1 Conditionality and Standard Model Reforms

By the beginning of the 1990s, generation capacity stood at only 300 MW,Footnote ⁷ access had remained almost unchanged at between 5 and 7 per cent (according to the Ministry of Water, Energy and Minerals (1992) and the World Bank (2020), respectively), and technical and non-technical losses were above 20 per cent.Footnote ⁸ The sector was not self-financing and suffered substantial commercial losses. The institutional equilibrium – the rules governing tariff setting, collection, operations, planning, procurement, governance, management, and oversight – had become thoroughly dysfunctional. In Tanzania, the ‘basic sectoral problem’ identified in the seminal 1993 policy paper The World Bank’s Role in the Power Sector, in which what has become known as the ‘standard reform model’ was first iterated, seems cogent (World Bank, 1993).

The basic sectoral problem relates to undue government interference in those day-to-day organisational and operational matters that should be under utility control. Such interference undermines the accountability of those responsible for day-to-day management functions. It has influenced procurement decisions, mitigated against least-cost fuel choice, resulted in an inability to raise power tariffs to meet revenue requirements, restricted utilities’ access to foreign exchange, mandated low managerial and technical salaries that are tied to low civil service levels, and promoted excessive staffing and political patronage. These problems have in turn, in many cases, brought about generally inadequate utility management and organisation; lack of accountability; flight of experienced and capable staff owing to uncompetitive employment conditions; weak planning; inefficient operation and maintenance; high technical and non-technical losses; and weak financial monitoring, controls, and collection (World Bank, 1993, p. 33).

As in many countries in the region, loans and grants in the power sector soon became conditional on the implementation of standard model institutional and structural reforms that were being prescribed as the solution to this problem. The primary components of standard model reforms include the commercialisation and corporatisation of electricity utilities, the introduction of independent regulation, unbundling vertically integrated utilities, and liberalising the sector to allow for private sector participation (Bacon, Reference Arndt, Mahrt and Schimanski1999; Hunt, Reference Heilman and Ndumbaro2002; Williams and Ghanadan, Reference Van De Laar, Cliffe and Saul2006; Victor and Heller, 2007; Gratwick and Eberhard, Reference Ghai2008). Through such reforms, the traditional industry model in developing countries would be supplanted with a model that allowed for competition, institutionalised checks and balances, alternative sources of investment, separation of and specialisation in sector functions, greater transparency, and transfer of private sector commercial expertise and resources.

Figure 8.2 presents an overview timeline of reform interventions. In the remainder of this section, we consider different phases in the reform agenda and some of the determinants of the outcome of various components of standard model reforms.

Figure 8.2

Power sector reform experience

Source: Construct by authors

2 First Steps towards Standard Model Reforms

Needing to re-contextualise the role of the energy sector in national development and reconcile sector-level policy with the macroeconomic policy shifts of the SAPs and the thrust of the then-emergent standard model, the 1992 National Energy Policy was produced. The policy opened the sector to private participation, stating that ‘private electricity generation and distribution will be encouraged’ in areas where TANESCO had not yet developed power infrastructure (Government of Tanzania, 1992). It also provided for the establishment of a rural electrification fund, which – it was envisioned – would be supported by community involvement in the style of Ujamaa. Already in the midst of the first drought-related power shortages and load-shedding, significant emphasis was put on resource diversification away from hydropower. Like many of the later policies and legislation, the 1992 policy tentatively opened the door for market-oriented and governance reforms without actually providing a comprehensive set of actionable next steps and without reducing the scope for political interference in the sector.

Of course, weak or absent policy commitments in developing countries had informed the basis of the conditional lending agenda behind standard model reforms. Unsurprisingly, the World Bank’s Power VI project thus not only provided for the construction of the 180 MW Kihansi hydroelectric power plan, but also included sector reforms in its objectives. Explicit objectives included supporting the utility in preparing for and initiating restructuring and privatisation, and the development and operation of private gas generation at Songo Songo. The 1993 International Development Association (IDA) loan agreement for the Power VI project was made conditional on TANESCO entering into a subsidiary loan agreement with the government and committing to the conditions set out in the loan – this could be considered the first instance where the government committed to standard model reforms (International Development Association and United Republic of Tanzania, 1993). These included adhering to specific financial covenants and to the principles of international, competitive, and transparent procurement practices, the corporatisation and commercialisation of TANESCO’s operations, undertaking an asset evaluation study and a tariff study, implementing the recommendations thereof and regularly updating both thereafter, and enforcing a plan of action for the recovery of overdue accounts from government agencies and parastatals. In addition, the government committed to undertaking and then implementing the recommendations of a privatisation study and to the development of a gas-to-power IPP at Songo Songo (Box 8.2).

