GE Tanzania: Overview of the Energy Sector and Power Generation Industry

Interview with Araf Sykes, Regional Sales Manager at GE Tanzania

Tanzania is ideally hoping to grow its economy and prepare itself for middle-income status by 2025. Do you feel this is achievable?

Yes, definitely. Last year, our GDP growth was running at around 6.9% and it’s currently at 7%. Given our President’s agenda, and the growth that he seeks, especially in the energy sector, we are currently at around 1.5 GW for the entire country, and we are looking to grow that to 10 GW by 2025. As everybody knows, in order to grow the economy, you certainly also have to grow the power sector, which is underway. There are two projects going on at the moment, in terms of power generation, so I definitely feel that we are headed in the right direction.

And what industry trends and developments in East Africa overall, are you most excited about?

Definitely the power sector, I would say. That’s the most exciting part. As I said, everything hinges on that, and we do currently have a number of setbacks with regards to power, especially in terms of production. For instance, we have had large cement companies mushrooming all over Tanzania, and their biggest concern is power. So, if we can address that issue, then we will definitely be on the right track. Energy is therefore key.

I would also add healthcare, which is growing steadily. The national budget for 2016-2017 has almost quadrupled, so this is also currently a very exciting sector.

And what are the key areas that you feel need to be addressed in this country, in relation to power?

Education, for certain, along with local content, which definitely needs to improve, as well as job creation.

So why do you think foreign investors in your sector should pay more attention to this country and this region?

We are among the most stable countries in the area, together with growth, as you mentioned earlier. We have many areas investors can target: energy, tourism, healthcare, transportation – with a central corridor to be constructed soon, and which will provide significant access to the land-locked countries around Tanzania. On top of this, there have been huge discoveries of gas, helium and the list goes on.

In terms of the EAC region countries, how can they best cooperate to make the most of the opportunities in power generation? Are they able to work in partnership with each other, in order for their efforts to be complementary?

We recently completed the power station Kinyerezi I, with 150 MW. On the back of this, we just received approval to go ahead with an additional 185 MW. There is also Kinyerezi II with Sumitomo, the Japanese grant, which has also recently begun.

We have the East African Community, which basically strives to improve the region. In terms of working together. As I mentioned, we have a central corridor in the works, which will link us to Rwanda and Burundi, and will definitely increase trade. We have the Uganda oil pipeline project, and we are also looking to put more rail infrastructure in place with World Bank funding. On the power sector side, grid activity is going to increase between Tanzania and Kenya, as well as Zambia, which has huge issues with regards to power. If we are able to export our power to Zambia, this is another way of earning foreign currency, so there are many opportunities there too.

And where do you see the most interesting opportunities in energy production in Tanzania specifically?

In terms of energy generation, the most immediate one is gas to power, as the Chinese pipeline has recently been constructed. There is also coal, but which is probably more long-term, and given that it’s not a very clean form of energy, many investors could be somewhat wary. But there is some opportunity there. Then there is renewable energy, which has received a significant push lately, especially in the West of Tanzania, in an area called Singida. There are many studies around wind energy. Therefore, renewable energy will definitely play a major part in the future, hopefully including solar energy.

There have always been significant challenges regarding reliable power supply in this country. The infrastructure is quite dilapidated, there are issues of theft with the transmission system, etc. But what is the situation now for investors wanting to set up industrial and manufacturing facilities in Tanzania?

Moving forward, as I mentioned earlier, given that there is such a big drive for power generation in Tanzania – and this is actually at the top of our President’s agenda – this should provide a certain level of comfort to investors, in that we are addressing the issue and things will get better. We recently completed the power station Kinyerezi I, with 150 MW. On the back of this, we just received approval to go ahead with an additional 185 MW. There is also Kinyerezi II with Sumitomo, the Japanese grant, which has also recently begun. So, we are heading in the right direction and there is definitely more to come.

That is good to hear. I believe the proven natural gas reserves, according to the consensus, are in the order of 55 trillion cubic feet. How can they ensure that this gas will be extracted and used for local energy production, and not just be sold on to international markets?

Well, there is a consortium that includes BG (Shell), Exxon Mobil, Statoil and TPDC, which is the local arm. Most of the foreign investors are obviously looking for their return on investment (ROI), so much of the gas will be for export, especially to Asian markets and the Far East, but it is also stipulated that a certain amount will be used for local consumption, mainly in terms of power generation. There have been discussions about exporting some of the gas to Kenya and perhaps other neighbouring countries, but this is still neither here nor there. Still, there are projects such as the fertiliser plant set to be constructed for gas use, so we are fairly confident that a certain amount will be used for local consumption, even if most of it is earmarked for export.

While they recover their initial costs, I suppose?

Of course.

