AFRICA REGION THE WORLD BANK ESMI 2 Symposium on Power Sector Reform and Efficiency Improvement in Sub-SaharanAfrica Johannesburg, December 5-8, 1995
Report No. 182/96 June 1996
Jointly Organized by The Africa Region of the World Bank and The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP)
EnergySedor Management sistance Programme JOINT UNDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP)
PURPOSE
The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) is a special global technical assistance program run by the World Bank's Industry and Energy Department. ESMAP provides advice to governments on sustainable energy development. Established with the support of UNDP and 15 bilateral official donors in 1983, it focuses on policy and institutional reforms designed to promote increased private investment in energy and supply and end-use energy efficiency; natural gas development; and renewable, rural, and household energy.
GOVERNANCE AND OPERATIONS
ESMAP is govemed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and other institutions providing financial support, and the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners, and economists from the Industry and Energy Department of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for administering the Programme.
FUNDING
ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and public and private donors from countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States.
FURTHER INFORMATION
An up-to-date listing of completed ESMAP projects is appended to this report. For further information or copies of completed ESMAP reports, contact:
ESMAP c/o Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A. ClX 12ESMAP
Joint UNDP / World Bank Energy Sector ManagementAssistance Programme
c/o The World Bank * 1818 H Street, N.W. * Washington, D.C. 20433 * U.S.A.
Symposium on Power Sector Reform and Efficiency Improvement in Sub-Saharan Africa
Johannesburg, December 5-8, 1995
Power Development, Efficiency and Household Fuels Division Industry and Energy Department The World Bank 1818 H Street, N.W. Washington, D.C. 20433
This document has restricted distributionand may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without UNDP or World Bank authorization.
Table of Contents
Foreword ...... v
Preface ...... vii
Abbreviations and acronyms ...... ix
Executive summary ...... 1 Energy Sector: Status and Challenges ...... 1 Economic and Demographic Features ...... 1 Energy Balance ...... 2 Key Electricity Sector Issues ...... 2 SSA countries need to expand access to energy beyond the currently low levels. 3 Utilities need cost-recovery tariffs. 3 Most SSA power sectors need to reform. 4 Utilities need to concentrate on the commercial aspects of power supply. 5 Regional integration and bulk power trading can substantially reduce power system costs ... 5 Social protection can be maintained while reforming. 5 Private investors are attracted by macroeconomic stability and institutional, legal, and regulatory transparency. 6
Welcome address ...... 9
Keynote address ...... 11
Inaugural Address on the challenges of reform in the power sectors of Sub-Saharan Africa ...... 15
Keynote address on social aspects of power development in Sub-Saharan Africa ...... 19
I. How do Sub-Saharan African utilities compare? ...... 23 1.1 Introduction ...... 23 1.1.1 The Conventional Wisdom ...... 24 1.1.2 Sector Indicators and Methodology ...... 25 1.2 Study Highlights...... 25 1.3 Characteristics of the Sample Countries ...... 28 1.3.1 Economic and Demographic ...... 28 1.3.2 Sector Policies and Institutional Structure of the ESIs ...... 30 1.3.3 Alternative Reform Options ...... 33 1.4 Supply Performance ...... 42 1.4.1 Installed Capacity ...... 42 1.4.2 Access to Electricity ...... 43 1.4.3 Generation ...... 44 1.4.4 Transmission and Distribution...... 44 1.4.5 System Losses ...... 45 1.4.6 Peak Demand and Reserve Margins ...... 46 1.4.7 Reliability of Supply ...... 49 1.4.8 Environmental Performance ...... 49 1.4.9 Project Performance ...... 49 1.5 Demand Indicators ...... 50 1.5.1 Consumption by Customer Class ...... 50 1.5.2 Tariffs, Subsidies and Costs ...... 51 1.6 Productivity lndicators ...... 53 1.6.1 Labor Productivity ...... 53 1.6.2 Power Plant Performance...... 54 1.6.3 Cost Performance ...... 54 1.7 Financial Challenges ...... 55 1.7.1 Financial and Commercial Performance ...... 55 ii ZU4Az0' C01wi.wRs
1.7.2 Investment Challenge ...... 57 Attachment 1: Data Sources and References ...... 60 Attachment 2: Macroeconomic and Sector Data ...... 61
11. The electric power sector in SSA: Current institutional reforms ...... 75 2.1 Current Institutional Conditions ...... 75 2.2 Analyzing the Trends ...... 80 2.2.1 Sources of Institutional Change ...... 81 2.3 Available Reform Strategies ...... 84 2.3.1 A Wide Range of Institutional Arrangements ...... 84 2.3.2 Preparing to Finance Future Interconnections ...... 86 Attachment I: A Topology of Institutional Arrangements ...... 88 Attachment II: C6te d'lvoire: Lessons of an Experiment ...... 98
III Global Reform Trends and Institutional Options for Sub-Saharan Africa ...... 101 3.1 Introduction ...... 101 3.2 Why Reform? ...... 102 3.3 Types of Reforms ...... 103 3.4 Role of the Public and Private Sectors ...... 103 3.4.1 Public Enterprise Reform ...... 104 3.4.2 Public Ownership and Private Operation ...... 105 3.4.3 Private Ownership and Operation ...... 106 3.5 Industry Structure and Competition ...... 109 3.6 Regulation ...... 110 3.7 Reform Strategy ...... 112
IV. Social Impact of Sector Reform in Sub-Saharan Africa ...... 115 4.1 Introduction ...... 115 4.2 Background to Price Reform ...... 116 4.2.1 Need for Economic Prices ...... 116 4.2.2 Methodological Framework...... 116 4.2.3 Sample of Countries ...... 117 4.2.4 Electricity Prices ...... 117 4.2.5 Electricity Subsidies...... 118 4.3 Impact on General Prices ...... 119 4.4 Impacts on Households ...... 122 4.4.1 Household Expenditure Budgets ...... 123 4.4.2 Estimation Approach ...... 124 4.4.3 Results ...... 125 4.5 Options to Deal with the Price Impacts on the Poor ...... 126 4.5.1 Social Welfare Payments ...... 126 4.5.2 A Change in the Tariff Structure ...... 127 4.5.3 Connection Charges ...... 127 4.5.4 Lifeline Consumption Blocks ...... 128 4.5.5 How Long to Subsidize ...... 129 4.6 Alternative Financing Mechanisms ...... 130 4.6.1 Magnitude of the Required Subsidy ...... 130 4.6.2 Criteria to Be Met by Any Financing Mechanism ...... 130 4.7 Summary and Recommendations ...... 131 Bibliography ...... 134
V. Regional Interconnection and Bulk Power Trading ...... 137 5.1 Introduction ...... 137 5.2 Present Position ...... 137 5.2.1 Generation capacity and energy ...... 138 5.2.2 Regional Interconnection and Trade ...... 140 5.2.3 International Comparisons ...... 142 72NXav06/ 6v9A'zw.s iii
5.2.4 Contractual Structure...... 143 5.2.5 Southern African Power Pool ...... 144 5.3 Costs, Benefits and Opportunities ...... 146 5.3.1 Benefits ...... 146 5.3.2 Costs ...... 146 5.3.3 New Opportunities ...... 147 5.4 Key Issues ...... 148 5.4.1 Pricing bulk supply ...... 148 5.4.2 Transmission pricing and access ...... 149 5.4.3 Policy on Firm Power Trade ...... 149 5.4.4 Institutional Framework ...... 150 5.5 Trade and Power Sector Reform ...... 151
VI. Financing Africa's Power Sector: Issues and Options ...... 153 6.1 Summary ...... 153 6.2 Introduction ...... 154 6.2.1 Rationale for Private Sector Participation ...... 154 6.3 Forms of Private Participation in Electricity ...... 155 6.3.1 Service Contracts ...... 155 6.3.2 Management Contracts ...... 156 6.3.3 BOO Concessions ...... 156 6.3.4 Divestiture ...... 159 6.4 Factors influencing private investors ...... 161 6.5 Developing a Financing Strategy ...... 165
VII. Improving Power Utility Efficiency ...... 169 7.1 Summary ...... 169 7.2 Major Problems ...... 170 7.3 Methodology ...... 171 7.4 Main findings ...... 173 7.5 Recommendations ...... 173
VIII. Performance improvement of utilities: Indicators and incentives ...... 177 8.1 Introduction ...... 177 8.2 Key Factors Behind the Changing World of Electricity Supply ...... 177 8.2.1 International Economic Pressures ...... 177 8.2.2 Customers Increasingly Demanding a Greater Choice ...... 177 8.2.3 Increased Competition for Capital in the International Financial Markets ...... 178 8.2.4 Declining Governmental Budgets ...... 178 8.2.5 Pressure Against Monopolies ...... 179 8.3 Globalization of the Electricity Industry ...... 179 8.3.1 The Emerging Electricity Industry ...... 179 8.3.2 Motivating the Workforce ...... 182 8.3.3 Rewards For Performance ...... 183 8.3.4 Performance Contrast ...... 184 8.4 Using Information to Understand the Business ...... 184 8.4.1 Nature of the Business ...... 184 8.4.2 Unbundling ...... 184 8.4.3 Benchmarking ...... 185 8.5 Using Information. to Drive the Business ...... 185 8.5.1 Making the Best of Best Practices ...... 185 8.5.2 Productivity Measurement ...... 187 8.5.3 Balanced Scorecard ...... 188 8.5.4 Eskom's 90:7:3 Initiative ...... 188 8.6 Conclusion ...... 189 Bibliography ...... 190 iv 12gA'oaOR'f6'OA
IX. Staffing, Career, and Training Issues ...... 191 9.1 Introduction ...... 191 9.2 Staffing Within Electric Utilities ...... 192 9.3 The Experience of African Utilities ...... 194 9.4 Issues and Problems ...... 195 9.5 Education and Training Issues ...... 198 9.6 Twinning Programs ...... 201 9.7 Conclusions and Recommendations ...... 203 Attachment 1: Staff Classifications for an Electric Utility ...... 204 Attachment 2: Measures of Efficiency ...... 206 Attachment 3: Indicators for African Power Utilities ...... 207 Attachment 4: Outline of Specialized Training Program for Diesel Engines ...... 208 Attachment 5: Twinning Arrangements ...... 209
X. KfW's Support for Improving Performance of Electric Power Utilities ...... 211
XI. GTZ's Support for Efficiency Improvement ...... 213
Annex 1: Symposium agenda ...... 215
Annex 2: List of Participants ...... 223 Foreword
The power sectors in Sub-Saharan Africa face enormous challenges. The proportion of people without access to electricity is on average among the lowest in the world. The performance of electric utilities is generally disappointing. To meet electricity demand over the next decade, the combined African power sectors will need to invest $18 billion; however, in meeting this challenge, they face a financing gap of more than $10 billion, a gap that public finance alone will not be able to bridge. Despite the pressing need to develop new approaches to mobilize the required resources, the global reform trend in the power sector started in the 1980s has largely bypassed Sub-Saharan Africa. Given this background, African ministers of finance and energy, and utilities' managers met on 5-8 December 1995 near Johannesburg, South Africa with international experts from both developed and developing countries, representatives of the international finance and donor community to examine the issues, challenges, and institutional options facing the power sectors in Sub-Saharan Africa. During the deliberations of this symposium, a consensus emerged among the African participants regarding the key sector issues and the need to tailor market-based reforms to African conditions.
ESMAP and the Africa Region of the World Bank jointly organized the symposium. Several cosponsors provided financial and intellectual support, including the Belgian Administration for Development Cooperation, Commonwealth Development Corporation and Overseas Development Administration of the UK, Electricite de France, Electricidade de Portugal/Internel, GTZ and KfW of Germany, and Ministry of Cooperation of France. ESKOM, the South African electricity utility, provided the conference facilities.
Market-based reforms of the power sector are increasingly seen as fundamental to modernizing the productive base of an economy and improving the quality of life of the population as a whole. The World Bank intends to continue to promote such activities, whose objectives are central to the Bank's mission of promoting income growth and alleviating poverty. It is our sincere hope that this symposium may have helped our member countries in Sub-Saharan Africa to make these objectives closer to reality.
Richard Stern Director, Industry and Energy, World Bank and ESMAP Manager
FOREWORD V FOREWORD vi Preface
Conferences, seminars, and workshops are an economic and effective way to trigger sector reforms. African decision makers wanted to meet to share experiences and examine the key impediments and reform options for sustainable power sector development. Other regions had also jump-started their reforms in that manner. In Latin America, for instance, over two hundred of the top energy and finance sector leaders from virtually every Latin American and Caribbean country met in Cocoyoc, Mexico on 1991 for a three-day conference to examine how to overcome the electric power crisis of the region and engineer greater private sector participation.' Now, as power sector reforms in LAC have become an established process, the governments of the region are looking back to the Cocoyoc conference as a pathbreaking event.
ESMAP and the World Bank wanted to support this initiative in Sub-Saharan Africa (SSA). Thus, on December 5-7 1996 ESMAP, with the help of the World Bank and several cosponsors, put together a symposium in Johannesburg, South Africa. The symposium, whose proceedings are summarized in the present document, provided an open forum for senior African officials and international experts to examine and openly discuss the challenges facing their respective power industries while exploring the appropriate reforms for meeting these challenges.
The participants judged the symposium a success in several respects, most notably, the fact that soon after the conference, several SSA countries actively sought reform advice and began studying the alternative reform options for their power industries. The key factors that contributed to the success of the symposium were:
* The timing was right. There was a broad consensus in the region that the ongoing power sector policies were unsustainable and of the need to reform the power sectors.
* The symposium focused on Sub-Saharan Africa. It allowed African officials to communicate and learn from each other about their similar problems, successes and failures.
* "Ownership" of the Symposium was African. ESMAP, the World Bank and the cosponsors tailor the event to respond to African needs and concerns. ESMAP and Bank staff were seen by Africans as professional resources to assist them in implementing their agenda.
* Participants were selected based on their potential contribution. The African participants were those who could start the reforms, who could influence them, and who were responsible for their countries' utilities.
ESMAP,World Bank,and OLADE, "Conference-Policy Challengefor theNineties: Overcoming the Electric PowerSector Crisis in the Countriesof LatinAmerica and the Caribbean,"Cocoyoc, Mexico, September4-6, 1991
PREFACE vii viii IR7/X'y"
These included, among others, ministers and high-ranking officers of the ministries of energy, planning and finance, as well as utility managers. Attendance of outside participants was controlled. All the non-African,- participants were invited based on their potential contribution to the symposium.
* It was a genuine joint effort. The operational staff of the World Bank and the cosponsors became involved in various stages of the planning process, provided active support, attended the meeting and participated in the debates and follow up discussions with their African counterparts.
* Background papers were provided to focus discussion. The symposium was supported by background papers tailored to the Africans' main concerns and challenges. The papers, reproduced in this document, were neither generic nor esoteric, but rather were in line with the issues relevant to SSA.
This volume provides a detailed aide-memoire of the conference. It presents the papers commissioned for the conference as well as summaries of the salient points of discussion. The reader is cautioned, however, that the proceedings were transcribed from the speeches and background papers as provided by the authors. UJltimate responsibility for the content of the individual contributions remains with the authors. We hope that timely dissemination of these proceedings will help to sustain the resolve manifested by the participants to pursue effective and appropriate reforms in their power sectors.
This activity was managed by Messrs. John Besant-Jones, Peter Cordukes, Luis E. Gutierrez, and Mangesh Hoskote of ESMAP in close cooperation with the relevant technical division and sector operation divisions of the World Bank's Africa Region. The proceedings were put together by Mr. Luis E. Gutierrez.
The symposium was made possible by the generous support and intellectual collaboration of several cosponsors: Belgian Administration for Development Cooperation, Commonwealth Development Corporation and Overseas Development Administration of the UK, Electricite de France, Electricidade de Portugal/Internel, GTZ and KfW of Germany, and Ministry of Cooperation of France. ESKOM, the South African electricity utility, provided the conference facilities. To all of them, our sincere thanks.
Africa faces enormous challenges. Sharing of information and regional cooperation will be critical to overcome the challenges. We hope that the sharing of views and experiences at the symposium will help in finding the appropriate solutions for the future that will help accelerate economic development and reduce poverty. We deeply share the hope of one of the symposium speakers -an Africa walking tall among the nations of the world.
PREFACE viii ix
Abbreviations and Acronyms
CEB Central Electricity Board (Mauritius) CIE Compagnie Ivoirienne d'Electricite CPI Consumer Price Index ECG Electricity Corporation of Ghana ECPC Electricity Consumption per Capita EdF Electricite de France EDM Energie du Mali EECI Energie Electrique de C6te d'lvoire EELPA Ethiopian Electric Light and Power Authority ENELGUI Enterprise Nationale d'Electricite de Guinee ESAL Energy Sector Adjustment Program ESCOM Electricity Supply Commission of Malawi ESI Electricity Supply Industry ESKOM Electricity Supply Commission of South Africa ESMAP Energy Sector Management Assistance Program GDP Gross Domestic Product GDP Gross Domestic Product IMF International Monetary fund IPP Independent Power Producer JIRAMA Jiro Sy Rano Malagasy KPC Kenya Power Company KPLC Kenya Power and Lighting Company Limited KVDA Kerio Valley Development Authority LDC Less Developed Countries LRMC Long Run Marginal Cost NEPA National Electrical Power Agency OECD Organization for Economic Cooperation and Development OXR Official Exchange Rate PLN Perusahaan Listrik Negara (Indonesia) PPPXR Purchasing Power Parity Exchange Rate ROR Rate of Return RPM Reserve Plant Margin RPM ReservePlant Margin SAR Staff Appraisal Report SEEG Societe d'Energie et d'Eau du Gabon SENELAC Societe Nationale d'Electricite (Senegal) SNEL Societe Nationale d'Electricite (Zaire) SOE State Owned Enterprise SONEL SocieteNationale d'Electricite du Cameroun SSA Sub Saharan Africa T&D Transmissionand Distribution TANESCO Tanzania Electric Services Company TARDA Tana and Athi Rivers DevelopmentAuthority TRDC Tana River Development Company UEB Uganda ElectricityBoard UNDP UnitedNations DevelopmentProgram VRA Volta River Authority WDP World DevelopmentReport WPDA Water and Power DevelopmentAuthority (Pakistan) ZESA Zimbabwe Electricity SupplyAuthority ZESCO Zambia Electricity Supply CorporationLimited ZSPFC Zanzibar State Fuel and Power Corporation
ABBREVIATIONSAND ACRONYMS X -~~~~~~~~~~~
Executive summary
Sustainable reduction of poverty is the ultimate But the fact remains that performance in African objective of economic development. The energy countries has generally been disappointing. sector plays a key role in the development of Overall, labor in the SSA power sectors exhibit national economies in Sub-Saharan Africa as it low craftsmanship, and the utilities display does elsewhere. In this context, the ultimate goal serious managerial and institutional problems that of a rational energy policy is to provide a compromise their ability to fuel economic sustainable, economic, and reliable supply of development. energy to the largest number of people. Within the energy sector, the electricity supply industry The first paper in this report estimates that a plays a key role in the modemization of the financing "gap" of over $10 billion is expected to economy and the improvement of living emerge between power investment requirements standards. Although electricity supply in African and what can realistically be expected to be countries has been plagued by low access, high financed from intemal and extemal official costs of supply and low technical expertise, it is sources over the next decade. This gap is appropriate to record at the outset that many equivalent to the combined 1994 GDPs of Sierra African utilities have made significant progress in Leone, Malawi, Tanzania, Mali, Gabon, Guinea, recent years, in a variety of areas: Madagascar and Zambia. As a region, SSA has among the lowest availability of commercial - Most African utilities have been successful in energy fuels in the world, and it desperately needs meeting demand, and generally have done so to raise access levels to improve general welfare. through least cost expansion programs. The SSA power sectors need, in general, to 3 In a number of African countries, significant improve pricing, raise operational and investment efforts have been made to extend the efficiency, and create an enabling legal and electricity systems to serve rural areas. regulatory environment to attract private 3 Efforts are being made in a number of investors. These actions are fundamental to meet countries to involve the private sector, for the major challenges facing the energy sectors in instance through IPPs, and management and Africa. concession contracts. * Efforts are also underway to develop This executive summary consists of two intemational trading arrangements both in sections. It begins by examining the energy Western and Southem Africa. situation in Africa to put in perspective the main * Utility operations have been largely without challenges facing the region. It ends by presenting the adverse environmental consequences the key power sector issues drawn from the experienced in other regions of the world. discussions during the symposium.
Even where results have been disappointing, Energy Sector: Status and Challenges this is often the result of obstacles outside the control of utility managers, who have put a lot of effort into keeping the lights burning, or of Economic and Demographic Features. A full governments, which have been at the mercy of comprehension of the main energy issues and harsh global economic conditions. challenges facing the region requires an understanding of the main macroeconomic and
EXECUTIVE SUIMAARY 1 2 EXECUTIVE SUMMARY demographic features of SSA. First, incomes per and dung (0.7 percent reported). The region's capita are among the lowest in the world. Second, rural population uses these low-yield fuels in nearly all SSA countries (except Mauritius and (agricultural waste) for cooking in periods Mozambique), population is increasing at over 2.5 immediately following the harvest. The energy percent a year, and in countries such as C6te intensity of African economies is typically low, d'Ivoire and Kenya it is increasing faster than 3.5 even by comparison with countries with similar percent. These rates are among the highest in the incomes (exceptions are South Africa, Gabon, and world. The combination of low per capita incomes Zimbabwe) because of the low use of modem and rapid population growth means that many energy fuels and the low thermal content of SSA countries face tremendous development traditional energy. challenges. Third, population density is very low (except Mauritius, with over 550 persons per km2), The resource endowment of nontraditional and distributions are predominantly rural (even in energy sources in SSA countries is adequate, with Zambia, one of the most urban countries in Africa, numerous hydro sites (8.1 percent of world 58 percent of the population is rural). This pattern hydropower potential), coal (5.9 percent of world constrain the transition to commercial energy reserves), uranium deposits, crude oil (6.1 forms, since outside major African cities the often percent), and gas reserves (6.2 percent). These scattered populations are costly to serve, and have resources however, are concentrated in a few limited ability to pay for service. Fourth, several countries, and the region uses little of this SSA countries currently face extreme economic potential, producing 49 kWh per person of circumstances, having experienced low or electricity in 1993 (while Asia generated 170 kWh negative per capita income growth over the past 5 and Latin America 558 kWh). years. They have also displayed large government budget deficits and high levels of external debt. Key Electricity Sector Issues Thus many of them face an acute shortage of funds for developing even the most vital infrastructures and for providing public services. During the symposium, several key issues emerged, among which the following were the Figure 1: Primary Energy Balance in SSA most relevant:
* Technical performance in generation and transmission has generally been weak, and in several respects adversely affected by the operating environments. For example, performance has been hindered by low at1 01 |population1 111 densities, and low loads. Often, hydra ~~relianceon hydro generation distant from COAl ~~~loadcenters increases transmission costs.
