Tanzania Compact

The United Republic of Tanzania, comprised of the mainland and Zanzibar, is located in East Africa and borders the Indian Ocean and eight nations. Tanzania plays an important role in the region as an economic trade partner and stands out as a proponent of peace and stability. However, nearly 36 percent of the mainland population and 49 percent of the Zanzibari population live below the national poverty line. An inadequate transportation network and an insufficient and unreliable supply of energy are key constraints to economic growth and private investment in Tanzania. The water service sector faces clear challenges as well.  The Millennium Challenge Corporation and the Government of Tanzania, therefore, signed a five-year, $698.1 million compact in February 2008, designed to benefit more than five million people by investing in the country’s economic growth and reducing poverty in three project areas:   

  • the transport sector;
  • the energy sector; and
  • the water sector.

Selection of these project areas, jointly identified by Tanzania and MCC, aligned with the Government of Tanzania’s multi-year development strategies and was a result of collaboration with key stakeholders including representatives from local government, members of parliament, the private sector, and nongovernmental organizations. The compact was designed to address regional imbalances in the provision of infrastructure by targeting investments for “pro-poor growth.” 

At the end of the compact in September 2013, the Government of Tanzania and MCC had spent more than 99 percent of the anticipated compact funds to improve market linkages and increase investment, economic output and household productivity throughout the country.  Additionally, Tanzania demonstrated its commitment to the compact partnership by contributing approximately $132 million to complete projects where costs exceed the anticipated project budgets, especially in the transport sector.  Further details of the compact results and impacts will be shared in forthcoming revised cost-benefit analyses and impact and performance evaluations, expected to become available in 2015 through 2017. 

  • Original Amount at Compact Signing: $698,136,000
  • Amount spent: $694,545,914
  • Signed: February 17, 2008
  • Entry Into Force: September 17, 2008
  • Closed: September 17, 2013

Estimated benefits at the time of investment correspond to $641.2 million of compact funds, where cost-benefit analysis was conducted:

  • 5,425,000Estimated beneficiaries at the time of investment over 20 years

  • $880,800,000Estimated net benefits at the time of investment over 20 years

Compact Changes

The Tanzania Compact included large-scale capital investments in infrastructure and major service delivery systems like those that manage water and electricity. Because MCC compacts are a fixed amount implemented over five years, partner governments must focus on the compact results while constantly balancing changes in costs, speed of implementation and environmental considerations. During the Tanzania Compact, MCC and the Government of Tanzania made mutually agreed-upon adjustments to compact targets, including:

  • In December 2009, MCC and the Government of Tanzania reallocated $39.6 million from the eight-megawatt Malagarasi Hydropower Activity following a final environmental analysis of the proposed worksite. The analysis uncovered a study that reported the discovery of several new and highly endemic aquatic species on the site, and concluded that the activity would create a significant environmental hazard even with mitigation measures. Approximately $4.8 million was reallocated to the Zanzibar Interconnector Activity, $34.4 million was moved to the Distribution Systems Rehabilitation and Transmission Activity, and $400,000 was used for additional environmental and social activities. The remaining funds in the activity were used for the rehabilitation of the Kigoma distribution system and a pilot solar photovoltaic program in two districts of the Kigoma region.
  • In June 2010, the $32 million Non-Revenue Water Activity was re-scoped after the final design estimates on two of the activity’s infrastructure investments indicated higher costs that would significantly impact their economic rates of return. As a result, $13.2 million was reallocated to the Lower Ruvu Plant Expansion Activity, $9.6 million to the Morogoro Water Supply Activity, and $400,000 for other environmental and social activities.
  • The Transport Sector Project faced significant cost increases and schedule changes identified through further technical design and resettlement work that took place post-compact signing. Therefore, the Government of Tanzania committed to providing approximately $132 million to complete all planned activities in the compact Reallocations from other compact activities also supplemented the Transport Sector Project. 