In order to mitigate the severe effects of drought-related load-shedding while the Songo Songo IPP was being negotiated, SIDA provided TANESCO with the funds to procure two 18 MW Open Cycle Gas Turbine (OCGT) plants at Ubungo and committed to covering operational (mainly fuel) costs for two years – with the expectation that Songas would be online by the end of that period. The government was able to procure a further two 35 MW OCGT plants through the World Bank facility. With this additional support, and a focused Songas procurement process, it might have been possible to emerge from the drought with improved capacity at competitive costs. Yet, although these plants mitigated the effects of drought-related shortages and provided much-needed space for strategic sector planning, specifically the Songas procurement process, it did not allay the sense of emergency that load-shedding had brought about.

There is evidence to suggest that certain interested parties seized upon this sense of panic to advance a specific agenda,Footnote ⁹ interrupting efforts to rationalise the sector by entertaining unsolicited bids – most prominently, a proposal for the procurement of 100 MW from a plant that would be built by IPTL (Box 8.3).

The IPTL deal was one of many incidences where the government diverged from national plans and policies in the early to mid-1990s and where evidence pointed to behind-the-scenes politicking. The implementation of conditions set out in the IMF’s ERP (1986–89) and the ESAF (1989–92) had led to fundamental changes in the political economy landscape. Rent-seeking opportunities had opened in areas where the flux of new liberalisation and privatisation policies had created the space for vested or emerging interests to intervene directly in the processes of government. At the same time, the reintroduction of multiparty politics in 1992 created a more competitive environment for clientelism, as a larger and less cohesive group of political and economic interests vied for power in the lead up to the first multiparty elections in 1995. These developments led to a withdrawal of donor support in 1994.

3 Standard Model Reforms after Embargo

Benjamin Mkapa was elected as the CCM presidential candidate in the lead up to elections. A relative party outsider seen to be untainted by scandal, Mkapa’s campaign promised change, decisive action against corruption, and economic growth and development. Upon winning the 1995 elections, the Mkapa administration prioritised rehabilitating relations with donors, anti-corruption interventions, and refocusing reforms. At the time, development assistance accounted for 20–30 per cent of GDP – there was no alternative.

In the power sector, this meant committing to more concrete steps to structural reform in line with donor conditions. According to the 1996 IMF ESAF, the restructuring and privatisation of public utilities would be accorded the highest priority over the 1996–9 ESAF loan period. In 1997, the government explicitly committed to restructuring and privatising TANESCO in a letter to the IMF and specified TANESCO for privatisation under the Parastatal Sector Reform Commission (PSRC) – meaning that TANESCO was no longer exempt from the law governing the transformation of other parastatals. This move irrevocably tied reforms to the ultimate privatisation of a public sector utility, a concept that was not only ideologically incongruent with the still-dominant socialist paradigm, but was also well on the way to becoming synonymous with corruption. This had a damaging effect on the feasibility of later reforms.

Over the following years, these commitments would be reiterated in IMF letters of intent while policy and legislation were in draft. In 1999, a Policy White Paper on the Restructuring and Divestiture Strategy for the Electricity Sector was submitted to and approved by Cabinet. Though the policy document and Cabinet decision are not publicly available, the policy commitments were articulated in a 1999 IMF ESAF policy paper: they included the vertical and horizontal unbundling of TANESCO and the establishment of a neutral system and market operator, a centralised purchasing agency, and an independent regulator (IMF, 1999). According to the policy paper, the strategy would be implemented by year-end 2000.

This, however, was thoroughly undermined by the government’s failure to fulfil important covenants designed to improve the financial, management, and institutional development of the sector in preparation for reforms. Crucially, the government consistently failed to support TANESCO on the issue of non-payment by preventing the utility from cutting power to defaulting customers – a subsequent report on the issue found that the problem was 75 per cent political (World Bank, Reference Wily2003). In addition, no new legislation or policy was introduced, little stakeholder engagement was conducted, and there was little else that would suggest that the government intended to implement the ambitious strategy laid out in the ESAF paper.

After seven years of attempted (including internal) reforms, which were initiated in 1992, TANESCO was still an overstaffed, poorly managed, and financially insecure utility that, despite having strong technical capacity by Tanzanian standards, lacked commercial culture and autonomy. Toward the end of the Power VI project, World Bank supervision missions thus recommended that a new management team be recruited for TANESCO during the transition to privatisation, to which the government – at the level of the president – committed in late 2000. In addition, a number of ‘next step’ interventions were pressed for through the IDA Programmatic Structural Adjustment loan, as well as a number of other donor programmes. Two studies by international consultants were initiated – the first by Mercados (released in 2001) and the second by Stone and Webster (released in 2003). In 2001, the government passed the EWURA Act, providing the basis for the establishment of the independent regulator. In the same year, the PSRC initiated a competitive and transparent recruitment process for a two-year management contract for TANESCO.

4 Privatisation: One Step Forward – TANESCO under Private Management

In January 2002, the PSRC awarded the two-year TANESCO management contract to NET Group Solutions – a firm from South Africa. The lack of genuine political and public support surfaced almost immediately, when the start of the contract was delayed owing to push back from the general public and TANESCO staff. The Minister for Energy and Minerals and TANESCO board openly cast doubt on the selection process and forty-six MPs called for clarification on the issue in parliament – undermining the legitimacy of the contract (BBC, 2002; Kapika, Reference Jansen2013). Tanzanians also viewed the contract as the first step towards the privatisation of a strategic public sector utility, which was an ideologically fraught issue. Meanwhile, TANESCO staff unions threatened sabotage unless a labour agreement was secured before the initiation of the contract, fearing the inevitable staff rationalisation process. Despite this push back, the NET Group management team – consisting of only four resident managers – took over operations in May 2002. They required a police escort onto TANESCO premises.

