5.50% Decrease(Distribution(Losses %(of(energy(sent(into(mv(grid( 15% 13.7% 18.8% 13.5% 13.0% 12.5% lost Optimal(Collection(Rate %(of(billed 96% 93% 93% 96% 96% 96% Increase(Staff(Productivity Customer(per(employee Improve(Financial(Performance Minimum(DSCR 1.15 ;0.4 ; Subsidies and Grants Received TANESCO receives grants and subsidies from the Tanzanian Government and from Development Partners. Table 3 summarizes the total value of direct grants and subsidies and the detail is provided in the Financial Statements provided as Annex A in this application. TABLE 3: GRANTS AND SUBSIDIES ( ) * 2013* Grants (in Million TZS) 220, , ,116.0 Subsidies (in Million TZS) 186, , ,603.9 Total (in Million TZS) 406, , ,719.9 Note: Final Grants figures for 2012 and 2013 will be determined after the completion of the respective Financial Statements. Subsidies for 2012 is as per the draft Financial Statement and for 2013 is based on the Government Budget. Grants are for major projects such as SIDA electrification projects, the World Bank s TEDAP project, the IDA s Songo Songo project, ORET, JICA and Treasury (emergency power and rural electrification). Other grant support has come from the African Development Bank, JICA, and FINNISH. The REA Fund has also provided support grants for rural electrification projects. The Government has been providing direct subsidy support of TZS 18.0 billion equivalent to 40% of total annual capacity charge for IPTL. The Government also has been providing subsidy to cover fuel costs for EPPs and IPPs and outstanding energy creditors amounting to TZS billion from March 2012 to May TANESCO Tariff Review Application 5

8 1 Current and Proposed Tariffs Current Tariffs The current tariff regime distinguishes between the following customer groups: D1 -- Domestic Low Usage, for low consumption users; T1 General Usage, for general use of electricity including residential, small commercial and light industrial use, public lighting and billboards; T2 Low Voltage Maximum Demand Usage, for general use at 400 Volts with average consumption greater than 7500 kwh per meter reading period; T3 High Voltage Maximum Demand Usage, for general use where power is metered at 11/33 kv; and T5 Bulk Supply tariff for Zanzibar. Table 4 shows the components of each tariff: TABLE 4: CURRENT TARIFF STRUCTURE CUSTOMER CATEGORY D1 BASIC CHARGE (TSh/month) TARIFF COMPONENTS ENERGY CHARGE (TSh/kWh) DEMAND CHARGE (TSh/kVA/mo) T1 T2 T3 T5 The current tariffs for each class were authorized by EWURA s Board of Directors in Order No. TR-E in January The approved order revoked Emergency Tariff Adjustment Order, 2012 effective from 1 st February Proposed Tariff TANESCO wishes to apply for a multi-year tariff adjustment. It is proposed that tariffs be set for each of three years based on the company s tariff model as approved by EWURA during this tariff review. The resulting tariff increases for the three-year period commencing in October 2013 are summarized in Table 5. TANESCO Tariff Review Application 6