Could you tell us what the impact of these LNG discoveries will be for Tanzania and the energy sector more generally? Does it represent a total game-changer?

Most definitely, yes. It has offered us significant stability, in terms of power generation, as well as growing other sectors within Tanzania. It will obviously provide us with more foreign income, and will hopefully help grow the economy, including the textile industry, etc., thereby allowing us to achieve middle-income status as well.

And what role will the private sector have to play as Tanzania strives to meet its energy demands, in terms of technology transfer, human capacity and the level of capital investment in this country? I imagine they can’t go about on their own?

Yes, there will obviously need to be a certain percentage of foreign investment, as you mentioned. Education is also key, including local content. If we have a stronger population in terms of their level of education, then everything will tend to fall into place.

Energy poverty is particularly acute in the rural areas of this country. The statistic I have is that only 20% of the population is linked in any way to the national grid. Why are the traditional ways of delivering power insufficient to reach these communities, and how long will it be before this huge imbalance begins to be addressed?

Those figures are probably correct and are essentially about the national grid. There has been a lack of investment, in terms of transmission and supplying all rural areas. Today we have REA, which is the rural agency.

Established in 2006?

That is correct, better late than never. A good deal of solar energy is also being implemented in rural areas, in seeking to address the issue for households. But, in the long term, the only way to actually reach those villages is essentially to diversify, in terms of having more power generation in different areas. I mentioned Singida with its wind energy, and there is solar in Dodoma, as well as coal in the south and in Rukwa.

This seems to be quite a mixed and multifaceted approach they are taking.

Yes, because currently over 80% of power generation in Tanzania is hydroelectric, and this has been the case for over 50 years now. We had a very big drought about 10 years ago, which basically placed the country in a limbo, meaning we had to look for emergency power. This is obviously very expensive, and was supposed to be a short term solution, but it has ended up becoming a very long term ‘solution’. This more or less crippled the country, in terms of TANESCO’s limited ability to grow, as they were busy trying to pay off the emergency power, with much higher rates than for standard power. But the issue is currently being addressed, so we should now hopefully see growth in the area.

Just to digress slightly, I was told that Zanzibar’s power chord was severed and the entire island was cut off for three months.

That’s correct, yes. But you have the original underwater cable, and then you also have a second one, put in place by MCC (Millennium Challenge Corporation). Within Zanzibar, they are looking to diversify. I know that the EU is carrying out a wind generation study there, so they will hopefully be able to diversify in the future and be less dependent on the submarine cable, which currently feeds them power.

Returning to GE as an organisation, clearly Tanzania is trying to partner with as many private sector players as it can, in order to fund and develop major energy projects, in an attempt to bolster the country’s grid. You mentioned the Kinyerezi natural gas plant, for which I believe GE supplied the gas turbines?

That is correct. We supplied four LM6000 gas turbines, all under an open cycle basis. The project has gone very well and is currently running at full capacity, producing 150 MW. This is the largest gas to power plant in Tanzania to date.

My question really was how that particular project will help reduce Tanzania’s dependence on expensive rental units and strengthen the overall reliability of its power supply?

Initially, as they stop using emergency power, new power generation will start filling that gap. This does not necessarily mean growth to start with. But on the back of this project, like I said, we are planning to produce an additional 185 MW on the same site, namely the Kinyerezi I extension.

And what is the expected completion date for this?

It should take around two years, but delays also need to be factored in. Right next door there is also Kinyerezi II, which is a Japanese grant and is expected to produce 240 MW on a combined cycle basis. Therefore, if you add all these numbers up, you can see that there is going to be significant growth, along with other gas power projects earmarked in Nkoaranga and Mtwara. As a result, we should see significant growth and change over the next five years in Tanzania’s power sector, which will then hopefully motivate investors to come and put up textile industries, assembly and manufacturing plants. EPZ zones have also been set up, especially for export, so we can expect plenty of activity over the coming 5 years.

Finally, could you tell us more generally about your overall hopes for the continuing partnership between GE and Tanzania?

GE works in several sectors in Tanzania, not just power. We are also very involved in healthcare, which we are looking to strengthen. We recently held a Healthcare Conference, which was attended by the former President, Kikwete, as well as the Minister of Health. It was very positive. We are moving forward in the health sector and look forward to playing a greater role in that field. We are also involved in transportation and locomotion. As you know, we are currently very dependent on the all too often dilapidated road infrastructure, therefore rail is another front where we hope to improve a good deal, especially through our locomotives. Finally, there’s the oil and gas sector. These are the areas where we are looking to grow in Tanzania and add value. There are all sorts of opportunities.

The revival of Air Tanzania is also on the cards, as the national airline. Since we also manufacture jet engines and are very active in that area, this is yet another opportunity for us to add value and offer assistance.