Upon assuming management, the team first prioritised gaining the support of staff: a labour agreement was developed by TANESCO and accepted by the union later that year. From this point, staff relations were secure. In their activities, the management team focused on improving revenue collection and utility information systems, enforcing collections from sensitive public offices, and rationalising staff. In these activities, the management team was successful – monthly revenue increased from USD 10–12 million to USD 16 million per month by 2004, approximately 20 per cent of the staff were amicably retrenched, and reporting systems were improved. The first contract was viewed as a categorical success by the donor community. However, broad-based political and public support was still lacking despite high-level, somewhat behind the scenes, backing from President Mkapa.

Under pressure from the World Bank, the management contract was renewed for a further two years in 2004. In the contract extension, the team was more explicitly tasked with translating revenue gains into improvements in performance. Monthly revenue doubled during the second contract, increasing to USD 22–4 million. This was driven by improved collections – especially from large, politically sensitive customers such as the national police, post office, and Zanzibar – as well as increased tariffs. The tariff structure was rationalised by removing the cross-subsidisation between consumers, with industrial tariffs at −28 per cent and residential/light commercial tariffs at +39 per cent. The lifeline tariff was also reduced from 100 kWh to 50 kWh.

A significant portion of the increased revenue, however, was absorbed by the IPPs coming online – IPTL was commissioned in 2002 and Songas in 2004.Footnote ¹⁰ With the onset of the 2005–6 drought, the utility was compelled to use IPTL and Songas as baseload plants, both of which were more expensive than originally anticipated at the start of the contract in 2002. This put the utility back into a dire financial situation. The management team was thus not able to invest much in network infrastructure and, critically, did not pay sufficient attention to customer service and connections. This meant that private sector participation was not translating into better quality or more reliable electricity services for most Tanzanians. When the management team reaped substantial ‘success fees’ for its interventions, it only added to public and political distaste.

These shortcomings were in part attributable to the management team itself, the misaligned incentive structure of the contract, and external conditions. However, political interference played a role as well, compounded by tenuous lines of accountability between the TANESCO board, MEM and other ministries, the PSRC, President Mkapa, consumers, the public and the media, and donors. There have been reports that politically connected members on the TANESCO board actively sabotaged the contract (through exercising their veto power, stalling decision-making processes, or providing misleading information to the political executive) in order to then be able to prove that the management contract, or privatisation more broadly, was a bad idea. The management team was certainly not operating in a wholly supportive political environment, and tensions began to mount.

5 Privatisation: Two Steps Back – TANESCO’s Despecification and Return to Public Governance

In 2005, just ahead of the elections, President Mkapa despecified TANESCO – backtracking on plans to privatise the utility. In 2006, acting against the recommendations of a 2005 report conducted by the Presidential Privatisation Review Committee, incoming President Kikwete decided against renewing the management contract. It is clear that, under this contract, many of the informal institutional arrangements had been challenged – including political involvement in tariff setting, staffing, collections, and procurement. With these two steps, the sector and utility governance reverted to its previous institutional structure.

Coincidentally, this recreated a situation where crisis (drought) conditions created an opening for corrupt political and economic interests to again craft an IPP deal around the time of national elections, bypassing power sector development plans and the principle of competitive and transparent procurement. Many suspect that the 2005 election – won by CCM’s candidate, Jakaya Kikwete – was funded by faction benefactors that orchestrated the infamous Richmond IPP deal. Like the IPTL deal in 1995, it had disastrous and long-lasting consequences for TANESCO and the stability of the sector as a whole. It is worth noting that the management team actively resisted the Richmond deal (Box 8.4).

6 Some Positive Developments – Policy, Regulation, and Rural Energy

Notwithstanding the circumstances noted here, this period did see some other important reform steps implemented. To begin with, the second National Energy Policy was released in 2003. This commits to the principles of competitive, private sector involvement, and efficiency, and to establishing a new governance system by ‘differentiating the roles for (a) policy making and legislative functions carried out by Government and the Parliament; (b) the regulatory functions carried out by an independent regulator; and (c) other functions carried out by public and private operators’ (Ministry of Energy and Minerals, 2003). Once again, however, much of the policy was far from actionable, and sticking to the principles has been a challenge.

Rural energy was also given special attention in the 2003 policy, leading to the enactment of the Rural Energy Act in 2005, which established the REB and the Rural Energy Fund. Rural energy, however, did not benefit from much political interest or budgetary support in at least the first five years following these interventions. On the one hand, this reflects a similar state of affairs to that in neighbouring countries – where grid-extension was viewed as too expensive, off-grid was not yet attractive, and rural electrification had not become a politically salient issue. On the other hand, CCM was also doing very well when it came to public opinion polls and at the ballot box – meaning that the political pressures behind issues such as rural electrification were not yet determining national policy priorities.

