Governance and Efficiency in African Power Utilities the Paradox of Widespread but Ineffective Secto

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Governance and Efficiency in African Power
Utilities the Paradox of Widespread but
Ineffective Sector ReformsWaqar Haider, Sr.
Energy Specialist, The World Bank

• Workshop on Energy Poverty in AfricaOrganized
  byThe OPEC Fund for International
  DevelopmentTranscorp Hilton Hotel, Abuja,
  Nigeria June 9-10, 2008

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Outline

• Africas power sector a global outlier
• Chronic problems anatomy of a crisis
• Unraveling the four paradoxes
• Analysis of widespread but ineffective sector
  reforms
• The way forward

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Africas power sector A global outlier
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Meagre infrastructure
Generation capacity (MW per million popn.)
Electricity coverage ( of households)
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High prices, low consumption
Average revenue (US per kWh)
Power consumption (kWh pc pa)
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Poor reliability

• Business sector
• Face 56 days of outages per year
• Lost sales revenues
• 5-6 formal sector
• 20 informal sector
• Equipment damage cost 1 sales revenue
• Most large firms run generators 0.40/kwh
• Social services
• Lack of illumination/refrigeration in clinics
• Absence of lighting affects home study

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Chronic problems Anatomy of a crisis
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Causes and catalysts

• Long term causes
• Lack of planning
• Inadequate investment
• Poor maintenance
• Short term catalysts
• High economic growth
• Rising oil prices (thermal countries)
• Drought conditions (hydro countries)
• Destruction of infrastructure by conflict

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Country taxonomy
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Widespread load shedding
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Emergency power leases
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Unravelling the paradoxes
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Abundant energy yet little power

• SSA has substantial energy resources
• Hydro, oil, gas, coal, geothermal
• Economic geography problematic
• Separates supply from demand
• Huge costs relative to host economies
• Solution Develop regional power trade

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High prices but higher costs

• Average effective tariffs are high but only cover
  capital costs in some cases
• Average revenues typically cover only average
  operating cost due to low collections
• Capital subsidies have been substantial but with
  highly regressive incidence
• Average incremental costs significantly below
  average total costs historically
• Solutions Work simultaneously to lower costs,
  raise tariffs, and improve equity

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High expenditure, little finance

• Power sector spending is significant, but most
  goes on operating costs
• External financing from traditional sources
  minimal, but new sources
• Needs assessment suggests doubling of spending,
  tripling of investment
• Solutions increase external finance, improve
  utility finance, accelerate strategic projects to
  reduce operating costs

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Analysis of widespread but ineffective sector
reforms
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Incidence of reform
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Evolution of PSP
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SOE governance
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Efficiency indicators
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Hidden costs of inefficiency
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Widespread reform, limited results

• Substantial experimentation with reform but
  partial and often inappropriate
• PSP difficult without cost recovery
• Competition difficult with tiny systems
• Planning and SOE governance overlooked
• Sector institutions highly inefficient creating a
  major economic burden
• Solution Adapt reforms to local context

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The Way Forward
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Recommendations (1)

• Develop a new generation of large-scale,
  transformative generation projects
• Concerted effort behind key projects -- WB as
  enabler
• Blend private sector capital and donor support
• Less risk averse approach to hydro
• Develop regional power pools
• Get key inter-connectors in place
• Develop institutional frameworks (regulations,
  agreements)
• Surmount political concerns on security of supply
• Strengthen critical planning capabilities
• From firefighting to foresight
• Sector structure mixed economy of incumbent
  utilities and private sector participation

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Recommendations (2)

• Utility efficiency and operational improvement
  programs
• Loss reduction programs (non-technical revenue
  collection)
• Load management / DSM
• Low-cost technology standards
• Financial viability raise tariffs while
  investing to reduce costs
• Better governance critical
• Major efforts on capacity building
• Political and financial commitment required
• Access expansion imperative redirect capital
  subsidies towards rollout
• Requires increased donor commitment to multi-year
  programs
• Target public institutions, lighting for maximum
  development impact
• Develop institutional models for rural areas
• Harness technology advances
• And do it all at once