9 TABLE 5: AVERAGE TARIFF YIELD, MULTI-YEAR TARIFFS Year Current Tariff Yield TShs/kWh Revenue Required TShs/kWh Annual Increase Required % % %. The initial tariff adjustment is proposed to be effective from October 1, The average rate of increase proposed on that date is per cent, from an average current tariff yield (i.e., total revenues divided by total kwh sold) of TShs/kWh to an average yield of TShs/kWh. TABLE 6: CURRENT AND PROPOSED TARIFFS Category Unit Current) Tariff Proposed) Tariff)1 st )Oct.) 2013 Percentage) Increase) Proposed) Tariff)1 st) Jan.)2014 Percentage) Increase) Proposed) Tariff)1 st) Jan.)2015 Percentage) Increase) D1 Less&than&50&units &&&&&&&&&&&&&&&&& 60 &&&&&&&&&&&&&&&&& 60 0% &&&&&&&&&&&&&&&& 65 8% &&&&&&&&&&&&&&&& 70 8% More&than&50&units &&&&&&&&&&&&&&& 273 &&&&&&&&&&&&&&& % &&&&&&&&&&&&&& 506 8% &&&&&&&&&&&&&& 552 9% T1 Basic&Charge &&&&&&&&&&&& 3,841 &&&&&&&&&&&& 5,829 52% &&&&&&&&&&& 6,506 12% &&&&&&&&&&& 6,613 2% Units&(kWh) &&&&&&&&&&&&&&& 221 &&&&&&&&&&&&&&& % &&&&&&&&&&&&&& % &&&&&&&&&&&&&& % T2 Basic&Charge &&&&&&&&&& 14,233 &&&&&&&&&& 27,250 91% &&&&&&&&& 30,549 12% &&&&&&&&& 31,507 3% Units&(kWh) &&&&&&&&&&&&&&& 132 &&&&&&&&&&&&&&& % &&&&&&&&&&&&&& % &&&&&&&&&&&&&& 299 8% kva &&&&&&&&&& 16,944 &&&&&&&&&& 25,868 53% &&&&&&&&& 27,150 5% &&&&&&&&& 31,798 17% T3 Basic&Charge &&&&&&&&&& 14,233 &&&&&&&&&& 27,250 91% &&&&&&&&& 30,549 12% &&&&&&&&& 31,507 3% Units&(kWh) &&&&&&&&&&&&&&& 118 &&&&&&&&&&&&&&& % &&&&&&&&&&&&&& % &&&&&&&&&&&&&& 284 7% kva &&&&&&&&&& 14,520 &&&&&&&&&& 22,174 53% &&&&&&&&& 23,272 5% &&&&&&&&& 27,256 17% T5 Basic&Charge &&&&&&&&&& 14,233 &&&&&&&&&& 27,250 91% &&&&&&&&& 30,549 12% &&&&&&&&& 31,507 3% Units &&&&&&&&&&&&&&& 106 &&&&&&&&&&&&&&& % &&&&&&&&&&&&&& % &&&&&&&&&&&&&& 199 7% kva &&&&&&&&&& 12,079 &&&&&&&&&& 17,512 45% &&&&&&&&& 18,380 5% &&&&&&&&& 21,526 17% The increase was based on the a share of cost whereby the high propotion was allocated to customers whose consumption coincides (in time) with the peak demand of the whole system whereby the demand is met by dispatching the most expensive thermal power plants in the TANESCO system. Tariff Adjustment Factors Due to the fact that, TANESCO is applying for the multi-year tariff adjustment, it is recommended that a tariff indexation mechanism be used to appropriately adjust changes in costs that are outside of TANESCO control. Electricity utilities throughout the world use indexation to assure that tariff revenues keep pace with rising costs during periods between formal regulatory reviews. The goal of indexation is to permit utilities to achieve their financial TANESCO Tariff Review Application 7

10 performance targets while at the same time freeing regulators from the need to asses frequent requests for rate adjustment. In order to ensure that TANESCO revenues keep pace with its costs over the period, we propose indexation of two types: Fuel cost adjustment (FAC). Fuel costs are more significant variable cost component in TANESCO s operations. The FAC is charged to recover the increased costs resulted from change in hydrological conditions outside of TANESCO control. Furthermore, the cost of fuel depends on international markets which are highly volatile, and equally outside of TANESCO control. Macroeconomic price adjustment. Local inflation results in increased cost of domestic goods (such as domestic construction materials). Similarly, foreign inflation and the foreign exchange fluctuations impact the cost of foreign goods. The level of these price adjustments is completely outside of TANESCO control. The proposed FAC to be determined in accordance with the following formula: FAC t 1 = ( i(p it 1 x AS it 1 Q it 1 ) BFC it 1 Where: FAC t 1 p it 1 Means the fuel adjustment in month t 1 established by subtracting the forecast base fuel cost from the actual fuel cost. Means the actual price of fuel and associated operating costs (Variable O&M) for each fuel resource such as Diesel, HFO, natural gas and IPP/EPP/SPP energy resources in month t 1 Q it 1 Means the actual quantity of resource i consumed in month t 1 AS it 1 BFC it 1 Means the actual end use energy sold in month t 1 Means base fuel cost per unit of energy forecast to be sold provided in the TANESCO s revenue requirement as approved by EWURA The proposed Inflation and Exchange rate fluctuation adjustments be based on reports as published by the Bank of Tanzania. In order to effect the changes accordingly, it is recommended that the adjustments be published by EWURA in quarterly basis. TANESCO Tariff Review Application 8

