WANA JF NAOMBA KUWAKUMBUSHA
TANESCO operational problems : Easier said than done?
2004-06-20 07:36:35
By Nimi Mweta
Experts studying the power sector in Tanzania, contributing to the second open forum on the power sector in September last year, had some pertinent observations on managerial problems at the utility, TANESCO.
They identified a number of problems that were basically related to government policy, and a series of others that were within the control of the utility. It is the latter that a new management set to solve.
According to Prof. Burton Mwamila, F. W. Mtalo and A.H.J. Nzali, problems related to government policies included rural electrification at TANESCOs expense, an eight per cent interest rate on foreign loans to the sector, and failure to pay electricity bills by several key institutions.
Those within the control of TANESCO include high dependence on foreign finance for development projects, specialised and technical expertise.
Others were the existence of high production costs as a result of inadequate human, financial and material resources, management (in the sense of insufficient capacity), poor system of billing and collection of funds, along with rampant corruption which resulted in operational losses and cash flow difficulties.
Still others were inefficiency and unnecessary red tape or bureaucracy in services delivery, also occasioning revenue losses. The latter was needless to add a major condition for corruption, random charges to clients.
Tied to these difficulties was over employment within TANESCO resulting in unnecessarily high costs of operations, while there was noticeably low productivity due to inadequate training in relevant fields.
It was also observed that uncertainty on the future of TANESCO after being privatised contributed to productivity woes. The researchers were thus of the view that Power Sector Master Plan projections were too optimistic.
An initial study and open forum to discuss it, noted as the first open forum on the power sector, organised by the Tanzania Confederation of Industries (CTI) like the second, came up with recommendations. The follow up study says it gave 14 recommendations the implementation of which could bring about significant improvement of power supply. It would also definitely foster enhanced competitiveness of local industries.
What a rapid view of policy decisions taken in the past two years might indicate, is both a pursuit of those recommendations and further complication of the situation they set to address.
For instance there was a tariff rise on two occasions, first before the new contracted management team took over, and last, at the moment that it was completing two years (of contract). Domestic rates tended to rise, not industrial tariffs.
The second open forum laid considerable accent on problems caused by power supply disruptions and constraints (cost, competition) arising therefrom.
While neither the utilitys management nor the ministry can fail to take note of these concerns, it is difficult to see how they can be addressed, except as part of a wider rationalisation of the power supply as a whole. It merges with TANESCOs problems, not a distinct issue.
When attention is given to their other concerns, namely not just how to guarantee availability of power supply but also enhancing its quality and reducing the tariff to between four and six US cents, the cap is blown.
All what policy action has been able to achieve is to narrow the gap between domestic use rates and industrial tariffs (first tariff change), and slight reduction of the industrial tariff. But tariffs are still quite high.
The paper raises issues of determining principles governing power tariff setting and establishing how they have been adapted to (suit) various (known) situations. Exploring such a question further would involve the sort of discussion which researchers may prefer to avoid, namely the nature of ownership of the utility and how it influences costing. Prices relate to costs, so only firms with capital, reserve equipment, can cut costs.
By definition therefore, TANESCO will by any definition or scenario become a high cost, and thus high tariff company, and without including any avoidable managerial problems as the first study noted. It has many new projects either coming up recently or whose loans were still being paid, it has a multiplicity of suppliers and expertise for projects, all of which are costly. Reducing tariffs needs connection to cheaper generation.
The paper recommended identifying and comparing power financing between Tanzania and other countries in the region, the tariff setting mechanism adopted here and outside. While one doesnt seek to upstage the research, little that is unknown can be uncovered here, for instance that Uganda is low tariff as its power supply from the Owen Falls dam has been stable, etc. Adding the IPTL facility to the costs worsens tariffs.
Many of the 14 recommendations had already been met or implemented, like getting alternative sources of power (with Kihansi completed, Songas flow expected), review of TANESCOs debts (settling outstanding bills), etc. An idea about separating power generation from power supply is contained in recommendations, much in keeping with some current (in the late 1990s) ideas about the issue. Perhaps many might be wiser.
One supposition about the merits of separating generation from supply is that competition is created at both instances, by having several generators (but some experts recommend retaining unitary generation) and suppliers.
For a certain reason there is competition expected, whereas the focal point is negative creation of price setters and takers, as well as monopoly supply (inability to switch from one supply to another).
Thus a crisis emerges out of suppliers being price takers, and these in turn readjusting prices to consumers, at will.
Managerial changes required in the paper have been effected, like putting in place a private management and an interim board before full privatisation of TANESCO.
It however seems that the government is in no real hurry to proceed with actual lease (as no prospect exists of sale of utility), since its leverage would be further reduced with a lease. Yet only full privatisation (virtual sale of assets) could actually change things.
It is, for instance, easy to pour venom on corruption and suggest, inter alia, a reduction of TANESCOs excess workforce (which often is done by productivity enhancing systems rather than manual depression of size of employees).
Weeding out corrupt employees is in a sense a mistaken recommendation, for rational people know that each person is potentially corrupt. The issue is to put up mechanisms where discretion is minimal.
While reforming or restructuring government departments and parastatals has on certain occasions moved to weed out a number of employees upon whom buzzing stories of bribes existed, this is limited in its scope and effectiveness.
When demand cannot be made without discretion being applied, corruption creeps back. Replacing corrupt people then becomes a matter of generations, replacing layers of corrupt people regularly.
If any achievements have been registered in this direction they may have to do with LUKU as a predictable payment mechanism, or managerial intent (by replacing quitters insensitive to erosion of ethics).
Subsidy of domestic consumers by industry has largely ended, to the groaning of wage earners and alarm at environmental impact likely. A greater reliance on charcoal is likely in many urban homes, reducing electricity consumption.
No doubt exists either that the government will support other power generation projects like Songas (now almost completed), Mchuchuma (a polemic which MPs surfaced), or Rufiji hydropower plant. Greater power flow is likely in the (near) future as Songas is fully exploited, and IPTL thermal facility is converted to gas use or firing. Costs wont be cut down, for no private investor is pursuing investment to realise a profit later.
SOURCE: SUNDAY OBSERVER
