TITLE COVER



Tanzania Electric Supply Company Ltd

TANESCO Tariff Adjustment

Application

FEBRUARY 2016

TABLE OF CONTENTS

Top Sheet – Request for Regulatory Action 1

Introduction 3

Summary of the Application 4

Requested Regulatory Action 4

Summary of Proposed Customer Bills 4

Current and Proposed Required Revenues 4

Alternatives to a Tariff Adjustment 5

Subsidies and Grants Received 6

1 Current and Proposed Tariffs 7

Current Tariffs 7

Proposed Tariff 7

Tariff Adjustment Factors 8

2 Current and Proposed Customer Bills 8

3 Tariff History 9

4 Proposed Customer Benefits 10

5 Corporate Financial Reporting 12

Audited Financial Statements 12

Projected Financial Statements 12

Financial Implications if Not Approved 12

Affirmation of Completeness 12

6 Corporate Business Plan 19

Financial Plan 19

Forecast of Customer and Energy Consumption 19

ANNEX A: Audited Financial Statements 20

ANNEX B: Corporate Business Plan (2015) 21

TABLES

Table 1: REVENUE REQUIREMENTS (2016- 2018) 5

Table 2: Status of Key Performance Indicators (KPI) 6

Table 3: Current Tariff Structure 7

Table 4: Average Tariff Yield, Multi-Year Tariffs 8

Table 5: Current Tariffs 8

Table 6: Proposed Tariffs………………………..…………………………………………………....8

Table 7: Historic Tariff Evolution 9

Table 8: Projected Financial Statments from 2016-2018 13

Top Sheet – Request for Regulatory Action

|Legal name of the regulated entity |Tanzania Electric Supply Company Limited (TANESCO) |

|Full address of regulated entity |Umeme Park |

| |Ubungo |

| |P.O. Box 9024 |

| |Dar Es Salaam |

|Authorized officer |Eng. Felchesmi J. Mramba |

| |Managing Director |

| |+255 222 451130 (Direct) |

|Company Business |To generate, transmit and distribute electricity in Tanzania Mainland and sell bulk supply to |

| |Zanzibar and Kenya. |

|Date of Incorporation |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 2012. 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 |

| |Tariff Adjustment for year 2016 and 2017 effectively from April 1, 2016. The proposed average|

| |decrease are 1.1% effective from April 1, 2016 and reduction of 7.9% effective from January 1,|

| |2017. The average yield for sales of electricity by class in 2014-17 is specified in Table 1 |

| |of this application. |

| |It is proposed that these tariffs will apply to all sales made from 1 April 2016. The proposed|

| |adjustments for 2016 and 2017 are subject to automatic adjustments for inflation, currency |

| |fluctuation and change in fuel prices as per Tariff Setting Rules and as modified by the |

| |Regulatory from time to time. . |

|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 75% by 2025. Reduction of higher percentage than the proposed adjustments,|

| |TANESCO will be unable to 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 | |

Introduction

Due to increased operations (fixed and variable) costs, on 11th October, 2013, Tanzania Electric Supply Company Ltd (TANESCO) submitted to The Energy and Water Utilities Regulatory Authority (EWURA) an application requesting EWURA to approve four regulatory actions:

1. Approval of a Multi-Year Tariff Adjustment for three years from October 1, 2013. The proposed average adjustments were 67.87% from 1st October 2013, 12.74% effective from January 2014, and 9.17% effective from January 2015;

2. Approval of two indexation clauses designed to adjust the tariff periodically for changes in fuel costs and macro-economic factors which are outside TANESCO’s control so as to ensure that it remains financially viable;

3. Consideration on subsidized connection service line charges; and

4. Approval of charges on other electricity related activities.

The EWURA Board of Directors met on 10th December 2013 and decided to approve an increase of 39.19% effective from January 2014 and the approved rates to remain the same for 2015 and 2016. In the Order EWURA proposed to carry out another COSS during the year 2015 that was expected to form a basis for determining a new tariff applicable any time from 2016 onwards. Todate TANESCO is continuing to use the 2013 approved tariff.

Following instruction by the Minister of Energy and Minerals to decrease electricity tariff to end use customers and find means to ensure that customers do not pay the following charges:

1. Service Line Application Form fee of TZS 5,000/=,

2. Service Line Connection Charges and

3. Monthly Service Charges

Therefore, TANESCO will opt to borrow money from commercial banks for service for the long term outstanding amount which reached TZS 699.57 billion as at 31st December, 2015 and will incorporated the two of the above items in its tariff application. The items are Application Form fee for new connection and Monthly Service charge. Regarding the Service line connection charges will be considered in future.

Summary of the Application

Tanzania Electric Supply Company Limited (TANESCO) is a Tanzanian parastatal organisation established in 1964. 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 Tariff Adjustment for year 2016 and 2017, effective from April 1 2016. The proposed reduction on tariff by 1.1% from April 2016 and 7.9% from January 2017. The proposed tariff is exclusive of inflation, currency fluctuation and change in fuel prices.

