1 TANZANIA ELECTRIC SUPPLY COMPANY LTD Presentation on the performance of the Company to Development Partners By Eng. Felchesmi Mramba Managing Director-

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TANZANIA ELECTRIC SUPPLY COMPANY LTD

Presentation on the performance of the Company to Development Partners

By

Eng. Felchesmi MrambaManaging Director- TANESCO

Contents

Background Current Power Situation Internal Reforms and Status Recent Improvements Financial Performance Conclusion

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Background

Tanzania Electric Supply Company Limited is a parastatal organization under the Ministry of Energy and Minerals (MEM) established in 1964.

The Company’s core business is Generation, Transmission and Distribution.

The Company also sale electricity to the mainland and bulk power supply to the Island of Zanzibar.

Vision To be an efficient and

commercially focused utility supporting the development of Tanzania and to be a power house of East Africa.

Mission To generate/purchase, transmit

and supply electricity in the most effective, competitive and sustainable manner possible.

Company Values Ethical Excellence Receptiveness

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Current Power situation

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Generation Installed capacity in the grid is 1501.24 MW. Hydro:

561.84 MW (37.43%); Thermal: 939 MW (62.57%). Capacity of thermal plants (Gas: 501MW; Oil: 438.4

MW) Off-grid stations total capacity is 92.4 MW Highest grid system demand is 898.72 recorded in

November 2013.

Transmission System :Transmission network comprises of 2,732 km of 220kV

lines; 1,555.79 km of 132 kV lines; and 578.7 km of 66 kV lines, totalling 4,866.85km by the end of November 2013.

Distribution System :Comprises of 17,021 km of 33 kV lines, 5,375km of

11kV lines, 34,513km of LV and 11,124 distribution transformers.

Internal Reforms and Status

Main Focus Areas Operational Efficiency Customer Service Improvement Business Growth Our people


1. Operational Efficiency

Build Effective Procurement function by: Decentralizing procurement function Restructuring the PMU Build PMU Capacity Effective Management of Stock items by: Enhancing Stock Management Enhancing Stock Monitoring


Operational Efficiency …

Strengthening ICT systems to support the business

Implement Corporate Management System Automate most of the Operations Improve on collection of electricity revenues Replace all post-paid meters with prepaid meters in

three years time Use Banks for collection of payments from customers Establish electronic payment systems for credit systems Stretch collection targets with attractive incentives to

best performers


Operational Efficiency …

Improve revenue protection Increase severity of penalties to electricity thieves Enhance education to customers on electricity theft Enhance partnerships with customers to provide

information on electricity theft Institute Stern disciplinary action on staff any colluding

with customers to steal electricity

Use modern tools, technology and improved technical design

Acquire modern tools to standardize workmanship Use Low cost but good quality designs and materials


2. Customer Service …

Improve quality of power supply to customers Improve maintenance of the system Complete the ongoing Distribution Projects to improve

reliability and improve voltage

Improve electrical safety Monitor compliance on safety measures in distribution

lines e.g. use of insulators, cutting of trees and use of PPE

Institute friendly process and timely compensation to affected customers

Enhance Monitoring of safety compliance


Customer Service…

Enhance customers relations management Establish one stop shop under reviewed customer

processes Enhance monitoring and evaluation of Customers

Service Charter implementation Enhance Customer Service Training Improve Customer Communication Use more efficient communication channels

including sms and social media to communicate with customers


Customer Service …

Enhance stakeholder relationship and engagement including functional PR

Develop communication policy and strategy Capacity building Provide adequate tools and equipment Provide strategic guidance for stakeholders

Relations Management at various organizational levels i.e. Corporate, zonal, regional and plant levels


3. Business Growth …

Build a Lean Head office structure focused on supporting regional operations

Decentralize Operations and empower zonal and regional offices

Increase access to electricity in Urban areas

Source commercial financing for network expansion and rehabilitation

Implement urban electrification program


Business Growth …

Expand Customer base Outsourcing distribution network expansion and

rehabilitation Stretch connection targets for all region Allow Customer Group payment to speed

customer connection and reduce connection costs


Our People

Involvement of regional/plant management in setting performance objectives

Participatory driven performance contracts One Minute Goals PDP (Performance Development Program) Inculcate business management

orientation and sense of responsibility and accountability

Enhance Management and Leadership Capacity Establish accountability through regular financial reporting

and operations monitoring and evaluation


Internal Reforms - Status

PMU Specialized Units within PMU operational All posts advertised Interview of shortlisted candidates in progress ICT Establishment of CMS is in progress Use of Banks customers payments started in May

2014 and being rolled out to all regions. Completion: July 2014

Use of SMS to inform customers in progress Online application for new connection is in progress



Revenue Protection

Installation of meter on substations and feeders completed by 100%

Installation of meters on transformers and feeders completed in Dar es Salaam, Tanga, Coast and Iringa

Installation of AMR meters to all T2 & T3 customers is 100% completed

Inspection Vehicles procured for all Class A regions



Access to electricity Connection to outstanding applications of more

than 30 Working days completed. Areas to be electrified under Urban

Electrification Programme has been identified negotiation for funding of the same is in progress.

