THE UNITED REPUBLIC OF TANZANIA MINISTRY OF ENERGY AND MINERALS

OF 11 THE UNITED REPUBLIC OF TANZANIA A CALL FOR REVIEW AND COMMENTARY ON THE DRAFT INVESTMENT PLAN FOR SCALING-UP RENEWABLE ENERGY PROGRAM IN TANZANIA Date: 7 th May, 2013 1. MESSAGE TO ALL STAKEHOLDERS The Government of Tanzania through the Ministry of Energy and Minerals and its energy related institutions, assisted by the Multilateral Development Banks (MDBs) has prepared a draft Investment Plan (IP) which will be used as a proposal to source funds from Scaling Up Renewable Energy Program (SREP) that will enable Tanzania to move towards low gas emission developments. However, prior to submitting the IP to the SREP Sub Committee for approval, it was agreed that we share it with all stakeholders for comments and review. We have attached herewith the Assessment Criteria and Proposed Structure for better comprehension. We therefore, invite your views regarding the draft Investment Plan which is available on this website, the Deadline for submitting comments is 10 th May, 2013. Please, air your views through the Tanzania SREP Focal Point and Chairman of the Task Force, whose contacts are here below. Eng. Edward L. Ishengoma Ministry of Energy and Minerals P.O. Box 2000 Dar es Salaam E-mail: edward.ishengoma@mem.go.tz Tel: +255 22 2117156-9 Fax: +255 22 2120799

OF 11 Other Key Contacts Government Permanent Secretary Ministry of Energy and Minerals P.O. Box 2000 Dar es Salaam E-mail: ps@mem.go.tz Tel: +255 22 2117156-9 Fax: +255 22 2120799 Multilateral Development Banks African Development Bank Mrs. Mafalda Duarte CIF Coordinator E-mail: m.duarte@afdb.org World Bank Mr. Gevorg Sargsyan CTF/SREP Coordinator E-mail: gsargsyan@worldbank.org IFC Mrs. Joyita Mukherjee SREP Coordinator E-mail:JMukherjee1@ifc.org 2. BACKGROUND The Climate Investment Funds (CIF) were established in 2008 to provide scaled-up climate financing to developing countries to initiate transformational change towards climate resilient and low carbon development. Channelled through Multilateral Development Banks (MDBs), the CIF encompass four programmes; the Clean Technology Fund (CTF), the forest Investment Program (FIP), the Pilot Program for Climate Resilience (PPCR) and the Program for Scaling-Up Renewable Energy in Low Income Countries (SREP). Contributor countries to the CIF have pledged over US$ 7 billion to fund investments in 48 countries in different continents. CIF-funded investments are identified through the development of country-driven investment plans that align national strategies on climate change and national development planning process. The CIF provide concessional financing loans and grants for investments as well as technical assistance to support a number of capacity development activities.

