A Case for Public-Private Partnerships and a Reflection into new Investment Opportunities in Tanzania

About twenty-five years ago, the Tanzanian Government developed a Master Plan and invited tender bids which resulted in the Songas electricity project coming to fruition. This October marks 16 years since H.E. President Mkapa officially commissioned the Songas gas to power project, which uses Tanzania’s natural gas resource for electricity generation at the Songas Ubungo power plant. To date, Songas has continued to quietly demonstrate that it is a world-class example of a successful Public-Private Partnership (PPP) across Africa.

The government’s commitment

Songas was conceived as a least-cost power supply project, under the 1991 Power System Master Plan. The project was implemented after a thorough international competitive tender. The government of Tanzania carefully reviewed and approved the project and, in 2001, the project reached financial close and the construction phase was initiated. In 2004, the project was completed, with a new plant expansion being carried out in 2005. Songas ownership today consists mainly of Globeleq, which owns 54.1%, and the Tanzanian government which, through shares held by TANESCO, TPDC, and TDFL, owns approximately 40% of Songas.

During the severe drought from 2012 to 2016, dependence on expensive heavy fuels generation grew exponentially. Songas continued to provide much-needed electricity despite payment shortfalls.

While high-cost projects were discontinued, TANESCO, supported by the government, ensured that the Songas payment arrears have been gradually reduced after working with Songas and reaching an agreement in 2016 that would see payment obligations fulfilled.

To date, this partnership has resulted in TZS 166 billion (USD 71.5 million) being paid to the government in dividends, approximately TZS 147 billion (USD 64 million) in corporate tax, TZS 251 billion (USD 109 million) in VAT and according to TPDC estimates, by using domestic gas instead of imported fuel, Songas has saved the Tanzanian economy more than TZS 11 trillion (USD 4.7 billion) since it began its operations in 2004. The partnership demonstrates the commitment by the government through the Ministry of Energy and its entities to provide affordable and reliable power.

Songas sells electricity to TANESCO at less than $0.06 cents/kWh, and TANESCO then sells that power at roughly $0.11c/kWh. From 2012 to 2020, Songas’ electricity generating plant has an availability of 96.0%, which matches world class standards.

Over the past few years, the Tanzanian government has continued to reinforce its commitment to the project through the steady payments to Songas, a low-cost provider of thermal electricity without fail.