In March 2023, the Controller and Auditor General (CAG) provided an Audited report on the performance of the Rural Energy Agency (REA) in implementing the Rural Electrification Programme. We shall cover what the audit report has recorded, summarise conclusions and recommendations, and include our input. The audit covers five years of REA projects funded by SIDA & TZA from 2015/16 – 2020.
The audit covered three areas during the project implementation: Backbone Transmission Investment Project (BTIP), Village Electrification Initiative (VEI) and Renewable Energy Projects (REP). The audit methodology was document reviews, interviews and physical site visits.
The audit covered the whole country but was constrained to 18 regions where the project was implemented. The objective of the audit was to assess whether REA had effectively and efficiently managed the implementation of the Rural Electrification Programme to ensure sustainable access to energy and the improvement of rural livelihoods.
Main Audit Findings
- Planning and Design of BTIP and VEI
The feasibility study did not include 20% of the villages covered in the project. The additional number of towns was due to variations raised during project implementation. The overlapping activities between TANESCO and REA, compounded by a lack of adequate coordination between the two institutions, attributed to some villages earmarked by REA for project implementation, were already covered by TANESCO development strategy and were not communicated to REA.
The Audit noted that, on average, 20% of the villages covered by the Backbone Transmission Investment Project – Village Electrification Initiative (BTIP-VEI) (Lot 2, Lot 3, Lot 4 and Lot 5) were not part of the villages covered by the feasibility studies conducted in 2016. Dodoma had the highest percentage of villages that were not covered in the feasibility study at (22%), followed by Iringa (20%), then Shinyanga (15%) and Singida (12%).
Despite REA knowing the risks associated with the Mtera substation above the waterway tunnel, REA did not conduct a Geotechnical feasibility study. During the implementation of the project, excavations in a rocky terrain cost $108,000 and had a delay of three years, six months, and 14 days.
- Findings in the Procurement Management
The audit acknowledged that REA had complied with the Public Procurement Act (PPA of 2011), Public Procurement Regulations (PPR of 2013) as amended in 2016, and Programme Documents (PD) of 2015.
However, the audit noted that BTIP and VEI were missing some pre-qualification Procurement proceedings documents for BTIP and VEI. The missing documents were stolen! The authorities were informed accordingly.
Without the documents, the audit could not verify the strict adherence to PPA, 2011, and PPR, 2013.
- Findings in Contract Management
Delay of the Mtera substation completion by three years, nine months and 14 days—lack of Geotechnical Survey to ensure a complete understanding of the challenges.
Despite extending the project duration by eight months, the contractor had completed 92%, and the physical assessment indicated the project that was supposed to be completed on 12th March 2019 was incomplete on 20th December 2020 when the audit team visited the site.
Due to delays in clearing materials from the Dar-es-Salaam port, REA incurred additional costs of Tshs 775,761,344.16/= as demurrage charges to facilitate the achievement of project objectives. The non-replacement of 37 wooden burnt poles is estimated at Tshs 11,100,000/=.
Despite records showing the sample of wooden poles were subjected to Factory Acceptance Tests and Site Acceptance Tests and passed, the audit team saw some wooden sticks had excessive cracks.
- Extent of Attainment of Objective and Impact of BTIP and VEI Projects
REA attained 31% of the Targeted number of Customers for 4 Lots. (Lots 2,3, 4 &5). From project completion and progress certificate certification, the audit team saw that 31% of the initial 21,000 customers were connected to electricity.
A discrepancy was reported in the number of completed connections, such as duplication of clients’ names and numbers of meters in various Lots.
According to REA, the low rate of electrification was due to the unwillingness of some clients to wire homes and pay the connection fee, which was then a paltry Tshs 27,000/=.
80% of the project beneficiaries were satisfied, while 14% were not, with 6% unsure. The satisfied clients said their lifestyles and livelihoods had improved.
Findings of Rural Electrification Densification Program Round 11 A
- Project Planning and Design for the Execution of Rural Densification Project II A
The audit team learned REA did not conduct a feasibility study but relied heavily on the TANESCO report that was carried out in 2016 to identify partially electrified villages with high electricity demand.
The project was implemented without an assessment of electricity demand and an economic survey.
Soil investigations were not carried out. Soil compaction tests were missing, and the suitability of the poles in given soil types was never appraised.
Procurement of Contractor for the Execution of Rural Densification Project II A
Fourteen contractors were disqualified, but the audit team noted three were unfairly disqualified based on wrongful criteria of contractors’ financial capability assessment. The definition of the Evaluation Committee of annual cash flow was inaccurate. The Evaluation Committee considered yearly cash flow and cash equivalent at the end of the year in the cash flow statement as the yearly cash flow.
Contract Management for the Projects
A delay in the commencement of projects was noted. There was no project concept to assess project viability contrary to the Public Investment Project Preparation- Operational Manual, 2015, which was designed to determine the preliminary needs of a project. Some Tender pre-qualifications were not advertised in International print media.
Some projects were not completed in time. The installation of some transformers did not match the design specifications. Improper artistry in the Kishapu District was recorded. Mismanagement of TurnKey projects cost over Tshs 160 Million. Variations orders of up to 15% of the project sum were permissible, but the audit team observed that this criterion was violated in some projects.
The BTIP project will commence without an EIA certificate from The National Environment Management Council (NEMC).
By January 2023, only 11,044 out of the expected 35,222 households were connected with electricity, which is 31% of the target. This means 24,178 potential homes were still not connected as of January 2023. The projected number to be connected was 35,222.
Of small-scale industries, 62 were connected out of 11,044; 83% agreed the project had improved their lives, and 106 small businesses were connected.
