Financing Tanzania's Infrastructure Surge: Risk Allocation in Project Finance

Tanzania is in the middle of one of the most ambitious infrastructure programmes in sub-Saharan Africa. A USD 10 billion Standard Gauge Railway stretching from the Indian Ocean to Lake Victoria and beyond; a USD 42 billion LNG development in Lindi that would make Tanzania a tier-one global gas exporter; a USD 985 million roads budget for 2026/27 alone — and a government that has publicly committed to raising USD 9 billion through PPP investment under its Five-Year Development Plan.

• USD 10B — Standard Gauge Railway (SGR)
• USD 42B — LNG Development, Lindi
• USD 9B — PPP pipeline under the Five-Year Plan
• USD 180B — projected nominal GDP by 2030

With nominal GDP projected to grow from USD 89 billion in 2025 towards USD 180 billion by 2030, the country is no longer an emerging frontier for infrastructure capital. It is an active, complex, and increasingly sophisticated market. This article examines the principles of risk allocation in project finance, grounded in the realities of the Tanzanian market.

Supply Risk: Securing Inputs from Fuel to Gas Pipeline Access

For energy projects in Tanzania, supply risk takes on particular significance. The country's power sector currently relies on a combination of hydropower — dramatically expanded by the completion of the Julius Nyerere Dam in 2025, which added 1,175 MW of installed capacity — and thermal generation that depends on fuel supply chains and domestic gas from fields at Songo Songo and Mnazi Bay.

A gas pipeline access agreement for a power plant in Dar es Salaam is a vital contract with often no substitutable alternative. If the pipeline is unavailable, the plant cannot operate, regardless of how well the offtake agreement is structured. In such cases, liquidated damages under the pipeline agreement may provide only limited financial protection. The real value of the guarantee is incentive alignment.

Sector spotlight: Julius Nyerere Hydropower Dam

Completed in 2025, the Julius Nyerere Dam on the Rufiji River delivers 1,175 MW to the national grid — the single largest power project in Tanzania's history. Unlike thermal projects, it requires no fuel supply agreement. But it introduces distinct risk categories: hydrological risk, an offtaker in TANESCO, and a construction profile dominated by a single EPC contractor with significant government involvement in project governance.

Currency & Interest Rate Risk: The TZS/USD Problem

Tanzania's infrastructure projects almost universally face a structural currency mismatch. Capital expenditure is procured in hard currency — USD, EUR, or CNY depending on the contractor. The SGR's financing alone involved Swedish ECA EKN/SEK, Polish KUKE, Italian SACE, and Chinese Sinosure, denominating debt across multiple currencies. Yet the project's domestic revenue stream is denominated in Tanzanian shillings.

The Tanzanian shilling showed meaningful improvement in stability in 2025, depreciating by only 1.3% compared to 6.3% in 2024, supported by prudent monetary policy and rising foreign reserves — now at 4.9 months of import cover. But over a 20- or 25-year financing tenor, exchange rate risk remains fundamental.

FX swaps are typically inadequate to immunise a project against currency convertibility and repatriation risks — particularly when it may be the state itself that restricts repatriation. Structural solutions, put in place at the outset, are the more reliable answer.

With Tanzania's project finance transactions increasingly blending multilateral, ECA, and commercial bank debt — the SGR's Lots 3 and 4 combined USD 1.32 billion in ECA facilities with USD 462 million from commercial banks and DFIs — the interest rate profiles of different tranches may diverge significantly.

Political & Sovereign Risk: Managing What Cannot Be Priced Away

Tanzania scores comparatively well on political risk metrics within the East African region. The government of President Samia Suluhu Hassan has adopted a markedly investor-friendly posture since 2021. The country's fiscal position — a deficit of 3.4% of GDP against public debt of 47.6% of GDP — is more conservative than several regional peers. The banking sector's declining NPL ratio (from 4.4% to 3.1% in 2025) reinforces a narrative of macroeconomic consolidation.