K charcoal _troum o Performance at the distribution level and especially commercial and financial results have been disappointing. For example, system losses are relatively high in much of Africa, and much of this is attributable to a range of nontechnical difficulties - thefts of power, problems with billing, metering, and Energy Balance. About 77 percent of the recording; and late payment by many primary energy consumption in SSA (excluding customers. These factors have caused serious South Africa) is of traditional and renewable cash-flow problems. energy (see Figure 1). Firewood accounts for 58.5 percent, followed by 18.1 percent for wood used * Tariffs have often not recovered the costs of for charcoal and 15.5 percent for petroleum providing electricity supply. As a result, rates products. Coal, gas, and hydro-electricity account of return and self- financing ratios have been for 2.6, 2.7, and 1.9 percent, respectively. The use below the levels that characterize other of traditional fuels in the energy mix may actually regions of the world. be understated due to a lack of reliable data on other biomass fuels such as agricultural residues EXECUTIVESUMMARY 3
Several issues were debated and examined at reforms is likely to accelerate rather than slow the symposium, among which five themes down over the coming years, as the methods for captured significant attention from African making them successful and their full potential delegates: (1) expanding access to electricity for become more familiar. African countries cannot rural and low-income households; (2) improving afford to be left out of this process, and it is pricing of electricity; (3) global reform trends; (4) important to stress that such reforms can occur need for commercialization of African utilities, (5) either with or without changes in utility need for regional integration and power trading; ownership. Structural reform is a separate (6) social consequences of reform, and (7) need for dimension from privatization of the electricity private sector participation. industry, and reform can be highly effective in improving results without privatization. SSA countries need to expand access to energy beyond the currently low levels. Rural and Given the income and demographic peri-urban electrification is typically not characteristics of SSA countries, access to commercially attractive, and it has been financed commercial energy services is constrained by high in SSA as elsewhere by a combination of up-front costs. To overcome this constraint, cross-subsidies between customer categories and technical and economic solutions are needed, and grants from abroad. But in none of SSA's lower- innovative financing schemes should be put in middle or low- income countries has access place. For instance, lower connection standards reached much over 20 percent, compared with could initially be adopted while load builds up. rates of over 50 percent in India and China. Also, a lower percentage of the connection cost could be charged as an access fee (e.g., in rural Thus, a more substantial effort is required to Thailand 20%); and, the periodic fixed charges increase rural access to energy. The feasibility of could be stretched out over a period of time. electrification is often a matter of timing: rural Lifeline block rates (20 to 30 kWh per month) electrification through extension of the grid can could also be introduced. usually be justified economically only when it can serve a number of high power (productive) users Utilities need cost-recovery tariffs. General price in an area. For many rural households, this means subsidies, and a uniform national tariff, should be that it may take years before the grid is extended avoided. An ESMAP paper, presented during the to their area, even though they themselves have symposium, estimated that subsidized tariffs the money to pay for a connection and for the intended to assist low- income households have electricity used. Solar energy, in rural areas, may been regressive, favoring the wealthy. A provide lighting services equal to grid-based fundamental finding from utilities around the electricity at lower cost as well as within a shorter world is that if electricity production and use are time frame. The low energy demands typical of to be efficient, the tariff structure should be based new and low-income electricity consumers can be on the incremental costs of supply, and the actual met with photovoltaic (PV) systems, particularly tariff level should be set so that the utility is in rural and sparsely populated areas where financially viable. While recognizing that social extension of the grid is not economically justified. protection may occasionally require transitory Similarly, decentralized village grids based on a subsides for low-income users, governments mix of energy sources, can provide useful should avoid the misguided policy of extending electricity service to rural consumers (e.g., "micro these subsidies to all households. General rural utilities" owned by cooperatives or subsidies are costly. They reduce economic investors). competitiveness due to cross-subsidies, deteriorate the utility's finances and performance, and lead to The options to face the electrification challenge fiscal deficits. Subsidies can only be kept at should start by improving commercial operations reasonably low levels if they are targeted to just and by changing the institutional and regulatory those specific poor consumers. environment. The electrification effort can only be sustainable if the power sector environment is On pricing, most SSA utilities need further conducive for utilities to organize themselves progress in three fronts: better and become financially stronger. * structuring tariffs to reflect marginal costs, In countries as diverse as Kenya, Zambia, and a raising tariffs to cost recovery levels, and South Africa, the power sector is going through a * restricting subsidized supply to only the basic period of review and restructuring. Interest in needs of the most vulnerable consumers. 4 EXECUTIVESUMMARY
Most SSA power sectors need to reform. The tariffs, and increase the autonomy of power challenge is, once these pricing issues have been utilities; addressed, how to ensure that efficientpricing will * improve commercial operations; be sustainable. Experience around the world * improve the efficiency of power sector suggests that the only way efficientpricing can be operation and investment; sustainable is by reforming the sector along * charge tariffs reflective of costs from an market lines, removing governments from the efficient performance of the sector; business of producing and selling energy; * remove general subsidies and better target allowing the private sector under competitive subsidies to only low-income households, conditions to enter the sector, and, when 0 introduce efficient energy pricing; and competition is unlikely, regulating private * minimize the drain that utilities impose on companies as if they were under competition (i.e., central government budgets. incentive regulation). All of this requires a well defined legal, institutional and regulatory There is extensive experience on power sector framework, however. reforms. In all the successful ones a common feature has been the involvement from the The different roles and responsibilities have to beginningof localtalent. Africansshould thus feel be properly articulated and divided: governments ownership of the proposed actions if they are to should confine themselves to policy making, while have a chance of implementation. The technical companies should concern themselves with assistanceshould thus consider the need to create operations. Policy should focus on creating a constituency supporting the proposed changes. adequate incentives and opportunities for Another common feature of successfulreforms is competition, market discipline, and private that reform need has to come together with participation, while operations must be political commitment. International funds for autonomous and run on commercial principles. assistancein SSAare so limited and the needs are Since electricity is to be treated as a commercial so vast that funding assistance should only be rather than a social good, subsidies must be granted to countriescommnitted to reform. A third confined to the minimal consumption of the poor. feature is that technicalassistance funds should be Similarly, electrification programs must be made available to respond to the needs and issues targeted in the first instance where they are most of the reform process when they arise, to prevent viable and productive, as part of the general a grinding halt of the reform. process of seeking least-costinvestment solutions. The mechanism for regulating parts of the sector Although there are several alternative routes to that have to be regulated in the public interest reform, three routes can be adopted in principle to should be technical rather than political in put utilities on a sounder commercial footing: character. It is important to ensure that utilities keep costs to a minimum and that prices reflect * Even if tariff problems are not fully resolved, those costs, but it is destructive to control prices managers in the public sector can be given regardless of costs. Finally, in its role as a strong incentives, and greater management purchaser of electricity, governments and their autonomy, to control costs. agencies should be subject to exactly the same pricing and payment disciplines as other * Private sector participation can be regulated consumers. through contracts. IPP generators can be brought in before the sector as a whole is Simultaneous actionsare thus needed on several commercial. However, if the utility is fronts, including reform, operational financiallyweak, IPPs will require protection improvement, pricing, and corporate from payment risk. strengthening. The challenge for the international donor community is thus how best to assist the * Once the private sector is expected to face public and private sectors (entrepreneurs, NGOs, tariff risk (under a long term concession or village coops, etc.) in SSA to: full privatization), autonomous and transparent regulation of tariffs needs to be * develop the needed reforms; introduced. * depoliticize the business of producing and selling electricity, especially with respect to To provide the right incentives for furnishing a key commercial decisions such as the level of commercial service, governments should give operational autonomy to the management of state EXECUTiVESUMMARY 5 owned power utilities, and hold them accountable intervention, allowing it to conduct its operations for their performance, preferably by contracting in a commercial manner insofar as possible. private operators to provide management services in the absence of formal frameworks for regulating Regional integration and bulk power trading can the power markets. substantially reduce power system costs. African utilities do not use trade to minimize energy and SSA countries have different needs and will thus capacity costs. The distribution of hydro locations need to tailor-made the reforms to their specific and load centers creates the potential for firm conditions. No single reform model is appropriate power trade. There are significant unrealized to all countries, and outcomes can vary from one opportunities to be gained from trade. Reserve jurisdiction to another taking into account their margins can be shared. The operating costs of an distinctive economic and social features. There are existing regional network can be minimized. however some common requirements. Each System expansion costs can be reduced through reforming country will need to develop planning on a regional basis. commercial standards, and introduce transparent and arm's length regulation, competitive pressures The main constraints to trade have been political and private participation. and commercial. Political factors have reduced the potential for long-term firm power trade in In the developing world, Chile and Argentina SSA. Most countries in SSA as elsewhere have have seen both vertical unbundling and changes been unwilling to rely for a key economic input of ownership. Bolivia's unique "capitalization" such as power on neighboring countries. They program represents a particular national approach have been even more cautious of relying on power to managing a change in sector ownership. being wheeled from more distant sources across Jamaica has decided to maintain a vertically one or more neighboring countries. Commercial integrated utility while transferring ownership to factors have also inhibited power trade. Failure to the private sector. agree on pricing systems, or to enforce contractual obligations, can block trade from proceeding even Among developed countries, France has when it is in both parties' interests. International retained a vertically integrated utility, but with assistance can make a significant contribution by increased accounting separation. In the UK, helping in the creation of regional power pools Scotland has retained vertically integrated and trading systems. regional utilities, Northern Ireland has adopted a model with a single buyer of electricity from Social protection can be maintained while competing power stations, whereas England and reforming. It is possible to pursue reform and Wales have developed a fully competitive avoid some of its difficulties by maintaining generation pool based on bidding by competing subsidies to those groups, particularly the poor, generation companies. which do require them. The issues are:
Utilities need to concentrate on the commercial a how to deliver the targeted subsidies that aspects of power supply. In the past, African social and developmental objectives do governments have used the power sector to require; and pursue their development goals, and this has * how to keep those subsidies to the minimum brought in political and social agendas. The necessary amount, phasing them out when electricity sector is indeed vital to development. they are no longer needed. But it does not necessarily follow that direct government involvement is the only way to Commercialization of the electricity supply develop the sector. In fact, the experience of this industry does not necessarily mean that low type of intervention has been distinctly income users are going to be worse off. A sound disappointing, both in Africa and elsewhere. As an tariff design can ensure that poor households are African minister putted it: "Power has to wait in helped without subsidizing those that do not need the public-investment queue, behind health and it. Also, electrification of low-income areas can education and other more pressing needs. This continue at an even quicker pace with a does not make sense when there are plenty of commercialized sector. private firms willing to put up the money needed for expanding the sector." A key aspect of The lesson of experience is that to meet their key successful reform is to increase the independence objectives, governments should not be frightened of the power sector from direct government of treating electricity supply as a commercial 6 EXECUTIVE SUMMARY service for which users should pay the full cost of Although gains can be realized from involving meeting their demands. Users should not receive the private sector, there are also some potential support from scarce tax revenues, apart from problems. These challenges include initial. specifically targeted help for the poor to gain expensive electricity (i.e., high tariffs before access to electricity service. There is considerable competition takes hold); regulatory capture (i.e., evidence around the world that consumers will companies profiting from nondisclosure of pay cost-reflective prices for electricity if the information to the regulator); cherry picking (i.e., quality of supply is adequate. However, in a utilities focusing on primarily urban, large, and number of African countries (for a variety of nonpoor users). It is however generally accepted reasons), the quality of supply has not been that the benefits of private involvement -greater satisfactory. A key part of the reform process thus efficiency, more dynamism, and better marketing will be to set realistically achievable goals for - far outweigh the risks. Moreover, recent work quality of supply and to ensure that they are met. has shown that benefits can accrue to all categories of stakeholders -government, taxpayers, Private investors are attracted by macroeconomic managers, employees, and consumers as well as stability and institutional, legal, and regulatory shareholders.2 transparency. A recurrent and significant policy concern in the energy sector is the ability of SSA to The broad thrust of the symposium, as it compete for intemational private investment. The appeared to the World Bank's closing speaker, was basis for these concerns is the fact that private to propose an agenda that would promote investors around the world have generally corporatization of generation, transmission, and invested in large systems in countries with distribution of electric power; align tariffs with sophisticated financial markets and technical costs of supply; foster competition where possible support services. However, experiences from and implement regulation where not; effect bold other sectors and Bolivia's electricity supply state-level reforms to encourage commer- industry suggest that the true preconditions for cialization of the sector; and put in place financial successfully attracting private investments are not and accounting improvements to manage the market size or domestic capital market as such but fiscal impact of the reform. transparency in all its aspects, namely: Vigorous and effective implementation of such * macroeconomic stability, particularly with a comprehensive program of reform, the speaker regard to keeping inflation under control; suggested, would provide the basis for raising * a clear regulatory environment, in particular efficiency and attracting private capital. However, credible restraints to the arbitrary he cautioned the participants as follows: intervention of the government; * an environment in which investors can earn * Solutions must be home grown - sector adequate financial returns; models need to be tailored to the specific * clear property rights and freedom from the conditions of each country. fear of expropriation of investment; and * Watch your neighbors - consistency in * provision for firm contractual agreements, reforms may bring additional benefits. particularly with regard to the repatriation of * Power trading and regional interconnection profits from investments. are key elements of reform. * Domestic and foreign financing are essential Provided these conditions are met, private for success. investment will come in to exploit the * Long-run subsidies are unsustainable opportunities available without resort to -target subsidies only to the poorest. expensive subsidies or tax breaks. However, Sub- * Improving rural access is key to the SSA Saharan governments need to formulate agenda. transitional strategies for attracting private * Remove governments from the painful participation in power supply, taking account of process of setting tariffs and running utilities. the wide range of recent experience elsewhere, while they build up reputations for sound regulation and economic management. In doing this they can draw on the help offered by donors in various forms such as technical assistance, 2 TheWorld Bank, Bureaucrats in Business:The Economics cofinancing, and guarantees for private and Politicsof GovernmentOwnership. Oxford University investments. Press,1995. EXECUTlVESUMMARY 7
The World Bankspeaker concluded asking what encourage "localization," (3) assist in mobilizing role the World Bank could play. His four-part resources, and (4) work with the clients for the answer: (1) assist countries in investigating new long haul. and relevant approaches and models, (2) 8 ExEcuTivE SUMMARY Welcome address
by The Honorable Minister For Public Enterprises Stella Sigcau
Chairperson, distinguished participants, ladies and gentlemen, it is indeed an honor and a privilege to address such a distinguished gathering. The subjectmatter 1. Need for Cooperation of your symposium is critical to the economic success of Sub-Sahara Africa. What is also of We are becoming increasinglyaware of the need special interest to my Ministry is that you have for cooperation among diverse bodies in order to chosen South Africaas a venue at a time when we get the best out of electricity usage. Such a are dealing with issues pertaining to the cooperative scenario can unfold in several ways: transformation of our economy -part of which is the Govemrnent's Restructuring Process for Public between goverment and the private sector Enterprises. In dealing with such a process, one of * at al levels of governent the biggest challenges we face can be summed up * the various electric utilities in a single question: * on a regional basis.
How can we transform our Public Enterprisesso The importance of such regional cooperation that they can deliver more, higher quality cannot be over emphasized, thus the concept of a products and servicesfor the benefit of all people? Power Pool within SADAC countries is so How can we deliver a concrete benefit like access meaningfulfor the economic growth of the region. to electricity? If we are to achieve the prosperity that we all so much desire for our countries, we shall have to This is a question I am sure you are also putting undertake regional cooperation on a scale that is to yourselves. unprecedented. ESKOM,which is one of the big Thereiooteoltis inceainrco five utilitiesin the world, has made a good start in There is increasing recognition of the role that .. electricity can play in a rapidly developing society. increasing efficienciesand regional contacts. Electricityis one energy form that has the capacity to improve the quality of life more dramatically than any other -in terms of labor saving devices, in terms of comfort, of education and as a 2. The ESKOM Position-How it convenient energy form pertaining to all Te e M i developmental issues. If we look around the world there is a strong connection between usage of electricityand economic success. Electricalpower bsesMs soreietsl asg to runaiita plays roepivoal in he deelopmnt an business more efficiently and to remain a plays a pivotal role in the development and world-classwrdcasuiiy utility. expansion of any modem economy.
INAUGURAL ADDRESS 9 10 WELCOME ADDRESS
* It has a vision to produce the lowest-cost electricity in the world which unites all its employees in a common goal. 3. Future Outlook It has been able to do this because the organization is aware of the importance of the price of ESKOM will continue to expand its relationships electricity to industry. electricity is a large cost across Africa and particularly in the Southern component in the competitiveness of South African region. Africa's export products. It has acted as a good citizen in terms of its Since 1985 the price of electricity has been reduced contribution to the economy of South Africa. It has in real terms every year. acted as a good citizen in the sharing of its expertise and experience among its neighbors in In its efforts to produce the lowest-cost electricity the Southern African region and with other and to remain a world-class utility there are a utilities in Africa. number of forces driving ESKOM. Some of the strongest forces are:
* ESKOM is aware that, if there is to be economic growth, electricity must be 4. Restructuring Process affordable to more people. The utility therefore is driving to bring electricity to the ESKOM will continue to concentrate on its core less privileged. activities of generating and transmitting electricity. In its own areas of distribution it will * ESKOM realizes that more and more people continue to electrify. This will inevitably take us need to have access to electricity if economic into the electrification of rural areas. There is an growth is to become a reality. enormous need in these areas because many places are too far from the national grid to be * ESKOM sees itself as a national asset and as economical the situation needs to be carefully one of the pillars on which the future studied. Consideration will also be given to other economic growth of South Africa will be sources of energy like gas and solar energy. built. It generates 95% of electricity consumed ;n South Africa, more than half of the electricity generated in Africa and supplies electricity to all of its neighbors. 5. Conclusion * ESKOM has ties of various sorts with almost all the utilities in Africa, either in the form of ESKOM will bend ifs efforts to not only being a agreements or by way of exchanges of good citizen of South Africa and helping to information. It has declared its intention to support the building of a strong South African continue to make ;its know-how available to economy, but it also wants to be a good regional other utilities, because it believes that it is in citizen and help where it can to build the Southern the best interest of the region to do so. African economy.
* The line linking Matimba Power Station with It would also wish to be a good African citizen Insukameni near Bulawayo in Zimbabwe is by playing a contributory role in the larger African now cornmercial operation. This line also electricity utility family. Sharing of information is strengthens the connection to Zambia and, going to be critical to the process. Strife and via the take-off link, strengthens the conflict have been of negative influence in connection to Botswana through whose Sub-Sahara Africa -all efforts towards conflict territory it passes. resolution need to be encouraged an applauded. I hope that the sharing of views and experiences at Power from Cahora Bassa will be flowing again by this symposium will provide solution for the 1997. The connection to Maputo will also be future which will help accelerate economic strengthened. development. Keynote address
by Dr. John Maree Chairman, ESKOM
Honorable Cabinet Ministers, Vice President of the pressure on the government to get organized and International Finance Corporation, ladies and to tailor its coat according to its cloth. gentlemen, It is a great pleasure and a great privilege to What are the priorities and challenges? welcome you all to the Power Sector Reform and Efficiency Symposium. It is heartening that so The aspirations and expectations of the less many of you were able to take time from your privileged are putting pressure on the government many heavy responsibilities to be here and to offer to deliver and this needs to be managed. your wide range of knowledge and experience to the discussions. To do this we need stability. We need to curb the present violence and crime situation we need I believe it is appropriate at this point to look at better administration. how South Africa is doing both politically and economically. South Africa's international competitiveness is important and achieving this is going to take a lot We now have legitimate government at national of hard work. level after a remarkably smooth transition which continued to regional level, and now is largely in I believe we have every chance of success. place at local level. We have gained the respect of the world The ANC continues to enjoy great support with politically. We can do so economically as well. not too much splintering away due to disillusionment. We need to bear in mind that South Africa cannot be an island of prosperity in the region The economy is being managed prudently. -therefore it is in our interests to promote growth Restructuring of the economy is moving on apace. in southern Africa. The financial rand has gone, (without incident), protection barriers are coming down, exchange As a continent Africa is emerging from an era controls will be phased out. Inflation is down and when the eyes of political leaders have been the economy is growing. We will achieve mainly focused inwards to domestic problems, approximately 3% this year and next year could be despite moves to create political alliances (e.g. higher. Organization of African Unity, OAU).
Capital is coming in slowly. There has not been Economically the tendency has also been to the flood of money that many expected. Perhaps operate as fragmented entities. At present only this is not altogether a bad thing as it has put 10% of cross border trade in the region takes place
KEYNOTE ADDRESS 11 12 KEYNOTEADDRESS between countries in the region. The rest takes * Like many developing areas sub-Saharan place with countries outside of the region Africa has a very high population growth -mainly Europe. rate and the present population is expected to double within the next 25 years. World-wide however, there is increasing regionalization and economic block formation * Poverty among large sections of our people is based on economic groupings (the European a problem for all of us. Seeking practical Union is perhaps the most obvious example). If ways to satisfy the need for proper education, smaller countries do not become attached to these health services and basic infrastructure, is larger blocks they will increasingly find that they something which we all share. are becoming marginalized. * Providing sufficient food stocks for a The question is, where will Sub-Saharan Africa burgeoning population is a long-term belong? concern
If we do not take our future into our own hands * In the southern section of the region, we have we run the risk of being ignored. What is needed all felt the effects of the present drought. is the establishment of a Sub-Saharan trading area based on strengthening economies. If we were In terms of how we are perceived by others, able to get that right, we could consider forming Africa represents to the developed world an an association with one of the larger blocks of untapped and rapidly expanding market of more developed nations (the European Union, the milions of consumers. (We need to guard against Americas, NAFTA, an Asian combination, becoming a dumping ground for unwanted ASEAN). There is even the possibility of becoming surpluses from the more developed countries.) an attractive trading entity to all of them! It also represents an immense labor pool which Your presence here is indicative of the is eager for opportunities to develop, even though increasing awareness among African leadership they are not in the main highly educated or that it is in their best interests to actively pursue trained in Western technologies. and advance regional cooperation. In short, the problems faced by the subcontinent We are at a time in our history when the should not be seen only as negative factors but as prospects for formulating long-term plans and unrealized potential and enormous opportunities. getting these implemented are better than ever before. The African way of consultation and Economic development is a number one priority mutual consensus has set a new example that is for the entire continent if solutions are to be found leading to a world-wide trend towards to the problems facing us. consultation as a means to solving problems. Economic growth centers need to be dispersed Stability and peace are gradually becoming a throughout the region so that migration of labor to reality in the southern part of the region. areas where employment is available will no longer be problematic. South Africa cannot be the We are all becoming aware of how much we only growth center. We need others in the region. have in common rather than concentrating on the World-wide experience has shown that access to differences which divide us: electricity is a prerequisite to economic development. This has been demonstrated by the * On average, less than a third of the economic "tigers" and "miracles" of Asia. population is presently urbanized, the remaining two thirds live in rural areas. The balanced development of power infrastructure could assist in achieving this. * The perception exists that standards of living and opportunities are much more attractive But this in turn depends on the level of labor in the towns and cities, consequently the rate productivity in the region, which will probably of urbanization is high. require the re-allocation of human resources to sectors where they can make the biggest * We are all looking for ways to satisfy the permanent contribution to economic growth. needs of a growing population. Resistance to the reallocation of human resources KEYNOTE ADDRESS 13 should not be seen as a constraining factor. We can also see benefit in wider forms of Artificially preserving employment in the cooperation. electricity sector of the economy would only lead to a reduction in the efficiency and the Working together with our neighbors towards effectivenessof that sector. electricalenergy trading and regional cooperation has long been a goal for ESKOMand our intention Power sector reform should concentrate on to buy electricity from our neighbors will help to creating more adaptable and more effective contribute to a more balanced regional trade. regulations. Regulatory reform should focus on leveling the playing fields rather than direct The signing of the Inter-Government involvement in business decision-making. Memorandum of Understanding regarding the Southern African Pool earlier this year, was a Electricity does have other roles to play. milestone in the recognition of the importance which electricity can play in the process of It is a support for manufacturing, trade and regional integration and cooperation. services, where real economic growth and job creation will take place. What makes the Power Pool agreement special is the fact that, unlike previous attempts at It helps to provide access to modem alliances, the need for cooperation has been technological advances and helps to improve recognized and initiated by all the parties quality of life. themselves.
Provision of affordable electricity throughout For a long time ESKOMhas been an advocate of the region would act as a catalyst to economic an interconnected electricity grid joining all the growth and provide opportunities for large and countries of the southern African region as far as small businesses to develop. Zaire. At present there is a wide diversity of energy sources in the region. Generally speaking If electrical power is to be made available to there is huge hydro potential to the north while everyone, it has to be affordable and it must be the south uses mainly coal-fired/thermal systems. appropriate to the needs of the customer. If Forexample both Zaire's and Zambia's generating economic growth is going to depend on it, then capacity is almost exclusivelyhydro. that power must be reliable. In southern Africa there is a regional surplus Providing electricalenergy as widely as possible generating capacity of approximately 9,000 MW is a national priority for South Africa. Our -mostly in South Africa-which mitigates against commitment to electrify 300 000 new homes new capital expenditure on generating capacity, annually until the end of the century as part the and makes investment in further inter-connections requirements of the government's Reconstruction a more attractive option. and Development Programme is evidence of this. The important thing is the realization that we ESKOMtoday is a world class organization and cannot go it alone. No single country can go it is recognized as such. We are seen to be delivering alone. What is good for one is in reality good for in terms of our electrificationcommitments and in all, and the reverse is true. terms of efficiency. There is an urgent need to work together for ESKOM is also committed to supplying the regional prosperity. lowest-cost electricity in the world. We are on track towards reaching this goal. We believe that Increasing the efficiencyof the electricitysupply low cost electricity is our contribution to the industry would go a long way towards achieving success of South Africa. this.
We believe that our ability to do this lies in our In fact it would be fair to say that the technical excellence and the fact that ESKOM is development of the southern African area and run as a business which is answerable to its increasingly the whole of sub-Saharan Africa, customers. Decisions are made on technical and depends on the ability of the leaders to create business grounds and in the best interests of both economic and technical cooperation and consumers and the country as a whole. integration. 14 KEYNOTE ADDRESS
This will be a challenging task given the Sub-Saharan Africa must learn from all the problems of big differentials in economies and models in the world and then design an African sophistication both between the various countries approach for this region. We need to establish a and within their borders. Southern African vision, a common dream.
Sub-Saharan Africa must become internationally I believe that the world would like to see an competitive with respect to governance of the Africa success. I believe that given the right power sector. Clearly economic growth has a circumstances the world community will support dependence on good governance. One of the steps us. towards achieving this is to make the governance policies for energy, particularly electrical energy, We can build this region through cooperation. compatible with one another and attractive to Once we harness our vast resources of material the international investors while meeting local needs. talents and abilities of our people then the If Africa does not seize the window of opportunity slumbering giant of Africa will become a reservoir created by ongoing reform programs, the doors of energy, transforming minds -an Africa will begin to close and investors and donors will walking tall among the nations of the world. shift their attention elsewhere. Africa cannot allow this to happen. Inaugural Address on the challenges of reform in the power sectors of Sub- Saharan Africa
by Christopher Bam Vice President, International Financial Corporation
Ministers, Chairman, Ladies & Gentlemen: lasting and positive impact on people's lives. Few Thank you for those words of introduction. I things have the impact that an electricity should like to start by saying how pleased I am to connection has. Quite simply, it enables people to be able to assist in launching this important enter the modem world. Yet, it is a sobering symposium -and how pleased we, at The World thought that two billion people worldwide are not Bank, are to play a part in drawing together such connected to electricity at all -and those that are a distinguished group of participants from across have an average supply sufficient only for about the African Continent- and further afield. In this four 40-watt light bulbs. connection, I must thank all the cosponsors for their support and, particularly, ESKOM for I mention this, as background. Background to agreeing to host the symposium. the importance of the sector and background to the focus it has enjoyed in Word Bank The relationship between The World Bank and development assistance. ESKOM goes back, to the early days of the Bank -some 45 years. Among the very early loans One of the earliest loans made by the Bank was made by the Bank was one made to ESKOM in for power distribution in Chile in 1948. Since 1951. A total of four were made, and I have to say then, the Bank has loaned around 50 billion US that I am delighted that the political changes in Dollars for power sector development in more South Africa now make it possible for us to than 100 countries. At current prices, of course, resume that early relationship -and to strengthen this amounts to considerably more (around 90 it. billion US Dollars); and represents around 15 percent of all World Bank assistance. Electricity is an essential -perhaps even the vital- ingredient for economic development. We The World Bank has been active, too, in all know that trends in energy consumption supporting the changes that are sweeping through mirror closely progress in economic development. the sector. More and more countries around the We all know how important electricity is for the world are joining the ranks of those that have development of industry, transportation an a transformed the structure of their energy sectors range of other activities. But perhaps the most from vertically integrated state-owned enterprises significant element of its importance is in the to commercial utilities with increasing private impact it has on individuals. After all, the goal we sector participation. Within the energy sector, strive for in economic development is to have a most of the reform efforts have been concentrated
INAUGURALADDRESS 15 16 INAUGURAL ADDRESS in the electricity supply industry, where most of through IPPs and management and the state-owned companies still operate as concession contracts; vertically integrated monopolies. The World Bank Group has actively supported many governments * Efforts are also under way to develop in their reform efforts: through technical international trading arrangements both in assistance, rehabilitation loans, privatization Western and Southern Africa; and support, and investment guarantees from the Bank; and through privatization advisory services, * Utility operations have largely escaped the and all modes of financing for private power adverse environmental consequences that projects from the International Finance other regions of the world have faced. Corporation (IFC). The third member of the World Bank Group, the Multilateral Investment Even where the results of reforms have been Guarantee Agency (or MIGA), also provides disappointing, the problems have often stemmed support to private investors in the sector. from factors outside the control of African utility managers -who have worked hard to keep the I am particularly pleased to note the leading role lights burning- or of governments -which often taken by IFC -the part of the World Bank Group have been at the mercy of harsh global economic that I represent- in the financing of private conditions. power projects. In the last four years, IFC has provided nearly a billion US Dollars in finance to Nevertheless, the fact remains that performance 37 separate operations in 22 countries. This in African countries has generally been investment by IFC -which includes investment in disappointing. The sector displays serious four funds dedicated to supporting private power managerial and institutional problems that investments- will support individual projects compromise its ability to meet consumer worth between 7 and 8 billion US Dollars. requirements and, in particular, to mobilize adequate funding to meet future demand growth. I mention this, by way of illuminating the range As one background paper for this Symposium of experiences that the World Bank Group has in shows, a financing "gap" of more than $10 billion the power sector. This experience across a wide is expected to emerge between investment range of countries and in differing circumstances requirements and what can realistically be -together with the lessons learned- will, of expected to be financed from internal and official course, contribute to the discussions over the next sources over the next 10 years. This is, in fact, the several days of the Symposium. It is clear from main challenge facing the power sector in Africa. the record of experience that African countries developing an agenda for power sector reform should examine the situations and experiences of countries that have faced or are facing similar challenges. 1. Sector Performance I have already made the point that electricity plays a key role in the modernization of countries. Several conclusions emerge from studying the This is as true in Africa as it is elsewhere. It is performance of utilities in Africa. Most important, appropriate, then, to note at the outset that many one is their vast diversity, which makes it difficult African utilities have already made significant to generalize about performance; all other progress in several areas of the electricity sector: conclusions thus must be interpreted in that context. The supporting papers, however, do * Most utilities have been successful in meeting suggest the following general points: demand, and they generally have done so through least cost expansion programs; * Technical performance in generation and transmission has been mixed, and in some * Several countries have made significant respects adversely affected by their operating efforts to extend electricity coverage to rural environments; areas; * Performance at the distribution level, and * A number of countries have made efforts to especially commercial and financial results, involve the private sector, for example have been disappointing. For example, system losses are relatively high in much of INAUGURAL ADDRESS 17
Africa, largely because of thefts of power and stakeholders: consumers, government, regulator, poor commercial practices such as problems utilities, and investors. This enabling with billing, metering, and recording. environment, in the World Bank Group's Combined with late payments by many experience, can only be established by reforming customers, these factors have left the utilities the sector along market lines-that is, by creating with serious cash-flow problems; and a sector that responds to the needs and challenges of an open, competitive economic growth model. * Tariffs do not usually recover the full costs of providing electricity to customers, leading During the Symposium, you will hear much some utilities into precarious financial more about the needs, opportunities, and situations and into dependence on challenges Africa faces. A common theme will be government subsidies. that conducting business as usual in the sector is no longer tenable. The sector needs to be Another conclusion is that African utilities have empowered to help the economy to regain and not yet made much progress on using trade to sustain economic development. Africa is at a minimize capacity costs. Efforts are under way to critical juncture, where significant adjustments are promote interconnections both in Westem Africa needed to regain and sustain economic growth. and the SADC region, where the Southern Africa An efficient power sector is a vital input for a fast- Power Pool has helped to establish trading developing economy. principles. The imbalance between hydro locations and load centers creates a great potential Managing this transition is not simple -many for power trading and significant economic gains. social and political issues have to be faced. This Many unrealized opportunities remain, Symposium is therefore very timely, particularly principally the large potential for hydro based because it brings together those who are best exports from Zaire. positioned to motivate and direct power sector reforms in the region. The extent of the difficulties that utilities face in Africa in establishing better sector performance is In a moment, my colleague Richard Stern will of course significant, and present challenges are highlight some of the reform themes that deserve almost without parallel elsewhere in the world. your consideration. I would like to finish by mentioning what you can expect from the World Nevertheless, it is precisely the extent of these Bank Group in the way of help toward your challenges that makes it so urgent for utilities and reform goals. governments to decide how to:
* Enhance the utilities' performance;
* Attract private finance; and 2. The Role of the Bank Group
* Enable the utilities to contribute to their I made the point earlier that the World Bank, fullest to the process of economic since its inception, has been closely involved in the development. power sector in developing countries. While it has been a major financier of the public sector utilities These are not issues unique to Africa. Public that make up much of the sector, it has been utilities everywhere are finding it increasingly instrumental in encouraging reform and the difficult to finance their investments from increased awareness of efficiency that we see traditional sources because of: pressures on today. As one aspect of these reforms has given central government funds, and the increasing rise to increased involvement by the private reluctance of bilateral donors and international sector, IFC has become a significant financier of financial institutions to provide finance for independent private power producers and has infrastructure projects that could be commercially played a role in the privatization efforts of many viable. At the same time, countries are finding it governments worldwide. difficult to attract private sector capital and know- how unless they have created an enabling The Bank Group has a common approach to environment with credible restraints to the power sector reform. We are dedicated to arbitrary intervention of governments and providing full support for the reform process and transparent "rules of the game" for all are committed to encouraging an enhanced 18 INAUGURALADDRESS private sector role. Each of the institutions that * Through IFC, provide structuring advice and make up the Group supports the others with financing for private power projects, specialist contributions: the Bank with policy leveraging resources as much as possible advice and finance; IFC with model transactions with other financing that IFC would help and advice on privatization and structuring; and mobilize. MIGA with insurance and private investor support. This will involve much-enhanced coordination between the Bank and IFC to ensure that full and In practical terms, what then can you expert from coherent use is made of the range of Bank Group us? advisory and lending instruments and that they We are ready to help any of our clients to are properly adapted to the needs of each country. redesign their power system structures. Once we are satisfied that clients have established systems I, once again, thank you all for attending this that allow private sector participation, and have important event and express my gratitude to the provided the preconditions for investor cosponsorswho have made our gathering possible confidence, the Bank Group will: and to you, and ESKOMfor the hospitality. I look forward to the discussionsand conclusions of this * Through the Bank an MIGA, supplement Symposium. I am confident we will all learn private sector resources with judicious and much from each other. limited guarantees; and Keynote address on social aspects of power development in Sub-Saharan Africa
by Phumlani Moholi
Thank you Chairperson, Honorable Ministers The social impacts of this expenditure of time Ladies and Gentlemen, are very serious. First, the effects of these activities It is a great honor for me to be have been invited on the health of woman who are the main toilers as a keynote speaker in this gathering. The topic in these activities are serious. These impact that I have to address is very broad. Perhaps we negatively on family life and therefore on society should ask ourselves, "What are the Social as a whole Secondly, often children are drafted to Consequences if there is no Power Development". assist in the task of fuel collection. This impacts a lot on children of school going age who sometimes have to drop out of school to assist in these chores. H| There is some reason to believe that the abilityof a community to use substitute forms of energy, for 1. Introduction example electricity, for basic needs like cooking and space heating will reduce the burden on Sub-Saharan Africa (excluding South Africa) women and children. The alleviation of energy depends on wood fuel to the extent of about 80% problems in rural areas, where the bulk of biomass of total energy consumption. The more desirable energy consumption occurs, should be an end-use forms of energy, such as electricity, are important objective. still well beyond the economic means of the majority of communities. Energy, particularly Power delivery, without doubt, will be an essential part of a new economic The use of biomass energy generally has serious future for the Region. The requirement for environmnental impacts. These include the felling meeting basic needs and future social and of trees, the health effects of cooking with biomass economic development remain unsatisfied. The energy on those that are exposed to emissions - majority of the population of this Region lacks mainly women and children - and the general services derived from electricity. For the large deterioration of air quality in an area where majority of the population, basic services such as extensive use of biomass takes place. health care and education require power supply. Hence increases in power supply and One particular issue that stands out prominently consumption are not a question of providing in this Region is the arduous process of gathering luxury but supply in some areas is required and transporting biomass for fuel purposes. It is essentially for removal of poverty. one of the most demanding chores, taking up so much time and effort on the women folk.