EWURA – the independent regulator – finally became operational in June 2006. Intriguingly, this was the same month that the Richmond deal was signed. While delays were likely by default rather than design for the most part, in the case of EWURA and other components set out in policy or law, certain interests benefited from the regulatory gap and may have contributed to holding up processes at key junctures. TANESCO (an unregulated de facto monopoly) certainly had an interest in delaying the effective functioning of EWURA, as did those involved in the IPTL and Richmond deals.

7 Public Governance, Independent Regulation, and Political Interference – An Incomplete Reform Model

Having repealed the management contract and backtracked on privatisation, the new Kikwete administration had a clear interest in ‘proving’ that the state-owned model could work if it was to maintain control over the sector. When TANESCO reverted to local management in 2007, the more than capable Dr Idris Rashidi, formerly involved in reforms in the banking sector, was appointed managing director. During his three-year contract, Rashidi built capacity in the utility, creating and filling three new positions with competent staff – chief financial officer, chief internal auditor, and chief information officer. Remaining senior management positions were filled through competitive recruitment processes. Together with the senior management team, Rashidi introduced performance measurements into the human resources system with balanced score cards, launched a staff development programme, and amended relationships with energy-intensive users (anchor customers). He also arranged a USD 300 million syndicated loan, with the support of the government, which allowed TANESCO to clear the debt backlog, introduce performance-based staff remuneration, and improve billing and metering systems. Hydrological conditions were also in TANESCO’s favour over this period, which reduced the cost of generation. In 2008, TANESCO registered a profit. Other metrics of utility performance, however, worsened. Transmission and distribution losses peaked in 2009, collection rates – which had improved considerably under the management contract – decreased dramatically (from ~95 to ~56 per cent) as politically connected customers forced to pay during the management contract slipped into old patterns of politically condoned non-payment, and access rates, which had increased from 10.5 to 12.6 per cent under the management contract, actually dipped back down to 11.2 per cent in 2009 (World Bank, 2020).

This mixed performance underscores the vulnerability of public governance to political interference in a country where the political economy system is prone to using publicly owned companies for rent-seeking and patronage, even where corporatisation efforts attempt to ‘ring-fence’ such interests. Three different ministers served between 2006 and 2009. Rashidi has said that it was difficult for him to understand the ‘special rights and interests’ the ministry and the board had in management decisions. Though there have rarely been public confrontations between different factions operating in TANESCO and the government, the period when Rashidi was managing director proved an exception. Despite a stellar performance, his contract was not renewed, and more ‘politically suitable’ candidates were appointed from 2010.

While these tensions played out at the utility, EWURA was steadily building capacity and authority as regulator. The five-year delay in operationalising EWURA had involved a dispute between development partners and the government about where the regulator should be placed. Eventually, it was agreed that it would fall under MWI, as advised by the World Bank. This allowed the regulator a greater degree of autonomy from MEM and distance from undue political influence. The pace of EWURA’s development reflects the soundness of the 2001 EWURA Act, significant support from development partners, the realisation of existing technical capacity, and a suitable degree of independence from the government.

8 The Resurrection of the Reform Agenda

In June 2008, it seemed as if reforms would be resurrected when the Electricity Act was passed, replacing the 1957 Electricity Ordinance Amendment. The Act was preceded by a Power Sector Reform Strategy in 2007, which is not publicly available. In relation to regulation, the 2008 Electricity Act further delineated policy and regulatory roles between MEM and EWURA. It also placed renewed emphasis on the issue of rural electrification, including certain provisions of support to the REA. Critically, the Act also provides a legislative foundation for sector restructuring – albeit a weak one. According to the Act, the minister may, in consultation with the Minister of Finance and the Authority (EWURA), restructure the electricity supply industry in order to foster competition for increased efficiency, enhance the development of private capital investment, and promote regional electricity integration – giving full power to the minister and, behind the minister, the president (The Parliament of the United Republic of Tanzania, Reference Tenga and Mramba2008). The Act also stipulates that the minister shall within one year of the Act coming into force prepare and publish a policy for the reorganisation of the electricity market, though it also specifies that the minister can amend this policy at any time.

Though commitments to standard model reforms were made anew in 2008, it is important to note that there was a general movement away from ‘privatisation’ and toward public–private partnership (PPPs) during this period. The PSRC was dissolved in 2007. In 2009, the government launched a PPP policy, which was followed by the PPP Act in 2010 and the publication of PPP regulations in 2011. The idea of publicly owned projects that allow for private sector participation certainly gained traction and provided an alternative frame for reforms – one that was more compatible with the Tanzanian socialist ideology and, in the case of the power sector, vested political and economic interests. While the policy components remain similar, this shift provided reforms with a new and improved frame. Yet concrete reform interventions have yet to follow, in part because of the onset of another electricity sector crisis, triggered by another drought and exacerbated by exchange rate volatility and political instability.