The cost of variation orders amounted to a whooping Tshs 11.8 Billion, benefiting new 14,300 customers. NEMC environmental concerns ignored. Environmental issues at the site were not reported for mitigation. However, the audit report did not detail those ecological issues and their significance.
Significant variations of 12% to 86% between the estimated value of contracts and awarded contracts. The underestimate was Tshs 137 Billion more than the estimate.
The original scope was 79,625, and the revised range was 97,577, having an additional 17,952. Payment procedures were not aligned with funding procedures.
Quality management was not correctly addressed, leading to shoddy work—transformers with capacity overloads. Nineteen transformers were found to have lower capacity, but REA did not act to resolve the issue.
Installation of the low-voltage Electric cables with proper artistry. Site meetings are not regularly conducted. The status of the balance of funds was Tshs 38,439,181,210/=. Retention money not withheld amounted to over Tshs 1 Billion—absence of Tender Board approvals.
REA did not adequately manage the costs and scope of the Renewable Energy Projects. 35% of the contract sum was laid as an advance payment. Advance payment bonds were not secured before an advance payment of 35%.
One weakness in controlling variation orders and addenda is that REA did not prepare operational and maintenance plans. Exhaustion of power battery chargers resulted in blackouts, generators to recharge batteries were expensive, and non-functioning batteries contributed to the disenchantment of the customers. Generators were frequently not working with defects, narrating the poor performance.
Deadlines of 15th March every year to donors were not adhered to, leading to delays in securing funds from SIDA. Delays in disbursement of funds by SIDA were also commonplace.
Final payments were being made without verification of Trust Agents. Implementing rural projects that were not cost-effective had a low impact on the rural Electrification Programme. Duplication of Grid and Renewables raised the risk of misallocation of funds. The Green Min and the Mini Grid household’s satisfaction was around 56%. Payment of unexecuted projects amounted to USD 137,256. As of June 2022, REA achieved 79% of the project output in the BTIP- VEI.
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The connectivity performance of single and three-phase customers was 67%. Low connectivity was blamed on the unwillingness of customers to connect and low awareness of the benefits of the services. Project achievement was 20% due to REA’s poor preparation.
Physical achievement of BTIP- VEI projects was lower than the financial performance, with project payment of 86% despite 20% project completion.
Physical achievement of Densification Project II A matched the financial outlay. By June 2022, 66% was paid for project implementation, and the outstanding payment was 34%, with pending works standing at 31% with a 3% shortfall. The overall progress of the project was 86%.
Physical achievement of Renewable fell short of actual financial performance. The equivalent of 93% of project implementation was paid, the outstanding payment was 8%, while pending works were 14%. This implies payments made exceeded the work progress by 6%.
Monitoring and Evaluation of the Rural Electrification Programme by the Ministry of Energy. In both strategic plans of 2018/19 – 2020/21 & 2021/22, Evaluation was supposed to be conducted quarterly, semi-annually and annually. The ministry did not carry out any monitoring and Evaluation of the projects funded by SIDA. REA conducted internal monitoring and Evaluation through the Trust Agent, who overlooked the project’s sustainability aspects to meet the communities’ demands.
Audit Conclusions
Rural Electrification has increased access to electricity and improved the livelihoods of the communities. As of December 2022, 11,044 customers have been connected to the electricity grid, representing 31% of the targeted 35,625 households. Additionally, REA has connected 17,302 families to the Green mini and Microgrids, equivalent to 20% of the targeted 86,000 homes.
The access to electricity has also benefited public places like schools, churches, mosques and hospitals. However, REA has not adequately managed the implementation of the Electrification Programme.
Poor Planning, design and supervision have been observed, with payment schedules exceeding actual project progress and, in some instances, overpayments for works not carried out. Procurement has been haphazardly done.
Audit Recommendations and Our Observations
The auditors recommended that REA should continue shouldering these responsibilities without evaluating whether REA has the structure to carry out its mandate as it is.
We say REA’s organizational structure is unsuited to dabble in the National Grid, which overlaps with what Tanesco is doing. REA’s capability is also constricted by having too many projects to oversee, leading to a workforce shortage to carry out her mandate.
The audit report did not address the need to involve communities in Planning, designing, implementing, supervising, and running those projects after completion. The lack of community participation and transparency made REA overstretched and incapable of doing her job correctly.
REA’s use of domestic funds charged as 3% of electricity utility was left out in this audit, so it is unclear how the funds are utilized. It looks like the Rural Electrification Programme solely depends on foreign handouts, which may be misleading.
How demurrage charges accumulated and who was paid was not covered in the report, leaving the suspicion that maybe those charges were exaggerated to benefit a few individuals.
The manufacturers of underperforming batteries were not disclosed and were purchased at what costs could be the tip of the iceberg.
The audit report did not evaluate the REA legislation, which ought to be reviewed to limit the extent of the works to renewables, and the application of petroleum products should be revoked to reduce costs and ensure project sustenance.
The audit report did not specify and detail those environmental issues and their significance, which NEMC had issued and were not implemented. Such omission left the report’s reader in the dark regarding their importance and implications.
With over Tshs 35 Billion directly spent on projects and demurrage charges of over Tshs 700 Billion to connect a mere household, 35,622 is a low return for the investment. The audited report did not essay the cost-benefit of this mammoth project. Cost-benefit analysis is vital to determine whether resources are well spent and justify continuity.
The continuity recommendation of the audit team was unfounded and should not be supported. The cost of connectivity per household stands at Tshs 31.2 Million, which is unacceptable by any consideration. There must be other options to connect rural homes with affordable prices so that most rural households can be reached as soon as possible.