KEYNOTE ADDRESS ON SOCIAL ASPECTS 19 20 KEYNOTE ADDRESS ON SOCIALASPECTS
unless rural areas are developed. The reality of the situation is that they lack access to electricity and 2. Power Delivery and the when they do have access their income is so too Environment low to enable them to afford electricity Hence the increased rates of deforestation. However, power sector development will be sustainable if there is a respect for the Sub-Saharan Africa is a region with a requirements to protect the environment. The tremendous growth potential, well known for its supply of power has both negative and positive vast mineral and other resources. Not only is impacts. Pollution is the principal negative aspect. electricity a resource in itself, it enables other For example, smoke pollution from thermal power resources to be utilized effectively. And so just as plants, acid rain resulting from coal dust particles a country's standard of living is closely related to from coal fired power plants. its access to and use of resources, so does electricity play a major role in raising that For a start power development in Sub-Saharan country's standard of living - as proved by global Africa should relate first to local environmental statistics linking electricity consumption to per concerns. At the same time measures should be capita GDP designed to be compatible as much as possible with global environmental concerns. Electrification is capital intensive. The cost per connection of supplying electricity in rural areas is There may be controversial standpoints and often more than double than in urban areas, and differing interests between those representing the revenues generally lower. In most cases revenues power sector and those representing from electrification projects are inadequate to environmental aspects. Environmental lobbyists ensure an adequate financial return on and others outside the power sector should not investment. In some cases, revenues do not even have a monopoly on environmental awareness, cover operating costs. concern knowledge or action, but should rather understand the cost of lack of electricity by Ideally, electricity should be sold at prices that communities vis-a-vis environmental fully recover costs. This should be the goal, but perfectionism. how soon can some countries in this Region realistically implement such a policy is another Therefore, the challenge for power sector matter. Affordability levels in some of the areas development is how to ensure availability of that need electricity are very low. I would like to adequate and reliable electricity supply, at prices caution against tariff increases that do not take that are economically sustainable and in a manner into account circumstances of users. that is responsible to the environment. Where subsidies are granted for non-viable projects, this should be transparent. The subsidy amount and who will pay should be clearly stated.
3. Electrification
One area remains of concem, viz. rural electrification. It appears the objectives still remain 4. Efficiency poorly defined. Further, in many areas the dividing line between rural and urban still The production, conversion and use of power remains shady. Consequently, investment for such has to aim for higher levels of efficiency, and to projects is not easy to secure and the much reduce demand for capital. The demand for expressed desire to improve the economic and electricity in this Region is high but the capacity to social standards of the rural areas still remains supply is inadequate. The failure to supply largely rhetoric adequate and reliable electricity is constraining economic recovery and growth.. The majority of people in this Region reside in rural areas and produce most of the region's Efficiency gains in the power sector cannot be agricultural output. Without question, there can be treated in isolation from the efficiency of use of no meaningful and sustainable development other inputs and resources in the economic system. Efficiency gains require the development KEYNOTE ADDRESS ON SOCIALASPECTS 21 of institutions, human skills and infrastructure money is being used productively. The consumer which are created in the process of development will have to become a central part of the itself. regulatory process. Regulatory boards, independent commissionsand similar bodies must A major program me of human resources reflect consumer as well as government interests. development in the power sector is essential not only to ensure improvement in efficiencybut for institution of some of the reforms and changes suggested above. 6. Conclusion The real challenge for Sub-Saharan Africa lies not so much in building more power plants, or To summarize therefore, I have endeavored to more transmission lines but in institutional show during this brief discussion some of the capacity and creating the enabling environment. issues, viz. environmental, electrification, efficiency, regulation, that will impact on society An area that will impact on domestic customers in developing the power sector in the Region. is the efficient use of electricity. Domestic electricity loads have relatively low load factors, The solutions to the issues I have raised are not and contribute disproportionately to the peak easy but should take into account conditions that demand of the system. Sincethe cost of generating prevail m individual countries. electricity is higher at peak times, the average cost of supplying domestic customers is high. It is for The region has achieved some moderate the above reasons that there should be incentives improvements in some key social development to manage electricity demand and to promote indicators: Life expectancy is up, infant mortality efficient use of electricity. To implement energy rate is down, illiteracy rate is down, primary saving measures will require programs to educate school enrollment ratio is up and health care consumers about efficient use of electricity. facilities have been expanded. Nevertheless, the level of social development is still low compared to the developed countries.
Finally, the challenge for this Region's power 5. Regulation sector is to make electricity available: using affordable technology to deliver at least cost to all If consumers are expected to pay all costs then including the neglected low-income groups, they must be party to the deal. If they are expected institutionalstrengthening by removing structures to lend a hand to the process of power sector that constraint the efficiency of electric utilities, development they must be assured that their skills development and manpower training. 22 KEYNOTE ADDRESS ON SOCIAL ASPECTS I. How do Sub-Saharan African utilities compare?'
by Luis E. Gutierrez
1.1 Introduction * in Western Africa: Cameroon, Gabon, Ghana, Guinea, C6te d'Ivoire, Mali, Nigeria, Senegal and Sierra Leone; This paper compares the power systems of 21 countries in Sub-Saharan Africa (SSA) and * in Eastern Africa: Ethiopia, Kenya, Tanzania selected developing and developed countries and Uganda; based on the most recent available data. We try to gauge how SSA power sectors have performed * in Southern Africa: Malawi, Mozambique, relative to each other and relative to other South Africa, Zaire, Zambia and Zimbabwe; countries elsewhere, so as to provide a frame of and reference for understanding the many challenges facing African utilities. The overall aims are to * Madagascar and Mauritius of the Indian examine the following issues: (i) Does recent Ocean island nations. sector data on SSA power sector performance support the conventional wisdom? (ii) Does the Together these countries account for about 80 performance data of different country-sector percent of the population, and 90 percent of the models support an specific industry structure?, net generating capacity in operation in SSA. and (iii) What should be the way forward? The comparator countries include: The 21 SSA countries have been chosen to represent the continent's wide range in terms of * developed systems (the UK, Norway, the size of the power sector and the development Portugal), to show how utilities in Africa challenges it faces. They are: might change to improve their performance;
* systems in other low- and middle-income countries (India, Indonesia, Pakistan, China,
1 An earlierversion of this paperappeared as a backgroundpaperfor the Symposium. This draft incorporates commentsand suggestionsby theparticipants. Data gathering was donewith the supportof LondonEconomics underan ESMAP contract.
SSA UTILITIES 23 24 SSA UTILITES
Colombia), to show the performance of private sector independent power producers systems facing similar breadth of challenges; (IPPs). and The conventional wisdom also suggests that * reformed or reforming systems in the main cause of the sector crisis is the way developing countries (Argentina, Chile, SSA utilities are managed, structured and Bolivia) to examine how reforms affect regulated. The key causes are thought to be: performance. * management failures, due to the lack of Obviously, there are great difficulties in autonomy from government intervention, measuring performance on a comparable basis across such a large and diverse group of * structural defects, because of the countries. Comparisons are always difficult, full constitutional (i) mandate of the state over of exceptions, and weakened by data the electricity supply industry, and (ii) shortcomings. But it is only by examining actual monopoly the utilities have over generation, data that one can judge relative performance, transmission and distribution, and understand how the power sectors in SSA have performed and how their performance might be * governance problems, due to the (i) lack of improved. We thus hope this paper will help separation between policy making, frame the symposium within the context of the ownership and management functions, and issues and options facing the utilities in Africa. (ii) lack of clear and transparent legal and regulatory framework to enforce contracts, 1.1.1 The Conventional Wisdom protect ownership rights and provide clear restraints to the arbitrary intervention of the The conventional wisdom holds that the power government. sector in Sub-Saharan Africa is in crisis, and that this crisis has the following main features: The conventional wisdom suggest that to improve performance in a sustainable manner, * Utilities' financial performance is inadequate the sector structure, regulation and management to meet the increasing demand from practices must be changed. Two broad existing customers and expand the currently alternative treatments are prescribed for this low levels of access. diagnosis:
* The contributing factors to this poor * The "open competitive" model (OCM), financial performance are: which emphasizes the reorganization of the ESI along the lines of a competitive (i) on the revenue side, inadequate tariff business. This involves to a greater or lesser levels, uneconomic and distorted tariff extent separating the ESI's different structures and poor commercial segments -generation, transmission, practices (i.e., inefficient reading, distribution and the actual selling of billing and revenue collection electricity (marketing) to end-users (called procedures); and "supply" in England and Wales)- and inserting transparent transfer pricing (ii) on the cost side, overstaffing, inefficient between them. The aims are to gain the corporate structure and weak efficiency benefits of competition at the management, poor operation and generation level and of incentive regulation maintenance of plant and equipment. at the transmission and distribution levels, and to attract private investment and * Consequently, an acute funding shortage know-how. prevails. The SSA power sectors are starved of operational and investment funds. * The "vertically integrated monopoly" (VIM) Financial indicators are poor. Operating model, which emphasizes addressing performance is deteriorating. Power efficiency problems by improving projects are less successful in SSA than in managerial, operational, commercial and other regions. New investment cannot be financial performance within the framework either financed internally or attracted from of a vertically-integrated public utility. This approach favors a gradual evolution to SSA UTIUTIES 25
reform. The dual aim is (i) to maintain the For the comparator countries, most data was public prerogatives which guarantee the taken from an ESMAP paper which provides national interest and the priorities of public figures up to 1991.3 Where possible this provision, while (ii) upholding the information has been updated, but less emphasis autonomy of utilities and introducing has been placed on being completely up to date incentives for efficient operation. This model on the comparators, since the focus of this paper usually involves a variety of formal is on the performance of SSA utilities. mechanisms, like performance and management contracts, partial opening of The information assembled for the SSA and generation to independent power producers. comparator countries includes the following:
The OCM emphasizes using market signals to * country background, macroeconomic improve operation and planning, and has been indicators, sector policies and institutional successfully implemented in other developing framework; and transitional countries, particularly in Latin America. The VIM model addresses performance * supply performance such as capacity and problems on the revenue side, largely by passing generation growth, reserve margins, system management to a contractor with more losses, and project performance; autonomy from government to raise and restructure tariffs and enforce sanctions for * demand indicators such as sales growth and non-payment. It is geared to improve structure, and access to electricity; management techniques and introduce commercial practices within existing structures * productivity indicators such as sales and and has had few successes. customers per employee; and
1.1.2 Sector Indicators and Methodology * financial indicators, particularly the return on fixed assets. Data on African utilities was collected from a wide variety of sources, including company Analysis of this data has been carried out with accounts, international compilations of statistics the support of charts that highlight, in a by the UN and other bodies, management comparative manner, the relative performnance of reports on a number of countries where utilities each of the SSA countries for which data is are under management contracts, ESMAP energy available, both against each other and against sector reviews, World Bank project staff comparator countries outside Africa. To allow for appraisal reports, a World Bank' report better appreciation of the issues and trends, appraising power sector lending in SSA, and a outliers have been excluded from some graphs. recent book examining the economics and politics of government ownership2 . For Section I.2 gives the highlights of the study, consistency sake, we have tried to use the same while Sections 1.3 through 7 examine in detail sample of countries in all parts of the study. the various categories of indicators. Alas, this has not always been possible. 1.2 Study Highlights As far as possible, the data has been brought up to 1994, but gaps are inevitable and some indicators and countries are only available for Does the available data support the conventional earlier years, if at all. Generally the data has wisdom? With respect to this first issue, our been reported as provided in the original source, analysis not only confirms the conventional recognizing that it is impossible to ensure wisdom, it shows that the issues are more consistent definitions and that this may limit the serious. There is a significant potential for validity of some comparisons. improvement in the power sectors in SSA, and the investment challenge facing them is
2 World Bank,Lending for ElectricPower in Sub-Saharan .frica,Operations Evaluation Department,Report No. 3 Luis E. Gutierrez, "International Power Sector 14961, October16, 1995. World Bank, Bureaucratsin Experience:A Comparisonwith the IndianPower Sector" Business: The Economicsand Politics of Government publishedin ESMAP, Conferenceon PowerSector Reforms Ownership.Oxford UniversityPress, 1995. in India, ReportNo. 166/94. 26 SSA UTILITIES enormous. The traditional institutional models in Economic and demographic indicators (Ection SSA have failed because, on the one hand, the I.3.1): Our analysis indicates that large parts of shortcomings of the macro and financial Africa face more severe economic and environment of the SSA power sectors -isolated developmental problems than countries and scattered systems, small pockets of demand, elsewhere. However, countries are very diverse low incomes and affordability of users, fiscal and in comparative analysis the exceptions are as inefficiencies, inability of SSA governments to important as the averages. supervise and finance- and, on the other, the poor corporate and management related factors Powersector policiesand structures (Section I.3.2): -weak management, poor technical performance The available data on structure and policy and lack of commercial discipline. suggest that the pattern of vertically integrated, monopoly enterprises with little autonomy from Does the evidence supports an specific industry government to operate in a commercial manner, model? Our analysis yields three results in this and dominating the electricity sector, is indeed regard. First, based on a sample of six utilities typical of Africa: in different countries under performance contracts, our analysis shows that these have not * The utility SONEL in Cameroon is 93 per helped to improve performance. Second, based cent state owned, with 10 of 12 of its board on a comprehensive worldwide survey by the members government appointees. Bank across sectors, our review concludes that * In Ethiopia, EELPA is a branch of the management contracts work better than department of energy. performance contracts, but not as well as private * In Ghana, the two utilities, ECG and VRA, firms under competition and regulatory are government controlled. supervision. Third, our analysis does not * In Kenya, KPLC is 59 per cent government support an specific industry model, rather a set owned, while the hydro producer KPC is of requirements-a transparent and stable legal 100 per cent governrnent controlled. and institutional framework, the benefits of * Mauritius has the CEB which is not merely competition, the need to involve the private owned by government, it has to procure sector, and the need for an independent everything through it. regulatory body. * Nigeria's NEPA is a state monopoly, but despite being declared a commercial What is the way forward? With respect to the company in 1987, the government controls final issue, our analysis yields the following all procurement and foreign exchange. main conclusions: * In Tanzania, TANESCO is government-owned and the managing * improvement of performance is essential, directorship appointed by the President. * expanding rural access is key to the SSA * Uganda's UEB handles generation, agenda, transmission and distribution, while * non-commercial pricing and long-run regulating itself as a monopoly. subsidies are unsustainable, * Zambia's ZESCO has a board appointed by * power trading and regional interconnection government and its bulk sales are sold to are key to sustainable performance the Zambia Consolidated Copper Mines improvements, Power division. * domestic and foreign finance are essential * ZESA, in Zimbabwe, also has its board for success. appointed by the Minister for Energy, who sets the tariff. The Minister of Labor These actions can only take place through dismisses and appoints the workforce, while reform and by opening the sector to private government controls forex. investors. The review of institutional and * In Senegal, Sierra Leone and others a reform options suggest that the greater the similar situation pertains. degree of private involvement the greater the likelihood for improving performance. However, Virtually the whole region has opted for an as the analysis on the second issue suggests, electricity supply industry that is an arm of there is no universal model valid for all government and generally vertically integrated. countries, just a set of principles. Each industry Although the results differ from country to model must be home grown. country, there is an element of truth in the idea SSA UTILITIEs 27 that this structure has led to financial and Transmissionand distribution(Sections I.4.4 and operational problems in the power sector. 4.5): Losses in Africa are often very high, with much of the variation seeming to reflect Alternativereform options (Section 1.3.3): Reform non-technical losses. This suggests that there is is in the agenda of almost every country great scope for improving commercial surveyed. The main difference has to do with the operations, perhaps more than for technical type of reform: revolutionary (unbundling, improvements in view of the characteristics of competition, privatization, independent the load being served. regulation) or evolutionary reform (performance or management contracts, and independent Reserve plant margins and reliability (Sections producers). Most of the SSA countries 1.4.6 and 4.7): Reserve margins are often very attempting to overcome the causes of inefficiency high in Africa, but this does not always mean have done so by trying to change the higher reliability. Generating plants are often relationship between the utility managers and unavailable, and hydro and isolated sets in many governments through performance and systems require higher reserve margins. Load management contracts. Our analysis indicates factors vary a great deal between different however that (i) performance contracts do not systems, but are often low suggesting help, since they rarely improve incentives and considerable scope for demand-side management performance, (ii) management contracts are improvements. slightly better, helping to improve performance in two out of three cases, and (iii) competition Environment (Section 1.4.8): Although, with privatization and independent regulation information on environmental effects is (regulatory contracts) offer the best option to fragmentary, the predominance of hydro sustainable efficiency. electricity in most systems and low energy intensities suggests low emission levels. Power Installed capacityand generation(Section I.4.1 projects in SSA have seldom raised critical and 4.3): The available data emphasizes the environmental and resettlement issues (sections diversity between African utilities and the small 1.4.5and 4.6). size of most. Many African systems are hydro-dominated, but the largest systems are Electricityconsumption (Section I.5.1): Demand basically thermal. in SSA is heavily tilted towards residential use. This partly reflects cross subsidies from industry The available data indicate that predominant to households, but also the relatively low hydro systems in SSA use capacity better and industrialization of these countries. In those present better performance indicators than countries where industrial use is a large share of thermal ones (excluding South Africa). consumption this is typically due to the presence of a single large primary sector producer. Access to electricity (Section I.4.2): Because of the dispersed nature of the load being served, Pricing (Section I.5.2): After recent tariff African utilities have relatively few customers adjustments, several African utilities achieved and transmit relatively little power, given the cost recovery. Important exceptions however length of their transmission networks. This remain, including Mali, Nigeria, Zambia, Kenya, increases their costs of supply. Malawi and Zaire which had in 1994 average tariffs below LRMC.4 The small scales of SSA systems (Section1.4.3) are also associated with low electrifica-ionlevels. Considering the exchange rate distortions, and Expanding access to electricity presents a key using purchasing power parity (PPP) exchange challenge in Africa. Rural electrification is rates, electricity in SSA is among the most financially less sustainable than urban expensive in the world. Six countries in our distribution, and in most cases requires subsidies sample pay more than 30 ¢ per kWh, six pay which are increasingly difficult to fund. Given between 15¢ to 30¢, and only eight pay less than that all the SSA countries have a significant 15¢ per kWh. number of unconnected urban and peri-urban households, our analysis indicates that the electrification effort should focus in these areas first. 4 Anotherbackground paper in this volume examinesthe socialimpact of raisingtariffs to economiclevels. 28 SSA UTIUTIEs
Productivity (Sections 1.6.1 to 6.3): SSA utilities and government sources, but cannot attract it perform rather badly. While the Bank median from outside either. A financing "gap" of $10 amounts to 602 MWh per employee, the median billion is thus likely to emerge between in SSA is only 397 MWh. The clear exception is investment requirements and what can South Africa which surpasses the UK and rivals realistically be expected to be financed from that of Chile. internal and official sources over the next decade. This is, in fact, the main challenge Financial indicators (Section I.7.1): These often facing the power sector in Africa. show poor performance. Production cost are high, while collection rates and rates of return 1.3 Characteristics of the Sample are low. Overall, rates of return in the Countries comparator countries increase with tariffs. This is not always true in SSA, where, despite high tariffs, rates of return are generally low. 1.3.1 Economic and Demographic Moreover, an association emerges between high arrears and high tariffs, leading to less and less Six main features of the SSA countries help to of the paying customers paying more for the understand the performance of their utilities: consumption of the non-paying ones. The income levels, population growth, population governments are alas the worse debtors. density, economic conditions, energy resource
Collection rates in SSA are above the Bank's base, and energy intensity. median of 84 days. Compared to the better Firstly, incomes per capita vary widely in SSA performers in Africa and the comparator (see Figure I-1). Among the 21 countries in our countries, most African utilities have thus sample, there are 2 main subgroups: tremendous scope to raise commercial and financial performance. * Three upper-middle income countries (Mauritius, Gabon, and South Africa), with FigureI-1: PPP Estimates of GNP per Capita per capita income of over $3000 ($5000 with PPP exchange rates), making them similar ma,ur.U.uns,,,,3=g7,,, Yiiz- -T-- to countries in Latin America and Eastern
- Europe. Cqnreroon,nana-,, lneljgiA Ite a - Figure 1-2: Annual Population Growth Rates,
ggauinnda0 4ZA : , 1980-92 $rrapLeonelawC -- _ -- -I,--
No rwv- Yz-7Y7v7rzz', mozamD~~~~~~~~~~~~~~~~~~~ZC * aZZngZascer.,.,,,. ,,
annSa- [ Ca oa aaascar P~DanI aa -Mn% Cn '
Investment challenge(Section I.7.2): The key mFa , , result of this overall efficiency, managerial and Ior_- - -t__ institutional crisis is the SSA utilities' inadequate _1 0 1 2 3 4 5 financial performance that hinders them to meet% the rising demand from existing customers or from providing access to new users. Tariff levels * Eighteen lower-middle and low income are either too low or too high, tariff structures cutis ihprcpt noe ne are distorted and revenue collection iS inefficient. $725, comparable to the low income The utilities are overstaffed and have weak countries in Asia. Within this group, management. As a result, utilities are beingCmeonSnga,Gia,CtdIore starved of investment funds from self generation SSA UTILITIES 29
Zimbabwe and Ghana have per capita typically higher) or Latin America (which is incomes over $350, while the remaining typically more urban) (Figure I-3). This pattern twelve countries (Mozambique, Tanzania, imposes particular difficulties in expanding Ethiopia, Malawi, Sierra Leone, Uganda, access to electricity in Africa, since outside major Zaire, Madagascar, Mali, Kenya, Nigeria cities the population is often thinly scattered and and Zambia) have among the lowest per is costly to serve, but at the same time it has a capita incomes in the world. very low income and little ability to pay for electricity. Figure I-3: Population Characteristics RuralPop. 1992 (% oftotal) line Figure I-4: Annual real GDP growth per 0 25 50 75 100 capita, 1989-94 Ml 1it-__ Zaire - _ _
SiwmSierfae
Ppaw-1; naUnited
0 150 300 450 SOD Pop.Density 1994 (persons per kmrnbar china -a -10% -5% 0% 5% 10% Secondly, in nearly all the countries (except % Mauritius and Mozambique), population is increasing at over 2.5 percent a year, and in Fourth, many countries in Africa currently face countries such as C6te d'Ivoire and Kenya it is extreme economic circumstances, having increasing faster than 3.5 percent. These are experienced low or negative per capita income among the highest rates in the world, and exceed growth over the last 5 years, in strong contrast to the rates found in our comparator low-income almost all the comparator countries (Figure 1-4). countries (Figure I-2). The combination of low They have also displayed large government per capita incomes and rapid population growth budget deficits and high levels of external debt mean that many governments in Sub-Saharan (Figure I-5). Thus many of them face an acute Africa face great development challenges. shortage of funds for developing even the most vital infrastructure and public services. Thirdly, population density is low in most Considering GDP per capita, budget deficit and countries (except Mauritius with over 550 external debt, Tanzania, Zaire, Zambia and persons per km2), and is predominantly rural (58 Madagascar appear to be in a particularly percent of the population in Zambia, one of the difficult position, while Ethiopia, Nigeria and most urban countries in Africa, is rural). This Zimbabwe also face acute problems. Only pattern is similar to other large developing Mauritius has shown strong overall economic countries (particularly Indonesia)5 but very performance, while Uganda's has been good and different from most low and middle income that of Ghana fair.6 countries either in Asia (where density is
5 Indonesiahas an extremelyhigh populationdensity on 6 Data is incompletefor a number of countries, the main islandof Java of well over 200 persons/km2. particularlyZaire and Senegal. 30 SSA UTIITIEs
Figure I-5: Budget Deficits and External Debt PublicSector Deficit 1994 ExtemalDebt 1993 Mauribus- M ozambique- aalouns - E77 anzania-1 I I Cameroon - E7' Cote d'lvoire - lawi - SierraLeone - ana - Zambia enya Madaaascar- Cots I n
Zambaia-- z Guinea Za ar - Uganda SuAnca- E77;,Malawi'- - - - - , ,,,Gabon,,.,,,,,,, '1 eria - Zimbabwe- Ethonta- _ Senegal-z Ta7re -___ ,,.,,,,,,,,,,,,.Ghana- Tnzania - Cameroon- Malavsia - ~~~~~~~Ethiopa - C'hile - ~~~~~~~~~~~~~~~Mauribiuls- Norwa,e-m lpdonespa-x Bolivi,a- Araentlna - Indonesia - C6lombia - Pakistan - China- Chile Bolivia,- Portuqal Por u al - Mala ia n la- v,,,,,,,.,,,,.,,,.I dIia SierraLeone Colombia UK- Argentina Pakistan _ _ _ _ _ China- -15 -10 -5 0 5 0 50 100 150 200 250 300 350 400 %ofGDP %ofGNP
Fifth, the combined energy resource 1.3.2 Sector Policies and Institutional endowment of SSA countries is significant, with Structure of the ESIs numerous hydro sites (8.1 percent of world hydropower potential in 1994), coal (5.9 percent As the conventional wisdom suggests, a of world reserves) uranium deposits, crude oil common pattern for sector policies and (6.1 percent) and gas reserves (6.2 percent). But institutional structure in Africa is for utilities to these resources are concentrated in a few be state owned, to have a monopoly or near countries, and the SSA countries use little of this monopoly at all levels of the ESI, to have limited potential, producing 49 kWh per person of autonomy from government intervention, and to electricity in 1993. This figure compares with operate in a noncommercial manner. We group 170 kWh for Asia and 558 kWh for Latin the 21 countries in our sample in three America. categories: decided to reform or have reformed (5), studying reform (3) and undecided about Finally, the energy intensity of African reform (13). economies is typically low, even by comparison with countries with similar per capita incomes Reforming countries: (exceptions are South Africa, Gabon and Zimbabwe). Low levels of development are * The C6te d'Ivoire used to have a single generally associated with greater reliance on national utility (EECI) but set up CIE in traditional fuels and low levels of urbanization. 1990 under an operations contract, to Comparisons of the share of electricity in total manage generation, transmission and energy consumption (Figure 1-6) reveal higher distribution throughout the country for 15 shares for most of the SSA countries studied years. This separated asset ownership and (except South Africa and Nigeria) than for the planning (still vested in EECI) from comparator countries. This results from the management of the public service overall low energy consumption in SSA concession. CIE is a joint stock company countries, the inferior thermal content of controlled by SISP (51 percent), with the rest traditional fuels and the low use of gasoline and owned by the Government of the Cote other petroleum products. d'Ivoire (20 percent), CIE staff (5 percent) and the Ivorian public (24 percent). SISP is a joint stock company vertically integrated, 35 percent owned by Electricite de France SSA UTILIriES 31
(EdF) and 65 percent by its affiliate SAUR. where it has been recommended that CEB's Generation is open to private investment. Board be made more effective, government intrusion reduced and accountability * In Ghana, the ESI consists of two state increased. Greater autonomy and private owned companies: ECG which is equity are planned for CEB. responsible for distribution in the south where most urban areas and customers are * Zambia's ZESCO is a national utility located, and VRA which is responsible for responsible for generation, transmission and generation, transmission, bulk supplies and distribution throughout the country apart distribution in the north. VRA's Board, from the distribution of electricity to the while appointed by the government, is mining industry and mining townships, composed of non government appointees. which is carried out by Zambia ECG has signed a management contract Consolidated Copper Mines Power division, with EdF/SAUR. which purchases electricity from ZESCO in bulk. ZESCO's Board is appointed by the * In Kenya, KPLC is responsible for all Minister of Energy and Water Development. distribution and most transmission plus Performance contract has been introduced. some thermal generation, and is 59 percent Vertical unbundling is being studied. government and parastatal owned. KPC, which owns hydro and geothermal plant * In Zimbabwe, ZESA is a national utility and manages power imports, is 100 percent responsible for all generation, transmission, government owned. Three further distribution and expansion. Its Board is government-owned companies (TRDC, appointed by the Minister of Energy, who TARDA and KVDA) own hydro stations, approves tariff increases and capital but the stations are operated and expenditures, while the Ministry of Labor maintained by KPLC. Vertical unbundling approves staff dismissals, and foreign is planned. borrowing is arranged by government. Corporate restructuring is underway. * Mauritius's CEB is a statutory body under Generation has been open up to private direct government control whose operations investors. are significantly hampered by procurement delays due to government procedures, and Countries Considering Reform:
Figure I-6: Energy and Electricity Consumption Characteristics EnergyIntensity per Capita ElectricityShare in Total Energy South.Affba Zambia ______Don - Ghana -,
z$EuamDlaCauneroonCameroon - Zaire - /.//z////,,,, Y ierar _2 Malawin- Sefkeaal- Kenya-,,,,,,, Cote4 ofre - iMpali - 7
nCa - zimbabwe - Moaire Madagascar MozarnIoue - H . Tanzania- Maliawi- uinea - Tanzania-Cotd dilvoire- MadjIsasr-- Nigena M aw- SouthAfrica
~~~~~~~~~~~~~Norwvav - U1zZ6 Not - Chile,,, ,,,-- Cortuaal- YZ3 Colombia -
Indgnesla Inia BIva -Malavsi -2 s?n"ia - ndon l Pakisan _.______0 1000 2000 3000 4000 5000 6000 0 10 20 30 40 50 kg of oil equivalent % 32 SSA UrTLITIEs
Countries Undecided about Reform: * In Cameroon, SONEL is 93 percent state owned and its Director General was also (as * Ethiopia's EELPAis a government authority of 1992) deputy Prime Minister for mines, responsible for all power production, sales water and energy. It is a "Societ6 anonyme and distribution and the Ministry of Mines de droit prive", but 10 of its 12 board and Energy, which is responsible for policy, members are appointed by govermment.The treats EELPA as a branch. remainder of the equity and board appointments are held by the Caisse * In Nigeria, NEPA is state owned and has a Francaise de Development. Performance monopoly of generation, transmission and contract has been introduced. A distribution. It has no real management privatization commission has been set up autonomy, despite being commercialized in and SONEL status is under study. principle in 1987, and has suffered major delays in obtaining foreign exchange for * Mozambique's EDM is a state-owned equipment imports. Government has company responsible for generation, extensive control over procurement, finance, transmission and distribution in the entire tariffs and personnel. country, although HCB will soon become the main electricity producer when the a In Senegal, SENELEC has the overall Cahora Bassa plant and transmission lines responsibility for the power sector. are fully re-commissioned. Some SENELECfalls under the supervision of the municipalities also buy power from EDM Energy Department in the Ministry of and distribute it internally. Currently, Industrial Development and Crafts. legislation is being passed which will allow However, development of water resources, any competent private company to become including hydro power, is under the involved in generation and supply. Ministry of Hydraulic Resources. Although not yet active, the government has SENELEC'sboard is formed by members of the intention of establishing the National various government departments. Electricity Council to govern the ESI, Performance contracts were introduced including policy making, approving tariffs, between the government and SENELEC issuing generation and distribution licenses, with very limited achievements. encouraging rural electrification,and setting and monitoring standards. Ongoing * In Sierra Leone the Ministry of Labor, discussion of vertical unbundling and Energy and Power (MLEP) has the overall privatization of EDM. responsibility for the power sector, while NPA is the national utility charged with * South Africa's ESKOM is a SOE managed generation, transmission and distribution. on business principles. Its policies are NPA's board members are appointed and determined by an Electricity Council removed at the discretion of MLEP. representing labor, consumers and government (which nominates 2 out of 16 * In Tanzania, TANESCO is members). ESKOM is run day-to-day by a government-owned. Its board represents Management Board, appointed by the most interest groups, but the government Council. It generates 95 percent of South nominates all the directors and the Africa's electricity and supplies mines and managing director is in practice directly industries directly. Forty-three per cent of appointed by the President of Tanzania. It is its output is sold to local authorities for responsible for all generation, transmission resale to end-users, but ESKOMis taking an and distribution on the mainland and for increasing role in supplying households exports to Zanzibar, where ZSFPC is the direct. Accounting separation and transfer distributor. pricing has been introduced between different layers of its business. A * In Uganda, UEB is a fully state-owned body competitive wholesale market for electricity which handles all generation, transmission is under implementation. Debates are and distribution, and is both regulator and underway about the best structure of the monopoly supplier. industry and privatization. SSA UTiLTiEs 33
As a result of this institutional and public Governments in several countries, faced with ownership pattem, electricity policies in Africa budgetary shortages and growing costs of have been a direct reflection of government's inefficiency in their SOEs, have attempted objectives, which are generally set in political performance contracts with public managers, and rather than commercial terms. management contracts with private managers. These contracts allow the government to The conventional wisdom is thus correct to the maintain the structure of the VIM, while keeping extent that only a few utilities have been able to ownership of the assets and maintaining a remain autonomous from govemment greater degree of influence in the enterprise's interference and ensure that political aims are policies. pursued within a reasonable commercial context. This seems to require rather special political In many countries, however, the winds of circumstances. ESKOMhas been able to remain change are leading them to adopt industry autonomous, while in some West African structures along the lines of the OCM (open countries (e.g. the C6te d'Ivoire, Ghana, Mali competitive model) as governments pursue three and Guinea) the near collapse of power sector main objectives: operations has generated the political will to put them under explicit performance contracts and (i) to make power sectors more commercially make them more autonomous of govemment. and financially viable; Zimbabwe is an exemption. Although government intervention is extensive, ZESA has (ii) to improve and sustain the overall efficiency been able to maintain sound tariffs and realize a of the ESI; and positive rate of return on revalued assets. The country has faced power shortages in recent (iii) to attract capital resources. years as a result of adverse hydrological conditions, but the utility has been able to Other countries are taking a rather different formulate realistic plans to overcome them. On route. In Asia, faced with an extremely rapid the other hand, Nigeria illustrates better the demand growth, reforms are being made to results of government interference. Government enable participation of privately-owned policy led NEPA to focus expenditure on independent power producers within the context generation and transmission investments while of govenmment-ownedutilities. neglecting distribution investment, operation and maintenance, and restraining tariff increases. There are three broad approaches to reform. T'his resulted in a crisis situation with large The first one is for the government to own the amounts of capacity unavailable and major utility and contract its operation with public supply shortages and outages. managers. The second is for the govemment to own the assets, but to contract with private 1.3.3 Alternative Reform Options7 managers its operation. The third is for the private sector to own the assets, or to invest and Vertically integrated monopolies (VIM) under operate under a long term contract. This section government control remain the most common starts by examining the two reform options structure, both in industrialized, transition and under the vertical integrated model (performance emerging market economies around the world. and management contracts). We then examine These range from France, where EdF typifies the the third option, by briefly reviewing the global well run vertically-integrated state-owned reform and privatization trends, assessing national utility largely responding to government whether open based market systems under objectives in its investment program and pricing, private ownership improve performance. We to Mexico and Indonesia, whose CFE and PLN call this third option a regulatory contract with are national utilities. private operators. In assessing these contracts, we have used extensively the analysis results of a recent Bank study.8
7 This sectiondraws heavily upon the 1995 World Bank study, Bureaucratsin Business: The Economicsand World Bank, Bureaucratsin Business: The Economics Politics of Government Ownershhip.Oxford University and Politicsof GovernmentOwnership. Oxford University Press. Press,1995. 34 SSA UTILlTIES
Some nay ask: "Why not judge a utility's performance by its attainment of the contract targets, especially since these indicate what it is striving to achieve?" While it is true that all of the surveyed SOEs achieved at least satisfactory ratings where some sort of score was assigned (Senegal has no such scoring), and all of the contracts assigned a high weight to economicgoals (two-thirds on average). The problem was that several of the targets were soft orflawed measuresof economic performance. Thus, afirm attaining its contracted targets does not necessarily mean that it is operating more profitably or efficiently.