11 2 Current and Proposed Customer Bills Current and proposed customer bills by tariff class are summarized as follows: Tariff D1 Domestic Rate Current Proposed Energy 0-50 kwh more than 50 kwh Current Bill Proposed Bill Bill Energy Impact kwh TShs/month Tshs/kWh TShs/month Tshs/kWh % Change 25 1, , % 50 3, , % 75 9, , % , , % , , % , , % , , % , , % Tariff T1 General Use Rate Current Proposed Energy Demand - - Basic Charge 3,841 5,829 Current Bill Proposed Bill Bill Energy Impact kwh TShs/month Tshs/kWh TShs/month Tshs/kWh % Change , , % , , % , , % , , % , , % , , % , , % , , % , , % ,108, ,478, % ,661, ,214, % TANESCO Tariff Review Application 9

12 Tariff 2 Low Voltage Rate Current Proposed Energy Demand 16,944 25,868 Basic Charge 14,233 27,250 Electricity Consumption kw Current Bill Proposed Bill Bill Energy Demand Load Factor Impact kwh kva % TShs/month TShs/kWh TShs/month TShs/kWh % Change 7, ,597, ,825, % 7, ,444, ,592, % 7, ,360, ,463, % 7, ,292, ,359, % 7, ,258, ,307, % 7, ,224, ,256, % 7, ,207, ,230, % 20, ,230, ,480, % 20, ,823, ,859, % 20, ,603, ,523, % 20, ,433, ,264, % 20, ,331, ,109, % 20, ,247, ,979, % 20, ,179, ,876, % 50, ,528, ,620, % 50, ,562, ,146, % 50, ,969, ,240, % 50, ,579, ,645, % 50, ,291, ,206, % 50, ,088, ,895, % 50, ,918, ,636, % 100, ,059, ,239, % 100, ,093, ,239, % 100, ,924, ,454, % 100, ,128, ,238, % 100, ,569, ,384, % 100, ,162, ,764, % 100, ,823, ,246, % TANESCO Tariff Review Application 10

13 Tariff 3 High Voltage Rate Current Proposed Energy Demand 14,520 22,174 Basic Charge 14,233 27,250 Electricity Consumption kw Current Bill Proposed Bill Bill Energy Demand Load Factor Impact kwh kva % TShs/month TShs/kWh TShs/month TShs/kWh % Change 250,000 1, ,313, ,266, % 250, ,117, ,858, % 250, ,591, ,000, % 250, ,921, ,450, % 250, ,716, ,610, % 250, ,815, ,235, % 250, ,118, ,171, % 500,000 2, ,628, ,528, % 500,000 1, ,220, ,690, % 500,000 1, ,182, ,995, % 500,000 1, ,813, ,851, % 500, ,418, ,193, % 500, ,617, ,443, % 500, ,223, ,314, % 2,000,000 9, ,454, ,010, % 2,000,000 6, ,841, ,679, % 2,000,000 5, ,687, ,902, % 2,000,000 4, ,241, ,369, % 2,000,000 3, ,629, ,690, % 2,000,000 3, ,427, ,692, % 2,000,000 3, ,822, ,133, % 5,000,000 23, ,123, ,724,997, % 5,000,000 17, ,095, ,596,678, % 5,000,000 13, ,682, ,519,692, % 5,000,000 11, ,068, ,468,360, % 5,000,000 9, ,067, ,431,707, % 5,000,000 8, ,062, ,404,211, % 5,000,000 7, ,050, ,382,814, % Tariff T5 Bulk Supply (Zanzibar) Rate Current Proposed Energy Demand 12,079 17,512 Basic Charge 14,233 27,250 Electricity Consumption kw Current Bill Proposed Bill Bill Energy Demand Load Factor Impact kwh kva % TShs/month TShs/kWh TShs/month TShs/kWh % Change 21,480,250 43, ,806,862, ,411,311, % 21,480,250 43, ,799,180, ,400,173, % 21,480,250 42, ,791,727, ,389,368, % 21,480,250 42, ,784,468, ,378,843, % 21,480,250 41, ,777,426, ,368,634, % TANESCO Tariff Review Application 11