In 2010, Tanzania was again hit by devastating drought. By 2011, customers could experience load-shedding of up to eighteen hours a day. As had been the case in previous periods of supply crisis, the government launched an Emergency Power Plan – adding 331 MW through short-term, emergency contracts that were neither transparent nor competitive. Under emergency procedures, EWURA approved a tariff increase of 40.29 per cent starting in January 2012. Even with the tariff increase, TANESCO was not able to bear the extra financial pressure of expensive thermal generation. By the end of 2012, accumulated arrears to IPPs, EPPs, and fuel suppliers were estimated at USD 276 million – and were forecast to increase.

9 Another Crisis, Another Election Season

The crisis prompted a bold policy response, a critical action in the lead up to the 2015 elections. The reform agenda seemed to again be resuscitated in 2013, with the politicised Big Results Now (BRN) initiative. Part policy, part party manifesto, BRN focused on bridging the gap between policy planning and effective implementation in key sectors, including energy and natural gas. BRN recommended redefining the sector strategy and structure, including the gradual restructuring of TANESCO to bring about viability to the entire system. Tanzania also mended relations with some of the bigger development partners, including the World Bank. The World Bank Power and Gas Sector Development Policy Operation programmatic loans offered financial and technical support for the government’s sector reform and development policies.

At the start of 2014, a second tariff increase of 39.19 per cent was approved by EWURA in order to lift tariffs closer to cost-reflective levels, and the government agreed to retire two-thirds of EPP capacity, bringing costs down so that they could meet somewhere in the middle. TANESCO’s ‘financial gap’ reduced slightly, though the utility was still in a precarious position. In the same year, a number of policies were approved – including the Natural Gas Policy, Petroleum Policy, and the Electricity Supply Industry Reform Strategy and Roadmap 2014–25 (ESIRSR) (Box 8.5).

Despite various interventions and numerous bailouts, TANESCO’s financial situation remained dire while internal accounting remained relatively opaque, obscuring the impact of the injection of funds and limiting advances made in eradicating (official) operational subsidies and improving the transparency of government transfers. Planning was clearly characterised by short-term politics, rather than technically sound, long-term processes, and the lines between planning, policy, and procurement were frequently transgressed. Despite repeating commitment to the tenets of transparent and competitive processes, as well as attracting and facilitating private sector participation and investment, power projects initiated over this period lacked transparency and were bent towards publicly funded and owned models. Though EWURA’s role in overseeing procurement and advising on policy and planning mitigated this to some extent, TANESCO’s complex relationship with the government limited the scope of EWURA’s influence. TANESCO is often treated as an extension of government – especially when it comes to procurement. While EWURA can regulate some of the formal processes, the informal processes between TANESCO and government are beyond the regulator’s purview and reach. An example of this can be found in the letters between EWURA and the Ministry of Energy, which show how the government propagated an unwritten policy, according to which all future generation projects were to be PPPs (Eberhard et al., Reference Deininger, Lavadenz, Bresciani and Diaz2016, p. 196), highlighting the politics behind de facto policy and the weakness of de jure policy and regulation.

As 2015 was an election year, with the CCM again competing with a new president and facing stiff competition, the political drive behind BRN and other policies, especially those providing the basis for increased public expenditure, juxtaposed with the procurement of various power projects (such as the 308 MW Kilwa, introduced by retired public servants and a foreign investor, and the 600 MW Symbion Mtwara plant), should be interpreted with care. Political anxiety around another IPTL-related scandal – the Escrow scandal – also coloured this period, with funds pilfered through the Central Bank of Tanzania and distributed to government officials and politically connected persons in the lead up to elections. The scandal also cost Tanzania hundreds of millions of dollars of donor funding, just as the country was heading into a new administration.

10 A New Regime – Magufuli’s Power

Tanzanians talk of a ‘regime change’ when referring to elections – despite the fact that the CCM (formerly TANU) party has been in power since independence (1961) and the fact that the country has operated as a multiparty democracy since 1992. However, this is not really a misnomer, considering the discontinuity in official policy between governments, the change in executive and technical staff following elections (even when the same president is in power), and the significant power that presidents wield when in office.

This pattern has certainly been evident in the most recent elections. In the two years that John Magufuli had been president, at the time of writing in 2017, there have been significant changes across government – indicating that long-term policy frameworks may shift considerably. Specifically, there has been a distinct movement towards more centralised governance and a state-led growth model, alongside a commitment to attracting private sector investment and industry. Whether Magufuli will be able to balance the increasingly autocratic dominant-developmental politics with the government’s dependence on external sources of investment and funding is yet to be seen – especially as the natural gas economy develops. Partnerships with Chinese investors might make this possible.

Given the ‘regime change’, it is somewhat unsurprising that many have relegated BRN to politics and expect that the timelines and objectives of the ESIRSR will be reviewed. With a return to the idea of big government and Magufuli’s reinterpretation of Nyerere’s self-reliance, many doubt that TANESCO will be unbundled under the current administration. Key steps to unbundling, as set out in the ESIRSR, have already been delayed. PPP development will most likely continue to be prioritised in the generation segment, with the government maintaining a stake in (and influence over) all future projects through TANESCO. This shift is concerning given the state of the utility, which had accumulated arrears to IPPs, EPPs, and fuel suppliers to the tune of USD 490 million as of May 2016 – despite financial injections in previous years, increased tariffs, and the retirement of around two-thirds of EPP capacity.