Others nay ask: "What about social equity? " After all, SOE wverecreated to serve social goals rather than to profit. They should thus bejudged accordingly. Even by this standard, our three indicators-return on assets, totalfactor productivity, and accounts receivable-provide a useful measure of changes in utility performance,since we do not comparethem to an absolutestandard but to thefirm's past performance. Hence, managersfacing social constraints should nonetheless be able to improve utility performance within these constraints. For example, if electricity tariffs are held low to benefit poor households, we expect this to affect the trend in return on assets but not trends in totalfactor productivity or accounts receivable. Moreover, managers of a utility that is required to maintain low residential tariffs could nonetheless try to improve the return on assets by minimizing costs or expanding non-subsidized sales. Similarly, even if a utility is prevented from laying off redundant labor, it should still be able to improve productivity by better using its installed capacity.
The World Bank (1995). Bureaucrats in Business pp. 113-5.
Box I-1: What about other targets and goals?
The use of contracts has been increasing and is electricity industries are being privatized. likely to continue to grow as governments, recognizing the costs of poor SOE performance, A relevant finding of the Bank study attempt various remedies. Yet little was known (Bureaucrats in Business) was that, in general, about whether these contracts had been the greater the involvement of the private sector, successful or not. The World Bank analyzed in the better enterprise performance. Regulatory the said study the relationships between contracts with private investors/operators helped governments and SOE managers, and between efficiency better than the other type of contracts. government and private managers of state Performance contracts with public managers do enterprises in several sectors around the world, the worse job. This is because private owners including African utilities. This study was the and managers, unlike public managers, can first systematic, empirical evaluation of the main readily capture the returns when enterprise forms of SOE contracting. performance improves. They therefore have greater incentives than public managers to improve performance and to enter into contracts The types of contracts relevant to SSA only when government manifests a credible state-owned enterprise reform are: commitment to keep its side of the bargain.
* Performance contract establish the Generally, public managers are not penalized relationships between government and for poor performance nor rewarded for public managers. The Bank's study found outstanding. In contrast, a private investor over 550 such contracts in thirty-two buying a SOE can profit if performance improves developing countries, plus over 100,000 in and lose -perhaps even the whole China. investment-if things go wrong. Although, a private manager under contract has less of a * Management contracts define the relationship stake than a private owner; the contract can tie when government contracts management of incentives and penalties to performance, giving the firm to private managers. The study the private manager a higher interest to improve found 202 management contracts in efficiency than public managers typically have. forty-nine developing countries. How do management contracts compare with * Regulatory contracts specify the relationship regulatory contracts, that is, with privatization between a government and a regulated and economic regulation? Management contracts monopoly. Such contracts may include have been used most often for competitive firms explicit agreements about pricing or where many contracting problems could have performance. Regulatory contracts are been overcome by opening markets and increasingly being used as telecoms and privatizing, without the need to regulate. The SSA UTILITIES 35 literature suggests that when management Senegal Electricity's petroleum inputs at about contracts are used in infrastructure, they do not twice world market prices in the 1980s without generate the large, privately financed always allowing it to raise its tariffs. Judging investments possible under privatization.9 Since from the profitability trends in the sample, the management contracts have many of the same contracts had little impact on government problems and costs of regulatory contracts, they behavior. thus demand similar effort for smaller returns. 20% Performance Contracts
All governments have an implicit contractual 10%-t.. - E relationship with managers of their state-owned enterprises. In recent years, several reforming - -_ . countries made these contracts explicit, spelling 0% out the obligations of management, and sometimes government, in written performance -10% -4--- Korea84 contracts. As per the Bank study (Bureaucratsin \ Mexico86 Business), there were 385 performance contracts -\---- Ghana89 in use in the mid-1990s in thirty one countries, -20% . .-- Senegal87 twenty-eight of which were developing countries - -- - Philippines89 largely in Asia and Africa. 30%_ I- India87
In most SSA, as we have seen above, the most -3 -2 -1 0 1 2 3 4 5 commonly pattern of reform has been through Figure I-7: ROAs Before and After Contracting performance contracts. Have these contracts led to an improvement in performance? TotalFactor Productivity: Partial measures such as labor productivity can be misleading. If labor We examined utilities' performance before and productivity improves because the company after the performance contracts in six electricity increased output by using more material inputs, utilities to find out how these affected outcomes. then the overall efficiency of the firm has not We used three measures: To assess the improved. Total factor productivity measures companies' profitability we compared trends in the efficiency with which all factors are used and rate of return on asset (ROA), total factor is our most reliable indicator of whether the productivity (TFP) and accounts receivable. contracts were associated with performance Text box I-1 addresses some of the concerns improvements. about the validity of these measures. Performance on TFP is mixed: in one of the six Profitability: The profitability trends in our companies (Mexico Electricity) a declining TFP sample do not support the notion that began to increase one year after introduction of performance contracts improved performance. the contract, while in three utilities precontract None of the six companies improved the trend in trends continued unaltered. The two remaining their ROA after the contract, most continued to firms (India Electricity, and Senegal Electricity; improve or deteriorated without a noticeable see figure 1-8)suffered a downturn in what had change in their trends. On the negative side, been an improving TFP trend, suggesting that, in two showed worse ROA trends after contracts tow out of six cases, the contracts may actually than before (Philippines Electricity, and Senegal have contributed to a deterioration in Electricity; see Figure I-7). For public utilities, performance. ROA trends reflect more government behavior rather than managerial behavior, because wages, AccountsReceivable: The performance contract generating fuel prices, and sales tariffs, may all seemed to have improved collections in Mexico's be controlled by the government. For example, utility soon after, after the 3rd year however the to raise revenues, government set prices for trend deteriorated. In those of Senegal, Ghana and India, the contracts seem to have worsen the situation. The pre-contract collection trends in 9 Galal,Ahmed et. Al. WelfareConsequences of Selling the two remaining utilities (those of Korea and Public Enterprises: An Empirical Analusis. Oxford Philippines)went unaltered after contracting (see UniversityPress, 1994. Figure 1-9). 36 SSA UrrTrrLEs
3.0- Management contracts are concentrated by -.---- Korea84 sector. Of the 158 contracts found by the Bank
2.5- + Mexico86 study, 51 percent were in two sectors: hotels -.-- Ghana89 (forty-four contracts), agriculture (twenty-four in
20- -- Senegal87 sugar, twenty-two in Sri Lankan plantations and
2.0- - Philippines 89 twelve in agroindustries). In Infrastructure there
- | 87- India / were 15 percent (twelve in electricity, seven in 1.5-- -- ..../ - water, and four in telecoms).
1.0- =_;, The results from the Bank's study indicate that, - \ with. two-thirds of the contracts successes, o.s - " ^(management contracts do help to improve SOE *.00".4 performance. It is important to understand, ftherefore, why these contracts improved 0.0 I I performance-and why they are so seldom used. -3 -2 -1 0 1 2 3 4 5 Figure 1-8: Total Factor Productivity Why do management contracts improve performance? To understand why these contracts In summary, our analysis for the six electric failed or succeeded we consider three variables: utilities under performance contracts confirmed information, rewards and penalties, and the conclusion of the much wider study by the commitment. World Bank: "performance contracts have frequently been a waste of time and effort." Informnation: Competition appears to have played an important role in increasing the 400- availability of information, which, in turn, -.--- Korea84 contributed to the likelihood of success. Of the 3507---- Mexico86 thirteen successful contracts, ten operate in 3200_----- Ghana89 competitive markets, while the three that are
_\ ---- Senegal87 monopolies (two water companies and a 250 - -- P i;ppines89.. Terminal), were subject to competitive bidding. -. n dia 87 The twenty-two successful Sri Lankan 200-- >Rs - plantations were also competitively bid-a factor 150> ' that may have contributed to their success. In 1504-,+_,-,--^ 4 contrast, the two monopolies wiffi borderline
100 X,- performances (Naga Power, a borderline success, : * and the Light Rail, a borderline failure), were not 50 - = auctioned. Competition alone does not assure success, however; most of the borderline and 0 - . failed firms in our sample operate in competitive -3 -2 -1 0 1 2 3 4 5 markets and, in one case (Ghana State Gold Figure 1-9: Accounts Receivable Mining), the contract was awarded through an auction as well. Even though competition reveals information, it improves performance Management Contracts only if that information is used to shape rewards and enhance commitment. Contracting out SOE management to the private sector is not as widely used as Rewards and Penalties: Rewards consist of two performance contracts, but as the referenced broad types-money and power-while the Bank study found out, they have been successful withholding or reduction of these constitute the where attempted. Although some transitional two types of penalties. The Bank study economies, notably Poland and Romania, are confirmed that performance improves when taking steps to introduce management contracts rewards and penalties are closely linked to for a large numbers of SOEs, so far no country performance. As an incentive for improvement, has been relying on them extensively. Sri Lanka success fees linked to performance proved has the most, with twenty-four contracts, stronger than fixed fees. All the successful twenty-two of which involve tea and rubber contracts used success fees or equity stakes; plantations. many did not even include a fixed fee SSA UTILITIES 37 component. In contrast, all of the borderline and Bolivia have seen the unbundling of their ESI's failing contracts included fixed fees, some did and the introduction of competition and not even have success fees. economic regulation. In Chile, the post-Allende government of 1973 wanted to remove the Rewards and penalties were evident in the presence of the government in all productive and degree to which govemments granted infrastructure sectors, and subject all enterprises contractors autonomy or, conversely, constrained to market constestability. In England and Wales, the contractor's autonomy in ways that raised the government sought to promote private costs or lowered revenues. In general, the more participation in the sector, to reduce the sector's successful contracts enabled contractors to claim on public resources and to improve pursue contract objectives independent of efficiency in energy production, utilization and government policy, while the less successful investment through competitive market-based contracts made returns to the contractors pricing and price cap regulation. The reforms in dependent on government decisions outside of Norway sought to limit excess capacity through their control. competitive market-based pricing and improved efficiency in energy production and utilization. Governments intervened in personnel polices Argentina and Bolivia have legislated reforms more than any other area of decision making. primarily to improve the power sector's Here, too, enterprise autonomy was closely operating performance, reduce its financial correlated with improved performance. Most of dependence on public resources and enable the successful contracts gave the manager private participation. Chile, which led the way, significant autonomy to set wages and hire and introduced a benchmark regulatory system based fire, while all but one of the borderline or on "ideal" companies. These reforms occurred unsuccessful contracts limited management's within the context of economy-wide reforms in authority over labor. the fiscal, monetary and trade areas, which improved the investment climate and helped Commitment: Finally, successful contracts were these countries to privatize large parts of the set up to elicit commitment from both power sector. management and government. For instance, the contract periods were long, included the Changes in a similar direction are now possibility of renewal and provided for non- occurring in countries as diverse as Sweden and arbitrary arbitration of disputes. Jamaica. Peru and Bolivia provide examples of relatively small systems which followed the Both parties need to share risks, each requires revolutionary reform route: unbundling utilities, the other to prove commitment. Government introducing competition in generation, and signals commitment by agreeing to a longer creating an electricity pool. contract with the option for renewal and by allowing the private manager the autonomy necessary to reap a reasonable return. Financial weakness adversely affects every aspect of Contractors show their commitment when they utility operations. Conversely, financially stronger put their reputation at stake and agree to base a utilities are better placed to improve operational significant part of their returns on performance. efficiency and adapt technological improvements. African utilities thus need to become and remain financially viable if they are to provide the economicand Privatization and Regulatory Contracts reliable service African economies need to grow and Idevelop. The changes that are taking place in the develop. infrastructure industries are part of the global Box I-2: Need for Financially Stronger economic trends fueled by increased Utilities globalization of industry under the pressures of international trade, competition and accelerating Market based reforms, along the lines of the technological change. This is paralleled by open competitive model, enable private sector developments in capital markets in which the ownership of electric enterprises by setting financial flows are increasingly responding to appropriate legal and regulatory frameworks to global rather than national trends. provide equitable and transparent operating and pricing rules to all participants. These The radically reformed systems of Chile, frameworks embrace the use of competitive, England and Wales, Norway, Argentina and market-based pricing at the bulk power level, 38 SSA UTIurTiEs while retaining regulated tariffs mainly for to improve productivity; and at the same time monopolistic transmission and distribution may be able to take advantage of its monopoly functions. At the same time, many reforming position to earn an excessive rate of return. countries are emphasizing energy conservation, demand-side management and the use of cleaner The Bank study (Bureaucrats in Business) and more efficient technologies. Comprehensive examined regulatory contracts in the telecom environmental regulations have often been sectors of various countries, finding a more rapid promoted in parallel with restructuring and network expansion, improved labor productivity, privatization processes and environmental costs and higher returns on net worth in the and risk are generally being shifted from postreform period. Consumers also benefited governments to privately-owned power from expansion in the system and better service. enterprises. Information and Competition: Information Regulatory contracts typically arise when the asymmetry can be ameliorated in a variety of government privatizes a state monopoly. In an ways. Competition provides the least costly unbundled ESI, with competition in generation solution. Where technology does not permit and sales, these contracts apply to the wires competitive markets (because of economies of segment of the business (i.e., transmission and scale, for example, in transmission and distribution franchises). These contracts are also distribution), other ways exist to introduce known in the ESI as licenses or concessions. competition. Auctions for distribution franchises They represent an improvement over continued can extract information, and the threat of government ownership when they provide competition after the contract is granted can incentives to persuade the new owner to invest, induce the provider to operate efficiently. expand service, and operate the firm efficiently, Contracting with several suppliers in one while protecting consumers from monopoly country (even if each supplier has a regional exploitation. Devising effective regulatory monopoly) enables the regulator to compare contracts has become increasingly important as performance across firms. Barring collusion developing countries privatize a growing between the firms, such so-called yardstick number of former state monopolies in competition gives the regulator a mechanism to telecommunications, power, water, railroads, verify information provided by individual firms roads, ports, and gas. The value of SOEs sales in and to gather information about the impact of these sectors exploded from a mere $431 million common factors (e.g., geography, user density, in 1988 to nearly $6.5 billion in 1992. weather, etc.) on relative performance. Finally, Privatization has been tried for many types of governments can discipline firms by threatening infrastructure monopolies, but most sales have to transfer the contract to rival suppliers if the been concentrated in telecommunications (60 incumbent fails to meet contracted targets. percent) and power (27 percent). Most countries in the study's sample Regulatory contracts are most successful when introduced various forms of competition either at govemments do three things. First, they reduce the time of awarding the contracts, through the firm's information advantage by increasing international bidding, or in the market for value competition (for example, by comparing regional added services. The different ways competition monopolies or by auctioning the right to provide was used helps explain the differences in rates of monopoly services). Second, they devise return. However, rates of return also depend on rewards and penalties, primarily in the form of the pricing regime and the credibility of pricing regulations, that induce the firm to government commitment. operate efficiently and pass some of the savings on to consumers. Finally, they demonstrate their Price Regulation and Rewards and Penalties: commitment with safeguards to protect the Economic regulation is the most effective producers against opportunistic behavior by mechanism for rewarding or penalizing future regimes so that owners make investments regulated monopolies. An ideal price regulating necessary to upgrade and extend service. When system provides owners incentives to invest and these requirements are met, privatization with improve service, and reward improvements in regulation works well; where they are not met, efficiency, while at the same time passing on the outcomes can be disappointing. The private largest possible share of the resulting savings to sector may not invest sufficiently to meet consumers. In short, ideal price regulation will demand or may not expend the necessary effort SSA UTiuTrEs 39 achieve outcomes very similar to a competitive utilize these information-extracting mechanisms. market. Nor did the Philippine government use rewards to counter the firm's information advantage; it The alternative regulatory schemesinclude rate merely put a ceiling on the operator's returns. of return, price caps, and benchmark pricing. Under rate of return (ROR) regulation, prices are Resolving the CommitmentProblem: Investors set so that the utility can recover costs and make who fear that the government will expropriate a fair rate of return. ROR regulation is often their assets or set prices in ways that preclude a criticized as inducing firms to inflate costs, fair profit minimize risk by underinvesting. overinvest, and to cross subsidization services in Governments that count on private owners to which it faces competition from those regulated investment to expand service, have a strong services in which it does not. incentive to demonstrate commitment to abide by the contract. Some governments have done Price caps and benchmark regulations provide this more successfully than others, by specifying incentive to save costs and pass some of the conflict resolution mechanisms, assigning savings on to consumers. Under price cap enforcement of regulation to appropriate regulation (also referred to as RPI - x), regulators agencies, and insulating the regulatory regime impose a ceiling on the tariff increase, often from arbitrary political behavior. based on the retail price index (RPI) minus an agreed rate of efficiency improvement (x). With All the countries surveyed in the Bank's study a positive x, price cap regulation transfers a anticipated conflicts over pricing, entry, and share of the benefits from technologicalprogress interconnection, devising rules to deal with and improved productivity to consumers. The them. The evidence from the sample tends to pricing formula is changed at discreet confirm that the rules are more credible, and prespecified intervals (usually a quarter or a investors more confident, when the rules are third of the lives of the assets, i.e., 4 to five years explicit. Rules were spelled out most clearly in in the case of transmission and distribution lines) Chile and Jamaica and were vaguest in so that improvements in efficiencycan be passed Argentina, Malaysia and Venezuela, with Mexico on to consumers. In theory, this avoids the falling somewhere in between. shortcomings inherent with ROR regulation, since firms are protected from inflation and have Chile's regulation defines step-by-step no incentive to expand their asset base procedures for arbitration and appeals in the inefficiently. They can also capture any benefits law. The combination of granting the operator from improved efficiencythat lowers costs below a specificlicense and the possible appeal outside the price ceiling in the period between of the country make the regulatory regime adjustments. Benchmark pricing works credible in Jamaica. Although the courts are similarly, except that prices are set according to known for their independence, embodying the the costs of a similar firm elsewhere or a regulation in a law as in Chile would not have hypothetical efficient firm. Again, the utility's worked because in a parliamentary system such management has the incentive to improve as Jamaica's, a new government may overturn efficiency, because the firm reaps the benefits laws enacted under a previous government. until the pricing rules are renegotiated. Enforcement is most effective when it is in the Differences in the ways that countries used hands of a neutral agency with the power to pricing rewards to motivate firms to minimize enforce and the capacity to process the necessary costs and make a fair rate of return can be seen information. Neutrality is assured when the most starkly by using the example of Chile and enforcing agencies are independent of the the Philippines in telecoms. Chile, one of the bureaucracy or, where appeal is through the best performers on the Bank's measures of judicial system, the courts in some countries are productivity and service, allocated the franchise known for their independence. Enforcement to the private sector through international power is assumed to exist when the agencies bidding. Provisions were included to revoke the have a clear mandate to request and verify license if the firm did not meet agreed targets. information from the firm. Finally, the skills It also used benchmark regulation for setting needed to verify this information are assumed to prices, which provided an incentive for the firm exist when the agency has the autonomy and not to behave opportunistically. In contrast, the financialresources to attract skilled employees or Philippines, one of the worst performers, did not hire consultants when needed. 40 SSA UTILIrIEs
Only Chile and Jamaica seem to assure the concentrated in the executive branch and there neutrality of their enforcing agencies. In Chile, were few constraints on administrative neutrality is derived from relying on multiple discretion. The independence of the judiciary agencies to resolve conflicts (a check on arbitrary was compromised because the president was behavior by any one agency) and on the courts' empowered to remove any judge. As a result, reputation for independence. In Jamaica, the the government could not credibly commit that right of appeal to the Judicial Committee of the it would adhere to certain policies and not Privy Council in London acts as a deterrent behave arbitrarily. After 1986, although the against capricious behavior by government. In Marcos government had lost power, business all other cases, the regulatory agencies are allies of the old regime who benefitted from the extensions of the bureaucracy, with the status quo in telecommunications retained concerned minister having the final say when enough clout through political institutions (such conflicts arise. as Congress) to forestall the introduction of competition or other reforms in the sector. Most of the regulatory agencies in the sample have a clear mandate to request the necessary The other countries in the sample -Mexico, information from the firms and to enforce the Argentina, Venezuela and Malaysia- were more regulation. One exception is the Philippines, successful than the Philippines but less so than where the presence of two agencies with vaguely Chile and Jamaica in creating credible defined mandates may have undermined their commitment mechanisms. They regulated by power. Malaysia is another exception: since the decree or sale contracts, left conflict resolution ill company is still largely state owned, the power defined, and allowed the concerned minister of enforcement resides in the bureaucracy. wide discretion. However, the greater the chance that decrees and sale contracts can be Finally, the countries surveyed attempted, with reversed, the weaker the credibility of the varying degrees of success, to insulate their contract's safeguards against arbitrary regulatory regimes from undue political government behavior. influences. Chile and Jamaica again succeeded the most, while the Philippines was least In sum, the flow of investment reflects the successful. Chile resolved this problem by degree of success a government has in enacting its regulation in a detailed law. The convincing investors it is committed to the country has a long history of a divided contract and that this commitment would be legislature where the executive branch seldom sustained even when the government changes. has a majority, which means that laws are Chile and Jamaica found the most credible difficult to change. Both factors made credible commitment mechanisms, which helps explain the government's commitment not to behave the upsurge in investment in these two arbitrarily. countries.
In Jamaica, the commitment problem was Although the country sample is small, belongs resolved differently. The regulatory regime was to the telecom sector and is not random, it incorporated in an explicit license that stipulated includes most developing countries that have a specific rate of return and other terms of privatized state monopolies in infrastructure. operations. To make this agreement binding or The analysis of the outcomes in these seven costly for the government to renege, it was surveyed countries shows significant expansion stipulated that any rulings by the supreme court of capacity and improved productivity after regarding violations of the terms of the license reform. There was however a wide range of would be subject to review by the Judicial country outcomes. The variance can be traced to Committee of the Privy Council in London. This differences in the regulatory contracts. On the solution was more credible in Jamaica than one hand, Chile was able to resolve the Chile's approach would have been, because laws information and rewards problem (by increasing can be frequently overtumed in Jamaica's competition and adopting benchmark pricing) as parliamentary system, as new administrations well as the commitment problem (by embodying enjoy a majority in congress. detailed regulation in a law to insulate it from political changes); the result ensured positive The Philippines, on the other hand, illustrates outcomes for producers and consumers. On the how politics can erode the credibility of other hand, the Philippines failed to resolve all regulation. Between 1972 and 1986, power was three problems, leading to disappointing SSA UTiuTIEs 41 performance. The experience of the remaining of the others led to underinvestment or five countries falls in between. For example, excessive rates of return at the expense of Jamaica resolved the commitment problem but consumers. could have done better on competition and * Some differences are due to country pricing, while Venezuela resolved the characteristics that are not easily changed in information and pricing problems but came up the short run, such as courts which are not short on commitment. In both cases, the new independent or a legislature which easily owners invested and expanded service but overturns laws. But some countries have received relatively high rates of return, at the designed contracts that overcame such expense of consumers. constraints. Regulatory contracts are tough to design, Conclusions but not impossible; even though compromises were necessary and there were The findings in this section have some lessons many imperfections in design, important for SSA countries. gains were still achieved.
* In terms of results on performance, A special problem for much of Africa is the management contracts are not as good as developmental need to expand access to regulatory contracts, but they are better than electricity beyond its currently very restricted performance contracts with public level (see Section I.4.1). Rural and peri-urban managers, which show the worse track electrification is typically not commercially record. attractive, and has been financed in Africa as * Management contracts have many of the elsewhere by a combination of cross-subsidies problems and costs of regulatory contracts, between customer categories and grants from they thus demand similar effort for smaller abroad. But in none of Africa's lower middle or returns. low income countries has access reached much * The greater the involvement of the private over 20 percent, compared with rates of over 50 sector, the better enterprise performance. percent in India and China. It is apparent that, in Hence, an open competitive industry, with order to be able to finance and execute regulatory contracts with private operators electrification effectively, utilities will have to be helps efficiency better than other better organized and financially stronger. The institutional arrangements. success of Chile and Jamaica in expanding * Successful regulatory contracts addressed capacity and service reliability through market- the information, rewards and penalties, and based reforms and appropriate regulatory commitment problems simultaneously. contracts are examples that can be replicated, Resolving one problem but not one or both with proper adaptation, in Sub-Saharan Africa. 42 SSA UTILITIES
1.4 Supply Performance Figure I-11: Installed Capacity per Capita Sou.VAia
1.4.1 Installed Capacity n
An important, if obvious, point is that the sNa 7- installed capacity in many African systems is Mo fm n1aL- very small as compared to most other countries. M aRalI.,- As Figure I-10 below shows, while South Africa erta U., approaches the size of the developed systems in F., the United Kingdom and Norway, the combined Poal , capacity of the rest of Africa is less than that of a------, the United Kingdom and far less than that of a ' major low income economies such as India and a China (not shown on graph). Many systems are _ under 1 GW in capacity, smaller than most of 0.0 0.2 0.4 0.6 0.8 1.0 the comparator countries (except Bolivia). kWperpemon
Due to the small size of African power The figures also show the installed capacity by systems, comparisons of capacity growth type. The countries in Africa fall into two between SSA systems and those outside may be groups, one dominated by hydro power and the misleading. As an example, in a medium-sized other by thermal. Zaire, Uganda, Zambia, SSA system such as that of Ethiopia (414 MW of Ethiopia, Ghana, Cameroon, Malawi and Kenya capacity in 1994) the addition of a single hydro are overwhelmingly hydro-based. At the other plant of 90 MW capacity at Gilgel Gibe would end of the scale, Senegal has no hydro capacity, lead to an increase of 22 percent in installed and about 90 percent of Sierra Leone and South capacity in a single year. Even averages over several years can be misleading because of the lumpiness of generation investments, and they may fail to reflect the actual nature of capacity addition.
