CDC injects further US$18M into East African power sector
10 October 2001
CDC Capital Partners, a leading risk capital investor in emerging markets, has invested US$18m for a 20% equity take in the Tanzanian IPP, Songas Limited.
Other investors in the US$340 million business are AES, World Bank and European Investment Bank.
Songas' business is the production, processing, transportation, supply and conversion to power of gas in the Songo Songo field, 200km south of Dar es Salaam.
Songas will build, own, and operate a gas processing plant at Songo Songo island, as well as a pipeline from the island to the Tanzanian coast and then on to Dar es Salaam. It will also manage the existing 110 MW gas turbine plant at Ubungo - an industrial suburb of Dar es Salaam. The plant will be converted to run on gas, supplied via the pipeline, instead of current liquid fuels, and it is expected that a fifth turbine be added in due course. Songas will also supply gas to Wazo Hill cement works, 25km north east of Dar es Salaam.
Tanesco, the Tanzanian state-owned utility, will purchase power from Songas under a 20 year Power Purchase Agreement. Pan African Energy and the Tanzanian Petroleum Development Corporation will jointly market gas not required by Songas, and will transport the gas via the Songas pipeline at an agreed tariff.
Songas will provide a source of power cheaper than thermal alternatives currently available in Tanzania. It will enable Tanesco to manage more cost-effectively its hydro-power resource, and to more efficiently meet currently unsupplied demand requirements.
As development of an indigenous resource Songas is expected to have a strong positive economic impact, displacing expensive imported liquid fuels with domestically produced natural gas. Development of the Songo Songo gas reserve also represents a first stage in further development of the gas and power sectors, creating substantial opportunities for additional cheap power in Tanzania and for export of gas to Kenya. With proposed interconnections to the Southern African Power Pool and to Kenya, Tanzania could be well positioned to be a net exporter of power in the region.
CDC has now invested in three IPPs in sub-Saharan Africa, and continues to consider further investments. Together with its existing stake in the Tsavo Power Company IPP in Kenya, investment in Songas establishes CDC as one of the leading investors in the East Africa region.
Commenting on the deal, CDC Capital Partners' Paul Kunert said:
"Development of indigenous gas resources is a major economic step forward for Tanzania. CDC is very pleased to be part of Songas. We believe that this business demonstrates the ability of private sector investment to deliver sustainable economic benefit in emerging markets."
Helen Wilson, Project Director for AES Tanzania, said:
"AES is delighted to have been able to conclude the development of this long-awaited project. We commend the Government of Tanzania and the other project parties for their perseverance and commitment to enabling Tanzania to exploit its indigenous gas resources. The Songo Songo project will secure lasting economic benefit and enhanced reliability of power supply for the people of Tanzania."