TANESCO requests that the automatic adjustments to cater for inflation, currency fluctuation and change in fuel prices which is supposed to take place in quarterly basis and the effect to be applied across all customer categories be implemented timely by the Regulator.

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 decrease in tariff by class as of April 1, 2016 under the proposed tariff structure will be as follows:

With inclusion of New connection charges and monthly service charge

D1 – Domestic: First 75 kWh/month 0.0%, over 50 units consumption 0.0%

T1 – General Use: -1.0%

T2 – Low Voltage: -1.0%

T3a -- Medium Voltage: -1.0%

T3b – High Voltage (Zanzibar inclusive): -1.0%

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 decreases in annual revenue from electricity sales for 2016 and 2017 years:

With exclusion of connection charges in the tariff

2016 – 1,702.8 TZS billion (reflecting a 1.1% tariff decrease from April, 2016); and

2017 – 1,694.5 TZS billion (reflecting a 7.9% tariff decrease from January 1, 2017).

Table 1: REVENUE REQUIREMENTS (2016- 2017)

[pic]

Alternatives to a Tariff Adjustment

The current tariff regime yields average revenue of 274.90 TZS/kWh, yet the revenue requirement target for TANESCO in 2015 was 348.68 TZS /kWh and projected to be 272.00 TZS/kWh in year 2016. The shortfall of 67.78 TZS/kWh (26.8%) in year 2015, restricted the ability of the company to provide the services required to meet its obligations to both its lenders and its customers. In order for the Company to pay its financial obligation for the previous backlog caused by unmet revenues, the Company will opt to borrow money from commercial banks. However, if in year 2016, tariff will be reduced more than proposed reduction, the company will continue to suffer losses. Thus 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 reduced more than expected. The following options would be considered:

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 2014 was only about 4 percent of revenues. Continued deferral can only be expected to result in increased forced outages for both generating equipment and the T&D networks.

Increase business risks. TANESCO has always been under-recovering for every unit sold including the period since our last tariff application in 2013; this has resulted in non-fulfilment of contractual obligations and increased creditors outstanding to TZS 699.57 billion by 31st Dec 2015. If the tariff is reduced more than as indicated, will paralyze the financial capacity of the company. This situation may lead to Creditors to take legal action, tarnish our business image and goods & service providers refrain from do business with TANESCO.

Table 2: Status of Key Performance Indicators (KPI)

Table 2: Shows actual performance for 2014 and 2015 on KPI targets for TANESCO set by EWURA in year 2014 Tariff Order and projections up to 2017.

[pic]

Possibility of Further Reduction of Tariff

Further reduction in Tariff will require the Government to cover the CAPEX loan for the new pipeline, thus reducing the gas price on the Processing and Transportation charges to zero. By doing so the tariff will be reduced by an average of 10.0%.

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 – Medium Voltage Maximum Demand Usage, for general use where power is metered at 11/33 kV; and

T5 – High Voltage for general use where power is metered at 132kV and above (including bulk supply to Zanzibar).

Table 3 shows the components of each tariff:

Table 3: Current Tariff Structure

|CUSTOMER CATEGORY |TARIFF COMPONENTS |

| |BASIC CHARGE |ENERGY CHARGE |DEMAND CHARGE |

| |(TSh/month) |(TSh/kWh) |(TSh/kVA/mo) |

|D1 | |( | |

|T1 |( |( | |

|T2 |( |( |( |

|T3a |( |( |( |

|T3b | |( |( |

The current tariffs for each class were authorized by EWURA’s Board of Directors in Order No. TR-E-13-01 on 10th December, 2013, which become effective from 1st January, 2014.

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 year 2016 and 2017 period commencing in April 2016 are summarized in Table 3.

Table3: PROPOSED TARIFF STRUCTURE

|CUSTOMER CATEGORY |TARIFF COMPONENTS |

| |BASIC CHARGE |ENERGY CHARGE |DEMAND CHARGE |

| |(TSh/month) |(TSh/kWh) |(TSh/kVA/mo) |

|D1 | |( | |

|T1 | |( | |

|T2 |( |( |( |

|T3a |( |( |( |

|T3b | |( |( |

The initial tariff adjustment is proposed to be effective from April 1, 2016. The average rate of decrease proposed on that date is 1.1 per cent, from an average current tariff yield (i.e., total revenues divided by total kWh sold) of 274.90 TZS/kWh to an average yield of 272.00 TZS/kWh.

Table 4: Current and Proposed Tariffs

[pic]

The decrease was based on a share of cost whereby the high proportion 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 History

Table 7 summarizes the historical evolution of tariffs by customer class from January 2011. Followed by Emergency tariff in January 2012, then February 2013 and January 2014 tariff with Automatic adjustment in April 2015.

Table 3: Historic Evolution

[pic]

Proposed Customer Benefits

The proposed tariff comes with a specific set of performance targets on the part of TANESCO. In return, 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 continue and expand usage of banks in collecting revenues.

