A potential 1,200MW of capacity could be added to Tanzania’s grid helping address the country’s critical energy shortage
DAR ES SALAAM, 9 November, 2016 – At a press conference today, the African Trade Insurance Agency (ATI) urged the Government of Tanzania to strengthen the existing partnership that would see ATI bring in US$1.2 billion (TZS 2.6 trillion) worth of investments into the energy sector and an additional 1,200 MW of capacity to the grid.
Tanzania is a founding member of ATI, which was set up to provide insurance to investors and others doing business in its African member countries. Under the partnership, which was signed by former President H.E. Benjamin Mkapa in 2001, Tanzania and other countries agreed to grant Preferred Creditor Status to all projects backed by ATI. This pledge, which provides reassurance that a member country will prevent any claims on ATI-backed projects, gives investors, suppliers and others the necessary comfort to launch projects in Tanzania.
“Our objective is to support Tanzania by bringing in much needed investments and lowering their borrowing costs. We are the silent but very important piece of the puzzle because we have stood behind close to US$1 billion (TZS 2 trillion) worth of investments and trade into Tanzania since our first transaction in 2004,” commented George Otieno, the CEO of ATI.
Tanzania can benefit more from its partnership with ATI by simply recommitting its pledge to support ATI-backed projects in Tanzania. Under the terms of the partnership, Tanzania is able to substitute its sub-investment grade rating for ATI’s investment grade ‘A’ rating once it signs onto any ATI-supported transaction. Under the Basel regulations, which govern most international banks, they can only lend to countries such as Tanzania with the insurance support of an institution like ATI, which is respected and trusted by the international financial markets. ATI’s insurance cover enables banks to lower their risk margins, which often substantially reduces the cost of borrowing for Tanzania and other African member countries.
By not fully maximizing this opportunity, Tanzania may be missing out on millions worth of investments. “ATI can help the country become more bankable and attract more investments. This is particularly crucial in the energy sector where there are currently enormous challenges,” noted Tusekile Kibonde, ATI’s Underwriting Representative in Tanzania.
The press event was held on the side lines of an international energy sector forum, Unlocking Investments to Maximize Tanzania’s Energy Potential, which ATI hosted. The Forum brought together stakeholders from both the private and public arenas to find solutions that will de-risk the country’s energy sector in order to attract much needed investments.
The African Trade Insurance Agency (ATI), was created over a decade ago by Tanzania and other COMESA member countries, the World Bank, and recently the African Development Bank, to help attract Foreign Direct Investments and to support trade. ATI addresses the concerns of investors by insuring their transactions against a range of investment risks such as payment default by the government or a government agency. Similarly, ATI protects local companies interested in expanding their business into new markets. ATI established a local presence in Tanzania in 2010. The Tanzania Private Sector Foundation (TPSF) hosts ATI’s local office in Dar es Salaam.
In Tanzania, ATI has supported both the private sector and the government to address challenges in the energy, telecommunications and financial services sectors. In the energy sector, ATI supported a Norwegian company contracted by the government to set-up a power station as well as a $62 million (TZS 132 billion) bridge financing facility set up by a syndication of banks for the state utility company. With ATI’s support on such projects, Tanzania has been able to bring an additional 400MW of electricity to the national grid.
To date ATI has paid US$4 million (TZS 8.7 billion) in political risk claims to clients in support of investment transactions in the country.