OF 11 The CIF program is a country-led, in partnership with MDBs and with the engagement of civil society, private sector, and other key stakeholders at the national level. This process incorporates and reflects core CIF principles, including strong country ownership and leadership supported by the MDBs utilizing their skills and capabilities to raise and deliver concessional climate financing at a significant scale, while leveraging substantial additional investment from the public and the private sector. At the country level, the government s acceptance to participate in one of the four CIF programs triggers the start of the CIF country programming process. The first phase is the preparation of an investment plan. The Government of Tanzania has accepted to participate in SREP. 3. SCALING-UP RENEWABLE ENERGY PROGRAMME (SREP) SREP operates under the Strategic Climate Fund (SCF), which is part of the Climate Investment Funds (CIF). The objective of the SREP is to pilot and demonstrate the economic, social and environmental viability of low carbon development pathways in the energy sector by creating new economic opportunities and increasing energy access through the production and use of renewable energy. Multilateral Development Banks (MDBs) provide support to Governments in preparing and implementing their SREP Investment Plan. In the case of the SREP Tanzania, the African Development Bank (AfDB) and the World Bank Group (WBG), including the International Finance Corporation (IFC), jointly provide support to the Government, with the African Development Bank (AfDB) acting as the lead institution. Since SREP was launched in December 2009, a number of countries have been selected as pilots in Africa and other continents. In Africa, they are Ethiopia, Kenya, Mali, Liberia In March 2012, the SREP Sub-Committee agreed to provide $50 million of SREP funding to finance the implementation of the investment plan for Tanzania. 4. TANZANIA AS A SREP PILOT COUNTRY Tanzania is one of the pilot countries selected in March, 2012 to benefit from the Scaling-Up Renewable Energy Program in Low Income Countries (SREP). Tanzania was selected because of (i) the critical issues facing the country (energy crisis, climate change impacts and land degradation, high population growth and therefore energy demand steadily increasing, rising prices of fossil fuels which increases the level of poverty of the people, etc.) and (ii) the efforts already made by the Government to create an adequate legislative and institutional framework, strong commitment to further develop its Renewable Energy resources and generating investments interest in the private sector, etc. The SREP program will enable Tanzania to initiate the process to achieve a transformational change, one that will lead the country towards a low emission development. This will be made possible by harnessing the renewable energy potential of the country instead of developing the economy based on expensive and polluting fossil fuels, and on inefficient use of biomass.

OF 11 The private sector, as the basis for economic growth, has an important role to play in promoting renewable energy development. By opting for an investment plan that combines public sector and private sector interventions, the SREP will work to remove economic barriers (among others) and increase private investments in support of achieving the objectives of the SREP Improved market and financial conditions, as well as strengthening of investors confidence, could facilitate this transformation by stimulating public and private investments in renewable energy projects. The SREP program will support both investments for capacity building to reform the institutional framework, and investments in infrastructure to deploy renewable energy equipment in the country. So, ultimately, the investment plan will: Create an enabling environment by implementing public policies and improve the legal and regulatory framework; Encourage growth in the share of renewable energy investment in total energy investment; Have a transformational impact on energy markets and increase access to energy by maximizing the social benefits and positive impacts on the fight against poverty; and Improve the economic viability of renewable energy in the long term. 5. PREPARATION OF SREP INVESTMENT PLAN (IP) Since Tanzania was selected as a pilot country for the SREP program, the Government, supported by the MDBs, has undertaken a number of preparatory activities, including: (i) the nomination of the SREP National Focal Point for preparing the SREP Investment Plan (phase1), (ii) Formulation of National SREP Task Force, (iii) a Scoping Mission including a technical workshop and consultations with national stakeholders, (iv) the preparation of a draft IP by the SREP National Task Force; (v) participation in CIF forum in Istanbul from October 29 to November 7, 2012, (vi) submitted a draft SREP Investment Plan (SREP IP) to MDB Team for comments. MDBs Technical Mission visited Tanzania from January 14 to 24, 2013. The objective of the Mission was to get the draft IP ready for public consultations, with a clear story line, a good understanding of main sector challenges that need to be addressed in order to scale up renewable energy in the country, and strong rationale for the proposed SREP investments. 6. SREP IP PRIORITIES The two investment project priorities in the SREP are: 6.1. Geothermal Development Project