14 3 Tariff History Table 7 summarizes the historical evolution of tariffs by customer class from June The 2006 and 2007 increases were of 5 and 6 percent respectively, designed to adjust for inflation. The 2008 increase average 21.7 percent followed by percent increase from January There was no tariff increase in the 2013 Order. TABLE 7: CURRENT TARIFF AND HISTORIC EVOLUTION CUSTOMER CATEGORY D1 T1 T2 T3 T5 CURRENT from from from from from 1-Jun-06 1-Feb-07 1-Jan-08 1-Jan-12 1-Feb-13 (TSh) (TSh) (TSh) (TSh) (TSh) Basic charge Domestic Low Usage Energy charge 0 50 kwh/mo High Cost Units Energy charge Penalty - High Usage: more than 50 kwh Basic charge/month 1,785 1,892 2,303 3,841 3,841 General Use Energy charge Basic charge/month 6,615 7,012 8,534 14,233 14,233 Energy charge Low Voltage Supply Demand (kva) 7,245 7,680 9,347 16,944 16,944 Basic charge/month 6,615 7,012 8,534 14,233 14,233 Energy charge High Voltage Supply Demand (kva) 6,720 7,123 8,669 14,520 14,520 Basic charge/month 6,615 7,012 8,534 14,233 14,233 Energy charge Zanzibar (Bulk Supply) Demand (kva) 3,686 3,907 4,755 12,079 12,079 Approving Authority: COMPONENT TANESCO Board EWURA EWURA EWURA EWURA TANESCO Tariff Review Application 12

15 4 Proposed Customer Benefits The proposed tariff increase comes with a specific set of performance targets on the part of TANESCO. In return for the tariff increases, we commit to provide our customers with benefits in the following areas: Improvements in Customer Service: 1. TANESCO will strengthen media communications with customers, in order to receive and follow-up on issues/concerns raised by customers without requiring them to physically go to TANESCO offices. 2. TANESCO will frequently be informing its customers about services and products. 3. TANESCO will continue to strengthen its customer service charter whereby customers are made aware of their rights and obligations as electricity consumers. 4. TANESCO will continue to open more district offices in close proximity to customers. Reduction of operational costs: 1. TANESCO will strengthen/expand usage of banks in collecting revenues by July, TANESCO to continue its LUKU rollout program by December, 2014 and installation of Automatic Meter Reading (AMR) meters for new T2 and T3 customers. 3. TANESCO will use mechanised tools for distribution network operations by July, TANESCO will commence use of fleet management system by employment of car track system by July, TANESCO will start usage of AMR systems to monitor fuel consumption in its isolated power stations by September, Significant reduction in power rationing: 1. TANESCO will add new generation capacity by December, TANESCO will continue to strengthen its transmission and distribution systems. 3. TANESCO will implement the energy efficiency programme such as Demand Side Management by June Improved system reliability and quality of supply by reducing outages through upgrading and rehabilitation of the transmission and distribution lines: 1. TANESCO will shift to high voltage distribution systems (HVDS) instead of relying on long low voltage lines. 2. TANESCO will invest in the rehabilitation/maintenance of existing distribution systems. 3. TANESCO will use 33kV lines instead of 11kV lines in most new areas. Reduction in transmission losses from 6.3% in 2013 to 5.5% by 2015: 1. TANESCO will invest in upgrading and maintenance of the network. 2. TANESCO, with the support of Development Partners, will execute critical investments to strengthen and extend the transmission system, including the development of a 400 kv network which will reduce losses resulting from long transmission distances and overloaded lines. Reduction in distribution losses from 13.7% in 2013 to 12.5% by 2015: 1. TANESCO, through its own budget and credits from institutions such as the World Bank and the African Development Bank, will invest in reinforcement and maintenance of the backbone 33 and 11 kv network and substations. TANESCO Tariff Review Application 13