2. TANESCO to continue its LUKU rollout program by and installation of Automatic Meter Reading (AMR) meters for new T2 and T3 customers.

3. TANESCO will use mechanised tools for distribution network operations.

4. TANESCO will continue the use of fleet management system by employment of car track system.

5. TANESCO will start usage of AMR systems to monitor fuel consumption in its isolated power stations.

▪ Significant reduction in power rationing:

1. TANESCO will continue adding new generation capacity.

2. TANESCO will continue to strengthen its transmission and distribution systems.

3. TANESCO will finalize the energy efficiency programme such as Demand Side Management.

▪ Improved system reliability and quality of supply by reducing outages through upgrading and rehabilitation of the transmission and distribution lines:

1. TANESCO is in process of shifting to high voltage distribution systems (HVDS) instead of relying on long low voltage lines.

2. TANESCO will continue investing 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 5.5% in 2015 to 5.0% by 2017:

1. TANESCO will invest in upgrading and maintenance of the network.

2. TANESCO, with the support of Development Partners, to complete the backbone transmission project of a 400 kV network from Dodoma-Iringa-Singida-Shinyanga which will reduce losses resulting from long transmission distances and overloaded lines.

▪ Reduction in distribution losses from 11.5% in 2015 to 10.5% by 2017:

1. TANESCO, through its own budget and credits from institutions such as the World Bank and the African Development Bank, will continue to invest in reinforcement and maintenance of the backbone 33 and 11 kV network and substations.

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 250,000 new customers in year 2016 and 250,000 new customers from 2017.

2. These targets will also be achieved through contracting private contractors to speed up new customers’ connections in addition to TANESCO’s own capacity.

Corporate Financial Reporting

Audited Financial Statements

Audited financial accounts are available from 2011 to 2013 and Provision for year 2014/15 (eighteen months report). Audit reports for each of these years are attached in Annex A.

Projected Financial Statements

Projected financial statements from the year 2015/16 to 2016/17 are presented in Table 8 assuming that the proposed tariff will take effect from 1st April, 2016.

Financial Implications if Not Approved

If the Tariff Application to reduce the tariff by 1% will not be approved by the Regulator, TANESCO will continue using the same tariff subject to automatic adjustment done quarterly.

Affirmation of Completeness

The TANESCO Management affirm that all contractual agreements of the company that may have an impact on the proposed tariffs have been included in this application.

Other Charges

SERVICE LINE RATES

Single Phase Charges

|Service Line |Urban |Rural |

| |(VAT Exl.) |(VAT Exl.) |

|Within 30 Meters |272,000 |150,000 |

|Within 70 meters, one pole |436,964 |286,220 |

|Within 120 meters, two poles |590,398 |385,300 |

Three Phase Charges for Urban and Rural Areas

|Service Line |Meter Type |Urban |Rural |

| | |(VAT Exl.) |(VAT Exl.) |

|Within 30 Meters |LUKU |772,893 |772,893 |

|Within 70 meters, (one pole) |LUKU |1,058,801 |1,058,801 |

|Within 120 meters, two poles |LUKU |1,389,115 |1,389,115 |

Charges for installation of a Meter in case of Damage due to Meter Tampering/Broken

|Customer Category |Description |Charges TZS (VAT exclusive) |

|D1 & T1 |LUKU (Single phase) |60,000.00 |

| |LUKU (Three phase) |200,000.00 |

| |AMR (Three phase) |300,000.00 |

|T2 |CT- Operated Meters |1,200,000.00 |

|T3 |CT/VT Operated Meters |1,200,000.00 |

Testing and Inspection of Installation Charges

|Customer Category |Charges TZS (VAT exclusive) |

|D1 |20,000.00 |

|T1 |20,000.00 |

|T2 |30,000.00 |

|T3 |50,000.00 |

Temporary Power Supply

|Customer Category |Description |Charges TZS (VAT exclusive) |

|T2 |Connection fee |Full cost + 10% |

|T3 | |Full cost + 10% |

|T2 |Meter deposit |200,000.00 |

|T3 | |500,000.00 |

Energy Deposit for Post-paid Meters

|Customer Category |Description |Charges TZS (VAT exclusive) |

|D1 |Single phase |30,000.00 |

|T1 |Single phase |30,000.00 |

|T1 |Three phase |150,000.00 |

|T2 |Three phase |200,000.00 |

|T3 |Three phase |500,000.00 |

Reconnection Charges TZS 7,000.00

Table 8: Financial Statments from 2012-2016/17[1]

Table 8(a) – STATEMENT OF COMPREHESIVE INCOME

[pic]

Table 8(b) – FINANCIAL POSITION YEAR 2012 T0 2016/17

[pic]

Table 8(c) – CASH FLOW STAEMENT

[pic]

Corporate Business Plan

The complete Corporate Business Plan 2015(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 2014. 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.

ANNEX A: Audited Financial Statements

ANNEX B: Corporate Business Plan (2015)

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.

-----------------------

[1] Note: Electricity Revenue assumed Tariff Increase as per EWURA Tariff Application Guideline.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download