The Clean Tech Market In Africa - Project Update October 2008

Clean Tech Blog Report:

Working in Africa requires patience, local friends, patience, and patience. I forget what the World Bank rating is for Tanzania on ease of setting up a business, but it takes a certain luxury of time and money. The process is mostly transparent, although it helps to have a good advocate or lawyer (there is a difference in Tanzania) to assist in creating the necessary documents and then submitting them to the government. Lines in Dar to submit the paperwork can be long and confusing, so again it helps to have local assistance. The basic costs start to finish is about $1000.00 USD.

dissigno’s Tanzania project may begin by setting up the entity. We have several recommendations for lawyers garnered from local contacts and networking in-country. Face to face meeting helps immensely as telephones and e-mails are either ignored or used only to set up a time and place for a meeting.

A. Immediate – Implementation
1. Setting up an entity – notes from several lawyers include:
a. Having a TZ national on the board, with a share stake makes formation easier and faster. The number of foreign versus TZ nationals determines whether the company will be identified as a national or foreign company. A wholly foreign company is deemed as removing value from the country. There are many ways to accomplish this, but the final solution includes using someone that you trust.

b. The recommendation that we incorporate as a national versus a foreign company (more board members that are TZ than foreign) seemed less important to us. The US and Tanzania do not have a tax treaty. Thus, if a US company simply registered to work in TZ (rather than create a TZ entity) the TZ government would be allowed to examine the US company’s books.

c. A registered company can then register with the Tanzania Investment Center (TIC) The TIC was created to encourage investment in TZ, and offers many incentives. 0% VAT on capital goods, low or deferred income taxes, easy work and living permits, easy repatriation of profit, protection from nationalization, are among the many financial incentives to encourage investment. However, the incentives are different between foreign and national companies.

d. The cost to form the entity is about $1000.00 including the lawyer fees, forms, state fees, and stamps. There are other indirect costs, such as office space that must reflect a three-year commitment and employees among others. It can take anywhere form 1-3 months to complete. If articles of incorporation are prepared ahead of time the time may be shorter.

2. Contracts with local partners are essential to conducting business. However, enforcing them might be an entirely different story. In the end they are a starting point to negotiations, a way to refer responsibilities, obligations and expectations between partners.

3. Living space and office space are essential to creating a comfortable and harmonious work environment. Working in the emerging markets is very difficult. Cultural differences, expectations, language barriers, among the myriad of other details that can confuses the partnerships are all very difficult to overcome. So in order to work at your best, it’s essential to take the extra time to locate comfortable living and work spaces.

4. Warehouse pilfering and theft are common occurrences. A safe and guarded place to store equipment will be essential.

B. Renewable Energy in General
1. In Tanzanian solar home systems (SHS) are very common. There are several big players in this sector and many minor ones. It seems that every corner hardwar store sells PV panels, and 12 volt batteries. The few shop owners we spoke to all expressed interest in building other equipment (wind, hydro, etc) to create power. The SHS model is much easier to organize and implement than a utility or PPA model. One off sales can be made through stores, can be financed through community or commercial banks, and can be backed by manufacturer warranty. Supply chains, although slow and cumbersome, can be established to bring equipment to almost anywhere in the country. This model does not require organizing the community for a cooperative structure. It does not require large plots of land with dubious title clearance. (The Tanzania government owns 100% of the land, and citizens lease plots for 99 years enabling them to build and pass land on to their heirs)

PPA’s or utility models will be on the 10-100 kW scale. Loads are typically lights radios, and TV’s. The PPA model is difficult because it requires community buy in, a lead organization to control, and finally a pay-per-use system to ensure user fees are collected. Pay per use models can be implemented, ESKOM in South Africa has successfully deployed pay-per-use meters, but the equipment can be expensive, and only really makes economic sense on larger scale projects.

2. Community organization can be accomplished through strong local partnerships. It is essential to have local partners and that they are established with a good reputation in the community. Local NGO’s, religious organizations, or other groups can act as local champions and have a good community penetration to reach the often dispersed community members.

3. Partnering with existing operations can help provide a base of customers. Like working with NGO’s they will provide instant credibility and customer base with which to expand. Care must be used in due diligence in order to ensure the reputation of the established company is one that will provide the best opportunity for the project.

4. Supply chain’s exist and can be used to provide initial products while entities create their own supply chains. In addition, working together can reduce costs, so it is essential to look for opportunities to piggy-back supply transport.

5. Importation constraints can include government taxes, laws, financial risk, and in some cases war and rebel attacks. An expeditor can help get goods through customs and to the company warehouse.

6. Market research is essential to understanding the customer base. Understanding the product value, what the price tolerance will be, and the best way to reach the customers.

7. Promotion and marketing can be performed through an understanding of the market performed during market research. For example an illiterate customer base will not respond to written posters, or poor customers might not have a radio to hear radio advertisements.

C. Pedal Power TZ
1. Meeting with SACCO (community banks) board members to present project plans
2. The pilot project will be used to see how the rental process can work, prove out the technology, and act as a promotion plan which will show people the lights
3. Culture and language must be understood before implementing any project
4. The supply chain will provide access to project equipment. Plan ahead as this will be slower and more expensive that planned for.
5. Project capital goods that make sense for the end users.
6. Reporting and milestones will enable project implementers to track progress and show success. This will be essential to getting any further rounds of investment.

Final Thoughts:
The market is obviously open in Africa in general and Tanzania specifically. In TZ right now there is big demand for solar home systems (SHS). Sales are strong and supplies somewhat constrained. I saw only one large solar supply shop in Mwanza (the second largest city in TZ) and several smaller ones. In Bukoba I saw two shops, but they simply carried panels and batteries along with other materials typically found in a hardware store. I spoke with a lot of people about larger scale PV installs – on the order of 10-300kW. Most agreed that there is big demand, but making the financials work is very difficult. The country has lot of hydro and thermal currently. Creditworthy entities exsist in the form of coffee curing and processing, and breweries, but already pay a very low kw hour rate. The selling point might be reliable energy and a PPA that would act as a financing model for the eventual sale at the end of the PPS term. Demand is low compared to installed capacity. Tanesco claims to have 837 MW installed while only seeing 680 MW demand. This is slightly misleading, as there is only about 8-15% electrification in the whole country. In addition, some electricity comes from Uganda, particularly the communities near the Ugandan border. The TZ government keeps the cost down very low, but the current infrastructure is poor and there are frequent outages. In the area where we are working there are three sub stations. We have been able to identify two on a map, but cannot find evidence of a third. Power lines do no penetrate very far from these subs, though there are families living with out grid connection in the areas.