16 2. TANESCO will increase its efforts to reduce illegal consumption through extensive revenue protection programmes, including (i) increased inspection, (ii) continue investing in new metering systems such as Automatic Meter Reading (AMR), and (iii) installation of meter cabinets equipped with the appropriate security equipment, preventing meter tampering. Accelerate customers connection. 1. TANESCO is committed to attain a target of connecting 150,000 new customers in year 2013 and 250,000 new customers from These targets will also be achieved through contracting private contractors to speed up new customers connections in addition to TANESCO s own capacity. TANESCO Tariff Review Application 14

17 5 Corporate Financial Reporting Audited Financial Statements Audited financial accounts are available from 2009 to 2011, and provisional accounts are available for Audit reports for each of these years are attached in Annex A. Projected Financial Statements Projected financial statements from the year 2013 to 2015 are presented in Table 8 assuming that the proposed tariff will take effect from 1 st October Financial Implications if Not Approved If the Tariff Application is not approved, and TANESCO were to make no compensatory adjustments in its operations, the company would be projected to incur a financial loss in each of the next three years: TSh 76.5 billion from October to December 2013, TSh billion in 2014, and TSh billion in Furthermore, TANESCO will not be able to meet its operational expenses, invest on its infrastructures and consequently failing to deliver quality services to its customers. If the Capital Investment Plan (CIP) expenditure is reduced, the 250,000 customer connections goal is unlikely to be achieved, and Tanzania s household electrification rate will not reach national target of 30%. Affirmation of Completeness The TANESCO Board of Directors and Management affirm that all contractual agreements of the company that may have an impact on the proposed tariffs have been included in this application. Comprehensive Operating Information Table 9 summarizes comprehensive operating information for the past four years ( ). TANESCO Tariff Review Application 15

18 TABLE 8: PROJECTED FINANCIAL STATMENTS FROM Table 8(a) STATEMENT OF COMPREHENSIVE INCOME DETAILS 31-Dec Dec Dec-2015 BUDGET PROJECTION PROJECTION Revenue 1,316,523 2,194,830 2,572,058 Cost of sales (1,393,879) (1,650,712) (1,970,078) Gross loss (77,356) 544, ,980 Other operating income 184,552 66,908 67,887 Operating expense (84,811) (98,181) (109,963) Operating profit/loss 22, , ,904 Interest on bank deposits Finance cost (109,140) (109,644) (110,912) Loss before tax (86,755) 403, ,992 Income tax(charge) (120,960) (134,698) Loss/Profit for the year (86,755) 282, ,294 Other comprehensive income Gains on revaluation of property, plant and equipment Income tax on other comprehensive income Revaluation adjustments Income tax on revaluation adjustments Other comprehensive income after tax Total comprehensive income for the year (86,755) 282, ,294 1 Note: Electricity Revenue assumed Tariff Increase as per EWURA Tariff Application Guideline. TANESCO Tariff Review Application 16

19 Table 8(b) STATEMENT OF FINANCIAL POSITION 31-Dec Dec Dec-2015 BUDGET PROJECTION PROJECTION NON CURRENT ASSETS Property, plant and equipment 2,241,841 2,238,148 2,235,257 Capital work in progress 484, , ,906 Intangible assets - Investments AFUDC-Prepayment Capacity charges prepayment 51,878 47,755 40,466 2,778,349 2,821,950 2,868,642 CURRENT ASSETS Inventories 143, , ,091 Trade and other receivables 415, , ,971 Current income tax recoverable Bank and Cash balances 97,505 81,404 67, , , ,025 TOTAL ASSETS 3,434,592 3,539,219 3,634,667 CAPITAL AND RESERVES Share capital 986, , ,717 Advance towards share capital 194, , ,735 Accumulated loss (1,174,113) (891,872) (577,578) Revaluation reserve 793, , ,922 TOTAL EQUITY 799,933 1,043,841 1,321,796 NON CURRENT LIABILITES Grants 730, , ,579 Borrowings 569, , ,720 Consumer deposits 16,483 17,091 17,723 Post employment benefits 22,580 23,829 25,148 1,338,874 1,591,178 1,404,169 CURRENT LIABILITIES Bank overdraft 160,186 17,583 8,419 Trade and other payables 909, , ,152 Borrowings 91, , ,667 Deferred income tax 134,639 26,563 15,464 1,295, , ,702 TOTAL LIABILITES 2,634,659 2,495,378 2,312,871 TOTAL EQUITY AND LIABILITIES 3,434,592 3,539,219 3,634,667 TANESCO Tariff Review Application 17