Project Results

Energy Sector Project

  • $206,471,000Original Compact Project Amount
  • $199,461,627Total Disbursed
  • 26.1%Estimated Economic Rate of Return over 20 years

The lack of reliable electricity supply has been identified as one of the most severe constraints to economic growth in Tanzania. Agricultural and industrial businesses, small-scale entrepreneurs and service providers often suffer from the lack of access to reliable, affordable and modern energy services. In the areas where electricity is already available, industry, businesses and households suffer from unreliable service and recurring blackouts. In part due to inadequate investment in the sector, the country has experienced severe power interruptions with the World Bank estimating in 2006 that the cost of electricity interruptions to the economy was in the range of $300-$600 million, or about 2-5 percent of estimated GDP. The Energy Sector Project aimed to improve electricity service and coverage in Tanzania by:

  • increasing power transmission capacity to help sustain economic growth and rural electrification efforts in Zanzibar;
  • increasing electricity access and distribution capacity in regions where a lack of infrastructure has depressed the development of economic activities and household access;
  • improving the reliability and efficiency of power distribution systems in regions prioritized by the Government of Tanzania for their potential economic impact; and
  • improving the institutional capacity of Tanzania Electric Company and the Zanzibar Electric Company.

At compact end, the project funded the installation of a new 37 kilometer, 100-megawatt submarine transmission cable connecting Zanzibar to the mainland’s electrical grid, the construction of approximately 2,700 kilometers of transmission and distribution lines in seven of the country’s regions, the upgrade of three electrical substations, the development of a feasibility study and designs for a potential 45-megawatt hydropower plant on the Malagarasi River and the installation of photovoltaic systems in health centers, schools and markets in the town of Kigoma and Kasulu district.   

Estimated benefits at the time of investment correspond to $198.2 million of project funds, where cost‑benefit analysis was conducted:

  • 1,564,498Estimated beneficiaries at the time of investment over 20 years
  • $574,400,000Estimated net benefits at the time of investment over 20 years

Evaluation Findings

MCC is conducting an impact evaluation of the Mainland Distribution System Rehabilitation and Extension Activity. It seeks to assess the magnitude of impact of access to electricity on energy consumption and expenditures, household income and business activity, and health and education outcomes. MCC is also conducting a performance evaluation of the Kigoma Solar Power Activity. This evaluation will assess changes in energy consumption and business operations. In addition the evaluation will attempt to measure effects on incomes of the public institutions, businesses or households that received or purchased solar energy systems through the activity. Pending approval from the Government of Tanzania, an interim qualitative evaluation report for the Distribution System Rehabilitation and Extension evaluation will be released in 2015. Final results for both evaluations are expected to be available in September 2016. 

A performance evaluation for the Zanzibar Interconnector Activity seeks to assess the benefits of the undersea electricity cable on power quality and business operations, experienced among hotels on Zanzibar. Pending approval from the Government of Tanzania, the final report is expected to be available in 2015. 

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Distribution Systems Rehabilitation and Extension Activity

Outcome: Increased access to reliable quality power by rehabilitating and extending distribution infrastructure

Cost recovery ratio 73 95 80 29%
Technical and Non Technical losses (all six project regions in mainland and Kigoma) 25 18 13 176%
Transmission and distribution substations capacity (MVA) (all six project regions in mainland) 473 768 769 101%
Kilometers of 33/11 KV lines constructed 0 1,334 1,391 104%
Current power customers (all six project regions in mainland)
  • These monitoring indicators may be influenced by factors beyond the MCC projects. Therefore, any change over baseline data may not represent the impact of the MCC Investment alone.
214,958 331,070 333,034 102%
Malagarasi Hydropower and Kigoma Distribution Activity

Outcome:

Capacity of PV systems installed (kWp)
  • This indicator focuses solely on non-commercial installations at health centers (plus vaccine refrigeration systems), dispensaries, schools, village markets, and beach management units.
0 241 242 100%
Number of current power Customers
  • These monitoring indicators may be influenced by factors beyond the MCC projects. Therefore, any change over baseline data may not represent the impact of the MCC Investment alone.
8,277 16,015 17,151 115%
Zanzibar Interconnector Activity

Outcome: Increased reliability of quality power by laying of an approximately 40 km long submarine cable from the mainland to Zanzibar