Use of Modern Tools and Technology Procurement of necessary tools and equipment is in

progress.



Involvement of regional/plant management in setting performance objectives

Performance Contracts for 2014 signed with subordinates

All regions and plant managers have submitted their business plan that will be used to set their next year Performance Contracts.

One Minute Goal Targets agreed with Subordinated PDP Group Targets agreed with all regions and

Power Plants


Recent Improvements


Recent Improvements …


Energy Loss-2010-2015

2010 2011 2012 2013 2014 2015Distribution Loss % 17.8% 15.3% 15.8% 12.8% 12.4% 12.0%Transmission Loss % 5.6% 6.1% 6.1% 6.2% 5.7% 5.1%Total Loss % 23.4% 21.4% 21.9% 19.0% 18.1% 17.1%

ACTUAL PROJECTION




Reasons for loss reduction Replacement of post paid meters with

pre paid meters Energy metering at substations, feeders

boundary and transformer Replacement of defective meters Enforcement of meter inspections Enhanced maintenance




Figures in TZS Millions

Revenue Collection 2009-2013Year 2009 2010 2011 2012 2013Total Revenue Collection 413,501 466,477 545,658 820,436 945,599



Figures in TZS Millions

Monthly Revenue Collection-January 2013 to May 2014Month Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13Monthly Revenue Collection 74,387 74,303 74,790 79,200 81,039 78,463 79,998 78,172 76,659 82,448 81,356 84,784

Month Jan-14 Feb-14 Mar-14 Apr-14 May-14Monthly Revenue Collection 89,617 97,418 99,794 100,239 102,187


Mobile payment systems: TANESCO has continued to use

Banking Institutions and Mobile Phones Operators for convenience of payment

This mode of payment is simple, safe and user friendly.



Debt Recovery Strategy TANESCO has started a three years

program for replacement of post-paid meters (which is 36% of all customers meters at the moment) with pre-paid meters.

This will allow TANESCO to earn revenues upfront as well as ease recovery of 50% of the arrears for every purchase.

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2007 2008 2009 2010 2011 2012 2013 2014Total Number of consumers by end of year 667,490 723,873 783,311 849,236 932,385 1,020,854 1,163,968 1,421,768Total Number of company Staff 4,695 5,527 5,550 5,664 5,885 5,915 5,983 6,068Consumer /Staff ratio 142 131 141 150 158 173 195 234

Consumer /Staff ratio




Group Performance Targets TANESCO has implemented a

Performance Development Program (PDP) with collective performance targets for regions/plants whereby after meeting targets reward is given and when target is not met a penalty is instituted.

Great performance improvements have been achieved using this strategy



Bonus and Performance … TANESCO has also established

individual performance contracts from top management to principal level and One Minute Goal (OMG) for the rest of the cadre which is also connected to a reward/penalty after evaluation of the achieved performance.




Financial Performance


Arrears status (quarterly reports since Jan. 2013)

Figures in TZS Million1ST QUARTER

2ND QUARTER

3RD QUARTER

4TH QUARTER

1ST QUARTER

2ND QUARTER

QUARTER OPENING O/S BALANCE 435,925.44 321,435.14 295,364.34 333,595.27 382,968.00 456,049.44 RECEIVED INVOICES DURING THE QRTER 64,169.36 239,298.76 255,066.99 368,947.69 313,853.64 105,941.74

PAYMENTS MADE:EPP 158,135.46 195,871.56 148,304.33 248,714.91 197,777.31 100,751.79 IPP 20,524.20 69,498.00 68,531.73 70,860.05 42,994.89 65,000.00 TOTAL PAYMENTS 178,659.66 265,369.56 216,836.06 319,574.96 240,772.20 165,751.79

QUARTER CLOSING O/S BALANCE 321,435.14 295,364.34 333,595.27 382,968.00 456,049.44 396,239.39 CLOSING O/S BEFORE PAYMENT 500,094.80 560,733.90 550,431.33 702,542.96 696,821.64 561,991.18

SOURCES OF FUNDSON LENT (GVT) FUNDS 67,260.34 124,000.00 55,709.35 DPs DISBURSEMENT 158,000.00 80,928.69

OWN FUNDSSYNDICATION LOAN 131,548.58 46,597.67 PAYMENT FROM COLLECTION 111,399.32 107,369.56 92,836.06 132,317.04 113,245.83 165,751.79 TOTAL OWN FUND 111,399.32 107,369.56 92,836.06 263,865.61 159,843.50 165,751.79

YEAR 2013 YEAR 2014

QUARTERLY SUMMARY


Financial Performance …

The rise of outstanding arrears to creditors in the first quarter of 2014 is the result of higher usage of liquid fuel in the fourth quarter of 2013 due to lowest water levels in Mtera and Kidatu Dams.

Note: Mtera Dam was completely shut in October 2013 while Kidatu was shut in December 2013.

