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The African Development Bank has granted a $70.5 million loan to support a national initiative to reform the Tanzania energy sector

On Wednesday, the African Development Bank (AfDB) approved a $70.5 million loan to finance the Tanzania Power Sector Reform and Governance Support Programme.

The AfDB said in a statement that the objective of the operation is to promote inclusive growth and enhance economic competitiveness through power sector, economic and financial governance reforms.

“The loan agreement will be signed next week, on the margins of the bank’s annual meetings in Abidjan. By providing financial resources to the national budget for fiscal year 2014/15, the loan will support the implementation of the government’s reform agenda”, the AfDB said.

Supporting East Africa

This initiative forms part of a $140 million loan in a three-year series (for 2014/15-2016/17), the AfDB stated.

Subsequent operations of $35 million will be prepared each for 2015/16 and 2016/17 fiscal years.

According to the AfDB, the power sector and governance reform programme will boost efforts to implement energy sector and related public financial management (PFM) reforms including:

  • Strengthening the institutional framework and operational efficiency of the power industry
  • Enhancing competition and private sector participation in the power sector
  • Improving governance through PFM reforms, with emphasis on strengthening procurement systems and debt management to help reduce fiscal risks posed by parastatals

Jacob Mukete, director of the Governance, Economic and Financial Management Department, said: “Ensuring financial and operational sustainability, particularly in respect of TANESCO (the national power utility), is one of the hallmarks of the proposed operation and the approach is two-fold: supporting cost-cutting and revenue-enhancing measures.”

Strengthening Tanzania’s power sector

The AfDB claims that the Tanzanian initiative is vital to improving the performance of the East African country’s power sector by directly influencing and improving electricity access, facilitating maintaining macroeconomic stability, reducing poverty, economic competitiveness and private sector development.

The AfDB said: “This operation is built on the previous $58.2 million budget support operation approved by the AfDB Board in December 2013, which supported the development of the Electricity Supply Industry Reform Strategy and Roadmap.”

“The Bank’s management reiterated the importance of policy dialogue between the bank, other development partners and the Government of Tanzania in the energy sector,” the AfDB added.

Donald Kaberuka, president of AfDB, said the funding underscored the importance of supporting African countries to develop a comprehensive energy subsidy strategy, including social safety nets for those most vulnerable to the impacts of these reforms.