Percent disbursed on overhead lines contract 0 100 90 90%
Kilometers of 132 KV lines constructed 0 65 78 120%
Technical and non-technical losses (Zanzibar) (%) 26 20 28 -34%
Transmission and distribution substations capacity (mWp) 60 180 180 100%
Number of Current Power Customers
  • These monitoring indicators may be influenced by factors beyond the MCC projects. Therefore, any change over baseline data may not represent the impact of the MCC Investment alone.
69,211 98,870 87,629 62%

As noted above, MCC successfully financed the design, construction and supervision activities for a 37 kilometer cable from mainland to Zanzibar expected to increase the number of domestic, commercial and industrial customers; improve the quality of service delivered as measured by reductions in duration and frequency of power outages; increase the quantity of electricity sold and reduce the consumption of other energy sources, such as kerosene and diesel.  Although the investment was not intended to directly affect technical and non-technical losses, MCC monitored this as a link between the outputs produced and the expected improvements in outcomes and objective indicators.  The indicator measuring progress on reducing the percentage of losses appears negative in part influenced by the utility not instituting a more cost-reflective tariff until the last year of the compact, which shortened the time allowed to measure effects of the increase prior to compact end, as well as other factors beyond the control of the MCC projects.  The construction of the interconnector between Zanzibar and the mainland, however, did address one of the reasons for technical and non-technical losses on the island. 

Water Sector Project

  • $66,336,000Original Compact Project Amount
  • $54,568,652Total Disbursed
  • 23.1%Estimated Economic Rate of Return over 20 years

Tanzania continues to face a serious shortage of access to potable water because of an aged and dilapidated water supply infrastructure. The inadequate water supply and quality contributes to a high incidence of water-related diseases, decreased workforce productivity and constrained business growth. The Water Sector Project focused on improving water supply infrastructure in the cities of Dar es Salaam and Morogoro in order to increase bulk water supply, provide better service to existing customers and increase water availability for new customers.

Residents of Dar es Salaam are expected to benefit from a 90 million liter per day expansion to the Lower Ruvu Water Treatment Plant—the main source of treated water in the country’s capital. In order to convey this water to the city, the project funded designs for a 55-kilometer water main that is being constructed with Government of Tanzania funds. Additionally, as a result of construction delays as well as fluctuations in seasonal water volumes, 79 percent of the Lower Ruvu Water Treatment Plant and Transmission Main works were completed by the end of the compact.  In March 2014 the Government of Tanzania committed to funding and completing the water works post-compact.

In Morogoro, the project funded the rehabilitation of both the Mambogo and Mafiga Water Treatment Plants to address quality and quantity of water, improve major components of the distribution network to include a 1.9-kilometer main, as well as provide 10,000 customer meters and more reliable customer collection and management tools and training.  Due to construction delays the water treatment plants were completed after the compact by the Tanzanians, impacting the percentage of operations and maintenance costs recovered and the volume of water produced by the two plants at compact end.  

Finally, MCC funded the development of a rate case to achieve cost recovery of operations.  These rate case applications were prepared, submitted and received approval from the regulator.

Estimated benefits at the time of investment correspond to $68.3 million of project funds, where cost‑benefit analysis was conducted:

  • 2,801,856Estimated beneficiaries at the time of investment over 20 years
  • $118,600,000Estimated net benefits at the time of investment over 20 years

Evaluation Findings

MCC is conducting an impact evaluation of the Lower Ruvu Plant Expansion and Morogoro Water Supply Activities of the Water Sector Project. This evaluation will measure the project’s impact on the availability, reliability and quality of water in the cities of Morogoro and Dar es Salaam. It will also study intermediary outcomes stemming from improved water access and quality, such as improvements in health, time use and household incomes. An interim evaluation report is expected in June 2016, while the final report is expected to be available in September 2017.  