Figure I-10: Size and Structure of Generating Capacity InstalledCapacity Structureof GeneratingCapacity SouthAfrica - ;,,,,_Zaire -- Nigepaaa NiZairre-' [nrg a_ Zimbabwe- opia - Zambia 3_Ghana_- Ghana Carpproon - Cot d'lvoire- Malawl- Cameroon-ev z-n Kenya-1Tanz - - Tanzaria Tall-n t Ethiopia Gabon - Maubtius- J 1atgscar - Mozambique- ______- Gabon - ozam _ Sene al ______ena_____ Mada asir -___ Hydro____ alawi Marl u _____ydro Gui'nea out car __ Thermal Ugamnda n
SierraLeone -na* N e
UK , Co -or__- Other Norway- Argentin' - Portua_l _ in onesia- ______Colombia tnan Pakistan ,,,,,,,, _an Portugal-n inla Malavsia ______lIJla- ______My Cie z,ln ysone- , . Bolivia ____ _ 0 20 40 60 0 25 50 75 100 GW SSA UTIuITiES 43
Africa's installed capacity is thermal.10 A similar Zaire), imports based on hydro may well also be range occurs among the comparator countries, an attractive option in many cases. with Norway and Colombia relying heavily on hydro while Indonesia and the UK are predominantly thermal. This hydro-thermal Installed capacity per capita in most countries complementarity in SSA offers interesting in Africa is not only far below that in developed possibilities for regional trade."1 countries (FigureI-11), it is also below that in the middle-income economies of Malaysia and Chile Predominant hydro systems favor utility and the less-developed economies of Indonesia performance. Utilities may continue to function and India. There is a clear association between despite a decline in revenue collection because per capita income and levels of installed capacity their fuel supply is effectively free, while per capita, with South Africa having a level operations and maintenance expenditure is lower comparable with European countries and Gabon than in thermal plants. This also implies that the and Mauritius having levels comparable with pressure to raise tariffs in predominantly those in Asia and Latin America. hydro-based systems is much lower than in predominantly thermal systems. 1.4.2 Access to Electricity
Figure I-12: Access to Electricity The small system sizes in SSA are also
satlr us associated with very low electrification levels...... 11... Figure I-12 compares the proportion of the Cotcdelo,r- =population with access to electricity across the 7rnnea various countries. As can be seen, electrification rates in lower middle and low-income Africa are low, even compared to similar countries elsewhere. For example, Indonesia and 6?er4tuylRaeneaj- Cameroon have similar GDP per capita levels, but 32 percent of the population in Indonesia 1a 'I have access to electricity compared with 15 Argei ..... = _. percent in Cameroon. In Zimbabwe, 17 percent l sIa = of the population have access to electricity, Pnda.___ _ compared to 56 percent in Bolivia. InIcbesia-_ 0 20 40 60 80 100 Improving access to electricity in Africa will require major financial commitments, which utilities will find hard to afford in many cases. It is noticeable that, except Norway, the more Rural electrification (RE) cost more per developed countries tend to be increasingly connection, and affordability is usually lower, thermal as their economically exploitable hydro than in urban areas. RE is thus less financially was exploited first and is now nearly exhausted. sustainable than urban and peri-urban Over the very long term it can, therefore, be distribution, and in most cases would require expected that the African electricity sector will subsidies which the African governments and become more thermal oriented"2 , but for the utilities can ill afford. Since all the countries immediate future considerable hydro potential surveyed have a significant number of remains in many countries. Given the enormous unconnected urban households, ranging from hydro potential of some countries (particularly about half the urban population (Zimbabwe) to 80 percent (Malawi), it makes economic and financial sense to focus the electrification effort 1o South Africa is alsothe only Africancountry committed in these areas first. India, for example, only to nuclear capacity,but its share is small at under 5 achieved its impressive levels of electrification percent. through political pressures and heavy 11 Anotherpaper in this volumeexamines the potentialfor regionaZinterconnections and power tradein SSA made possibleby this hydro-thermalcomplementarity. 12 WorldBank 1994forecastsoffuture capacitygrowth for Sub-SaharanAfrica (excluding South Africa) show the share of hydro in capacitydeclining from 59 percent in 1992 to 51 percent in 2005. 44 SSA UTILITIES
Figure I-13: Generation Amount and Structure
AnnualGeneration Structure of Generation
Nigena - Z __ __ Zambia-,,,,,,,,,,,,,Ymi- Zimbabwe - _ - g4aVa Ghana C-roQn - Zaire- ,,,,,,,, iol-E Kenya - ,,,,,,,,,,szT - Cote d'lvoire -Mal i Cameroon - I Iadpn - Tanzania - Cote lvoire - Ethiopia pMinea - ______Uganda - Hydro Senegal -a;tjnuas n - Hydro Gabon- ena - .lerrg5out Leone - Thermnal Mauntius- s enegal - *Nuclear Malawi - N Madagascar - _ Other Guinea - m Co______-
Mozambique -_ __Pahstan_- Mali - 3______-__ Sierra Leone in
Bolivia -~ Maay-_
0 3,000 6,000 9,000 12,000 0 25 50 75 100 GWh %
subsidization, and the financial consequences elsewhere (again South Africa is an exception, 3 proved extremely serious for the sector.' with a generation equivalent to the remainder of SSA and thus excluded from the graph). The structure of generation also exhibits a similar 1.4.3 Generation pattern to that of capacity, though many countries' reliance on hydro energy is greater Electricity generation shows the same pattern than the equivalent share of hydro capacity. as capacity: Figure I-13 reiterates the small size of most African systems compared to those The range of plant sizes among countries does not show a clear size distinction between hydro Figure 1-14: Average Plant Size and thermal based systems. South Africa
SouthArica- , operates some extremely large thermal plants, Zambia- B3and the predominantly thermal systems in Camebwon- Nigeria and Zimbabwe also have plant sizes Tanzania- 3 M- similar to those in the UK (see Figure I-14). At IvoryCoiast- m the other end of the spectrum Senegal, which is Zaire- Z totally dependent on thermal power, has an Kenya 3 average plant size of under 20 MW. Meanwhile
Maurtlus- some hydro dominated countries (such as Senegal- Zambia) have a large average plant size, but the Malawl-i Uganda- three systems with the smallest average plant Madagascar- size (Malawi, Uganda and Madagascar) are all hydro-dominated. Bolirvia- Indonesia . l 1.4.4 Transmission and Distribution 0 500 1000 1500 2000 MW Figure 1-15 shows the relationship between the
13 - - size of the transmission system and the level of Luis E. Gutierrez, 'International Power Sector peak demand served. A low ratio can indicate Experience: A Comparison with the Indian Power Sector" that the transmssion system is inefficiently used, in ESMAP, Conference on Power Sector Reforms in India Report No. 166/94. SSA UTILITES 45
Figure1-15: Peak Demand per km of HV available have less than 200 customers per km of Network line, while all the comparators have more than SouthAfrica Z r/- -r .--- 400 customers per km and both Indonesia and Zambia- China have well over 1,500 (not included in the Zimbabwe graph). Kenya-z,E l Uganda Malawi The ratio of sales to network size shows a Mali-a- similar pattern (Figure I-16). Only South Africa Tanzania-7~- MozambiqueC and Cameroon approach the levels of electricity MauritiusX moved by the high voltage systems of the UK
UK - 7 . and China. Zambia is comparable to Chile and Chinae-ZZ Pakistan, but the others move less electricity per Indonesile- HV line km than India, the lowest of the Pakistan- W_ comparator countries with a ratio of 1,550 MWh India .m. tYZ per line km. Tanzania only achieves a ratio of Argentina _ 435 MWh per km. 0 200 400 600 800 1000 1200 1400 kWper km of line 1.4.5 System Losses that demand is small and dispersed, or that Figure I-17 summarizes loss ratios for the latest power is generated at relatively remote hydro years available. The reported losses exclude own sites. Excepting South Africa, the relatively few consumption by power stations but include: African countries for which data is available all have ratios below those of the non-African . technical losses in transmission and countries and far below the UK's ratio of 1,300 distribution; and kW per km of HV line. This is more likely to be a result of system characteristics than operating . non-technical losses, primarily thefts of energy, inefficiency. unmetered sales and billing errors.
The African utilities surveyed have generally Non-technical losses are extremely limited in the few customers per km of HV line (see Figure I- more developed systems but can reach large 16). Eleven of the countries for which data is amounts in the less developed electricity sectors.
Figure I-16: Customers and Sales per kilometer of HV Line Cameroon- SouthAfrica - SouthAfrica - Cameroon- Mali Zambia- Gabon -- ] Gabon- Uganda-- Zimbabwe- Kenya -i=l Zaire - Mozambique- Kenya- Tanzania - m Malawi- Zaire - Uganda-= Zimbabwe Mali -m Malawi Tanzania-m Zambia - Mozambique-0 Mauritius- Mauritius-S
U K - UK--mx fi.z Pakistan Chile- India E _ | Pakistan- Chile- Argentina Argentina - ___ A India- __ ___ 0 200 400 600 800 0 2000 4000 6000 Customersper km of line MWhSales per km of line 46 SSA UTILITIES
Non-technical losses generally result from poor 1.4.6 Peak Demand and Reserve commercial practices. The breakdown between Margins technical and non-technical losses is not known for many African countries. At one extreme, Reserve margins in generation are necessary to non-technical losses accounted for 20 percent of maintain reliability faced with random net annual generation in Nigeria in 199014,but breakdowns of equipment. Since bulk storage is evidence from Cameroon, Ghana, Tanzania and uneconomic, redundant capacity is the only Uganda suggests that a more normal level is practical method for providing reliability. A around 10-13percent. system's reserve margin"5 (RM) thus provides a measure of its ability to meet peak demand with Figure I-17: Transmission & Distribution adequate standards of reliability. Losses
Nozanbique - - The optimal RM depends on system conditions ienrr Leoge i/-%Z7;p=Z-'-7 . i. eania a"'szzvz,7arjzcaazz= - l and economics. In small isolated and inMa ax -gz a hydro-based systems, the RM is typically higher g bon '//, "" Tarza ,,'' than in large, interconnected and thermal-based c Wire systems. 11amenoonv, I -1- 1-1-w7:z The economic problem is to optimize KaeinaYWalDi,z,",z,,X,7",,-27zzz l reserves at a reasonable level. This optimization
zimbare ,<,7 1 Zimba,bwe /: Z- '! must account for both the electricity supply maunt,ua, ,,,aA'AAa system characteristicsand the cost of outages to South ca 'v"- consumers. Studies of the tradeoffs between
A India >'i7Z?7zzzz outage costs and reserve capacity tend to result Matktain in generally agreed acceptable ranges. For Indonesria example, RMs typicaly range between 15 oivlaaz-z-%zX Nor,wayi".,2 percent and 35 percent in developed countries, Portu8;§: -,, I and.. the lower bound proposed in the SAPP 0 10 20 30 40 50 60 agreement in southern Africa is 19 percent. In predominately thermal based systems, RMs are within the 15-20% range. RMs outside these The rate of power losses in two-thirds of SSA limits may indicate inadequate reliability (low countries is higher than the Bank-wide median margins) or overinvestment in generation (high of 15 percent. Mozambique, Sierra Leone and margins). Uganda have the worst records, with losses of 55, 39 and 37 percent respectively in 1993, In developed countries, electricity shortfalls are followed by Nigeria, Guinea and Gabon with primarily caused by faults in the transmission losses in the 20-30percent range. The majority of and (especially)distribution systems rather than the African utilities are clustered in the 15-20 insufficient generating capacity. The security percent range with the best performers being standard for generation is typically 1 day in 10 South Africa with 7 percent and Zambia with 9 years loss of load probability. Standards are percent. These compare with the rate of losses usually much less exacting in developing experienced elsewhere: India with losses as high countries, and load-shedding is relatively as 32 percent; Pakistan, Colombia and Argentina frequent. with 20 to 25 percent, and the rest of the less developed countries in Asia and Latin America African countries exhibit a wide dispersion of in our sample report losses between 10 to 16 RMs (see Figure I-18). At one extreme, the percent. figure for Guinea is 175 percent, while at the other, Ghana's has no RM. The comparator There would therefore appear to be scope for countries also present a wide range, going from significant loss reduction in most of the African 107 percent for Argentina to 26 percent for the countries surveyed, and a large proportion of UK. this scope lies in the reduction of non-technical losses. However, there is also scope for reduction The RM figures do not necessarily give a of technical losses complete picture on reliability of supply, since it
'5 Installedcapacity less peak load,as a fraction of peak 4 ESMAP (1993a). load. SSA UTILTIES 47 is difficult to be sure that nominal capacity is At the other extreme, Ghana especially would actually available. Nigeria, for example, is seem to have a case for significant investment, as persistently short of generating capacity despite its would Kenya and Uganda. The low figures for high RMfigures. Due to lack of maintenance and Uganda and Ghana, both exporters of electricity, fuel interruptions, only 57 percent of installed are surprising.'6 capacity is estimated to be available for use. Cote d'Ivoire used to suffer from similar problems, but FigureI-19: Capacity Factor and Hydro with the coming on stream of the Ciprel IPP Comparator Countries project, it is no longer short of capacity and is 60 P successfully exporting power. _Pkita
.UK
Figure I-18: Estimated Plant ReserveMargins -50S.thAMi.. China
Guinea -45 - Chile
Ma aiscta6Cr , Molzamoglli 40Inoei a Nigerk~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Pr~eird ....- i. Tantanla 35 SEijOrurtfin\lRcae-~~~~~ 5 ~ z ~~~~~~~~~~~~~~gen5na t oz 30 ______zillaDDWje- 30 a>2s 20 40 60 80 100 Hyd4r Capacvty % Car1/
7 Argentina - The capacity factor' informs on the average use f na 1-O of the generating capacity in a year. It reflects the policy adopted towards factors such as dispatch of Mis-an _plant and plant margin. A high value indicates
__wplant is used heavily during the year, conversely
0 50 100 150 200 a low value implies that most of the capacity % operates only for limited periods. As Figure I-19 shows for our comparator countries, in general as systems depend more on hydro they tend to There are a number of other reasons for the display lower capacity factors due to the seasonal wide range of figures. First, in hydro systems nature of rainfall which may well lead to much of there may be a mismatch between the seasonal the installed capacity being operable only part of pattern of generating resources available and that the year. of peak demand. Countries like Argentina, Chile and Norway need to maintain large apparent However, in SSA (except South Africa) another excesses of hydro capacity to avoid shortfalls at factor seems at play in explaining the relationship times of low water flow. between capacity use and hydro capacity. As Figure I-20 shows, the inverse relationship seems Second,the high RMs in many African countries to hold for SSAcountries; i.e.,hydro predominant are partly due to the existence of a number of systems in SSA display higher capacity factors isolated systems in rural areas, while the than thermal ones. This suggests that hydro interconnected system serves only the capital and systems are generally better run than thermal key towns. Isolated systems require higher reserve ones, an observation already made in an earlier margins and so boost estimated overall RMs. For study comparing Argentina and Brazil decades example, if the RM in Ethiopia is calculatedfor the ago.1 interconnected system alone it falls from 60 percent to 40 percent.
Keeping apparently redundant older capacity in 16 A possible explanationfor the Ghanafigure is that the commission may also be part of the explanation availabledatafor installedcapacity understate the capacity of and can make economic sense. For instance, the diesel plants run by the ECG and the Northern Electricity Malawi maintains a reserve of older diesel plants Deartment. to provide backup in case of system problems, 17 Annual generationover installed capacity times the 8,760 which inflates its RM. In many cases, the cheapest hoursof theyear. solution to difficulties in meeting peak demand is 18 Judith Tendler (1965), "Technologyand Economic to maintain or rehabilitate older capacity rather Development:The Case of Hydro vs. Thermal Power", than invest in more. PoliticalScience Ouarterlu. Vol. 80 (2),June. 48 SSA UImUEs
Figure I-20: Capacity Factor and Hydro RMs,with a high capacity factor being matched by SSA a low reserve margin. For the African countries 70 Ug..d. surveyed, capacity factors vary between 67 60 ,Kenyga.Gna percent for Uganda and 10 percent for 50 so Maftrmbi. Mozambique, five SSA countries fall between the b40 Senegal.w 20-30percent range, and thirteenbetween the 30 G t6 - canWoon and 50 percent range. Only Kenya and Uganda 3M.d.gas-c Ze have higher than 60 percent. For the non-African o 20 S countriesthe range is between 37 to 58 percent 10 . Moz-.biq.e (Figure I-22).
0 20 40 60 80 100 0 20Capacityr/ Hydn 80 100 Figure1-22: Estimated Capacity Factors Uganda-
South Africa 2 In an equivalent context, hydro based systems zimbaw - foster efficiencybetter than thermal ones. Overall, Tz hydro systems have built in efficienc camreron y ~~~Gabon-22 inducements, and have lower political Cot ai- 2 vulnerability. First, since hydro plants take longer Madagal,ear- 2 to built, they promote the long-term planning Maueiu abilities of the utility. Second, since hydro plants Mozambique 2 have additional purposes, like irrigation and P Kakista ;a water supply, they promote coordination and Cdan2 222 negotiation skills. Third, since hydro plants are Colombia i 2 Portugal- 2 more capital and foreign exchange intensive, Indonvesa 2 requiring international finance, and multilateral Argentina - - institutions insist on planning and operational 0 10 20 30 40 50 60 70 performance conditionality, they ensure better use of capacity, and operative and management efficiency. Finally, once the hydro plants are built, since system and reservoir management requires System load factors"9, which in developed coordinated planning and dispatch for least-cost countriesare typically in the 60-80percent range, operation, they provide management a degree of can give a measure of the relative "peakiness" or protection from political meddling. In contrast, mix of peak and off-peak demand faced by the conventional thermal and gas turbines, given their utility. Without supply constraints, a high load shorter lead times and relatively lower capital factor would suggest a relative stable demand needs, do not have these safeguards. Politicians throughout the day, perhaps because of a large are aware that errors leading to supply shortages share of industry in total demand, while a low can be quickly taken care by importing turnkey load factor would indicate very variable and plants. peaky demand, perhaps because of large residential loads. In supply constrained systems, Figure I-21: Capacity Factor & Reserve Margin the interpretation is rather different: a high load 70_i-UKg factor may reflect inability to meet peak load 60 Ghanenya rather than varying usage. A high load factor 50 tiaus0,Ahoa would suggest that the system is running near full capacity to supply demand during droughts, and MoI ~
The estimated capacity factors (Figure I-21) present in general, an inverse mirror image of the 19 Annual generation over peak load times 8760 hours. SSA UTILITIES 49 factor may also show low per customer usage in Service objectives and operating standards are the industrial sector. embodied in laws, decrees, policy statements and contracts in most SSA countries. Among the Figure I-23: Estimated System Load Factors obligations of the utilities, the planned quality and
Cot d'lvoire- reliability of service have seldom been met. In Madagascar -7 South Atn'ca 2 __7__some cases, poor quality of service has led Uganda- 75 quality7G77 Kala wl- industrial and other users to install back up Mauritius -' } Ghana - Z generation above what would be economic. In Zmbawe 72 1985, for instance, Guinea had a generation
Nigeria 7 shortage of about 47 percent of estimated NGerlne- 72 Tanlzani: - 72 ! requirements, load shedding thus became a daily SierraLeone Mnzamblque7Z2 occurrence. From 1983 to 1992, the private sector China 2 installed for its own use some 70 MW of generating capacity, and in 1993 produced 109 Nora Z Malaysia- 2 GWh,i3 which was almost as much as ENELGUI, Coiombia- the naioa Portiu the national utility. Pakistan - India- Bolivia 7 '_ 1.4.8 Environmental Performance 0 20 40 60 8D 100 Data on NOx, S02, ash and other indicators of environmental quality in the power sector are not As Figure I-23 shows, the African countries generally available for the African countries. surveyed have a much wider range of load factors However, the heavy reliance on hydro power and than the comparator countries. Some utilities, such low energy intensities suggests current emissions as those in Malawi, Kenya, Uganda, South Africa, are likely to be extremely low, even given the Madagascar and C6te d'Ivoire have load factors likelihood of limited environmental protection above 60 percent -the exceptionally high load measures and poor fuel quality. A much more factor of C6te d'Ivoire perhaps reflects capacity important source of environmental effects is likely constraints as noted above. Eleven countries for to be the flooding and river flow effects associated which information is available fall below the 60 with hydro projects. percent level, while Mozambique, Sierra Leone, Tanzania and Guinea have load factors under 40 Power projects in SSA seldom raise critical percent. This would suggest that there is environmental and resettlement issues. The considerable scope in these countries for encroachment of power lines and substations on improving the tariff structure to even out the natural resources has been relatively minor. demand for energy. Thermal generation in several countries is based on small diesel-fueled sets, a relatively clean 1.4.7 Reliability of Supply technology, and coal-fired power plants (developed only in Botswana and Zimbabwe) use Statistics on reliability of supply in African appropriate technology to abate pollution. In nine countries is extremely limited, unreliable and out of fifteen hydroelectric projects supported by reported in inconsistent formats. Quality of supply the World Bank since 1978 in SSA, the is widely considered too low in several countries, environmental impact was considered with significant load shedding and system insignificant at the onset.20 outages. Several SSA countries often need to suppress demand to keep the systems going. 1.4.9 Project Performance Indicators of experience elsewhere are India, where energy shortages have averaged about 8 The World Bank examined the reasons why percent of anticipated requirements and peak Bank financed power projects were less successful demand shortages have been in the 12 to 17 in SSA than in other regions. Forty four credits percent range, and Colombia which had to restrict were reviewed in 22 SSA countries. Completed supply severely in 1992 following low river flows. power projects worldwide received a total of US$ Reform in Argentina and Chile, which led to 16.5 billion in Bank funding since 1978. Of this, significant increases in plant availability factors, have reduced the number, length and frequency of outages as compared to the previous experience. 20 Lending for ElectricPo7wer in Sub-Saharan Africa, OED, Report No. 14961, 1995. 50 SSA UTILmTES
FigureI-24: IBRD Completed InfrastructureProjects in SSA since 1978 LoanAmounts Numberof Projects
Power Transport [ Oil & Gas Water & Sanitation E Telecomunications
SSA received about 7 percent. Since 1978, projects completed in infrastructure and energy in SSA countries have received about US$5.6 billion, of 1.5 Demand Indicators which 21 percent was for electric power (see Figure I-24). 1.5.1 Consumption by Customer Class
The outcome was rated as satisfactory in 64 Each country shows a unique customer mix (see percent of the projects, compared with 79 percent Figure 1-25) that varies according to a number of for all Bank power projects since 1978. For 22 factors. Among them are the level of projects completed in 1989-93, the achievement of development, the main economic activity and institutional development objectives was rated as location of the customers. The developed substantial in only 27 percent of the cases (38 countries such as the UK have seen their customer percent Bank wide), and the sustainability of mix remain fairly static at approximately one-third benefits as likely in only 36 percent of the cases (68 residential, one-third industrial and the remainder percent Bank wide). At completion, the economic comprising commercial and others (agriculture, rates of return (ERRs) were recalculated for 22 of transport, government, street lighting and the completed projects. Ten of the 22 projects had exports). The comparator countries exhibit larger ERRs below 10 percent, compared with the shares of industrial users in sales, reflecting their average of 12-15 percent for all Bank power higher levels of development relative to most SSA projects completed since 1978. Only three had countries. Less developed countries usually higher ERRs at completion than at appraisal. display a higher proportion of sales to residential Overall compliance with agreed covenants was users, because of their low levels of more often partial than substantial. The degree of industrialization. In the SSA countries surveyed compliance with important financial covenants this pattern appears to hold. The highest was especially weak-for the collection of industrial shares correspond to the most accounts receivable, the approval of tariff developed economies (particularly South Africa). increases, and the financial return on fixed assets. Most SSA countries have relatively large residential shares (over about 40 percent). SSA UTIuTIEs 51
Figure I-25: Structure of Sales by User Classes power parity exchange rates. Second, we look at Sierro.Leone - potential cross subsidizationby examining relative
NiaMe a i - 7 7/X= prices between industrial and residential users. L8bon a taru Cot6 d Ivoire Third, we examine whether average tariffs cover
MozD 77 unit costs. These comparisons will allow us to MaMaagastpasr_ 727. 71 | I = assess which countries have uneconomic tariff Tanzania Kenya levels and structures. Zimbae MalIawi7i,.:EReieta SouthAfrica -esideltial SouthAfrica- I* Commercial Figure I-2 7: Average PPP Electricity Tariffs, Norwa Industrial 1994 C°Boliviia -EJZX Other egn6 divre-- 7 :' yf7 __ ~~~~~~~~~~~~~~~~~g~'WeodvIradeoezv fZ Indonesia-- aur IU Pakistan zna Argentina __e - t_arn?a Porti.-I - in~~~~~~~~~~~~~~~~~jfea-
China --- mz ae 7b 0 20 40 60 80 10 ea0
South Ca a~er%ofln The pattern of consumption can be affected by lndrnq?sia_ government concentration on industrial users (this Co Ia - helps explain the pattern of consumption in ,,aa China), and, because of the small size of African Po0l systems, a few very large customers can greatly Norway __ . affect the customer mix. In those very poor 0 15 3 0 45 60 75 90 African countries with a high proportion of us 0 per kWh industrial sales this is due to the presence of a single large primary sector producer. Zambia, with its large copper mining industry and power exports, is a clear case. The mines account for 59 FigureI-28: Residential & Industrial Tariffs percent of all domestic sales of power. Similar Senegail circumstances hold in other countries. Tanzania Mali Sierra Leone - Figure I-26: Average Electricity Tariffs Malawi - C dvoir aot8 = Mozambique-
Sierra eone - Kenya Indusanal gu e - 7 Tual!7Uzariins - DC,D=522 D | South Africa a Rz'ann' 1 a ~~~~~~~~~EthiopiaOmResidentiai M ecada Zambia- Mozaql,ller'gia L 7z=77,, l l F ] Nigeria -l
thba we-l Chile Argentina alre iNorway- Xutin Bolivia
C hliJPe- tl 5 l 10|0 15 20 25 1Porway - US f per kWh
PakltantZM Chna-+ z _ _ 015 520 1025 30 35 Previous studies have concluded that tariffs in us e per kWh several developing countries failed to meet either the economic objective of the tariff structure reflecting the incremental costs of production 1.5.2 Tariffs, Subsidies and Costs (economicefficiency), or the financial objectiveof cost recovery (average revenue equal to average International price comparisons suffer from conceptual and empirical shortcomings. Rather than debate these, we have addressed price performance in three ways. First, we look at direct price comparisons with official and purchasing 52 SSA UTLTIES cost ensuring financial viability)21 . However, due Mauritius, Tanzania, Senegal, Uganda and Guinea in part to changes in tariff levels and structures is very expensive, costing at or above 30 ¢/kWh. during the early 1990s, these objectives are now Six SSA countries pay electricity at between 15 to being approached in some of the countries 30 cents: Kenya, Gabon, Mali, Mozambique, surveyed. The magnitude of this effort to raise Madagascar and Nigeria. The remaining eight tariffs is illustrated by Zimbabwe. In 1992, the SSA countries are more similar to the comparators, average tariff paid was 2.2 US cents per kWh, lying in the 5-15 ¢ range. Among the comparator while it has now reached 3 US cents. This increase countries, only Indonesia pays more than 30 represented a 300 per cent rise for the customer WlkWh. Bolivia, Colombia, Chile, Pakistan and when paid in local currency. Malaysia have tariffs between 15 to 30 cents, while Argentina, India, Portugal, China, UK and Figure 1-26 shows ten SSA countries paying Norway have PPP tariffs below 15 cents. average tariffs below 5 ¢/kWh in 1993, while eleven were paying above 10 ¢/kWh. At one extreme, Cote d'Ivoire has a tariff above 30 Afundamentalfindingfrom utilities around the world ¢/kXh. International comparison of tariffs with l is that, if electricity production and use are to be makeV It/fialexcatinge copratso (of tareffhwever efficient, the tariff structure should be based on the market/ official exchange rates (OXR)are however |incrementalcosts of supply, and the actual tarifflevel often misleading, because they fail to provide an should be set so that the utility is financially viable. accurate picture of the tariffs' value relative to the Social protection may require occasionallysubsides for purchasing power of the countries' populations. specific low-income users. These subsidies can only be Purchase power parity exchange rates (PPPXR) kept at reasonablelow levels if they are targeted to just provide a more accurate comparison of those specific consumers. affordability.Y Most African utilities need further progress in three Figure 1-29: Unit Cost and Revenue fronts: Sierra Leone i) Structuring tariffs to reflect marginal costs, Guineali- | I_; _ii) raisingtariffs to cost recovery levels, and Mauritius 4 iii) restricting subsidized supply to only the basic Nigeria I t *- . needs of the most vulnerable consumers. Ghana- SouthAfrica -- _ Malawi I Box 1-3: Tariff Challenges Zambia-
Argentina Figure 1-28 compares residential and industrial UK - tariffs using market exchange rates. Generally, we Chile - Bolivia expect industrial prices to be lower than Norway -i residential. Two factors determine this. First, the Indonesia X C st industrial load factor is higher than the residential.