Some actors have been able to ride recent political waves in the sector, while others have not. REA has benefited from the politicisation of access, attracting general budget support of TZS 534 billion (USD 239 million) for 2016–17 (up 50 per cent from 2015–16 and about fifty times the original budget of TZS 11 billion in 2007 – more in real terms). There are some concerns, however, over the likely inflated reporting of recent improvements in access – suggesting the influence of political (and potentially economic) interests.

EWURA, meanwhile, has managed to steadily build technical capacity. In addition to licensing and tariff adjustment, EWURA has played an important role in procuring SPPs (Odarno et al., Reference Nyerere2017).Footnote ¹¹ According to a recent report by the World Resources Institute (WRI), the number and installed capacity of mini-grids in Tanzania has nearly doubled since 2008, when the government introduced the SPP framework (Odarno et al., Reference Nyerere2017). EWURA is seen to have brought sanity back into the sector, resurrecting investor confidence through the technically adroit execution of its regulatory duties. However, political pressures are mounting.

The financial standing of TANESCO has improved somewhat, and steady capacity additions are beginning to reduce supply-side risks that have plagued the utility since the 1990s. However, it is poised to fall back into old patterns as President Magufuli learns to hold the reins. Since the beginning of 2017, President Magufuli has tightened his grip – sending shockwaves through the sector. In January, he reversed the EWURA-approved 8.53 per cent tariff increase, and then fired the TANESCO managing director and demoted the deputy managing directors of transmission, distribution, and generation for implementing it. In May, he then fired the Minister of Energy and Minerals for his alleged involvement in a mining sector corruption scandal. Breaking with his predecessors, Magufuli launched criminal proceedings against individuals implicated in the IPTL deal and related Escrow scandal through the criminal system. However, his dismissal of the EWURA director general following EWURA’s non-renewal of IPTL’s licence suggests that his motives may not have been based on curbing corruption, but perhaps reflected some internal conflict within CCM around the IPTL deal. Then, in October, he split MEM into two separate ministries, appointing new ministers and staff to each.

With interventions in other key sectors and dramatic clampdowns on civil liberties to match, Magufuli is driving an alarmingly autocratic agenda in Tanzania. His agenda may transmute into a true developmental state model – which, as seems to be the case in Ethiopia, would depend on funding from China or similarly oriented states. This might disrupt the political economy system enough to allow for institutional development. For the time being, this seems unlikely. Instead, it is likely that Tanzania will see more continuity than discontinuity in the short to medium term as the key features of the dysfunctional institutional equilibrium in the sector do not seem incongruent with Magufuli’s leadership.

1 Policy and Legislation

One of the most interesting aspects of Tanzania’s reform experience has been the disconnect between stated policy and implementation. The government has produced numerous policies on power sector reforms – including internal policies, which are not publicly available – but, with the exception of the 2001 EWURA Act and 2005 REA Act, policy has not been suitably translated into robust legislation. Policy is often vague, leaving the door open to interpretation, as is the legislation that follows. Considerable discretionary powers for political executives, most notably the Minister of Energy and Minerals, are maintained – making little in legislation ultimately binding. There are too few accountability mechanisms built into legislation that could really bring key directives into force. Lacking continuity in sector leadership, with a revolving door in place of committed governance in TANESCO and the ministry, this type of policy and legislation makes implementation unlikely. In addition, there is a more general pattern of miscommunication and weak coordination between ministries, departments, the utility, and the regulator – meaning that internal accountability within the sector is also low. As a result, the president and other members of the political executive continue to wield considerable power over policy implementation, including in areas such as planning, procurement, utility management, and tariff setting.

Assuming that dominant political and economic actors do not have a genuine interest in reforms – implementation would likely disrupt the privileges and resources that the current institutional equilibrium distributes to the already powerful – why does the Government of Tanzania perennially resuscitate the reform agenda?

In this analysis, two explanations emerge. The first relates to the consistent politicisation of the power sector. There are a number of reasons for this, including the (co)incidence of drought, load-shedding, and associated scandal in the years before elections. The second relates to the donor communities’ interest in the sector, which has for over thirty years been identified as a primary impediment to development.

Retrospectively, it is interesting to note that publicly available policy has been released in the years before an election when the CCM will compete with a new presidential candidate (policy 1992 – election 1995, policy 2003 – election 2005, policy 2014 – election 2015), while the non-publicly available variety emerges shortly after elections (1999, 2007). It seems that publicly available policy has functioned as a campaign tool locally, while internal or non-public policy has allowed the government to access aid and loans from external actors, such as the IMF and World Bank – possibly providing new administrations with essential general budget support following elections.

