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Additional Financing to Support Renewable Energy Projects for Rural Tanzania

April 6, 2010

WASHINGTON, April 6, 2010 - The World Bank’s Board of Executive Directors today approved an additional International Development Association (IDA) credit of US$25 million to Tanzania’s Energy Development and Access Expansion Project (TEDAP). This adds to the IDA credit of US$105 million and the Global Environment Facility grant of US$6.5 million originally approved for this project in December 2007.

The project aims at improving the quality and efficiency of electricity service provision in the three main growth centers of Dar es Salaam, Arusha, and Kilimanjaro, and to establish a sustainable basis for energy access expansion and renewable energy development in Tanzania. The project also contributes to the global environmental objective to abate greenhouse gas emissions through the use of renewable energy in rural areas to provide electricity. This additional financing is primarily to support the project’s small renewal energy components.

Since it went into effectiveness in 2008, TEDAP has created a favorable regulatory and institutional environment for the development of small renewable energy projects. The project has supported the newly established Rural Energy Agency to provide pre-investment support to local renewable/rural energy developers. As a result, a number of rural renewable energy projects have been initiated by the local private sector. Eighty potential projects have been identified, of which 22 are considered priority with confirmed sponsors and detailed design studies completed or underway with a cumulative total size of 78 MW. The total renewable energy potential substantially exceeds TEDAP’s original expectations of 17 MW.

However, renewable energy projects can not currently access medium and long term financing because the long-term liquidity in the financial sector in Tanzania is limited. This situation has been exacerbated by the recent global financial crisis. Therefore, in the absence of adequate financing, most of the identified small renewable energy projects will not be able to move forward.

The credit line designed under TEDAP’s additional financing would address the financing gap in the financial system by providing local banks with long-term funds for financing small renewable energy projects. It will scale-up TEDAP outcomes and targets for renewable energy generation.

“Efficient, economic supply and consumption of electricity will be critical for the future competitiveness and robust growth of the Tanzanian economy,” stated John Murray McIntire, World Bank Country Director for Tanzania, Uganda, and Burundi. “It is our hope that this additional support will enable the provision of lower cost electricity, help alleviate the recurrent power shortages and improve energy security by diversifying electricity generation sources and reducing the dependence on fuel which is susceptible to high price volatility.”

Tanzania faces significant power shortages; the power system’s security and supply reliability is inadequate and highly dependent on hydro power, which is susceptible to drought. The recent World Bank Africa Infrastructure Diagnostic study estimates that load shedding and emergency generation cost Tanzania over five percent of the GDP annually.  In addition, studies show that inadequate power supplies take a heavy toll on the private sector. Tanzanian enterprises experience on average 63 days of outages.  Such outages represent high costs for enterprises; six percent of turnover on average for formal enterprises, and as much as 16 percent of turnover for informal enterprises.

The project is expected to yield development benefits.  It will enable sustainable electricity provision to promote economic development and increase rural access to electricity. The renewable energy development will contribute to global CO2 emissions reductions and the goal of averting environmental and economic threats from climate change by displacing fossil fuels.  Finally, the project lays the ground for local rural development because most developers are local rural SMEs.

 “Tanzania has abundant, but largely untapped renewable energy resources, including small hydro, wind, solar and various forms of biomass, which could be harnessed for power generation and access expansion,” said Dana Rysankova, the Task Team Leader for the project. “The activities undertaken under TEDAP  tap into some of these resources to improve the living conditions for those who still lack access to modern energy. The project lays the ground for long-term participation of the local communities, private sector and commercial banks in renewable/rural energy development, sowing the seeds for sustainable economic development,” she added.

This is the fourth operation to be approved by IDA for Tanzania during fiscal year 2009/2010, bringing total IDA approvals this fiscal year to US$275 million. In total, the World Bank’s currently active country portfolio includes 24 operations with a net commitment of US$2,512.38 million.  The largest share of resources is allocated to infrastructure (US$634.5 million) followed by human development including health, education and social protection (US$557 million). In addition, Tanzania benefits from 11 regional projects, in which Tanzania-specific financing amounts to US$226 million.

Media Contacts
In Washington
Herbert Boh
Tel : 202 473-3548
In Dar es Salaam
Nicodemus Odhiambo Marcus
Tel : +255 22 216 3246