African Press International (API)

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For long-term finance, emulate Tanzania

Posted by African Press International on September 12, 2007

Publication Date: 9/12/2007

THE CURRENT ISSUE OF our sister newspaper, The EastAfrican, has carried a story which should be an eye-opener for our own policy-makers.

Tanzania recently made history when a syndicate of its own local banks and pension funds raised an astonishing $240 million to fund the recovery of the Tanzania Electric Supply Company (Tanesco), the countrys sole licensed bulk-power purchaser and distributor of electricity.

It is the single largest corporate finance deal in East Africa bigger than the KenGen IPO of 2004, and by far larger than Safaricoms $179 million bond issue in 2005.

Also significant in this transaction is that what has been borrowed is the Tanzania Shilling with no exposure to foreign exchange fluctuations.

Tanzania had the option of going to the World Bank to borrow money to finance Tanescos turnaround. It chose to borrow from its own institutions.

Even the arrangers of this massive loan were local investment banks. There was no involvement of Morgan Stanley, Merryl Lynch, JP Morgan or any of the other big names in the investment banking world.

Tanzania has shown us that we do not have go to the World Bank and the international donor community for money to revamp our struggling utilities. It has proved that local institutions have the capacity to raise long-term infrastructure finance.

The involvement of pension funds in the Tanesco bailout financing plan is particularly significant. Despite the fact that pension funds in Kenya sit on hundreds of billions of shillings, we are yet to start thinking about using this money to finance infrastructure.

The upshot is that most of this money is invested in paper activity in equities and in Treasury bonds and bills where it ends up being channelled into funding consumption the high salaries of civil servants and Members of Parliament.

Year in year out, the capital markets in Kenya absorbs billions in Government bonds, Treasury bills and corporate bonds. Such has been the depth of the capital markets in Kenya that literally all issues are oversubscribed as a matter of course.

Yet when it came to funding the revival of the Kenya Power and Lighting Company in 2004, we still chose to go, cap-in -and, to the World Bank to borrow some $225 million.

Part of the money for the energy recovery project was borrowed from other foreign lenders including KFW of the Netherlands and the Nordic Foundation.

IN THE PROCESS, WE EXPOSED ourselves to a complex regime of World Bank conditionalities requiring the Government to implement difficult reforms across a wide range of the electricity sector.

Today, we have a handful of expatriates calling the shots at KPLC, pretending to understand that operation better than local engineers who have worked there for decades.

We all knew that the most critical problem at KPLC at that time was lack of investment in distribution and transmission systems, and a weak balance sheet that badly needed to be restructured.

Parachuting Canadian expatriates was as futile as shifting pallbearers. The damage we have done to the morale of local engineers is immeasurable.

I am not against expatriates or technical assistance per se. But in KPLCs case, the diagnosis was totally wrong.

By the way, the Tanzanians have also kicked out a team of South Africans they hired to manage Tanesco on terms similar to what we gave the Canadians to run the KPLC.

Which brings me back to the issue of infrastructure financing. Literally all the candidates running for the presidency this year are saying that infrastructure will be their priority.

In my view, the priority should be smart ways of raising long-term money locally to finance infrastructure and in a way that reduces foreign exchange risk.

Early last year, a World Bank mission that visited the country decided to conduct a study on the capacity of the local financial sector to raise money for infrastructure projects.

Do we , really, need a study to prove the obvious, especially when the Tanzanians are doing it? The other day, a syndicate of Ugandan financial institutions also raised $40 million locally to fund the expansion of Entebbe Airport.

Still on the subject of infrastructure, can somebody tell us what is going on about the Maai Mahiu-Narok Road? Even a layman user of the road will tell you that the reconstruction work going on there has stalled.

The last time I checked with my contacts at the Ministry of Roads and Public Works, the explanation was that the contractor had taken too long to mobilise due to a dispute with subcontractors.

Why are we allowing innocent road-users to be held at ransom by disputes they are not concerned with? That road is the gateway to the Maasai Mara. It requires urgent repairs.

Lifted and published by Korir, API*APN tel +47 932 99 739 or +47 6300 2525

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