A new $60 million loan by the OPEC Fund for International Development (the OPEC Fund) and partners is expected to significantly strengthen energy security in northwest Tanzania. The project will include the construction of a 166km overhead transmission line connecting the Kagera region to the national grid, replacing the current energy supply from Uganda with local hydropower resources.
Tanzania has enormous potential in the field of renewable energy. As one of the countries bordering Lake Victoria, which is fed by the Kagera River, Tanzania is investing heavily in the expansion of its hydropower capacity with plants under development at Rusumo and Kakono in its northwestern region. The two new hydropower plants are expected to be operational in 2024 and 2030 with nominal capacity of 80 MW and 87 MW, respectively.
The financing of the project will be shared among several partners: The OPEC Fund with a US$30 million loan, as a first tranche of a US$60 million facility, will be joined by the Abu Dhabi Fund for Development (US$30 million), the Saudi Fund for Development (US$12.8 million) and the government of Tanzania with US$2.6 million. Other backers are set to finance a downstream distribution network that will connect many unserved communities to the grid.
The construction of the new transmission line will allow Tanzania to reduce its dependence on energy imports. This diversification will enhance energy security and save costs by eliminating the need to pay for imports in foreign currency. Furthermore, the expansion of hydropower generation will allow the country to shut expensive and polluting back-up thermal power plants, leading to a cleaner and cheaper energy sector in Tanzania.
Northwest Tanzania’s Kagera region is one of the country’s poorest with average income less than half the national average, according to the National Bureau of Statistics. With the regional economy dominated by agriculture, improved power supply will allow other sectors to establish themselves in the region and help to fulfil its potential.
The OPEC Fund signed its first engagement in Tanzania in 1977 and to date has approved more than US$400 million for investment in all major sectors of the economy. In particular, recent loans have supported water, road and infrastructure projects.