China -li _ l Customers with high load factors generally cost -1D -5 0 5 10 15 20 less on a marginal basis to serve than those with US ¢ per kWh low ones because assets are used more intensively. Second, industrial distribution costs are lower than for other customers because they typically Figure I-27 presents the same tariffs but take service at higher voltages, so losses are less, converted with PPPXRs. The first significant and step-down transformers and low voltage lines result is that overall PPP-tariffs in SSA are more are not required. Industrial tariffs are thus expensive than in our comparator countries. typically around two-thirds of residential tariffs, Electricity in Sierra Leone, C6te d'Ivoire, such as in the UK, Chile and Norway among our comparator countries. This is also the case for South Africa, Senegal and Mali. In Tanzania and 21 Malawi the industrial tariff is about 1/3 of the Energy DevelopmentDivision, Industry and Energy residential one. The remaining countries all have Department, "Review of Electricity Tariffs in Developing hi Countries During the 1980s," Energy Series Paper 32, ge ais ugsigcossbiiainfo WorldBank, 1990S industries to households as the tariffs paid by low 22 While the PPP concept is an improvement over OXRs, it voltage customers fail to capture the additional is not perfect. Kravis, I. "Comparative Studies of National costs of serving them. This is partly due to the use Incomes and Prices," rournalof Economic Literature Vol.22, of lifeline rates for all residential customers no.1 (1984)1-39. bringing the average tariff levels down. If lifeline SSA UTILITIES 53 rates were only targeted to low income and it would appear that this problem is households (a lifeline consumption block) this widespread within SSA. would not be a problem, since all other users, including non-poor households, would pay what Although the level of development and the it costs to supply their demands. dispersion of the population in most SSA countries may make it difficult to quickly reach the levels Unit costs and revenues can only be compared displayed by Chile, Indonesia, South Africa, for nine of the African countries surveyed. Of Portugal, the UK, or Colombia, of over 200 these, Mali, Nigeria, Malawi and Zambia appear customers per employee, the figures obtained by to fail to cover their unit costs (see Figure I-29). Bolivia (269), C6te d'Ivoire (140), Ghana (120) and However, the inferences that can be drawn from Senegal (110) indicate what could be achieved. this limited evidence are severely restricted, especially given the crude nature of these figures Production per employee: This indicator is often (some unit costs appear to include depreciation, seen as a better measure of relative productivity. while other do not). Again the SSA countries surveyed perform poorly, with the majority achieving under the Bank-wide 1.6 Productivity Indicators median of 602MWh per employee. Zaire, Zambia and Ghana achieve respectable measures, due largely to the existence of a few large customers. 1.6.1 Labor Productivity The median for the SSA countries (excluding South Africa) of 397 MWh per employee is around Productivity indicators measured by the number the levels of India (324) and Pakistan (330), with of customers per employee, sales or generation per Madagascar only achieving 131 MWh per employee are also low in SSA countries. The employee. South Africa, with its relatively number of consumers and sales per employee developed ESI, by contrast surpasses the depend to a large extent on economic conditions privatized UK electricity supply industry's and and system's size. As Figure 1-30 shows, as the rivals that of Chile (see Figure I-31). customer/labor ratio increases so thus the sales/labor ratio. Still, while the comparator Figure I-31: Labor Productivity countries and South Africa are on the top-right of Customersper Employee (line) the graph, showing productivity levels, the 0 100 200 300 400 500 majority of the SSA are grouped in the lower-left rnoZU%allmc a quadrant, exhibiting ratios below the World Zim a_ Bank-wide medians. cd' oira
Figure 1-30: Labor Productivity
4000
3000 .UK P~oorl
&200,G= 0.50 MonrCA
1000 - a nMna.bra
- XM' M 0 1000 2000 3000 4000 5000 0 - MWh Generationper Employee(bar) 0 100 200 300 400 500 Customersper employee Zimbabwe offers a good indicator of what is Customers per employee: The majority of African realistically possible for most of the SSA countries utilities display low productivity on this measure, -as already mentioned, the figures for Zaire, with less than 50 customers per employee, while Zambia and Ghana are affected by the presence of the World Bank-wide median is 104 customers. a single large customer. It generates over 1000 Outside SSA only India and Pakistan have MWh per employee, and by comparison most similarly low figures. Both these countries are other African utilities seem inefficient in their use normally seen as examples of severe overmanning of labor. 54 SSA UTILITMES
Note, however, that these are very crude between 30 and 50 percent. As Figure 1-32 shows, measures of labor productivity, failing to indicate thermal efficiency in most of the African utilities skill levels, relative numbers of managerial and appears above 30 percent. A number of systems administrative employees, amount of services however fall below this: Malawi for instance only contracted out, or the distribution of labor achieved a level of 20 percent, perhaps because of between generation, transmission, distribution, its use of older diesel plants for standby capacity. customer service and construction. These ratios The range of figures does not compare also do not inform about relative labor costs unfavorably with the levels reached by the less among the various utilities. Still, the relevance of developed comparator countries. India falls these figures is that they overwhelmingly show below the 30 percent level and Bolivia appears to that the vast majority of SSA countries need to reach only 19 percent (an unlikely figure). The improve labor productivity (see Box ?). other surveyed countries with similar levels of GDP per capita to SSA, China and Indonesia, achieve levels of thermal efficiency of just over 30 Government intervention often leads to overmanning in I . . electrical utilities. This is not only bad for the utility, percent, comparable with several African utlites. resulting in decreased productivity and an increased l cost of electricity, but it is also an ineffective way to Figure 1-32: Thermal Efficiency, 1991 promote and sustain productive employment. M urineaus
Senegal- Many SSA countriesneed to reexamineemployment Madagascar, levels in their utilitiesand restrictnumbers to what is AfricarZSouth commercially and technically required. Higher labor Zarmbia productivity is essentialfor the economicand reliable Zimbabwe supply of electricity, in turn needed by African haa - economies to develop and create sustainable levels of Malawi-2z productiveemployment. Chile-
Box I-4: Labor Productivity Colombia--__ Malaysia - Argentinas- __ c;hinda -z 1.6.2 Power Plant Performance Bolvia- 0 10 20 30 40 50 60 Assessing the efficiency of power plants requires % detailed, disaggregated figures on fuel consumption and output by plant type. Different generating technologies have different potential This comparison, limited as it might be, suggests efficiencies, and the reported figures from some that African utilities do not perform out of line in utilities seem to include hydro as well as thermal international comparisons of generating efficiency, plant. Aggregate figures of the kind presented except in Malawi, Gabon, Mali and Ghana, where here are therefore hard to interpret and should be they hover just above 20 per cent. Most diesel treated with caution. units, however, are generally below manufacturers specification in output. Thus, room Reported thermal efficiencies typically vary for improvement probably remains.
Figure I-33: Unit Cost and Revenue 1.6.3 Cost Performance (Using PPP Exchange Rates) The unit cost and revenue comparison in Figure 1-33 attempts to correct for exchange rate Money'Makers .deiadistortions by using PPPXRs. The first observation - Gunea ; is, in spite of the crude nature of the figures, that Chi t LMali _ _E ' _- ~the_BoleviL SSA countries are the most expensive Pakista Nigeia:8 producers-since electricity in Mauritius and Sierra Leone costs above 50 US¢/kWh to produce 9,0_ L t - -- in -PPP- - terms, they were excluded from the graph. s _a ambia...... Lk L MoneyLosers The lowest cost producers, those below 10
s5. 0 1 20 25 30 35 USo/kWh are the developed countries (Norway Costs(USkftWh). and UK), those that reformed their ESIs (Argentina and Chile), Ghana, South Africa and SSA UTILiTIES 55
Table I-1: Financial Indicators in the Early 1990's RORonSelf- Debt Outstanding ROR onl Self- Service Accounts Revalued Financing Coverage Receivable Assets (%) Ratio (%) (Times) (Days) SSA High 15 80 4.3 462 Low -16 -534 -1.2 60 Median 4 4 1.1 131 Bank-wide Median 6 16 1.4 84 SSA cases above IBRD median (%) 41 23 39 67
China. The second observation confirms the prior aimed at ensuring the adequacy of accounting, finding using OXRs to compare unit costs and billing and collection. However, in SSA the results revenues, i.e., that Zambia, Malawi, Nigeria and have not been encouraging. The OED analysis of Mali do not cover production costs, while all the the available indicators in the early 1990s points to remaining countries do. The low international a generally inadequate financial performance. In cost levels attained by Ghana (5.4 US¢/kWh) and about 60 percent of SSA countries, RORs on net Guinea (11.4 US¢/kWh) would seem to suggest fixed assets and debt service coverage were worse the existence of a vast potential to improve than the Bank-wide median of 6 percent (Table I- economic policies, while raising sector efficiency 1). Nevertheless, the RORs of 2.5 to 7.5 percent of and reducing electricity production costs in SSA. the early 1990s constituted an improvement over the 0 to 5 percent observed in the late 1970s. Kenya, Malawi, and Zimbabwe were exceptions Figure I-34: Average Tariffs and Rates of Return with RORs around 15 percent. Nigeria, Sierra SSA Leone, Rwanda and Guinea obtained negative returns in the range of minus 7.5 to minus 16 15 percent. On self financing, 77 percent fare worse 10 ' than the Bank-wide median of 16%.
E NIM c 0 . D Our study of the 21 countries in the SSA sample -8 -5 shows a similar pattern. Sixty five percent of the
FXC,@Z-10.N~S^ o cases with available data (eleven utilities) have a: -10 RORs at or below 6 percent, while 35 percent had -15 RORs in the 10-24 percent range. Five countries -20 5 10 15 20 25 exhibit close to zero, or negative RORs, even with
Average TanffsUS C perkWn average revenues over lO/kWh, such as Mauritius, Mali, Guinea, Sierra Leone and 1.7 Financial Challenges Senegal, which with a tariff close to 21 ¢ have a ROR below 4% (see Figure 1-34). High to acceptable RORs as in Malawi, and South Africa, 1.7.1 Financial and Commercial which charge less than 5¢/kWh, reflect operating Performance' efficiencyas much as adequacy of tariffs.
Noncompliance with financial covenants in Word Bank loans is pervasive in SSA countries. All IBRD credits include standard covenants
23 Thissection is partlybased on Lendingfor ElectricPower in Sub-SaharanAfrica OED,Report No. 14961,1995, pp. 29-31. 56 SSA UTIUTIES
Figure I-35: Average Tariffs and Rates of Return Figure I-36: Arrears and Average Tariffs Comparator Countries
12 16
10 .4 114 18 ,vi
E 8 *C^ *Pdg ~10
ri 6 :~~~~~~=@ 6 .M_ =~~~~6 *~
~~~~~~AeaeTdfS 0 pr k 1 0 0 ~~~~0~~~0 a 4 ~ 20 rersdy 30 40 50
2 4 0121 61
Average Tariffs US ¢ per kWhi An interesting observation is that while the huge because of the accumulated inefficiencies. In tendency in our comparator countries is for higher most instances, the national utility ends up paying RORs to be associated with higher tariffs (see for the subsidy by postponing necessary Figure I-35), the inverse relationship holds in SSA expenditures, and it is thus effectively (Figure I-34). In fact, the available evidence decapitalized. And second, even though cost are suggests that the higher the tariff the lower the being recovered, operative and financial ROR in SSA, which would seem to indicate that improvements take time to materialize, so that inefficient utilities need higher tariffs. This high tariffs will continue before they start observation is associated with the maintenance in declining in real terms with efficiency gains. This the past for extended periods of subsidized tariffs, therefore has in balance the contrary effect, leading to the postponement of necessary affecting more the poor users during and after the maintenance, repairs, rehabilitation and subsidies. replacement expenditures, which in turn translated in higher operational costs and lower There is a curious relationship between high tariffs efficiencies. and low collection: Arrears tend to increase with prices (see Figure I-36). In the early 1990's, Many SSA governments have traditionally set collection of electricity bills was worse than the prices far below cost-recovery levels through Bank-wide median for two-thirds of SSA countries subsidies and cross-subsidies in order to serve (see ?). Above 75 percent of the outstanding social and political objectives. Economic analysis accounts receivable was more than 90 days old; 24 however reveals that such policies have had percent was between 90 and 150 days, and the serious economic, financial, and environmental remaining 52 percent was over 150 days. The consequences. Energy subsidies are expensive, available information suggest that no meaningful leading to an overblown demand and higher improvement has taken place over time. investment requirements. Even today. electricity subsidies are significant, going from a low of 0.2 Inadequate commercial practices, weak percent of GDP for Malawi to a high of 10 percent management, and lack of penalties or willingness for Nigeria. However, the main problem is not to apply them to delinquent customers are often with the magnitude of the subsidies, but their cited as the causes of this chronic problem. In the regressive nature: The higher the household harsh economic environment of the 1980s, income, the greater the subsidy realized. General although enterprises and households experienced subsidies clearly depend on per-unit usage. As a difficulties in paying their electricity bills, the bulk result, higher-income households, which have the of the arrears were from the public sector. The greater stock of electricity-using appliances, problem was exacerbated by SSA governments benefit more than poorer households. Thus, not allowing the utilities to withdraw service to whereas a poor consumer in Malawi receives 4 nonpaying public sector entities. Unless African US¢ a year in electricity subsidies, the rich one governments regain fiscal control, and adopt a gets $6.60 (i.e., the richest 10.4 percent of the more commercial approach to their state owned population receives 168 times the subsidies per enterprises, the problem of public sector arrears person than the poorest 37.4 percent gets). will continue.
The perverse effects of general subsidies are, first, that when tariffs are finally raised the necessary increases to reach cost recovery are SSA UTILITIES 57
Figure I-37: Arrears and Rates of Return generating capacity of about 6,614 MW from 1995
,5 K.~Y. to 2005. This is based on an existing capacity of 15 5 W 53,442 MW and a conservative demand forecast of 10 ,,y 3.5 % per year for the 21 African countries in our s sample. Nigeria and South Africa will account for
0ID shbNnA~ lefUs D close to 50 percent of these investment 16 -5 , T .requirements (see Figure I-38).
a~-10 -15 Figure I-38: Investment Requirements by -20 '- Country, 1995-2005 0 100 200 300 400 soo Nigeria- _ -I Arrears-days SouthArica Zarnbia-lE Ghana- Madagascar Senegal Poor commercial practices and financial Tanzania performance go hand in hand. Thus, it is not Kenya surprising to find in Figure I-37 that the more Murtius unpaid rates of return. Out of ~~~~~~EthiopiaI I I I I unpaid bills, the lower the ratesofretum. Outof Sierra Leone the eleven SSA countries with financial Malawi information, eight have outstanding accounts Gabon I I receivable over 100 days, the worse performers Zimbabwe Il l being Sierra Leone and Nigeria, with 390 and 450 Mozambiqus- l days of arrears respectively. cdte d'lvoire - _l _l _l _l _l
0 1000 2000 3000 4000 5000 6000 A handful of countries have started using USs millionof 1994 management contracts as an expedient way to introduce commercial discipline in their power utilities. This represents a major change in policy. Our estimate is in line with previous World The first, albeit still a young experience, is in the Bank figures. An earlier investment estimate for C6te d'Ivoire. The private company now running the 1995-99 period for 13 African countries the power system under a management contract, amounts to about $4 billion5; i.e., an annual has an overwhelming interest in collecting investment of 1 billion as compared to our revenue from customers as it earns its fee only on estimate for the same countries of 1.26 billion per amounts collected. By 1993 its collection rate for year in average. Subsequent estimates put the cost private consumers had improved to around 98 of five year investment programs in four countries percent compared with 63 percent in 1988; at $3.7 billion2; i.e., a yearly investment of 0.74 however, the overall collection rate was only 85 billion as compared to our 0.63 annual investment percent due to government nonpayment. Similar estimate for the same countries. management contracts have recently been signed in Ghana, Guinea and Mali. Use of advanced It is clear that the funding involved will be technology, such as prepayment meters, is being substantial, especially considering the utilities' low considered in Tanzania as a way to reduce arrears self-financing ability under their current cost and meter readings as well as to decrease conditions. It is doubtful that the utlihties will find collection costs. the necessary resources to any great extent throughout most of Africa. Our financial estimates 1.7.2 Investment Challenge for the early 1990s suggest that most SSA countries have rates of return on revalued assets Although the scale of power sector investment below 6 percent, and that most have below in the 21 surveyed African countries is hard to average self-financing ratios as well. Overall, we gauge, our estimates suggest annual investment estimate that approximately 25-30 percent of requirements of about $1.8 billion ($18 billion for financing for capital expenditures for power the 1995-2005 period). 24 This means an increase in
25 Ethiopia, Ghana, Ivory Coast, Kenya, Madagascar, 24 Costs are given in World Bank (1990a),p. 108. The Malawi,Mali, Nigeria, Senegal, Uganda, Zaire, Zambia and estimatedcostfor Zaireis abnormallyhigh and the average Zimbabwe. costis used instead. 26 Ethiopia,Nigeria, Tanzania and Zimbabwe. 58 SSA UTILnIES
(about $5 billion) will come from local sources, Most African utilities will thus need political whether the utility, government or the domestic resolve to maintain tariffs at cost recovery levels. banking system.?' However, this alone will not be enough to overcome the funding gap. In addition to Although the recent movements in tariffs in SSA maintaining cost recovery tariffs, greatly have been encouraging, it is important to maintain improved operative conditions (cost reduction) tariffs at cost recovery levels. Alas, past and commercialpractices (revenue collection)will experience in SSA is not encouraging in this be needed to cope with the funding problem, regard. Tariffs, once adjusted, tend to move away prevent undue high tariffs and attract external from economic and financial objectives under finance. social and political pressures. For instance, average tariffs between 1978 and 1991 in Zambia, Our estimates suggest that SSA utilities will Zimbabwe, Ghana, Botswana, Nigeria, and need in the order of $13 billion. It is uncertain as Uganda decreased towards levels below 4 to how much of this would be available from US¢/kWh. Such prices were below LRMC and bilateral and multilateral official assistance tariffs in most other countries. For example, in sources.Over the last 10 years the World Bank has Asia and Latin America, with few exceptions disbursed approximately $650-700million (1994 (China, Nepal, Vietnam, Ecuador, Honduras and Trinidad Tobago),the average tariff falls between Figure 1-39: Investment Requirements 1995 - 7 to 14 USo/kWh2 ', while 13 US¢/kWh is the 2005 average tariff in OECD countries.2 9 However, in 1991 very few SSA countries collected tariffs above 15 cents per kWh: Cote d'Ivoire, Togo, Senegal, Benin, Mali and Niger. The story is I n gap 10b . similar in other LDCs, where the average real tariff level fell by 35 percent between 1983 and 1987, even though tariffs were already below LRMC30 .
dollars) to the African countries surveyed.3 ' On past lending patterns, total foreign assistance can be estimated at about three to four times that 27 This is consistent with other studies; see, for instance, amount32, to an expected $3 billion of international WorldBank (1990a), p. 107. finance. This leaves a gap of about $10 billion for 28 WorldBank, A Surveyof Asia'sEnergy Prices, Asia, the SSA countries surveyed to find funds (see TechnicalPaper No. 248; InfrastructureMaintenance in Figure I-39). LAC: The Costsof Neglectand Optionsfor Improvement: The PowerSector, LAC TechnicalDepartment Report No. 17. 29 OLADE, Energy Statistics,1992. 31 WorldBank (1995b), pp. 65-67. 30 WorldBank (1990b),p. 4. 32 DerivedfromWorld Bank (1994), p. 149. SSA UTILITIEs 59
As SSA countries recover from their harsh It is clear that many SSA utilities will need to seek macroeconomic difficulties, the growth of power significant external resourcestofund their development demand is lkely to accelerate, and with it the over the next decade. Our estimates suggest that of the demand iS new capacity.ate additith incre total investment requirementsof $18 billion, utility and demand for new capacity. In additon, increasing domestic sources couldfund 5 billion, while multilateral the proportion of the population with access to and bilateralfinancialsources, including the Bank, may electricity will call for new capacity in distribution provide about 3 billion, leaving a gap of $10 billion to be in particular. Financing this investment would be funded from non-traditional sources. This gap is a major financial challenge at any time, but it equivalent to the combined 1994 GDP of Sierra Leone, comes in the context of developments that will Malawi, Tanzania, Mali, Gabon, Guinea, Madagascar restrict two traditional sources of funding and Zambia. -national governments and international development assistance. Combine all this with Box TheInvestnentFundingCpublic sector deficits, which in 1994 averaged around 4 per cent of GDP and in places like Zaire and Tanzania runs above 10 per cent, with Given this, gaining access to private capital will external debts averaging close to 100 per cent of be an important objective as countries in GNP (Mozambique and Tanzania are above 300 Sub-Saharan Africa seek to meet the demand for per cent) and the financing difficulties become power over the next decade (see Box 1-5). To obvious. These developments reflect the need to obtain anything like the required sums, African balance national budgets, and the increasing utilities will need to improve their attractiveness perception that commercially viable infrastructure to potential investors by improving commercial should be financed by the private sector rather practices and seeking new ways for private than by taxes and development aid, which should finance to enter, especially in the form of IPPs. concentrate on health, education and development This will likely require opening up generation to projects. At the same time, reform measures in the competition in at least some form, and alongside ESI should improve the utilities' self-financing and this the unbundling of transmission and access to private sector finance and know-how. In distribution from generation. The utilities will also the interim (i.e., before reform), SSA governments need to improve operative efficiency, reduce and utilities should strive for raising overall overmanning, and improve their revenue efficiency (allocative and operational) through collection performance, both to satisfy the performance contracts to reduce the funding demands of commercial investors, and to increase needs for sector expansion. their self-financing ratios. 60 SSA UTIUTIES
Attachment 1: Data Sources and References
Author Title Year
Cooperation L'Electricite en Afrique 1991 EdF Management Stories: Cote d'lvoire and Ghana 1995 The Electricity UK Electricity '94 1994 ESKOM Statistical Yearbook 1994 ESMAP Nigeria (Report No. 11672-UNI) 1993a Conference on Power Sector Reforms in India 1993b Mauritius (Report No. 3643-MAS) 1994 Ethiopia Energy Assessment 1995a Senegal Industrial Energy Conservation Program 1994 Uganda Energy Assessment 1995b IMF International Financial Statistics 1995 Philips World Atlas and Gazetteer 1993 OLADE SIEE -Energy-Economic Information System 1995 UN Energy Statistics Yearbook 1992 The World Bank Capital Expenditures for Electric Power in the Developing 1990a Review of Electricity Tariffs in Developing Countries During the 1990b Staff Appraisal Report: Tanzania, Power VI Project (Rep. No. 1993 Power Sector Statistics for Developing Countries, 1980-91 1993 World Development Report 1994/95 Staff Appraisal Report: Ghana, Thermal Power Project (Rep. No. 1995a Lending for Electric Power in Sub-Saharan Africa 1995b Bureaucrats in Business: The Economics and Politics of 1995c Government Ownership The World Bank Atlas 1996 Annual & Statistical Reports EELPA Ethiopia 1994 SEEG Gabon 1993 VRA Ghana 1993 JIRAMA Madagascar 1994 ESCOM Malawi 1993/94 EDM Mali 1994 CEB Mauritius 1992 SENELEC Senegal 1993 ESKOM South Africa 1994 ZESCO Zambia 1992/93 7FCr7A 7;mhloaq SSA UTILITIES 61
Attachment 2: Macroecomic and Sector Data Macroeconomic Data
*Country ...... Atwebttina - .. 'Chile " ....Colombia . ,: Noway. Portugal UK . -ChhIa - . .. 1.tIe *., PaBotan
GeneralData Area (km2) 2,766,890 756,950 1,139,000 306,808 92,400 234,497 2,150,000 9,556,102 3,288,000 1,919,443 330,000 796,100 Population,1994 (000s 34,180 14,044 36,330 4,318 9,832 58,088 7,237 1,190,918 913,600 189,907 19,498 126,284 PopulationGrowth Rate, 1985-94 (p.a.) 1.4 1.7 2.2 0.5 -0.1 0.3 2.2 1.4 2 1.6 2.5 2.8 PopulabonDensity, 1994 (persons per km2) 12 19 32 14 106 248 3 125 278 99 59 159 RuralPopulation, 1993 (% of Total) 13 16 28 27 65 11 41 71 74 67 48 66
Economic Data GDP,1994 (millions SUS) 281,645 52,175 49,635 109,665 84,020 1,029,030 4,695 508,120 257,882 174,636 70,742 51,193 GDPPer Capita,1994 (SUS) 8,240 3,730 1,440 25,445 8,520 17,765 585 425 285 910 3,675 405 GDPPer CapitaGrowth Rate (1989-94Avg) 4.7% 4.6% 2.0% 2.0% 1.7% -0.3% 1.9% 9.2% 1.9% 5.0% 6.0% 1.7% BudgetDeficit, 1994 (% of GDP) -0.67 1.9 -0.78 0.7 -2.6 -5.7 -2.1 -1.5 -4.7 0.6 2.4 -6 ExtemalDebt as% of GNP,1993 30.3 47.1 34.7 41.9 78.1 14.5 34.9 63.9 39.0 48.2 Short&Medium-TermDebtas%ofGNP,1992 3.8 9.4 6.5 11.8 3.8 2.3 1.4 14.7 11.6 8.3 Long-TermDebt as % of GNP,1992 26.5 37.7 28.2 30.1 74.3 12.2 33.5 49.1 27.4 39.9 AvgInflation Rate, 1994 (CPI p.a.) 4.3 12.0 23.8 1.8 4.9 2.5 7.9 66.2 10.2 5.8 3.7 12.5 ExchangeRates (local:USS) 1992 0.99 362.59 759.28 6.22 135.00 0.57 3.90 5.51 25.92 2029.90 2.55 25.08 1993 1.00 404.35 863.06 7.09 160.80 0.67 4.26 5.76 30.49 2087.10 2.57 28.11 1994 1.00 420.08 844.84 7.06 165.99 0.65 4.62 8.62 31.37 2160.80 2.62 30.57
