VZCZCXRO4483
PP RUEHDBU RUEHDT RUEHKN RUEHLMC RUEHMJ RUEHMR RUEHPB
DE RUEHDR #1504/01 2501230
ZNY CCCCC ZZH
P 071230Z SEP 06 ZDK ZUI HZC 9930
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 4723
INFO RUCNCLM/MCC CANDIDATE COUNTRY COLLECTIVE PRIORITY
RUEHDS/AMEMBASSY ADDIS ABABA PRIORITY 3053
RUEHKM/AMEMBASSY KAMPALA PRIORITY 2830
RUEHKI/AMEMBASSY KINSHASA PRIORITY 0209
RUEHLS/AMEMBASSY LUSAKA PRIORITY 1726
RUEHMS/AMEMBASSY MUSCAT PRIORITY 0016
RUEHNR/AMEMBASSY NAIROBI PRIORITY 0254
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 DAR ES SALAAM 001504 
 
SIPDIS 
 
SIPDIS 
 
DEPT AF/E FOR B YODER, AF/EPS, T HASTINGS 
ALSO PLEASE PASS TO TREASURY DEPT FOR ALEX SEVERENS 
 
E.O. 12958: DECL: 09/05/2011 
TAGS: PREL PGOV ECON EFIN EAID ENRG EINT TZ
SUBJECT: KIKWETE'S CABINET APPROVES MCA COMPACT PROPOSAL 
 
REF: DAR ES 0165 
 
Classified By: D. Purnell Delly, Charge d'Affaires for reason 1.4(d) 
 
¶1.  (SBU) SUMMARY.  On August 28, President Kikwete and 
Cabinet officially approved the Government of Tanzania's 
(GOT's) Millennium Challenge Account (MCA) Compact proposal 
for submission to Millennium Challenge Corporation (MCC) 
Washington.  The GOT's proposal focuses on strengthening 
Tanzania's infrastructure network in three key sectors: 
transport, water and energy.  The total cost of all proposed 
projects is USD 799 million, with 48 percent of the budget 
for road construction and airport upgrades, 30 percent for 
water and sanitation projects, and 16 percent for rural 
electrification.  The recent submission signals that Tanzania 
is on track with the Compact process, meeting key target 
dates set forth by MCC.  The GOT's Coordinator for the MCA 
Compact, Bernard Mchomvu, has proved skillful in working 
through Tanzania's bureaucracy, establishing an appropriate 
structure for the process, and identifying potential areas of 
sensitivity or concern.  Important next steps include the 
internal presentation of an "Opportunity Memo" by the MCC 
Country Team to the Investment Committee and MCC's due 
diligence of all projects proposed by the GOT.  END SUMMARY. 
 
Kikwete's Cabinet Approves MCA Compact Proposal 
--------------------------------------------- -- 
¶2. (SBU) On August 28, President Kikwete's Cabinet reviewed 
and approved the Government of Tanzania's (GOT) recently 
completed Millennium Challenge Account (MCA) Compact 
proposal.  With Cabinet approval, the GOT formally submitted 
the proposal to the Millennium Challenge Corporation's (MCC) 
country team, led by Country Director, Gretchen Brevnov.  The 
GOT managed to achieve submission within the six month time 
frame set by the MCC delegation after its initial visit to 
Tanzania in February 2006. 
 
¶3.  (C) According to the GOT's MCC Coordinator, Bernard 
Mchomvu, the Cabinet approved the proposal with no 
substantive changes and with the full support of President 
Kikwete and his Ministers.  Mchomvu told Econoff on August 30 
that President Kikwete had read not only the Cabinet paper 
summary but the entire MCA 70 page proposal.  Mchomvu noted 
that "President Kikwete stressed his support for the proposal 
and asked his Ministers if they had any comments.  The 
Ministers raised no objections and instead emphasized that 
they needed this development assistance 'yesterday'." 
 
Tanzania's Proposal: Improving Infrastructure 
--------------------------------------------- - 
¶4.  (SBU) The GOT's proposal focuses on strengthening and 
expanding Tanzania's infrastructure network with projects in 
three primary sectors: transport, water and energy.  The 
stated objective is to stimulate broad-based economic growth 
and poverty reduction by addressing supply side constraints 
and improving access to basic services.  Based largely on 
Tanzania's recently completed National Strategy for Growth 
and Reduction of Poverty (known in Swahili as "MKUKUTA"), the 
proposal reflects discussions within the GOT's Ministries and 
between the GOT and Tanzania's private sector and civil 
society. 
 