But the October 2025 post-election unrest was a reminder that no jurisdiction offers permanent immunity from political risk. For lenders and investors structuring long-tenor infrastructure transactions in Tanzania, the question is not whether political risk exists, but how it is allocated and mitigated.

Live transaction: Tanzania LNG — Likong'o-Mchinga Project

The USD 42 billion LNG project, involving Shell and Equinor alongside TPDC, represents the most complex political risk challenge in Tanzania's project finance history. The Host Government Agreement (HGA) is the foundational document. If the HGA is well-structured and the government's obligations are clearly enumerated, MIGA's breach-of-contract guarantee can provide cost-effective coverage for the suite of political risks. FID is currently anticipated for 2028.

MIGA is particularly relevant for Tanzania transactions. A structuring opportunity exists: by ensuring that political risk events are framed as contractual obligations of the sovereign in the HGA or implementation agreement, sponsors may purchase breach-of-contract cover alone — at materially lower premiums — rather than the full political risk insurance suite. Early engagement with MIGA during the structuring phase is essential.

ECAs are already deeply embedded in Tanzania's infrastructure financing. The SGR programme illustrates this clearly: ECA facilities from Sweden (EKN/SEK), Poland (KUKE), Italy (SACE), and China (Sinosure) have collectively underwritten over USD 1.88 billion in construction financing for Lots 1–5. Investment treaty structuring via treaty-protected jurisdictions remains an important additional layer of protection for equity investors.

EPC & O&M Contracts: Construction and Operational Risk

Tanzania's infrastructure projects have employed a wide range of EPC contractors: Yapi Merkezi (Turkey) and Mota-Engil (Portugal) for SGR Lots 1–4; China Railway Engineering Design and Consulting Group (CREC) for SGR Lots 7–8 to the Burundian border. This diversity — reflecting different financing sources and local content requirements — means that EPC contract quality and enforceability vary materially across the project pipeline.

Three dimensions of EPC contract analysis are critical for project lenders in Tanzania:

Effectiveness — whether the rate of accrual of delay liquidated damages approximates the revenue loss caused by delayed commissioning. For a power project selling into TANESCO under a tariff structure, the daily revenue foregone during a delay is calculable from the project model, and the LDs should be sized to match.

Importance — the cap on contractor liability. Given Tanzania's project scale — the SGR Lots 7–8 contract alone is valued at USD 2.154 billion — even a cap set at 10–15% of contract value represents a meaningful exposure. But for a lender with a 20-year repayment horizon, the cap must be assessed against the full NPV of revenues at risk.

Reliance — the practical question of enforceability. For Chinese-led packages, the enforceability of security in Chinese courts — and the practical ability to call on a parent company guarantee — is a live diligence question that should not be deferred.

TANESCO and Beyond: The Evolving Offtaker Landscape

For Independent Power Producers (IPPs) in Tanzania, the offtaker has historically been TANESCO — the Tanzania Electric Supply Company. TANESCO's financial position has been a persistent concern for project lenders. Lenders to IPPs have typically required payment guarantee backstops from the Ministry of Finance, with EWURA providing standardised regulatory support under the competitive auction framework.

Tanzania's project finance market in 2026 offers a partial structural solution: direct offtake agreements with industrial buyers — mining operations, special economic zones, large manufacturers — eliminate TANESCO credit risk entirely. With Tanzania's mining sector expanding, this offtake structure is increasingly viable for captive power, mini-grid, and mid-scale generation projects.

For the LNG project, the offtake architecture is quite different. Long-term export contracts with Asian buyers — priced in USD per tonne — provide a natural currency hedge and a creditworthy offtaker base. Kenya and Uganda have already signed MOUs to purchase Tanzanian LNG. Successful LNG projects typically require 70–80% of production committed under long-term contracts before reaching Final Investment Decision.

Leyrand Law — Project Finance Practice

Leyrand advises sponsors, lenders, and development finance institutions on infrastructure project finance transactions across Tanzania and East Africa, advising on power, transport, and extractives transactions across the full project lifecycle.

This article is for informational purposes only and does not constitute legal advice. Specific transactions should be discussed with qualified legal counsel.