This was the most severe drought impact for a period of four years since drought started

As a resulted it derailed the trend of arreas decrease observed during 3rd quarter of 2013.


Financial Performance … Starting from January 2014, the water inflows to Mtera dam

increased due to better rains in 2014 and production from Mtera and Kidatu plants increased and hence use of liquid fuel was minimized.

This contributed to reduced cost of generation TANESCO’s revenue showed improvement from January 2014

due to tariff increase and reduced generation costs Payment of outstanding arrears to EPPs and IPPs from

TANESCO revenues had consistent improvement TANESCO has also managed to buy enough distribution

materials and connect the customers who were pending




Arrears clearance plan;





Revenues and expenditures projections for the next three years;

Operational Income and Expenditure BudgetTOTAL TOTAL TOTAL TOTAL

BUDGET FORECAST FORECAST FORECAST2014 2015 2016 2017

ELECTRICITY REVENUE 1,653,998,918,878 1,759,650,517,452 1,900,422,558,848 2,052,456,363,556

OTHER REVENUE 93,899,770,775 97,388,897,720 102,059,770,479 107,786,434,691TOTAL REVENUE 1,747,898,689,653 1,857,039,415,172 2,002,482,329,327 2,160,242,798,248EXPENDITURE

COST OF PRODUCTION 1,273,947,203,261 1,228,211,670,594 1,294,707,879,543 1,260,655,599,378

REPAIR AND MAINTENANCE 44,877,485,531 48,063,787,003 51,235,996,946 54,617,572,744OTHER EXPENSES 313,661,957,343 354,082,480,729 377,451,924,457 402,363,751,472

EARNING BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION, (EBITDA) 115,412,043,517 226,681,476,845 279,086,528,382 442,605,874,654DEPRECIATION 95,423,233,415 119,374,465,003 132,028,158,293 175,631,590,560

PROVISION FOR BAD DEBTS AND WRITE OFF 5,986,039,612 6,411,048,424 6,866,232,863 6,591,583,548OPERATING SURPLUS/(DEFICIT) AFTER THE ABOVE ITEMS 14,002,770,489 100,895,963,418 140,192,137,226 260,382,700,546

INTEREST

OVERDRAFT

LOANS 77,203,970,382 85,889,300,000 120,219,300,000 190,456,300,000

OPERATING SURPLUS/(DEFICIT) -63,201,199,893 15,006,663,418 19,972,837,226 69,926,400,546

Financial Performance …Assumptions: Generation plan assumes an average hydrology Cost of Generation will go down in year 2015 due to

replacement of EPPs and IPPs which generate by liquid fuels with gas fired plants.

The Financial Support from the Development Donors will continue in 2014 and the Government will disburse to TANESCO the promised USD 100m and 80 from the Development Partners in the months of July and October respectively.

The Demand will continue to grow at a steady rate of less than 8% for 2014.



Assumptions:

In the year 2016 there will be a slight increase in cost of sale resulting from the carried costs of newly commissioned IPPs and PPPs.

No tariff increase forecast from 2014 – 2017 but revenue growth will depend on new customer connections and increased consumption.

The provision for bad debt will start decreasing in year 2017 following replacement of postpaid meters by pre paid meters throughout the country.



Impact of the following on TANESCO’s financial situation: o Tariff increase; Revenue collection increased from TZS

74.79 billion in March 2013 to TZS 99.79 billion in March 2014 – which is an increase of 33.4%

o Rain; Cost of production dropped from TZS 115.32 billion (in January 2014) to TZS 86.66 billion (in February 2014) – which is a decrease of 25%.

o DPs disbursement. Reflected under “Arrears status” in financial performance.


Other Success Stories

Establishment of two Subsidiaries:

The following two subsidiaries have been established under TANESCO: o TGDC – Tanzania Geothermal Development Company. This

is a Company created with the purpose of developing (studying, exploring and drilling) Geothermal Potentials in the Country.

o TCPC – Tanzania Concrete Poles Company: This a Company created to deal with manufacturing of concrete pole for transmission and distribution uses in the country. The purpose being to adress the issue of deforestration as well as supplying poles which are enviromentally friendly and in a sustainable way.


Conclusion

TANESCO’s Financial situation has shown strong signs of recovering and as per the projections the outstanding arrears should be fully liquidated in 2015

Consequently TANESCO has started retiring of EPPs. Two Symbion plants in Dodoma and Arusha have been decommissioned in June 2014.

Two more which are Aggreko Ubungo and Aggreko Tegeta will be decommissioned in November 2014.

TANESCO will soon start to negotiate with Symbion Ubungo to change from Emergency to long term IPP contract arrangements in order to further bring down generation costs.

TANESCO and IPTL will soon start negotiation on the conversion from liquid fuel to natural gas usage.

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1 TANZANIA ELECTRIC SUPPLY COMPANY LTD Presentation on the performance of the Company to Development Partners By Eng. Felchesmi Mramba Managing Director-