Understood in this way, policy has allowed the incumbent CCM government to reap some of the benefits of reforms without actually implementing them, while continuing to reap the benefits (including those related to rent-seeking) that their effective control over the sector and utility affords. The fact that there is often policy discontinuity between ‘regimes’ (presidents) is a natural outcome, as CCM’s staying power is at least in part dependent on the party’s ability to appear to be evolving in response to the public’s needs and international policy trends. Publicly available/official policy has not provided an adequate base for strong legislation (both in terms of the lack of specificity in policy proposals and the persistence of unresolved ideological discrepancies) and, as a result, the policy–legislative basis for reform has been weak – ultimately undermining implementation. In gauging commitment to reforms, internal policies are certainly not indicative of genuine intentions and public policies need to be understood in the political context.

2 Transparency and Accountability

An important component of the overall rationale behind standard model reforms is that of transparency and accountability. It may not feature prominently, yet most aspects of the model – independent regulation, commercialisation and corporatisation, unbundling and separation of functions – are associated with greater transparency of information and a more dispersed system of accountability. Independent regulators typically provide a bridge between the utility, government, and consumers, and are bound to make information public – whether it be on performance, licensing procedures, or tariff setting. As soon as part of the sector is privatised, as may be the case following an initial public offering, additional laws apply, specifically around accounting and financial reporting, and a more diverse shareholding protects against capture. In an unbundled system, where consumers have a choice of who their power providers are, distribution or retail utilities are held accountable. Meanwhile, IPPs – perhaps in competition with government-owned and operated generation – are held to a certain standard in order to gain a share of dispatch. Increasing the number of actors in the sector means that governance and accountability should improve in general, with diversity in represented interests and more decentralised power dynamics.

In Tanzania, standard model reforms would clearly undermine the status quo – in which, at almost every level, power is centralised, and certain interests predominate, whether they are financial/economic (linked to rent-seeking and clientelism) or political (the government’s desire to maintain power and control over the sector). By resisting reforms, or implementing them only partially, levels of transparency and accountability are kept low. Current institutional rules do not provide enough protection against this. Instead, vertical appointment structures, strict guidelines on sector information and lines of communication, and the frequent application of de facto power by political actors work against the development of decision-making capacity, accountability, and trust in governance structures.

3 Stakeholder Engagement

Stakeholder engagement, or the lack thereof, has been a serious impediment to reforms, and is one of a number of indicators that suggest that genuine political interest in or will to implement reforms has been absent. Though there are examples of stakeholder engagement and public education drives, including public lectures and seminars, engagement has been inconsistent, and political statements around reforms have been contradictory at key junctures, undermining other forms of stakeholder engagement. In the chronological narrative presented, public engagement and discourse around the management contract provides an example of this. At the time of writing in 2017, President Magufuli made inconsistent statements on the issue of IPPs – in some instances stating that private sector participation in generation would be actively supported and then, in others, that all new generation would be publicly owned.

In the short term, inconsistent stakeholder engagement impedes the smooth implementation of reform steps. Over the long term, however, inconsistent stakeholder engagement has undermined the viability of reforms as the possibility of building support for the rationale behind reforms has been eroded. This inconsistency is a common feature of hybrid or dual markets, of which Tanzania is an example, where uncertainty benefits those who are able to use political connections and power to determine key policy, procurement, and planning decisions.

Actors in the sector become disoriented, unsure of which direction could or should be taken. If the ESIRSR or another reform strategy is to be implemented, continuous and consistent stakeholder engagement with a clear message – ideally backed by government and driven by a reform champion – will be crucial in making reforms politically and socially feasible, in addition to strong legislation.

4 Politics and Patronage

Tanzania’s failure to restructure and privatise TANESCO seems inconsistent with the country’s success in privatising the majority of SOEs and implementing other components of SAP-styled market liberalisation policies. This inconsistency can be understood to indicate a number of underlying factors.

The first is that the power sector is of national strategic importance and technically complex. This means that reforms are more politically sensitive and resource intensive than, for example, privatising state-owned hotels.

The second is that the sector is highly politicised and holds a special position in the socialist paradigm, where electricity is considered a public good that the government should provide – both as an input into economic growth and as a social service.

The third is the type of opportunity that the sector provides for rent-seeking and patronage. While privatising certain manufacturing or agriculture SOEs, especially those that were commercially viable, provided an opportunity for the establishment and/or strengthening of an existing economic and political elite class (especially after the strictures on the accumulation of wealth/capital were loosened post-Nyerere), increasing private sector ownership and participation in the power sector would do the opposite. In the current structure, politically connected actors are able to influence decisions in procurement and operations that benefit certain business interests (including shielding business from non-payment of electricity bills or tariff increases) – allowing political actors to ‘buy’ support and/or accumulate resources for political campaigning or to otherwise influence political processes. However, there are other businesses that would want to see change/reform. For the moment, these actors are largely excluded from political spheres, while a small and closely related (often overlapping) group of political and economic actors works together to maintain the status quo. This, to some extent, mirrors the difference in opportunities for rent extraction in the economy, which typically load onto trade, construction, and communication – with industry potentially more competitive and thus more difficult to extract rents from. While everyone has an interest in improving power supply, those with the greatest interest – competitive industry – have less influence and less to offer the clientelistic networks that ‘make things happen’ in Tanzania.