20 Table 8(c) STATEMENT OF CASH FLOWS DETAILS BUDGET PROJECTION PROJECTION CASH AVAILABLE FROM OPERATIONS Revenue from Sale of Electricity 1,349,590 2,246,396 2,190,176 Other Operating Income 106,301 29,559 34,050 Goverment Support & Grants 305,079 18,000 18,000 Non Customer Income 24,002 26,841 27,358 Total cash from Operating activities 1,784,972 2,320,796 2,269,584 OPERATING EXPENDITURE Energy Purchases 959, , ,643 Own Generation Expenditure 341, , ,694 R&M Expenditure 52, , ,381 Staff Costs 158, , ,810 Other Operating Expenditure 530, , ,523 Total Operating Expenditure 2,042,178 2,435,397 2,497,051 Net Operating Cash Flow (257,207) (114,602) (227,467) Capital Expenditure 513, , ,992 Less:- Material at Stores 148, , ,664 Net Cash Flow After Funding CAPEX (621,228) (383,402) (526,795) Net Financing (30,689) (49,495) (19,798) Opening Cash Balance 116,791 (535,126) 110,964 Cash Balances at the end of the year (535,126) (968,023) (435,630) TANESCO Tariff Review Application 18

21 TABLE 9: COMPREHENSIVE OPERATING INFORMATION Table 9(a) STATEMENT OF COMPREHENSIVE INCOME 31-Dec Dec Dec Dec-2012 DETAILS Audited Audited Audited Draft Revenue 413, , , ,445 Cost of sales (439,124) (492,252) (768,548) (1,145,464) Gross loss (25,623) (25,775) (222,890) (325,019) Other operating income 166, , , ,708 Operating expense (114,396) (76,851) (106,277) (127,995) Operating profit/loss 26,571 3,881 (34,685) (226,306) Interest on bank deposits 4,158 1,121 3,423 1,346 Finance cost (67,358) (48,931) (44,949) (58,268) Loss before tax (36,629) (43,929) (76,211) (283,228) Income tax(charge) 76,786 (3,383) 32,784 (110) Loss/Profit for the year 40,157 (47,312) (43,427) (283,338) Other comprehensive income Gains on revaluation of property, plant and equipment 403, , Income tax on other comprehensive income (121,002) (30,781) - - Revaluation adjustments Income tax on revaluation adjustments (33) - Other comprehensive income after tax 282,337 71, Total comprehensive income for the year 322,494 24,510 (43,349) (283,338) TANESCO Tariff Review Application 19

22 Table 9(b) STATEMENT OF FINANCIAL POSITION 31-Dec Dec Dec Dec-2012 DETAILS Audited Audited Audited Draft NON CURRENT ASSETS Property, plant and equipment 1,828,480 1,982,451 2,035,738 2,243,057 Capital work in progress 66, , , ,132 Intangible assets Investments AFUDC-Prepayment Capacity charges prepayment 65,393 61,176 56,356 51,878 1,960,477 2,232,921 2,488,213 2,733,080 CURRENT ASSETS Inventories 65,452 57,761 73, ,167 Trade and other receivables 250, , , ,593 Current income tax recoverable 5,392 5,503 2,479 2,556 Bank and Cash balances 94, , , , , , , ,107 TOTAL ASSETS 2,375,892 2,692,755 3,054,660 3,417,187 CAPITAL AND RESERVES Share capital 986, , , ,717 Advance towards share capital 158, , , ,745 Accumulated loss (713,483) (760,795) (804,222) (1,087,357) Revaluation reserve 781, , , ,016 TOTAL EQUITY 1,213,010 1,237,749 1,195, ,120 NON CURRENT LIABILITES Grants 249, , , ,515 Borrowings 466, , , ,056 Consumer deposits 13,865 14,431 15,329 15,896 Post employment benefits 19,273 20,028 20,275 21, , ,132 1,042,671 1,265,863 CURRENT LIABILITIES Bank overdraft ,723 76,698 Trade and other payables 321, , , ,507 Borrowings 47,582 32, , ,166 Deferred income tax 44,216 78,380 45,629 61, , , ,281 1,224,203 TOTAL LIABILITES 1,162,882 1,455,007 1,858,952 2,490,066 TOTAL EQUITY AND LIABILITIES 2,375,892 2,692,756 3,054,660 3,417,187 TANESCO Tariff Review Application 20