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Lower Ruvu Plant Expansion Activity

Outcome: Increased access to improved water source by expanding water treatment plant

Operations and maintenance cost recovery (%) 108 151 131 56%
Volume of water produced (million liters per day)
  • These monitoring indicators may be influenced by factors beyond the MCC projects. Therefore, any change over baseline data may not represent the impact of the MCC Investment alone.
180 270 171 -10%
Morogoro Water Supply Activity

Outcome: Increased access to improved water source by expanding water treatment plant and improving water transfer in existing network

Operations and maintenance cost recovery (%) 100 115 95 -21%
Volume of water produced (million liters per day)
  • These monitoring indicators may be influenced by factors beyond the MCC projects. Therefore, any change over baseline data may not represent the impact of the MCC Investment alone.
23 33 29 59%

MCC continues to examine these indicators, which were likely influenced by factors beyond the MCC projects and therefore may not accurately represent the impact of the MCC investment alone.

Transport Sector Project

  • $372,776,000Original Compact Project Amount
  • $405,402,512Total Disbursed
  • 17.2%Estimated Economic Rate of Return over 20 years

In Tanzania, poor transport infrastructure constrains the development of agriculture, industry and commerce and hinders access to essential social services. At the time of compact signature, less than seven percent of Tanzania’s road network was paved; the other routes were made of gravel or earth. The Transport Sector Project addressed necessary improvements to Tanzania’s road network, which serves a widely dispersed population, by investing in infrastructure to reduce transport costs, increase cash crop revenue and facilitate access to social services. Rehabilitation of road infrastructure was intended to expand connectivity across Tanzania and improve market and other linkages both domestically and with neighboring Kenya and Zambia. The project also upgraded the Mafia Island Airport to allow for easier, more efficient and safer access to the island. At compact end, the MCC financed the completion of 150 kilometers of roads, which includes the installation of drainage measures and accompanying signage, as well as designs and feasibility studies for the original target of 433 kilometers. All 433 kilometers were completed by January 2015 after a contribution to the compact was made by the Government of Tanzania.  On Mafia Island, 1.6 kilometers of runway and taxiways were refurbished. 

Estimated benefits at the time of investment correspond to $374.7 million of project funds, where cost‑benefit analysis was conducted:

  • 1,624,551Estimated beneficiaries at the time of investment over 20 years
  • $187,800,000Estimated net benefits at the time of investment over 20 years

Evaluation Findings

MCC is conducting performance evaluations of the Zanzibar Rural Roads, the Mainland Trunk Roads and Road Maintenance Activities for both Zanzibar and mainland Tanzania. The evaluations will use the Highway Development and Management (HDM-4) Model and potentially the Roads Economic Decision (RED) Model to assess the condition of the upgraded roads and evaluate the sustainability of these road investments in the context of the roads maintenance regime. Both evaluations are expected to be available in December 2016.

MCC is also conducting a performance evaluation for the Mafia Island Airport Activity. This evaluation will seek to assess the condition and maintenance of the Mafia Airport runway post-compact to understand the residual life of the investment. It is expected to be available in December 2016.

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Mafia Island Airport Upgrading Activity

Outcome: Increased air passenger traffic

Runway surfacing complete (%) 0 100 100 100%
Mainland Roads Activity

Outcome: Reduced transportation costs and travel time; Increased traffic volume by upgrading of up to 430 kilometers of trunk roads

Kilometers of roads completed (taken over) 0 433 150 35%
Surfacing Complete: Peramiho - Mbinga (%) 0 100 100 100%
Surfacing Complete: Namtumbo - Songea (%) 0 100 100 100%
Surfacing Complete: Tanga - Horohoro (%) 0 100 100 100%
Surfacing Complete: Tunduma - Sumbawanga (%) 0 100 71 71%
Percent disbursed on construction contracts 0 100 93 93%
Road Maintenance Fund Activity

Outcome: Funding to improve maintenance management efficiency

Road Maintenance Expenditures: Zanzibar Rural Roads (%) 75 95 82 35%
Road Maintenance Expenditures: Mainland Trunk Roads (%) 79 95 72 -43%
Zanzibar Rural Roads

Outcome: Reduced transportation costs and travel time; Increased traffic volume by upgrading of up to 35 kilometers of rural roads

Kilometers of roads completed (taken over) 0 35 0 0%
Surfacing Complete: Pemba (%) 0 100 60 60%
Pemba: Percent disbursed on construction contract 0 100 70 70%

The overall level of funding the Government of Tanzania dedicated towards mainland trunk roads did not increase, remaining stable during the life of the Compact, while the percentage of funding decreased in the short term.  During the compact period, the Government of Tanzania oversaw a dramatic increase in road construction, coupled with a reclassification of national and rural roads, which reduced the percent of funding in proportion to the entire roads network. 

