DAR ES SALAAM, Dec 31 (Reuters) - Tanzania's energy regulator has approved a power tariff hike of 8.53 percent by the state-run utility, less than half of what the utility said it needed to stem losses.
The Tanzania Electric Supply Company (TANESCO) had sought an 18.19 percent tariff increase to snap a loss-making trend and clear debts to independent power producers and fuel suppliers.
The tariff hike takes effect from Jan. 1, the Energy and Water Utilities Regulatory Authority (EWURA) said in a statement on Saturday.
"The proposed tariff increase intends to cover TANESCO's cost of operation and fund its capital investment programme," said the regulator.
"The increase will also enable TANESCO to demonstrate its bankability to donors offering concessionary loans or grants."
The regulator said the average tariff would now be increased from 242.34 Tanzania shillings ($0.1114) per kilo-watt hour to 263.02 shillings/kwh.
The cash-strapped public utility has been seeking loans from the World Bank, the African Development Bank (AfDB) and commercial lenders to turn around the company and return to profitability.
TANESCO said it was currently selling power at a loss, causing it to be unable to clear its long-standing arrears and invest in new power plants.
Energy costs are among the biggest drivers of inflation in Tanzania. The country's overall inflation rate edged higher to 4.8 percent year-on-year in November, from 4.5 percent in October.
EWURA said the power tariff increase initially sought by the power firm would have hurt users from commercial, industrial and mining segments.
A local cement maker, Simba Cement Company Ltd, had opposed the tariff hike, saying it would increase production costs while the quality of power supply remained poor.
TANESCO has not addressed the issue of operational inefficiencies and poor cost management, said EWURA.
Despite having reserves of over 57 trillion cubic feet (tcf) of natural gas, Tanzania has been facing chronic power shortages over the past decade due its reliance on drought-prone hydro-power dams. ($1 = 2,176.0000 Tanzanian shillings) (Editing by Elias Biryabarema and Stephen Powell)