23 Table 9(c) STATEMENT OF CASH FLOWS DETAILS Audited Audited Audited Draft Cash generated from operating activities 43, , ,409 (45,240) Interest received 4,158 1,121 3,423 1,343 Interest paid (34,128) (25,308) (14,118) (29,956) Tax paid (491) (111) (339) (77) Net cash fro generating activities 12,735 76, ,375 (73,930) Cash Flows from investing activites Additions to capital work in progress (112,925) (236,731) (320,722) (346,253) Purchase of intangible assets (348) Capitalization of interest on borrowings (1,035) Capitalization from sale of property, plant and equipment Net cash used in investing activities (114,248) (236,485) (320,651) (346,216) Cash flows from financing activities Proceeds from borrowings 125,932 44,824 5, ,738 Loan repayment (20,000) (47,000) (60,000) (60,000) Proceeds from grants 71, , , ,552 Capacity charges prepayment (59,371) ,802 Advances towards share capital 1, ,308 39,979 Net cash generated from financing activities 119, , , ,071 Net increase/decrease in cash and cash equivalents 17,717 9,786 (1,088) (63,075) Movement in cash and cash equivalents Cash and cash equivalents at beginning of year 76,753 94, , ,168 Increase/decrease during the year 17,717 9,786 (1,088) (63,075) Cash and cash equivalents at the end of the year 94, , ,168 40,093 TANESCO Tariff Review Application 21

24 6 Corporate Business Plan The complete Corporate Business Plan 2013 (CBP), as approved by TANESCO s Board of Directors, is included in this document as Annex B. The CBP highlights among others the following key areas: Financial Plan Section 5 of CBP, summarizes investment plan and sources of fund reflecting TANESCO s current ambition to expand its capital base, these include new projects in generation, transmission and distribution areas. Forecast of Customer and Energy Consumption Table 10 reports actual and forecast energy consumption by class from Year-on-year growth rates vary due to the impact of new customer connections and changes in specific consumption patterns. It is expected that sufficient generation capacity will be available to meet demand throughout the period. TABLE 10: CUSTOMER AND SALES FORECAST ( ) YEAR 2013 YEAR 2014 YEAR 2015 Number of Customers BUDGET FORECAST FORECAST Less than 50 units 292, , ,005 More than 50 units 321, , ,776 T1- General Use 699, , ,004 T2- Low Voltage Supply 2,483 2,955 3,427 T3- High Voltage Supply T5- Zanzibar State Fuel & Power Corp Total 1,315,849 1,565,849 1,815,849 Annual % Increase 19% 16% Total Electricity Sales by Customer Class (GWh) D1- Domestic Low Usage T1- General Use 2,203 2,364 2,553 T2- Low Voltage Supply T3- High Voltage Supply 1,804 1,935 2,090 T5- Zanzibar State Fuel & Power Corp Total 5,499 5,899 6,371 Annual % Increase 7% 8% Note: Source Corporate Budget and Business Plan 2013 TANESCO Tariff Review Application 22

25 ANNEX A: Audited Financial Statements TANESCO Tariff Review Application 23

26 ANNEX B: Corporate Business Plan (2013) The Corporate Business Plan, as approved by TANESCO s Board of Directors, is bound separately, but is intended as an integral part of this application. TANESCO Tariff Review Application 24