While there is no self-declared anti-reform coalition, it seems likely that a lobby against reforms does exist that coordinates at higher levels, beyond public purview. One example might be found in the ‘reform narrative’ that is presented more or less consistently in the media. When compared with neighbours such as Kenya and Uganda, which have each had their own battles with power sector reforms, the Tanzanian narrative is decidedly more anti-reform in general and there is a lot of misinformation – for example, on the private management contract or Songas – that is repeated across platforms. Given that the press is only considered partly free in Tanzania (scoring 50–60 per cent in the Freedom House Press index, with 100 being least free) and that the government and political parties are seen to use the press media to advance political interests, the persistent anti-reform narrative might be one example of coordinated lobbying. The soft power of controlling the reform narrative and the public’s understanding of reforms (e.g. private sector corruption, foreign interference, pro-profit/anti-poor) is then matched by the political executives’ use of de facto power over decision-making processes. Excepting those that have been exposed in corruption scandals, this lobby acts behind a veil.

Without a dramatic change in government or a change in power between private sector insiders and outsiders, existing patronage networks present a steep barrier to reforms.

5 Dominant Party Politics

Tanzania’s political economy is characterised by the dominance of CCM and its socialist legacy. While the country has progressively adopted a more neoliberal economic stance since the mid-1980s, the political legitimacy of the state and of the ruling party is dependent on the continuation of first President Julius Nyerere’s legacy of African Socialism or Ujamaa. Despite the apparent failure of Nyerere’s model and the economic ideological shift following his abdication in 1985, socialist political ideology has remained embedded in the dominant political culture and paradigm, with the core components of self-reliance and state-led development providing the basis of political identity, along with the practice of paternalistic leadership and autocratic government. Maintaining this legacy is one part of CCM’s strategy in maintaining power.

The other part is also to an extent a legacy issue. Under the stain of economic contraction and the strictures of socialist policies, a shadow culture of rent-seeking, low public service accountability, and clientelism emerged in the later years of Nyerere’s government. This culture became entrenched as economic and then political competition spread following early economic liberalisation interventions and the introduction of multiparty politics in 1992. The incumbent CCM was able to use the state apparatus for rent-seeking in the lead up to the first elections, providing the necessary resources and patronage networks to ensure that the party stayed in power. The political and economic elites were thus intertwined, and their fates have been interdependent since. Patronage plays a critical role in maintaining the current political economy system.

The development of these parallel but antithetical cultures spurred a third culture – one of cognitive dissonance and a common suspension of disbelief around the socialist model of government. While neoliberal economic ideology has been adopted, it has not permeated the political system. And though corruption scandals have exposed patronage networks at numerous points, the paternalistic CCM has been able to undercut formal punitive institutions, using internal disciplinary processes to circumvent the law. This is not to say that the CCM has not encountered opposition. Rather, the socialist legacy and strong patronage networks have – thus far – insulated the party considerably.

Looking at the issue of power sector reforms, it is clear that genuine political will has been lacking. Acknowledging the close relationship between economic and political interests, what makes unbundling and privatisation – among other interventions – undesirable?

First, key components of standard model power sector reforms are antithetical to the legacy of African socialism. The ideal of state-led development stipulates those certain essential industries are government owned or controlled – the power sector is such an industry. The ideal of ‘self-reliance’ is of particular relevance to policy choices – the unbundling and privatisation of the state-owned power utility are seen to be ‘foreign’ ideas. The idea of public goods is pervasive: electricity is considered a public good that should be provided by the government.

Unbundling and privatisation would thus undermine the legitimacy of CCM by eroding the ideological foundation of government. Implementing reforms in the power sector would be like admitting that the government could not provide for its citizens or lead economic development or live up to the legacy of its, and the country’s, founding principles. While full unbundling and privatisation is no longer viewed as a feasible or suitable model for Tanzania, anxiety about these steps – and the expected implications for CCM’s legitimacy – means that structural reforms in general are highly complex policy issues.

Secondly, as explored earlier, the current structure of the power sector provides the best opportunity for rent-seeking and patronage, through centralised and un-transparent procurement processes run between TANESCO and the government. If competitive procurement processes, facilitated by a restructured sector, replaced the current system, there would be little room for the still-underdeveloped local private sector or political rent-seeking.

Standard model reforms would thus limit CCM’s ability (or that of factions within CCM) to use the state apparatus for rent-seeking and/or to establish and maintain patronage networks, which – with the increasing competitiveness of elections – is an important component in maintaining political power. Conversely, if you look at the issue of rural electrification – which has been bolstered by the ‘unbundling’ of rural electrification functions from TANESCO – REA has been able to attract significant resources, create jobs, and benefit certain actors through connecting villages and households (feeding into patronage networks), while at the same time bolstering the government’s socialist image and winning the CCM votes. Institutional change in this area may create new incentives and opportunities in others and has the potential to open the sector to more reforms.