ConsumptionPPP Exchange Rates (local:US$) 1992 1.13 140.72 171.01 9.87 205.80 0.58 1.24 1.28 7.77 427.41 0.90 4.91 1993 1.01 175.50 214.68 10.33 152.03 0.67 1.41 1.14 8.77 457.63 1.04 5.53 1994 1.04 189.84 223.62 9.82 139.11 0.63 1.49 1.71 8.82 480.97 1.09 6.04
Derivationof PPPexchange rates Argentina Chile Colombia Norway Portugal UK Bolivia China India Indonesia Malaysia Pakistan PPPGNP per capita 1992 6,080 8,090 5,760 18,040 10,120 16,730 2,270 1,910 1,210 2,970 8,050 2,130 1993 8,250 8,400 5,490 19,780 10,710 17,210 2,420 2,330 1,220 3,150 7,930 2,170 1994 8,920 9,060 5,970 21,120 12,400 18,170 2,520 2,510 1,290 3,690 8,610 2,210 GNPper capita 1992 6,050 2,730 1,330 25,820 7,450 17,790 680 470 310 670 2,790 420 1993 7,220 3,170 1,400 25,970 9,130 18,060 760 490 300 740 3,140 430 1994 8,060 3,560 1,620 26,480 9,370 18,410 770 530 310 880 3,520 440 Impliedconversion factor 1992 1.00 2.96 4.33 0.70 1.36 0.94 3.34 4.06 3.90 4.43 2.89 5.07 1993 1.14 2.65 3.92 0.76 1.17 0.95 3.18 4.76 4.07 4.26 2.53 5.05 1994 1.11 2.54 3.69 0.80 1.32 0.99 3.27 4.74 4.16 4.19 2.45 5.02 62 SSA UTILITIES
Macroeconomic Data
General Data 1,000 802,000 Area (km2) 475,000 322,4f3 1,22,UOO Z68,000 239,000 246,000 550,000 587,000 118,000 1,240,000 16,614 Population, 1994 (0OOs 12,871 13,780 53,435 1.035 16.944 6,501 26,017 13,101 10,843 9,524 1,104 2 Population Growth Rate, 19B5-94 (p.a.) 2.8 3.6 3.1 3.4 3.2 2.6 2.9 3 4.5 2.8 0.9 581 21 Population Density, 1994 (persons per km2) 27 43 44 4 71 26 45 22 92 8 75 74 59 69 Rural Population, 1993 (% ofTotal) 57 58 87 53 65 73 74 87
Economic Data 3,427 GDP, 1994 (millions SUS) 11,506 10,492 4.855 2,786 6,059 2840 6,956 2,957 1,016 2,429 3,427 GDP Per Capita, 1994 (SUS) 920 765 85 2,760 380 450 235 215 110 255 3,144 3,144 4.1% 2.2% GDP Per Capita Growth Rate (1989-94 Avg) -7.7% -4.0% -1.3% -3.3% 0.9% 0.7% -0.9% -2.8% -2.9% -1.5% 0.1 BudgetDeficit, 194 (% of GDP) -1.7 -3.7 -8.2 -1.6 -2.5 -3.9 -3.4 -5.5 -1.7 -4.7 387.5 Extemal Debtbas% of GNP, 1993 64.0 228.0 53.6 76.2 65.2 90.4 105.5 150.7 86.4 96.9 30.1 3.5 29.9 Short&Mediuarn-TermDebtas-AofGNP,1992 8.7 68.5 1.7 17.6 6.7 4.1 13.7 19.1 0.6 2.7 Long-Term Debtas %ofGNP, 1992 55.2 159.5 51.9 58.5 58.5 86.4 91.8 131.6 85.8 94.2 26.7 357.6 5.9 5.9 AvgInflationRate,1994(CPIp.a.) 1.4 32.0 9.4 21.1 24.5 8.6 60.1 28.1 1.3 Exchange Rates (local:US$) 1992 264.69 264.69 5.00 264.69 437.07 902.00 32.22 1864.00 3.60 264.09 15.56 2516.55 1993 283.16 283.16 5.00 283.18 649.06 955.50 58.00 1913.80 4.40 283.16 17.65 3674.24 1994 555.20 555.20 5.95 555.20 956.71 961.60 56,05 3067.30 8.74 555.20 17.96 6038.59
Consumption PPP Exchange Rates (local:USS) 1992 110.59 103.43 1.72 64.51 110.38 219.82 7.34 641.88 1.21 174.39 5.83 613.29 1993 129.58 121.88 1.71 189.62 150.28 627.00 12.14 677.42 1.49 158.59 3.72 898.64 1994 224.60 202.11 2.01 189.52 216.02 527.00 10.79 1135.07 2.38 264.30 3.76 1245.04
Derivaton of PPP exchange rates Cameroon C6te dIlvoire Ethiopia Gabon Ghana Guinea Kenya Madagascar Malawi Mall Mauritlus Mozambique PPP GNP per capita 1992 2,300 1,640 340 1,890 1,360 720 730 500 6,230 1993 2,100 1,400 312 6,843 1,970 960 1,290 670 690 520 12,420 550 1994 1,970 1,340 410 9,604 2,020 986 1,350 670 600 520 13,130 550 GNP per capita 1992 820 670 110 4,450 450 510 310 230 210 310 2,700 1993 820 630 100 4,960 430 500 270 220 200 270 3,030 90 1994 680 510 130 3,550 430 510 260 230 140 250 3.180 80 Implied conversion factor 1992 2.80 2.45 3.09 1.00 4.20 1.00 4.39 3.13 3.48 1.61 2.31 1.00 1993 2.56 2.22 3.12 1,38 4,58 1.92 4.78 3.05 3.45 1.93 4.10 6.11 1994 2.90 2.63 3.15 2.71 4.70 1.93 5.19 2.91 4.29 2.08 4.13 6.88 SSA UTILITIES 63
Macroeconomic Data
Country , W- Nrigan Sitegai ': Sierra Leoe. S,outhAfdca -Tanzania Ulanda Zaire Zambia Zimbabwae
General Data Area (km2) 924,000 197,000 72,000 1,221,000 945,000 236,G00 2,345,000 753,000 391,000 Populafion, 1994 (00Ws 105,260 7,900 4,587 40,440 28,020 19,940 41,230 8,940 11,150 Populaton Growth Rate, 1985-94 (p.a.) 2.9 2.7 2.5 2.4 3.1 2.5 3.3 3.3 3 Population Density, 1994 (persons per km2) 114 40 64 33 30 84 18 12 29 Rural Population, 1993 (% of Total) 62 59 65 50 77 88 71 58 69
Economic Data GDP, 1994 (millions SUS) 40,795 5,500 698 121,219 1,659 4,396 8,206 3,373 6,199 GDPPer Capita,1994 ($US) 390 695 150 2,995 59 220 205 370 555 GDPPer CapitaGrowth Rate (1989-94 Avg) 0.5% -1.5% -0.6% -2.5% 0.1% 2.9% -9.7% -3.3% -1.2% BudgetDeficit, 1994 (% of GDP) -7.9 -4.8 -6.6 -13.4 -3.7 -12.1 -5 -7.5 ExtemalDebtas%of GNP,1993 112.3 66.6 212.3 303.8 89.2 205.2 74.1 Short&Medium-TermDebtas%of GNP, 1992 13.7 8.2 88.1 27.8 3.1 40.3 10.7 Long-Term Debt as% of GNP, 1992 98.6 58.4 124.2 276.0 86.1 164.9 63.4 Avg Inflaton Rate, 1994 (CPI p.a.) 71.0 40.4 67.8 9.9 24.5 6.5 19,143.7 35.1 21.3 Exchange Rates (local:US$) 1992 17.30 264.70 499.44 2.85 297.71 1133.80 215.14 156.25 5.09 1993 22.07 283.16 567.46 3.26 405.27 1195.00 2.51 434.78 6.47 1994 22.00 555.20 586.74 3.55 509.63 979.40 1194.12 687.32 8.15
ConsumptionPPP Exchange Rates (local:US$) 1992 3.65 125.66 121.71 0.69 55.36 202.02 52.43 38.08 1.76 1993 4.49 138.91 115.37 1.32 66.98 268.03 0.70 169.20 2.01 1994 4.09 217.30 116.19 1.32 84.23 233.70 334.68 256.22 2.33
Derivationof PPPexchange rates Nigeria Senegal Sierra Leone South Africa Tanzania Uganda Zaire Zambia Zimbabwe PPP GNP per capita 1992 1,440 1,750 630 1,070 1,970 1993 1,400 1,650 750 7,152 580 900 779 1,040 2,000 1994 1,430 1,660 770 8,045 580 940 779 1,000 2,040 GNP per capita 1992 320 780 110 170 570 1993 300 760 150 2,910 90 180 205 380 520 1994 280 610 150 3,010 90 200 205 350 490 Impliedconversion factor 1992 4.50 2.24 1.00 1.00 5.73 6.29 1.00 1.00 3.46 1993 4.67 2.17 5.00 2.46 6.44 5.00 3.80 2.74 3.85 1994 5.11 2.72 5.13 2.67 6.44 4.70 3.80 2.86 4.16 64 SSA UTILITIES
Powerand Energy Balance
Power Capacity and Demand Installed Capacity (MW) 17326 3872 10218 27426 7590 69117 646 166833 81204 13630.052 7319 Hydro (MW) 6450 2902 7775 27144 3727 4220 282 40681 19573 2178.755 1239.1 Thermal (MW) 9858 951 2443 278 3555 52687 364 125852 59598 11422.297 6079.9 Nuclear(MW) 1018 0 0 0 0 11894 0 300 2005 0 0 Other (MW) 0 19 0 4 308 317 0 0 30 30 0 Number of Sets in Plant 156 11 257 Avg Set Size 443.06 58.73 53.04 Thermal Efficiency, 1991 (%) 32 54.3 33 32.9 19 31.7 29 33 32 Capaity Factor (%) 40.63 88.20 50.53 47.25 43.13 53.35 54.20 51.59 46.10 39.13 52.67 Reserve Plant Margin (%) 106.80 39.00 33.40 51.99 48.56 26.02 28.25 62.51 58.43 91.36 30.46 Peak Load (MW) 8378 2786 6896 18045 5109 54848 503.7 102660 51254 7122.66 5610 System Load Factor (%) 79.80 72.00 66.00 71.82 64.08 63.80 59.97 82.80 59.90 74.88 68.71
Energy Generation and Sales Gross Annual Generation (MVVh) 1992 48,359,000 15,483,000 2,114,100 753,940,000 327,913,000 1993 61,671,000 26,137,000 40,348,000 28,679,600 323,030,000 2,646,000 1994 56,798,000 29,915,000 45,230,000 113,528,000 3,067,000 46,718,750 33,768,000 HydroGeneration(%oftotal) 29 93 80.7 99.5 29.2 1.76 62.1 17.57 21.3 19.12 13.65 Thermal Generation (%of total) 50 7 19.3 0.5 68.1 70.95 37.9 82.43 76.63 80.42 86.35 Nuclear Generation (% of total) 13 0 0 0 0 27.66 0 0 2.06 0 0 Other Generation (% of total) 0 0 0 0 0.48 0 0 0 0.46 0
Net AnnualGeneration -inc. imports (MWh latest year) 55,792,000 28,443,000 42,770,000 113,528,000 28,679,600 301,793,000 3,047,000 754,189,000 327,913,000 46,718,750 33,768,000 Transmission Losses (MWh) 11,311,000 2,715,000 7,325,000 10,407,000 2,271,424 23,366,000 346,000 111,250,419 103,233,571 1,188,960 5,281,991 Distributon Losses (MWh) 4,667,050 T&DLosses(%ofnetgeneration) 25.4 10.6 22.9 9.2 8.0 7.7 11.4 14.9 31.8 12.5 15.8 Non-technical losses (% of net generation)
Total Sales (Mv\th) (inc. imports/exports). 44,481,000 25,728,000 35,445,000 97,890,000 22,179,000 282,764,000 2,701,000 669,680,000 187,489,000 38,962,030 19,539,000 Residential Sales (MWVh) 12,317,000 7,500,000 15,252,000 54,377,000 5,110,000 100,405,000 952,000 52,905,000 26,436,000 13,140,740 3,673,000 Commercial Sales (MWh) 8,001,000 0 6,484,000 0 3,955,000 78,602,000 391,000 37,502,000 11,812,000 3,774,970 5,595,000 Industrial Sales (MVVh) 23,467,000 18,062,000 9,896,000 42,853,000 11,587,000 93,773,000 1,193,000 521,011,000 96,557,000 19,560,980 9,635,000 Other Sales (MWh) 696,000 166,000 3,813,000 660,000 1,527,000 9,984,000 165,000 58,262,000 52,684,000 2,485,330 636,000 Residential Sales (% of total) 27,69 29.15 43.03 55.55 23.04 35.51 35.25 7.90 14.10 33.73 18.80 Commercial Sales (% of total) 17.99 0.00 18.29 0.00 17.83 27.80 14.48 5.60 6.30 9.69 28.64 Industrial Sales (% of total) 52.76 70.20 27.92 43.78 52.24 33.16 44.17 77.80 51.50 50.21 49.31 Ot'nerSales(%oftotal) 1.56 0.65 10.76 0.67 6.88 3.53 6.11 8.70 28.10 6.38 3.26 Notes:Avg set sizes ara for interconnectedsystems only. a: Detailsare for VRAonly; b: Salesare divided by low,medium and highvoltage; c: Salesare divided by size betweensmall, medium and largeconsumers; d: Detailsare for VRAonly; a: Salesare dividedinto Low Tension(residential) and Medium Tension (indusfrial); fe Lossesare for interconnected system only. Industrialsales also include an unspecifiednumber of commercialcustomers. SSA UTILITIES 65 Power and Energy Balance
Country Pakistan Cameroon C6te dilvoire b Ethiopia Gabon c Ghana d Guinea Kenya c Madagascar Malawi Mail Mauritius
Power Capacity and Demand InstalledCapacity(MvVV 10184 841 918 41382 3009 1187 176 667.05 225 189.72 848 395.9 Hydro (MvW 2897 737 314 378 214 167.1 1072 47 568.4 106 164 6 494 59 6 Therrnal(MV3) 7150 104 604 35.612 133.8 115 129 68.3 i1a 25.12 35.4 336.3 Nuclear (MWV 137 0 0 0 0 0 0 0 0 0 0 0 Other (MWV 0 0 0 0 0 0 0 30 35 0 0 0 0 Number or Sets in Plant 3 Hydro 9 7 17 38 11 3 12 Avg Set Size 245.67 Hydra 102.00 59 12 39.24 5.92 17.25 28.27 32 99 Thermal Efficiency. 1991(%) 42.7 22 23 38.1 36 35 20 24 44 Capacity Facto (%) 58.26 38.12 35.98 38.49 36.33 58.71 34.44 63.87 27.71 50.05 35 83 27.25 Reserve Plant Margin(%) 32.36 140.31 58.86 -0.25 175.00 9.00 11028 3532 101.90 154.27 Peak Load (MWV 7694 382 260 5 1190 64 612 107 140 2 42 155 7 System Load Factor (%) 61.40 86.45 57.78 58.56 35.00 69.30 79.40 67.30 55.30 59.29
Energy Generation and Sales Gross Annual Generation (MMv) 1992 51,972.000 1.146,896 808,660 1993 2.808.700 2.893.000 1.277,988 957.700 6.105.000 531.000 3.732,000 869,200 1994 1.395.270 546,119 831.880 266.137 944.900 Hydro Generation (% of total) 39.6 97.24 57.57 96.78 70.79 99.32 35 03 88.74 71.27 99.49 78.96 7.98 Thermal Generation (%ot total) 59.58 2.76 42.43 3 22 29.21 0 68 64 97 4.25 28.73 0.51 21.04 92.02 Nuclear Generation (% of tolal) 0.82 0 0 0 0 0 0 0 0 0 0 0 Other Generation (% of total) 0 0 0 0 0 0 0 7.01 0 0 0 0
Net Annual Generation -inc. imports (MVVhlatest year) 51.972.000 2,808.700 2.893.000 1.394.979 957,700 6.196,840 531,000 3.694.000 530,636 831,880 266,137 915.900 Transmission Losses (MWh) 11.422,406 434.700 90.998 261.037 199.106 1.092,007 141,936 560.000 53.389 124.300 55,857 105.900 Distribution Losses (MWh) 133.920 T& DLosses(%ofnetgeneration) 22.2 15.5 16.3 18.7 210 17.8 27.0 15.1 10.1 14.9 21.2 11.6 Non-technical losses (% of net generation)
Total Sales (MVWh)(inc. imports/exports). 31.554.000 2,374.000 2.070.000 1,133.941 803.300 6,196.840 336,000 2.997,000 436,940 703.610 209.823 810,100 Residential Sales (MvVh) 10.400,000 859,920 458,819 365.400 21.202 977,000 162.389 143.940 108.279 295.600 Commercial Sales (Mvvh) 2.066.000 1.033.743 136.672 0 0 559.000 205.676 118,970 0 206,800 IndustrialSales(MVVh) 11.116.000 120.869 488.185 400,000 516.097 1.326.000 61,120 440,700 101,544 295.900 Other Sales (MWh) 7.972.000 50.265 37,900 5,659.538 135.000 7,755 0 0 11.800 Residential Sales (% of total) 32.96 0.00 41.54 40.46 45.49 0.34 0.00 32.60 37.17 20.46 51.60 36.49 CommercialSales(%oftotal) 6.55 0.00 49.94 12.05 000 0.00 0.00 18.65 47.07 1691 0.00 25.53 Industrial Sales (% of total) 35.23 0.00 5.84 43.05 49.79 833 0.00 44.24 13.99 62.63 48.40 36.53 Other Sales(%of total) 25.26 0.00 0.00 4.43 4.72 91.33 0.00 4.50 1.77 0.00 000 146 66 SSA UTILITIES
Power and Energy Balance
Country Mozambique Nigeria Senegal Sierra Leone South Aftica Tanzania f Uganda Zaire Zambia Zlmbabwe
Power Capacity and Demand Installed Capacity (MVV) 312 4574 256.8 44.00 35926 516.95 174.4 2479.96 179310 1966 Hydro (MVW) 106.6 1300 0 2 2000 379 171 2442.16 1669.75 666 Thermal (MW) 205.4 3274 256.6 42.00 32086 137.95 3.4 37.8 123.348 1300 Nuclear (MW,t 0 0 0 1840 0 0 0 0 0 Other(MvV) 0 0 0 0 0 0 0 0 0 Number of Sets in Plant 9 13 19 3 10 45 3 6 Avg Set Size 508.22 19.75 1890.84 172.32 17.44 55.11 597.70 327.67 ThemmalEffietency, 1991 (%) 32 35 34.4 32 30 28 Capacity Factor (%) 10.02 29.45 44.07 22.07 50.95 39.64 66.58 24.76 51.59 44.34 Reserve Plant Margin(%) 104.72 87.00 56.30 44.87 71.74 8.05 11.44 27.84 PeakLoad(MW) 152.4 2446 32 24798 301 161.4 1909 1537.9 System Load Factor(%) 14.98 50.00 30.34 72.80 31.00 71.94 57.49 56.68
Energy Generation and Sales Gross Annual Generation (MVWh) 1992 273,800 11.800.000 20.000 1993 223.600 991.495 45.000 971,000 5.379,000 1994 200.000 85.059 160.351.000 1,795.000 1.017.200 8.103,355 7.636.100 MydroGeneration(%oltotat) 34.17 27.12 0 1.62 84.03 99.86 99.9 99.83 27.81 ThermalGeneration(%oftotal) 65.83 72.88 100 100 92.33 15.97 0.14 0.1 0.17 72,19 Nuclear Generation (% of total) 0 0 0 6.05 0 0 0 0 0 Other Generation (% ot total) 0 0 0 0 0 0 0 0 0
NetAnnual Generation-inc.imports(MWhAlatestyear) 129,100 11.800,000 925.997 65.062 160.351.000 1,795.000 1,026,200 5,379.000 9.006.840 9.543.500 TransmissionLosses (MWh) 20,900 3.504,600 132.076 25.062 2,113.000 308,700 275,800 318.000 279.835 346.900 Distribution Losses (MWh) 50,000 8,795.000 549.459 785,700 T&DLosses(%ofnetgeneration) 54.9 30.0 14.3 38.5 6.8 18.0 37.2 12.0 9.2 11.9 Non-technicat tosses (% of net generation) 20 8.5 5.49%
Total Sates (MWh) (inc, imports/exports). 631.860 7.870.000 809.000 40.000 143,297.000 1,459.000 487,500 3.788,000 9.006.840 7.730.800 Residential Sales (MVVh) 261,164 3.948,000 190.000 24.959 23,834,000 517.000 285.500 1.514,000 844,447 1.716,646 Commercial Sates (MWh) 125.797 1,887,000 159,000 637 10,301.000 178.000 38.600 272,951 1.035.716 Industrial Sales (MVWh) 244.879 2,035.000 363,000 14.339 102.998.000 558.000 81.800 1.400,000 4,449.686 3.079.107 Other Sales (MWh) 0 96.000 64 G,163.000 144.000 81.600 874,000 2.652,894 1.899.331 Residential Sales (% of total) 41.34 50.17 23.49 62.40 16.63 35.44 5856 39,97 9.38 22.21 CommeralatSales(%ottotal) 19.91 23.98 19.65 1.59 7.19 12.20 7.92 0.00 3.03 13.40 Indusirial Sales (% of total) 38.76 25.66 44.67 35.85 71.88 38.25 16.78 36.96 49.40 39.83 OtherSales(%ottotal) 0.00 0.00 11.87 0.16 4.30 9.87 16.74 23.07 29,45 24.57 SSA UTILITIES 67 Electricity Supply Industry Data
Country Argentina Chile Colombia Norway Portugal K' Boltiva' China', India Iadoneia Malayia
Customers& Employees Numberof Customers 8835000 2110000 4848000 4500000 26054000 549700 242670000 65756000 15157409 3748730 Total Numberof Full-TimeEquivalent Employees 54,404 7,643 21,525 17,152 117,400 1,749 1.258,000 1,012,000 36,524 24,281 CustomersperEmployee 162.4 276.1 225.2 262.4 221.9 314.3 192.9 65.0 415.0 154.4 MWhGenerabon per Employee 888.9 2025.8 2101.3 1672.1 2751.5 1512.9 599.3 324.0 1279.1 1390.7 MWhSales per Employee 817.6 3366.2 1646.7 1293.1 2408.6 1283.1 532.3 185.3 1066.8 804.7
DeliveryInfrastructure a T &D Networka HV LineLength (km) 21412 4616 42182 95130 120904 8513 MVILVLine Length (km) 0 41673 924670 412189 3451556 170857 Total LineLength (km) 21412 46289 966852 507319 3572460 179370 PeakLoad per km of HV line 391 603 1300 1079 424 837 Customersperkm ofHVline 412.62 457.11 617.66 2550.93 543.87 1780.50 Customersper km of line 412.62 45.58 26.95 478.34 18.41 84.50 Salesper kmof HV line (MWh) 2077.39 5573.66 6703.43 7039.63 1550.73 4576.77 Transarmners AggregateTransmission Transformer Capacity (MV a) 26989.25 TransmissionUblizabon Factor (%) 19.760 AggregateDistributon Transformer Capacity (MV a DistribublonUblizabon Factor (%)
Energyand ElectricityCoverage % of Populatonwith Access to Electricity 95.0 91.0 84.3 97.7 100,0 100.0 56.4 66.0 55.0 38.3 82.0 EnergyConsumpbonpercap(kgoilequivalent) 1351.2 911.4 661.4 5096.4 1780.6 3718.5 309.7 632.3 242.7 330.3 1544.8 Shareof electricityin TotalEnergy (%) 8.1 10.2 9.8 46.3 3.8 10.3 6.2 1.7 3.7 1.8 1.8 ElectricityIntensity Per Capita,year as country 1804.30 2130.09 1244.98 26291.80 2916.97 5561.05 423.79 633.07 358.92 246.01 1731.87 ElectricityIntensity Per GDPUnit, year as country 0.22 0.57 0.91 1.04 0.34 0.31 0.65 1.48 1.27 0.27 0.48 GrossAnnual Generation (MIWh) 61,671,000 29,915,000 45,230,000 113,528,000 28,679,600 323,030,000 3,067,000 753,940,000 327,913,000 46,718,750 33,768,000
Notes: a: HV linesare 132kVand above.MV and LV are lowervoltage line 68 SSA UTIuTIES
Electricity Supply Industry Data
CustomeYs& Employees NumberofCustomers 8351000 3S9365 40101Z 472912 83791 40000 40030 302640 156001 52203 60259 TotalNumberofFuli-7imeEquiva(enoEmployees 157.722 3,724 3,022 8,377 1,785 3182 1,535 10.1e6 4175 2,421 1,275 CustomersparEmployee 52.9 989 159.5 565 46.0 125.7 26.1 34.0 4S05 21.6 47.3 M3N Generaion per Employee 329.5 752.2 957.3 1060, 536.5 19018. 345.9 366.4 1308 343.6 2067 MhVVSalesper0Empo)yea 200.1 535.8 B5.D 1354 45015 1947.5 218.0 294.2 1047 2906 164.6
De8livryIntrastructure a TrD Networka HV LineLenolh Ott)m 14660 480 507 2857 952 351 MV/LVLine Lenlth (km) 157200 0977 4171 2338 13223 7178.6 1424.1 TotalLine Length(k5) 171860 9457 19048 2845 100O 012086 1775.1 Pea6kLoadperkm oftWiine 525 0 a 214 147 120 CustomersperkmofHVline 506.65 769.51 165.27 123.43 5403 171.68 Customersper Kmof line 48.59 39.08 25.30 29.45 21.93 6043 33.05 Satesper km ofHV line (M1081) 2152.39 440.83 1584.42 1049.00 730.00 590.79 mans0mners Aggre5ateTransmission Tnansformer Capaoty (MV a) 1082 1863 220.00 Transmis*ionUWlizabon Fatr(%c )%) 30.522 25.357 42.974 AggregateDistibuton TranstomrerCapacity (MV a 2515 2371 B05.831 DitnbutiornUnlijzafon Factor (%) 0.40 14.43 5.97
t nergyand Electricity Coverage . ofPopulationwllh Aocess n loedoidty 44,3 14.0 21.0 4.4 40.5 20.0 4.1 11.1 6.5 3,7 4.7 Energy Consumpthn percOtD (kg oil equivalent) 220.4 86.6 10.°1 23.i 953.3 96.1 657 992 34.2 34.8 20.0 Shareof electrcityin TotalEnergyt)7r 7.2 28.0 51 13.3 9.7 32.3 6.7 250 71 27.3 14.3 ElectriityIntensity Pe, Capia, year ascountry 41155 21022 209.94 26,11 925.31 360.30 01.60 143.44 41.69 76.72 27.94 Electrity IntensityPeOIGDP Unit, Y08r aS Country 1.52 0.24 0.28 0.20 0.34 1,01 0.10 0.54 0.10 O.82 0.11 GrossAnnualGeneraSion (MVVh) 51,972,D5o 2,a08.700 2,89300,0 1,395,270 967,700 6,100 000 531t,Oo 3,732,000 546,119 P31,880 265,137
Notes: a: HVlines are 132kVand above. MV andLV are lowervoltage line SSA UTILITIES 69 Electricity SupplyIndustry Data
Country Mauritius Mozambique Nigeria Senegal Sierra Leone South Africa Tanzania Uganda Zaire Zambia Zimbabwe
Customers & Employees Number of Customers 236802 144892 2185000 262806 16560 14169964 255070 107620 250000 143169 357306 Total Numberof Full-TimeEquivalent Employees 1,934 2,889 32,900 2,303 720 39,760 7,457 3,155 5,544 5,060 7,530 Customersper Employee 122.4 50.2 66.4 114.1 23.0 356.4 34.2 34.1 45.1 28.3 47.5 MvVhGeneration per Employee 488.6 4084.5 358.7 430.5 62.5 4033.0 240.7 307.8 970.2 1601.5 1014.1 MWhSales perEmployee 418.9 218.7 239.2 351,3 55.6 3604.0 195.7 154.5 683.3 1780.0 1026.7
DeliveryInfrastructure a T&DNetwokoa HV Line Length(km) 5146.62 1841 0 25181 3369 807 3359.6 2719 4930 MVILVLine Length (km) 114.38 4079 5649 214276 18536 6282 13310.93 7018 54058 Total LineLength (km) 5261 5920 5649 188.44 239457 21905 7089 16670.53 9737 58988 Peak Loadper km of HV line 30 83 985 89 200 0 592 312 Customersper km of HV line 46.01 78.70 562.72 75.71 133.36 74.41 52.66 72.48 Customersperkmofline 45.01 24.48 46.52 87.88 59.18 11.64 15.18 15.00 14.70 6.06 Salesper kmof HV line (MWVh) 157.40 343.22 5690.68 433.07 604.09 1127.52 3312.56 1568.11 Transfbmiers AggregateTransmission Transformer Capacity (MV a) 1027.073 106646 1959.8 TransmissionUtilization Factor (%) 10.180 17.164 31.332 AggregateDistribution Transformer Capacity (MV a 481.05 61856 1505.1 6722 DistributionUUlization Factor (%) 19.22 26.45 11.07 13.13
Energyand Electricity Coverage %ofPopulationwithAccesstoElectricity 86.9 5.0 36.4 20.0 3.8 45.1 7.0 6.6 3.1 22.8 17.0 EnergyConsumptionpercap (kg oil equivalent) 391.4 43.4 140.5 114.5 71.6 2398.5 34.7 23.4 48.1 145.7 471.3 Shareof electrity in Total Energy(%) 1.6 0.8 7.1 13.3 28.4 45.1 7.6 ElectricityIntensityPerCapita,yearascountry 855.89 16.48 112.10 125.51 18.54 3965.16 64.06 51.01 130.46 906.42 664.85 ElectricityIntensityPerGDPUnit,yearascountry 0.28 0.08 0.29 0.18 0.12 1.32 1.08 0.23 0.66 2.40 1.23 GrossAnnualGeneration (MWh) 944,900 273,800 11,800,000 991,495 85,059 160,351,000 1,795,000 1,017,200 5,379,000 8,103,355 7,636,100
Notes: a: HV lines are132kV and above.MV and LV are lowervoltage line 70 SSA UTILITIES
FinancialData
Country Argentina Chile Colombia Norway Portugaloruga...Maihanysia UK Bolivia China~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IndiandPaIg"'fWoisW indAreronryMy
tastsingteyearofdata 1994 1994 ~~1994 191993 19 94 19 92 94 9419 r
Sales Revenueand Tariffs Total Sales (MWvh) 44,481,000 25,728,000 35,445,000 97,890,000 22,179,000 282,764,000 2,701,000 669,680,000 187,489,000 38,962,030 19,539,000 31,554,000 TotalSales Revenue(US$million) 7558.91 2207.87 2242.55 664.39 2824.80 26632.99 225.82 9801.59 1063.57 2740.58 2060.78 0.00 AvgTariff, marketexchange rates (US¢/kvVh) 16.99 8.58 6.33 7.30 10.66 9.24 8.36 2.46 4.22 7.03 6.55 3.47 Avg Tariff, PPPbased (US¢/kWh) 14.85 22.11 23.90 5.25 11.27 9.16 25.17 10.61 14.08 31.58 15.78 17.73 Avg IndustrialTariff (USO/kWvh) 18.30 7.05 7.41 3.55 7.77 7.10 AvgResidential Tariff (US¢/kWh) 11.85 12.27 4.02 7.30 12.54 7.23
UnitCostsOXRs(US(IkWh) 4.32 3.19 5.5 7.4 5.92 1.92 4.39 2.57 UnitCosts PPPXRs(US¢jkWh) 3.77 8.22 3,96 7.34 17.82 8.28 19.72 13.13
RevenueCollection AccountReceivable Lag, 1991 (days) 316 87 99 38 50 105
Bad Debts BadDebt (USSmillion) 8.28 Bad Debt Ratio 0.29
Financial CashContrbutions to Govemment(US$million) 100.32 2040.5 -63.61 CashContribution to Govemment(% of total revenu ) 5.03 102.38 -3.19 Rate of Retum on Net FixedAssets(%) 7.0 8.1 9.0 8.1 1.6 5.2 0.0 3.0 6.3 8.8 10.1
Notes: a: Retum on fixed assetsgiven for EEB (largestutility) only b: Norwegianfigures are for Statkraftonly c: Indianfigures are for MSEB d: Malaysiabalance sheet figures are for Tenaga e: Pakistanbalance sheet figures are for WPDA f: Ghanabalance sheets are combinedfor VRA and ECG,sales data are for VRA only g: Tariffsfor Kenya arefor smalland large customer . Medium-sizedand small industral pay tariffsequal to 6.65 US¢/kwvh h: Ugandanfigure is for domesticrevenues only. Inc udingsales to Kenyathe Avgrevenue falls to 2.45 US¢/kWh. i: Hyper-inflationfrom 1991 makesquoted prices in aire extremelyunreliable. The figuresquoted herewere obtainedusing the market exchangerate as at 31 December1993. SSA UTILITIES 71 Financial Data
Country Cameroon C6te dlvoire Ethiopia Gabon Ghana Guinea Kenya Madagascar Malawi Mail Mauritius Mozambique Lastsingleyearofdata 1993 1993 1994 1993 1993 1993 1994 1994 1994 1994 1994 1994
Sales Revenueand Tariffs Total Sales(MvVh) 2.374.000 2.070.000 1,133,941 803.300 6,196.840 336.000 2.997.000 436.940 703.610 209.823 810.100 631.860 Total SalesRevenue (US$million) 335.68 641.29 38 96 71 26 132.37 55 61 89 22 32.25 16.96 26.32 98.99 28.81 Avg Tariff, marketexchange rates (US¢/kWvh) 2.77 30.98 3.44 17.39 3.12 16.55 5.77 7.38 2 41 12.54 12.22 4.56 Avg Tariff, PPPbased (US¢/kVvh) 6.05 71.98 10.19 25 98 13.48 30 01 29 96 19 94 8 84 24.50 58.35 22.12 Avg IndustrialTariff (USO/kWh) 3.45 5 24 4 60 10.97 10 39 9.21 Avg ResidentialTariff (USlkvWh) 2 27 5.26 11.90 14.77 12.08 9.90
Unit Costs OXRs (USfJkWh) 125 631 7.5 13.87 11.18 Unit Costs PPPXRs(US¢IkWh) 5 40 11 44 27.51 27.09 53.39
RevenueCollection Account ReceivableLag, 1991(days) 145 60 75 66 162 110
Bad Debts Bad Debt (US$million) 21.51 0.1 Bad Debt Ratio 145.00 55.21 0.10 000
Financial Cash Contributionsto Govemment(US$million) 0.87 1.07 0.47 -0 01 -41 02 Cash Contributionto Govemment(% of total revenu 0.04 -0.00 -0.02 0 00 Rate of Retum on Net FixedAssets (%) 6 0 -16 0 15 0 4.0 14.0 1.2 0.7 -1.5 72 SSA UTILMSES
Financial Data
Country Nigerta Senegal Sierra Leone South Africa Tanzanha Uganda;: Zaire Zambla Zimbabwe Lastsingleyear odata Varies 1993 1994 1993 1994 1993 1994 1993/94
Sales Revenueand Tariffs Total Sales (MWh) 7.870.000 809,000 40.000 143,297.000 1,459,000 487.500 3.788.000 9,006.840 7,730.800 Total Sales Revenue(USSmillion) 279.39 167.54 6.85 4169.94 116.32 45.42 64.40 173.83 179.69 Avg Tariff, marketexchange rates (USOIkW-h) 3.55 20.71 17.14 2.91 7.97 9.32 1.70 1.93 2.77 Avg Tariff, PPP based(US¢tkvvh) 17.45 42.22 86.53 7.81 48.24 39.05 6.07 5.18 9.67 Avg IndustrialTarifl'(USf/kW1h) 1.80 13.68 23.41 2.51 5.04 8.70 1.80 Avg ResidentialTariff (USL/livv) 1.10 24.65 12.78 4.67 16.79 9.12 1.80
Unit Costs OXRs (USjUkWh) 5.3 12.50 2.28 7.3 Unit Costs PPPXRs(USflkWh) 26.05 63.12 6.12 19.58
RevenueCollection Account ReceivableLag, 1991(days) 450 390 240 270 232 0.45
Bad Debts Bad Debt (USSmillion) 1821 24 Bad Debt Ratio 43.67 52.84
Financial Cash Contributionsto Govemment(USSmillion) Cash Contributionto Govemment(% of totalrevenu Rate of Retum on Net FixedAssets (%) -8.2 3.7 -6.2 11.5 -5.7 0.0 -15.4 -8.0 5.8 SSA UTILITIES 73 Investment Requirements
Country Cameroon ab Cote d lvoire Ethiopia a Gabon ab Ghana Guinea b Kenya Madagascar Malawl Mali a Mauritlus b Mozambique
Consumption (MWh) 1993 2,374,000 2,070,000 1,034,489 803,300 6,196,840 336,000 746,600 1994 2,490,326 2,149,945 1,133,941 842,662 6,289,317 348,418 2,997,000 436.940 703,610 209,823 810,100 631,860 1995 2,612,352 2,232,978 1,178,357 883,952 6,383,174 361,294 3,185,694 463,489 724,558 220,104 894,612 642,140 Forecast Demand,2005 (MWh) 4,214,893 3,261,785 2,259,602 1,426,210 7,402,337 519,360 5,866,465 836,012 971,590 355,127 2,413,211 754,607 Growth in Demand (MWh)to 2005 1,602.541 1.028,807 1,081,245 542,258 1,019,162 158,066 2,680,772 372,524 247,032 135,022 1,518,599 112,467 DemandGrowth Rate (%) 4.90% 3.86% 6 73% 4 90% 1.49% 3.70% 6.30% 6.08% 2.98% 4 90% 10.43% 1.63%
PeakDemand(latestyearMW) 0 382 261 0 1,190 64 612 107 140 42 156 152 ForecastPeakDemand,2005(MW) 558 1.380 92 1,127 193 188 420 Peak DemandGrowth Rate (%) 3.86% 1.49% 3.70% 6.30% 6 08% 2 98% 10.43%
Installed Capacity (MW) 841 918 414 301 1,187 176 667 225 190 85 396 312 Projected Capacity, 2005 (MW) 1,046 889 552 370 1,822 196 1,011 435 286 102 591 326 Required Capacity Growth (MW) 205 (29) 139 70 635 20 344 210 96 17 195 14
Unit investment Costs (S1994IkW) 2,490 1,680 2,687 2,490 2,460 2,490 1,717 4,882 1,990 1,957 2,490 2,490
Total InvestmentRequired (1994$mililon) 512 15 373 173 1,562 50 590 1,025 192 34 485 36
Available Funding (1994$mililon) Domestic funding World Bank Other Official Donors Intemational finance Funding gap
a: Forecasts not available. Demand is estimated as growing by 4.9% p.a. in line with World Bank estimates. Capacity increase is estimated from demand increase/7800 hours p.a. of operation (Avg of others in b: Investment cost taken from World Bank avg for African utilities (US$2,490/kW) in 1989 and updated to 1994. sample). c: Unit investment cost abnormally high due to large expenditures for rehabilitation of Kafue Gorge plant and T&D strengthening. For investment cost calculation, avg unit cost of other utilities is used instead. d: For most countries, figures for 1995 consumption are not available. Consumption has thus been extrapolated from the latest available year.