OF 11 Its objective is to make geothermal energy a low cost, reliable and significant contributor of electric power to Tanzania, to be developed by the private sector with public sector support targeted to overcome the riskiest phases of development. It will achieve this goal by: (1) creating the enabling environment and strengthening institutional and human resource capacities; (2) reducing development risks by financing the risky stage of resource exploration and confirmation; (3) providing transaction advisory services to ensure that the sites with proven resources are competitively awarded. Once the resources are confirmed and power development projects are awarded, SREP and other financing partners will contribute to power development by (4) providing risk mitigation and/or other forms of co-financing for the power development phase. The total estimated cost is $465 million of which $400 million is for the 100 MW geothermal power plant which would be under PPP (publicprivate-partnership) arrangements, once the geothermal resource is confirmed. $25 million is sought from SREP with about $45 million from the AfDB. Private sector, other development partners and commercial banks will provide the balance. Leverage of other funding to SREP funding is about 15. MEM is expected to be the lead GoT agency to oversee the its implementation. 6.2. Renewable Energy for Off Grid Electrification Project Its objective is to build an efficient, responsive and scalable off-grid rural electrification project development infrastructure and demonstrate its effectiveness by supporting a time-slice of private sector investments in off-grid electricity enterprises. The project supports the GoT plan to increase electrification access rate from 18.4 percent to at least 75 percent by 2035 (Power System Master Plan, 2010-2035) through leveraging renewable energy resources for rural electrification as renewable energy is typically the least cost technology in remote areas. Rural Energy Agency (REA) of Tanzania will be the implementer. SREP and other co-financing will support the provision of transaction advisory services, investments in mini-grid, micro-grid and stand-alone renewable energy-based rural electrification, risk mitigation to cover delayed payments by power purchasers, and knowledge management and capacity building. Total estimated cost is US$160 million, of which US$25 million is sought from SREP with about $50 million to be sought from the World Bank Group. Private sector, other development partners and commercial banks provide the balance. The project is expected to result in investments of about 47 MW of renewable energy plants, to benefit over 100,000 households and rural enterprises directly with electricity connection, and over 300,000 indirectly through the development of investment pipeline. Leverage of other funding to SREP funding is 5.5. 7. LEVERAGING SREP RESOURCES The MDBs obtained agreement in principle from Development Partners (subject to confirmation from their management) for either strong collaboration on related activities, or future parallel or co-financing for the proposed investment projects. At this stage, the total

OF 11 budget of the SREP Tanzania program is expected to be about USD 625 million (to be confirmed). For the geothermal component, DFID, UNEP, JICA, AFD, ICEIDA,BGR, as well as the US-East Africa Geothermal Partnership under USAID confirmed their interest in joining forces for geothermal development in the country.. For the mini-grid component, DFID, NORAD, SIDA and the European Union confirmed interest to work jointly towards meeting SREP targets. A significant portion of the leveraging is expected to come from the private sector: on the one hand, the development of geothermal power projects is expected to come as a result of SREP support for upstream sector development and geothermal field exploration and confirmation; on the other hand, addressing barriers to investments in mini-grids, microgrids and stand-alone energy solutions through targeted support is expected to facilitate further private sector investments. The appetite for investment, even under the current challenging environment, is evidenced by the pipeline of private sector led small power projects targeting remote and isolated areas. As of March 2013, eighteen (18) renewable energy based projects that have signed a standardized power purchase agreement (SPPA) or letters of intent (LoI) with TANESCO. At least three of these projects plan to build their own mini-grids to electrify additional communities, and six of them plan to sell power to TANESCO s isolated grids. In addition, a number of isolated mini-grids are under development, first two (supported by GVEP international) expected to reach financial closure by the end of 2013. SREP plans to support similar and related projects not only to leverage private sector resources, but also to ensure that interventions translate into sustainable and scalable business models. 8. FINALIZATION OF THE SREP INVESTMENT PLAN The SREP Investment Plan is planned for submission to SREP Sub-Committee by 20th May, 2013 and proposed dates for the SREP Sub-committee to consider Tanzania SREP IP is June, 2013.