Coordination and Partnerships

As noted above, the Government of Tanzania provided $132 million to complement MCC funds and ensure completion of all works. In the Mainland Trunk Roads Activity, MCA-Tanzania entered into an agreement with the international NGO, World Wide Fund for Nature (WWF), to boost the environmental protection capacity of local communities by supporting two wildlife management authorities. This activity was built on the prior success of a larger USAID grant program that supported other wildlife management authorities throughout the country. During compact development, MCC and the Government of Tanzania coordinated with other donors to ensure that MCC’s investment complemented other funding and planning for the water and energy sectors. The compact was implemented with support from a variety of additional development partners, including Germany, France, Sweden, Japan, and the European Union, as well as multilateral institutions such as the World Bank, the International Monetary Fund and the African Development Bank. 

Key Conditions Precedent

To facilitate and incentivize the desired investment outcomes under the compact, MCC and the Government of Tanzania agreed that the following conditions precedent (CP) would be met before disbursing funds needed for the projects identified below.

Key Conditions Precedent
Key Compact Component(s) Major Condition Precedent or Policy Reform Required Rating
Transport Sector Project

Mafia Island Airport Activity

Prior to each disbursement for construction of the airport improvements under the Mafia Island Airport Activity, Tanzania National Roads Authority (TANROADS) shall commit to fund the upgrade of the main road from the airport in Kilindoni to the Marine Park lodges in Chole.

Met on time

Transport Sector Project

Mainland Trunk Roads Activity

MCA-Tanzania shall execute all necessary construction and construction supervision contracts for the applicable trunk road on or before the first anniversary of the entry into force of the compact in order to receive any Disbursement for construction of such trunk road under the Mainland Trunk Roads Activity.

Met late

Transport Sector Project

Mainland Trunk Roads Activity

Prior to initial disbursement for the Mainland Trunk Roads Activity, the National Road Safety Policy and Strategy (in form and substance as prepared by the Ministry of Infrastructure Development in May 2007) shall have been adopted by the Government.

Met on time

Energy Sector Project

Project-wide

Prior to initial disbursement for the Energy Sector Project, the Tanzania Electric Supply Company Limited (TANESCO) shall submit to the Energy and Water Utilities Regulatory Authority a rate case that recovers full operating costs. It should include at least the sum of cost of sales, operating expenses and debt service.

Met late

Energy Sector Project

Zanzibar Interconnector Activity

Met late

Energy Sector Project

Zanzibar Interconnector Activity

ZECO to implement tariff revision that recovers full costs by January 1, 2012

Waived

In May 2012, the Zanzibari government authorized ZECO to increase electricity tariffs by 85%. Although this is not estimated to be a full cost reflective tariff, MCC recognized it as a move in the right direction. The first tranche of this increase (a 40% increase) was implemented in June 2012, although the remaining increase has yet to be implemented.
Transport Sector Project

Zanzibar Rural Roads and Mainland Trunk Roads Activities

  1. Prior to each disbursement for the Zanzibar Rural Roads Activity covering the quarter beginning on October 1 of each year, the Government of Zanzibar’s expenditures budgeted for road maintenance shall show an increase from such expenditures from the prior fiscal year, taking into account inflation and maintenance needs of existing, improved and newly constructed roads.
  2. Prior to each disbursement for the Zanzibar Rural Roads Activity covering the quarter beginning on January 1 of each year, the amount budgeted by the Ministry of Communication and Transport of the Government of Zanzibar for maintenance of its existing, improved and newly constructed roads for the previous fiscal year has been expended for the intended purpose.

Met late