¶5.  (SBU) Tanzania's proposed projects for transport, water 
and energy total USD 799.2 million.  Projects in the 
transport sector amount to USD 386.6 million (or 48.4 percent 
of the total), while projects in the water and energy sectors 
amount to USD 243 million (30.4 percent) and USD 130.6 
million (16.3 percent) respectively.  The following chart 
outlines the proposed projects and associated costs: 
 
Sector         Project                              USD 
         Name                             (millions) 
--------------------------------------------- ------------- 
Transport      Tunduma-Sumbawanga Road (224.5km)   112.000 
Transport      Tanga-Horohoro (68km)                34.000 
Transport      Tunduru-Songea (263km)              130.000 
Transport      Songea-Mbamba (144.5km)              50.204 
Transport      Upgrade Kigoma Airport                9.000 
Transport      Upgrade Mafia Airport                 8.570 
Transport      Zanzibar Rural Roads                 42.818 
TRANSPORT Total:                                   386.593 
Water    Kidunda Dam                         126.000 
 
DAR ES SAL 00001504  002 OF 002 
 
 
Water    Bunena and Kagemu Water intakes,      9.378 
Water    Morogoro water supply systems         2.192 
Water    Pemba Water supply                   11.616 
Water    Zanzibar Town sanitation             11.500 
Water    Misungwi Town Water Supply           12.516 
Water    Bunda Town Water Supply               4.628 
Water    Bariadi Town Water Supply             3.000 
Water    Tarime Water Supply                   9.000 
Water    Geita Town Water Supply              17.134 
Water          Rural Water Supply (Ungujga,Pemba)   12.077 
Water          Monitoring and Assessment             8.200 
Water          Water quality Laboratories            6.000 
Water          River Basin Organizations             9.800 
WATER Total:                                       243.041 
Energy         Electrification of 12 District HQs   25.160 
Energy         Nakatuta Small Hydropower Plant      31.100 
Energy         Malagarasi Small Hydropower Plant    24.340 
Energy         Zanzibar Submarine Cable             50.000 
               Interconnection Improvement 
ENERGY Total:                                      130.600 
Total all sectors:                                 760.233 
Program Management Budget (MCA Team):               39.000 
--------------------------------------------- ------------- 
TOTAL:                                       799.233 
 
 
Sensitive Areas: Kidunda Dam, Fiscal Management on Zanzibar 
--------------------------------------------- ------------- 
¶6. (C)  When questioned on potential areas of sensitivity 
within the proposal, Mchomvu highlighted two: the Kidunda dam 
and the management of funds for project implementation on 
Zanzibar.  In terms of the dam, Mchomvu said that although 
due diligence would be completed by the MCC Team, "some 
issues on the environmental front, which are 
characteristically associated with dams may be raised."  With 
respect to Zanzibar, Mchomvu pointed out that the GOT's 
proposal calls for project funds to be managed by the 
relevant ministries including ministries on Zanzibar.  "While 
the MCC Country Team has indicated a level of comfort with 
such an arrangement on the Mainland, the Team is less 
confident in the financial management and accountability 
structures on Zanzibar.  This could be one area where 
political sensitivities arise," Mchomvu noted. 
 
Comment: MCC Compact Process Moving Forward in Tanzania 
--------------------------------------------- ---------- 
¶7. (C) The GOT's recent submission signals that the MCA 
Compact process is on track in Tanzania.  After gaining MCA 
Compact eligibility, President Kikwete wasted no time after 
assuming office in December 2005 to appoint Bernard Mchomvu, 
a well-respected and competent coordinator, to lead the 
process.  Mchomvu has proved highly adept at working within 
GOT's bureaucracy, organizing countless consultative sessions 
with relevant Ministries.  Mchomvu also ensured establishment 
of a proper support structure: the creation of a Tanzanian 
MCC Steering Committee to guide the process and a Technical 
Core Team for implementation.  Now that the GOT has submitted 
its proposal, the ball is back in MCC Washington's court, 
with key next steps including the Country Team's "Investment 
Opportunity Memo" and its due diligence process to assess the 
GOT's proposed projects. 
 
¶8.  (C) Despite one or two sensitive areas, the MCC Compact 
is development assistance which the Kikwete administration is 
anxiously awaiting.  When his Ministers said they wanted such 
projects "yesterday," President Kikwete expressed his hope 
that money could be disbursed as early as May 2007.  MCC 
Washington has not yet provided even a tentative date for 
Compact signing or disbursement of funds, saying that the 
process could take anywhere from nine to twelve months from 
submission of the GOT's proposal. END COMMENT. 
DELLY