OF 11 ANNEX 1: CRITERIA FOR THE SUB-COMMITTEE TO ASSESS THE INVESTMENT PLAN 1. Increased installed capacity from renewable energy sources: A high priority for most low income countries is expanding their generation capacity in order to ramp up modern energy use and energy access. Therefore, SREP-funded investments should result in increased MW from renewable energy, as well as increased energy (GWh) per capita in the country. 2. Increased access to energy through renewable energy sources: SREP may support grid extensions and decentralized energy systems with a view to expanding the percentage of the population with access to non-fossil-fueled electricity. Investment proposals should demonstrate how the investments are part of the Government s long term commitment to increasing energy access. 3. Low Emission Development: SREP may support the use of renewable energy technologies for electricity generation and services to replace fossil fuel technologies that would be deployed in a business-as-usual scenario aimed at substantially increasing commercial energy use in low income countries. In particular, benefits from SREP investments will often arise from leap-frogging technologies, in which low income countries will be assisted to mainstream renewable energy technologies into the overall energy system. 4. Affordability and competitiveness of renewable sources: Affordability is essential for increasing access and for ensuring the long term renewable energy market development. SREP funding should address clearly-defined cost barriers to adoption of renewable energy technologies, such as connection costs for rural consumers, higher capital costs of new technologies, transmission costs related to grid-connected renewables, and risk adjusted rates of return sought by investors. 5. Productive use of energy: SREP programs should promote the generation and productive use of energy. 6. Economic, social and environmental development impact: Investment proposals for SREP financing should demonstrate the generation of economic, social and environmental benefits. 7. Economic and financial viability: Investment proposals should demonstrate the economic viability of investments and the financial viability with the inclusion of time bound SREP resources. 8. Leveraging of additional resources: Activities should maximize the leverage of funds from other partners. 9. Gender: SREP investments should seek to strengthen the capacity of women to be active participants in the economic sector and avoid negative impacts on women.

OF 11 10. Co-benefits of renewable energy scale-up: SREP investments should include decreased air pollutants from energy production and consumption as well as the potential to reduce stress on forest resources. Investments and activities should elaborate on the potential positive effects on air quality and natural resource management through the adoption of renewable energy technologies.

OF 11 ANNEX 2: PROPOSED STRUCTURE FOR THE INVESTMENT PLAN I. Proposal Summary (2 Pages) Objectives Expected outcomes Program criteria, priorities and budget II. Country Context (3-4 Pages) Energy sector description (market structure, demand supply, and dispatch composition, electricity cost and pricing) incl. renewable energy status Gap/barrier analysis; needs assessment III. Renewable Energy Sector Context (3-4 Pages) Analysis of RE options (technology, cost, mitigation potential, barriers) Government plans or strategy for the sector (willingness to move towards renewable energy investments, existing or envisioned policy, regulation, plans, and resource allocation) Institutional structure and capacity (technical, operational, financial, equipment supply, information) Role of private sector and leverage of resources Ongoing/planned investment by other development partners IV. Contribution to National Energy Roadmap (2 Pages) Likely development impacts and co-benefits of SREP investment How SREP investment will initiate a process leading towards transformational low carbon growth V. Program Description (6-8 pages) Capacity building and advisory services Investment preparation activities Technology deployment investments

OF 11 Parallel activities to be funded by other development partners Environmental, social and gender co-benefits VI. Financing Plan and Instruments (3-4 pages) VII. Budget envelop for investments Costs and sources of funding SREP assistance (grant, concessional debt, etc.) Recipients of funding Additional Development Activities (2-3 pages) Leverage complementary co-financing with other development partners such as bilaterals, private sector, and financial institutions VIII. Implementation Potential with Risk Assessment (2 pages) Country/regional risks - institutional, technology, environmental, social, financial Absorptive capacity for SREP and leveraged resources IX. Monitoring and Evaluation (1/2 page) Results framework table X. Annexes Information should be included in annexes on the following areas: Assessment of country s absorptive capacity Stakeholder consultations Co benefits Existing activities in the field of renewable energy, particularly activities of other development partners For each project to be implemented under the Investment Plan, an investment concept brief (maximum two pages) will be prepared as part of the Annex to the Investment Plan. XI. A suggested outline of an Investment Concept Brief

OF 11 Problem statement (1-2 paragraphs) Proposed contribution to initiating transformation (1-2 paragraphs) Implementation readiness (1-2 paragraphs) Rationale for SREP financing (1-2 paragraphs) Results indicators Financing plan Project preparation timetable Requests, if any, for investment preparation funding Permanent Secretary Ministry of Energy and Minerals 754/33, Samora Avenue P. O. Box 2000, Dar es Salaam E-Mail: info@mem.go.tz Website: