The European Investment Bank (EIB), the European Union's long-term financing institution, is lending EUR 55 million from risk capital resources (1) for the development of Tanzania's SONGO SONGO Natural Gas field and the down stream use of Natural Gas for power generation. EUR 50 million goes to the United Republic of Tanzania, who will onlend the amount to Songas Ltd.; EUR 5 million will go to Tanzania Development Finance Company Ltd (TDFL).
The approximately 440 billion Tanzanian shillings (2) will be used for an integrated gas-to-electricity scheme. This scheme consists of the development of the gas field on SONGO SONGO Island, 200 km South of Dar as Salam, and the construcion of 230 km pipeline to bring the gas to the power plant at Ubungo. Part of the project is the refurbishing of that power plant and changing it to Natural Gas combustion.
SONGAS is the operator of the gas and generation facilities and is a 66% participation of the US company AES and other foreign partners. AES has extensive experience with gas-to-electricity schemes. TDFL is a finance house in which a number of overseas partners participate, DEG, D; CDC Capital Partners, UK; FMO, NL and EIB, on behalf of the EU.
The EUR 50 million, which will go to SONGAS, are destined as loan finance for the Company, the EUR 5 million are destined to finance an equity participation of TDFL in SONGAS.
The project, which is cofinanced with the World Bank and CDC, will bring increased reliability of electricity provision and benefit the environment and the energy balance of Tanzania, as domestic Natural Gas will replace fuel oil as an energy source. Tanzania is well on the way in its structural adjustment process, with substantially reduced inflation and extensive liberalisation reforms, undertaken since the early 1990's. In June 2000 a new 3 year policy agreement was signed with the IMF.
The EIB, established in 1958 by the Treaty of Rome, finances capital investment projects which further the European Union (EU) policy objectives. It also participates in the implementation of the EU's co-operation policy towards third countries that have co-operation or association agreements with the Union. The Fourth Lomé Convention was concluded in 1989 for a duration of 10 years and is accompanied by two Financial Protocols spanning the periods 1991-1995 and 1996-2000. The total financial package available under the second Protocol amounts to EUR 14.6 billion, consisting of EUR 12 billion in grant aid from EU Member States, EUR 1 billion in risk capital from the European Development Fund (EDF) and managed by the EIB, and up to EUR 1.6 billion in the form of loans from the EIB's own resources.
(1) The EIB manages under mandate part of the European Development Fund (EDF), constituted by contributions from EU Member States, which it uses primarily for risk capital operations. The Bank's own resources are raised on the international capital markets.
(2) On 31 December 2000, 1 Euro = 800 Tanzanian shillings