Sources: Own estimates based on: World Bank (1990), Capital Expenditures for Electric Power in the Developing Countries in the 1990s. 74 SSA UTILITIES
Investment Requirements
Country Nigera Senegai a Slerra Leone South Africa Tanzania b Uganda Zaire ab Zambia a Zimbabwe Totals
Consumption (MWh) 1993 11,800,000 809,000 28.000 3.788,000 1994 12,714,806 848.641 40,000 143,297.000 1.459,000 487,500 3,973,612 9,006,840 7.730.800 198.602,141 1995 13,700,534 890.224 52.047 147,044,452 1,570,093 510,315 4,168,319 9,448.175 8,132,737 205,299,600 Forecast Demand,2005 (MWh) 28.907,790 1,436.330 121,984 190,354,907 3.270,593 806.260 6,725.365 15,244,136 13.500,798 290,649.362 Growth In Demand (MWh) to 2005 15,207,256 546,106 69.938 43.310.455 1.700.499 295.945 2.557.046 5.795,961 5.368,061 85.349,763 DemandGrowth Rate (%) 7.75% 4.90% 8 89% 2.62% 7.61% 4.68% 4.90% 4.90% 5.20% 3.54%
Peak Demand (latest year MW) 2.446 0 32 24.798 301 161 0 1.609 1.538 Forecast Peak Demand,2005 (MW) 5.161 75 32,102 627 255 2.553 Peak DemandGrowth Rate (%) 7.75% 8.89% 2.62% 7.61% 4.68% 5.20%
Installed Capacity (MW) 4.574 257 44 35.926 517 174 2.480 1.793 1.966 53,442 Projected Capacity,2005 (MW) 6.393 327 115 37.266 841 237 2.808 2.536 1,906 60,056 Required Capacity Growth (MW) 1.819 70 71 1,340 324 63 328 743 (60) 6.614
Unit Investment Costs (S19941kW) 2,793 13,600 3.028 2.490 2.490 2.825 2,490 2.411 1.927 2.761
Total Investment Required (1994$mililon) 5.080 952 215 3,337 807 177 816 1,792 37 18.258
Available Funding (1994$mililon) Domestic funding 5.021 World Bank 697 OtherOMclal Donors 2,303 Internationalfinance 3.000 Funding gap 10.237 II. The electric power sector in SSA: Current institutional reforms
by Jacques Girod and Jacques Percebois
This study contributes to the broad research on a reform strategy. Part II of this report agenda which the World Bank has initiated on analyzes these trends. It asks why the most the future of electric power sector institutions in common pre-reform configuration-the Africa. The aim of the study is to assess the traditional public monopoly model-came to be current condition of the power sector in Sub- challenged. It finds some reasons that are Saharan Africa, and to examine in some detail external to the countries themselves, but more the institutional reform projects that are that are internal: the traditional model has currently underway. In consultation with the apparently run out of steam and must be if not World Bank, we selected 22 African jettisoned, then at least transformed. countries-Francophone, Anglophone, and Lusophone; for each, we attempted to collect as Reform is on the agenda almost everywhere; much information as possible on the current the difference dwells in the doses and degrees. institutional situation and especially, ongoing Some observers search for an optimal reform reform initiatives. Few final decisions have been pattern: they ask whether privatization is taken as yet; many countries are currently inevitable, whether it should occur in stages, and debating how their power sector institutions what alternatives exist to the British or Chilean should evolve in the coming years. The debate models. Part III of this study takes up these is not merely technical; rather, it is largely questions. It shows that there are likely political in nature, and legislative or regulatory "African specificities" which favor a gradual changes alone will not suffice to spur real evolution to surmount the obstacles to efficiency change. which African countries typically encounter. The dual aim of reform in Africa is to maintain We approach our topic in three phases. Part I public prerogatives, which guarantee the offers an overview of the situation as of mid- national interest and the priorities of public 1995. A small number of countries have retained provision, while upholding the autonomy of the status quo. The bulk of countries utilities and building incentives to efficient (approximately two-thirds) have undertaken operation. The latter seem almost necessarily to reform of some type. Some seek to adapt the include at least partial involvement by existing institutional framework; others, to outside-often foreign-operators through a change it, with experiments now up to four or variety of formal mechanisms (including five years old. Finally, several countries are still performance management contracting, debating their options and have not yet settled concessions, independent power projects).
CURRENTINSTITUTIONAL REFORMS 75 76 CURRENT INSTITUTIONAL REFORMS
2.1 Current Institutional Conditions * those where the reform strategy is undetermined and final choices have yet to be made. In these cases debate is The countries under study together confront a underway: it may focus on important common problem: how to improve the efficiency restructuring projects, but discussions are of the power sector and prepare it to meet often acrimonious and have not settled one rapidly increasing demand in the coming years. way or the other (Table 4, seven countries). Appendix I describes in detail the current situation and reforms underway in each country. Boundaries between these categories are not We group the 22 countries into four categories: always obvious to draw; like any typology, this one is open to challenge. When it comes to those which have retained the status quo and restructuring a sector, differences in the degree of appear unwilling or unable to undergo major reform can ultimately lead to differences in the structural reform (Table 1, five countries); nature of reform. For instance, an operations contract in which the partner does not invest in * those which have chosen to adapt their the utility's equity can be seen as simply power sector institutions via schemes to adapting the existing model (rather like a improve technical and commercial performance contract with a foreign partner), or management of the utilities (performance instead as a mutation or even a radical contracts, contract-plans, partial private transformation of existing institutions. It is equity offerings, limited independent important to see how some measures that aim to production) (Table 2, six countries); improve sector management turn out to be steps on the way to deep institutional change. • those which have chosen to transform their power sector institutions, with outside One may consider an institutional change to utilities involvement, through operations have occurred when there are changes to the contracts or concession contracts, large-scale legal or regulatory framework. A reform project development of independent generation, de- alone is not enough: a juridical impulsion of integration of the industry, and so on (Table some sort is required. A change in legal 3, four countries); framework is a necessary, if not sufficient, condition if lasting institutional mutation is to occur. CURRENT INSTITUTIONAL REFORMS 77
Country I Utility Status Generation Transmission Distribution Institutional Situation I - Countries that have retained the status quo in their power sector institutions Angola ENE Public ENE ENE ENE Priority to rehabilitating facilities EDEL EDEL EDEL Plans to merge ENE and EDEL and open (Luanda) (Luanda) generation end to competition Botswana B.P.C. Public B.P.C. B.P.C. B.P.C. No privatization plans Ethiopia EELPA Public EELPA EELPA EELPA Regional decentralization underway, but no privatization plans; possible opening to private sector in the longer term Malawi ESCOM Public ESCOM ESCOM ESCOM No privatization plans Several self- generators Senegal SENELEC Public SENELEC(+ SENELEC SENELEC No privatization plans but audit underway OMVS at Manantali dam) Some industrial self-generators II - Countries that have chosen to adapt their power sector institutions Ghana VRA (NED) Public VRA (94%) VRA NED ECG management contract with ECG Self-generators ECG EDF/SAUR
.______Independent power project Mauritius CEB Public CEB CEB CEB Greater autonomy and plan for private Self-generators equity in CEB Development of independent power (sugar industry) Rejection of full-privatization and UK-style de-integration Kenya KPLC.... 60% public KPLC(management KPLC KPLC Vertical de-integration planned KPC Public agreements) Open generation to private investment TRDC Public (BOO schemes) TARDA Public KVDA Public 78 CURRENTINSTITUTIONAL REFORMS
Country Utility Status Generation Transmission Distribution Institutional Situation Zaire SNEL Public SNEL SNEL SNEL Plan to internationalize Inga site Self-generators No SNEL privatization, but possible management contract Zambia ZESCO Public ZESCO ZESCO ZESCO Commercialization via performance contract * No privatization Zimbabwe ZESA Public ZESA ZESA ZESA Intemal reform of the company underway * Open generation to private investors
III -Couintries that have chosen to transform their power system institutions C6te d'Ivoire EECI Public CIE CIE CIE Since 1990, separation of ownership (EECI) CIE (92.3%) Self-generators and operations (CIE) functions. 15-year Private (80%) (including operations contract to CIE. CIPREL) Generation opened to private investment (CIPREL) Gabionl0000J 4 SEEG Public (64%) SEEG SEEG SEEG 1993-1995: Management contract to SOCAGI Self-generators (EDF, HGI, Lyonnaise des Eaux) while awaiting privatization * Privatization planned but terms still unsettled cGuinSeaV000:ff:tS:: ENELGUI Public SOGEL SOGEL SOGEL 1994 scheme separates infrastructure SOGEL Private A few self- ownership (ENELGUI, public) and (66,6%) generators operations (SOGEL, private: HQI + EDF + SAUR). Ten-year contract similar to C6te d'Ivoire; generation opened to private sector
Mali:;; 000 40 ; EDM Public * EDM EDM EDM * Restructuring power sector (unification) (97,2%) * OERHN (owns * EDM Performance management contract ______S6linguedam) signed 11/94 with EDF-SAUR-HQI IV - Countries where power sector reformst tegy. remains undetermined CURRENTINSTnTUTIONAL REFORMS 79
Country Utility Status Generation Transmission Distribution Institutional Situation South Africa ESKOM Public ESKOM ESKOM *ESKOM Current debate on ESKOM future Nine town -398 (privatization?) boards, three municipalities Current discussion of distribution-end private firms organization (three possible options) Possibility of private operator involvement Benin/Togo SBEE Public CEB CEB SBEE Management improvement (program- (CEB) CEET SBEE and CEET CEET contract) CEB for isolated Current debate on independent private units power and possible performance management contracting Cameroon SONEL Public (93%) SONEL SONEL SONEL Performance contract with State A few self- New (8/95) public enterprise status. generators Privatization commission in place; SONEL's status under study. Congo SNE Public SNE SNE SNE Current audit of SNE Privatization committee, ongoing discussions Concession system with open generation likely to supersede operations contracting plans. Madagascar JIRAMA Public JIRAMA JIRAMA JIRAMA Privatization project (framework programmed 1994), separation of water and power, open generation to private sector (free zones), but hesitations Ongoing discussions: performance management contracting, operations contracting, concession? Mozambique EDM Public EDM EDM EDM Ongoing discussion: commercialization, International privatization with separate generation, firm at Cahora transmission and distribution? Bassa 80 CURRENTINSTITUTIONAL REFORMS
2.2 Analyzing the Trends scheme that was unanimously considered best- suited to the purpose of national development.
We have shown how a set of over twenty Thirty years have elapsed; still, African energy countries are currently taking part in the changes ministers gathered in Tunis in May 1995 which the African electric power sector has been reaffirmed largely similar goals, especially going though over the past decade. These concerning the privileged use of national changes reflect a profound questioning of the resources for power generation. This shows how rules and principles set down in the early 1960s difficult those in power find it to imagine to organize and run the sector. The sectoral alternate organizations that might better address model from which countries designed their today's circumstances: slower economic growth, national electric utilities is now challenged a broader range of technical options, and tight because of poor performance. For some financial constraints. In this view, the countries then, the reform project is to correct development imperative has not substantially the model's major flaws; for others, to replace it changed the goals countries seek to attain; hence, altogether with one or several new approaches the means for reaching these objectives would that are expected to yield better results. The have no reason to change either. current period is one marked by groping towards solutions to suit each configuration. One should note that until the early 1980s, the The weight of the past, the high stakes of future traditional model worked reasonably well, at sector development, and myriad external and least considering a few indicators: in the Sub- internal constraints naturally combine to slow Saharan countries (excluding South Africa) necessary transitions. As we have seen, few between 1970 and 1985, installed capacity countries have so far made their final choice. increased by a factor of 2.7, power production multiplied by 2.2, and power sales by 2.1. These With minor variants but broadly similar results are quite honorable and worth keeping in institutional forms, pre-reform African electric mind. In all but a few small countries, the chief systems almost all consisted of national public success was developing the basic infrastructure: enterprises with de facto or de jure monopoly on power plants, transmission and distribution the three industry segments of generation, grids. These set up the national electric system transmission, and distribution. These firms and took it to a first stage of development, underwent close state oversight of their internal which varied of course with each country's management and their investment choices, and wealth and natural resource endowment. were subject to public service duties listed in Despite this, the fact remains that on average concession regimes and contract specifications. only ten percent of the population has access to That all countries shared this system is no electricity in Sub-Saharan Africa. surprise, considering that their electric utilities all had similar missions: For virtually all of the Sub-Saharan countries, this first stage reached an end sometime between * to spur economic and social development 1980 and 1985. With a basic system in place, the via generalized use of electric power; second stage would have seen increasingly * to develop the infrastructure needed for intensive use of the infrastructure to meet industrialization; increases in the demand for power. This second * to put to use national primary resources: oil, stage did not come about. Instead, growth rates coal, and hydraulic energy. slowed and in some countries even reversed. Equipment set up at high cost turned out to be As promoter of development and custodian of generally underutilized and its profitability the national interest, the State was to organize highly compromised. and direct public electricity supply. Only a national public firm could ensure service for the What were the causes of this reversal, and entire population and respect the principle of what arrested the momentum of the national centralized government decision-making. At the utilities? What sparked the challenge to the time, the vast majority of countries on all prevailing institutional model, and the move continents, whether industrialized or developing, toward structural change?? We examine this followed this general model. At Independence, question first-cautioning that we can only give African countries merely took up a widespread here very general explanations, which reflect only imperfectly the diversity of experience. CURRENTINSTITUTIONAL REFORMS 81
Next, we examine proposed answers for the power sector models as well. Begun in the future of power sector institutions, and ask United States in the late 1970s, the trend led to a whether these answers make up a coherent vast deregulatory movement, prelude to chronology. profound changes in the technical and economic status of electric firms (reassessment of the 2.2.1 Sources of Institutional Change extent of natural monopoly in the power industry, vertical de-integration) and to the Before developing the causes of current emergence of new organizational forms such as institutional reforms, one should emphasize the independent production, cogeneration, common underlying role that the economic crisis of the carriers, and third party access. Utilities were early 1980s played in spurring change. The accused of abusing their monopoly position by considerable impact of crisis on the power sector capturing rents and practicing excessively high in every Sub-Saharan country was the source of tariffs. These abuses required swift correction: challenges to the sector model. Lower electricity influenced by the dominant liberal thinking, sales resulting from crisis limited progression of many countries imposed competitive rules on the utility turnover, jeopardizing maintenance and sector. renewal programs and harming economic and financial performance. Clearly, economic crisis These examples show that economic crisis on destabilized existing organizational schemes. the one hand profoundly changed the entire frame of utility performance evaluation, both In the preceding period, main measures of external and internal, while on the other hand it utility performance were results in the increase helped to show how modes of organization and of generating capacity, sales volume, and functioning can reach their limits when major customer base: in short, indicators of the speed contradictions appear between goals pursued of infrastructural development. In the 1980s, and the structures in place. performance evaluation shifted its focus to technical efficiency and economic and financial In Sub-Saharan Africa, the deterioration of viability, and hence toward criteria reflecting the electric utility performance stems from both capacity of firms to perform in these areas even internal and external causes. when growth was slowed or halted. A range of new indicators appeared during this period: rate (i) Internal Causes of accounts receivable, rate of return to fixed assets, rate of self-financing, kWh produced per The internal causes are numerous; by now, a employee, and many others. Often promoted by vast number of expert studies have inventoried international organizations and lender agencies, them in great detail: these indicators aimed to evaluate utility performance in the greatest detail possible. * Causes of poor technical performance (evidenced in the fuel consumption of The question of results became central to thermal units or in system losses): irregular utility management and rapidly overwhelmed maintenance work, shortage of spare parts, previous concerns with investment selection, diversity of equipment types, premature energy planning instruments, and pricing aging of capacity, and illegal connections. methods. Because results appeared mediocre or * Causes of poor economic performance: even disastrous, sector officials and financing overuse of production factors, particularly agencies found it necessary to launch structural labor (excessive staffing of utilities), reforms. Clearly then, performance was the accumulation of arrears (late and principal cause of reform. Absent profound outstanding payments), inappropriate changes in organization and management, the pricing formulae, and end-use prices long-term survival of utilities was in doubt. sometimes lower than production costs. Reform became a prioritvy and a prerequisite for * Causes of poor financial performance: any further development of the sector and excessive cost of certain investments, renewal of investment in infrastructure. excessive indebtedness, interruption of public subsidies, and delays in equity Although certainly less acute and less urgent, injections by owner States. a similar decrease in performance shown up by the drop in power consumption had spurred the The management of hydroelectric plants is industrialized countries to question their own respectable in most cases. In thermal units, 82 CURRENT INSTITUTIONAL REFORMS however, specific fuel consumption is frequently Together, these causes have disorganized excessive and maintenance quality is mediocre. utility management and led to increased Performance is worst, most probably, in operating losses and treasury overdrafts; these in transmission and distribution, no matter what turn have been financed by loans, which are indicators are used: ratio of customers per increasingly hard to pay back. In this way, employee (or employees per thousand vicious cycles have appeared in utilities customers), or ratio of energy delivered to operation. A common example is the way that energy generated. Poor ratios of energy billed to debts restrict the importation of spare parts, energy delivered and payments to billings only which lead to delays in upkeep and repairs, and worsen the situation. Administrative hence to inefficient equipment use. Many other, services-that is, the State-are often the worst similar examples come to mind. Frequently, at settling their bills. This sets off a vicious cycle public enterprise deficits only worsen the public of non-payment: unable to collect their bills, deficit, and contribute to the explosion of public public utilities fail to pay suppliers, taxes and debt via a snowball effect. wage costs, spelling financial trouble for all concerned. The most acute consequences are to be found in the quality of service. They take the form of It is important to note that tariffs, often set by brown-outs, power cuts, voltage instability, and the State rather than by the utility's Board of delays in repairs. They have led many users to Directors, are in Sub-Saharan Africa frequently invest in self-generating capacity, and have higher than in the industrialized countries, and reduced the scope for self-financing, forcing yet still fail sometimes to cover the costs of utilities to rely systematically on outside loans power supply to end-users. Even when the cost for any new investment. Financial constraints of power is low in absolute terms, it remains have taken top priority, and naturally enough, high in relative terms for the population. The lender agencies have as a result imposed more combination of poor pricing and poor and more constraints: beginning with the performance jeopardizes any sort of durable self- recovery of viable performance, and moving to financing strategy. According to CFD, adequate enterprise restructuring, and finally, institutional technical and financial management of utilities reforms. would have allowed around 60% self-financing for investments which instead, have been almost At the same time, States concerned with better always funded from outside sources under control over public enterprises, particularly in public guarantees. Transferring to the terms of foreign financing, have increased their population at large the costs of bad public powers of oversight and extended the scope of services management is neither legitimate nor supervision all the way down to day-to-day equitable: in the end, the population supports management. In this way, they have caused the financial burden of infrastructure whose utilities to slide toward the behavior of benefits 90% do not enjoy. Everyone pays administrative services; absent appropriate indirect taxes (on consumer goods), but only a incentives, utilities no longer assume in full the small share of the population (10% on average in commercial function of power supply. The Sub-Saharan Africa) has access to grid electricity. burden of structures, and the meddling and maneuvers by public authorities, no doubt Tariff increases are no certain boost to utility played their part in weakening the capacity of financial performance. First, higher prices utilities to react to the economic crisis of the increase the incentive to fraud for consumers 1980s. In this respect, electric utilities are no with weak purchasing power. Second, a tariff exception among other public enterprises. In a increase is a double-edged measure. It is first phase, when the crisis looked like a justified, certainly, when prices are far below temporary recession, their status protected them; their "objective" level. But when a firm is poorly today, however, they are no longer sheltered managed, a tariff increase can be a reward for from major reforms. bad management, a temporary "breather" that allows further postponement of necessary (ii) External Causes adjustments. Instead, a tendency towards lower prices should be seen as a marker of Without denying their own share of performance, when achieved thanks to responsibility in the worsening of the macro- productivity improvements all along the electric economic situation and of public enterprise power supply chain. performance, African officials often stress that CURRENTINSTITUTIONAL REFORMS 83 external causes-outside their range of action industrialized countries since 1973-a time when and independent of their decisions-have caused economic and energy planning was on the rise in much greater effects than have internal causes; the developing countries. Second, technological or at least, that the latter are merely results of change has helped impose solutions that stand to developments that first took place in the radically modify sector organization. In the international environment. energy sector, it is clear for example that independent production and cogeneration could According to this argument, the economic not have grown to present levels without crisis which came about in Africa between 1980 improvements in gas turbine technology. and 1985 stems first and foremost from the earlier crisis in the industrialized countries. The A "utility life-cycle" theory suggests that these dip in economic growth in these countries firms evolve through three phases. First is the caused them to import less on world markets: traditional phase of start-up and development, for developing countries, this meant a marked by public intervention from the central simultaneous drop in primary product export State or local authorities. Second is a mature revenue and in budgetary resources. Considering phase marked by slower increases in demand, that during this period, commodities prices were stagnation of costs, and the emergence of weakening as well, the combined effect explains monopoly rents. A third phase, of decline, the degradation of economic performance and comes about if nothing is done to correct the public finances. In the same way, for flaws of excessive regulation. Hence, enterprises, increases in interest rates, in the competitive incentives must be introduced at the price of the US dollar between 1978 and 1985, mature stage in order to avoid a proliferation of and in oil prices up to 1983-all three events inefficiency. beyond the responsibility of African economies-greatly contributed to deepen the The new liberal approach alters the balance of debt burden of firms and to bring financial public and private sectors and marks a radical constraints to the fore. break with the time-honored Keynesian tradition of public interventionism. In the liberal This report is not the place to assess these perspective, the state is a good regulator (so long arguments. However, it is essential to keep as there is judicial oversight to enforce contracts), these points in mind in order to understand that but a poor shareholder and an ever poorer African countries do not wish to be held solely entrepreneur. Today's worldwide phenomenon responsible for the deterioration of their public of "deregulation" and privatization in network enterprise performance, and hesitate to jump industries (particularly the power industry) blindly into reform processes that punish their nevertheless targets realities that vary earlier management. considerably between regions. In the OECD countries, where utility performance is seen as In the practice of international economic and generally strong, the aim is to suppress financial relations, these countries have often monopoly rents and to allow users to benefit labored under rules and constraints on which from the advantages of competition. In Asia, they feel they were never consulted. At the where demand for power is growing very same time, obeying these rules and constraints rapidly, the point is for private savings to take has led them to experience great difficulties in over from insufficient public resources. In Sub- drawing value from the assets they have, Saharan Africa, deregulation and privatization particularly primary resources. A common can certainly serve to take over where public example is the difficulty they have had in the financing of infrastructure leaves off, but they past decade to find funding for new reflect first and foremost the failure of public hydroelectric projects. network enterprises in terms of commercial and technical management. At another level, two further external factors are worth mentioning that affect the direction of Proponents of "electricity versus electricity" current reforms. First, these reforms occur in the competition also suggest that economies of scale context of a global intellectual evolution that and scope in the electric power sector are of affects virtually every country. It is sufficiently lesser import than previously believed. In their clear that these reforms reflect an environment of view, the industry's natural monopoly economic liberalism and a deregulatory component may dwell only in transmission and movement which have grown in the local distribution. Drawing on the theory of 84 CURRENT INSTITUTIONAL REFORMS contestable markets, they argue that utilities will available to address a common problem: be more responsive to market signals born of improving the efficiency of the electric power increased competition among potential suppliers, system. These reforms are often considered than they have been so far to institutional prerequisites for improved use of existing regulation by the State or public authorities. infrastructure. They are also conditions for development and financing of new infrastructure Competition can take various forms: that will become necessary, in particular for competitive bidding for generation under projected interconnections. regulatory supervision, third party access to networks (TPA), competitive bidding for 2.3.1 A Wide Range of Institutional distribution franchises, and separation of Arrangements generation, transmission, distribution and even local supply. To be sure, the benefits of Several points concerning Sub-Saharan Africa increased competition will have to be balanced General appear to have emerged by now on: with possible inefficiencies in investment choices (as short-sighted markets replace long-term (i) In network industries, commercialized planning), new transaction costs (particularly in management must be a top priority in order terms of actor information), and greater to reduce waste, technical and non-technical complexity of regulatory mechanisms (to avoid losses, uncollected payments, overstaffing, collusion, ensure the transparency of costs and and the like. The keyword today is results. tariffs, deter cross-subsidies among user In addition, firms must prepare to serve categories, control the quality of service and more customers because they will all face respect of contract specifications). rapidly growing demand, given the present low levels of coverage. By now, several conclusions seem to have gained general acceptance: (ii) The State must withdraw from management of electric utilities, confine itself to its role • Natural monopoly regulation can occur as regulator and behave as an "ordinary under private ownership just as well as shareholder" when the utility's capital under public ownership. remains publicly-held, as is often desired.
* A public enterprise should not be financed (iii) The Board and Management of utilities by government funds, but rather through must take investment and managerial self-financing and borrowing on the decisions according to a corporate logic: domestic and international capital markets. they should operate with total financial autonomy, and relative autonomy in the * Examples exist of both efficient public context of negotiated and harmonized tariff- ownership and inefficient private setting. ownership, and vice versa, tending to prove that management and ownership of assets (iv) Given the reality of virtual monopoly (de should be decoupled, and system regulation facto or de jure) on one hand, and the public and property rights considered separately. service and strategic dimensions of power Nonetheless, many economists consider that demand on the other, utility managers management improvements require a should have incentives to preserve a balance reassignment of property rights towards the among the following actors: private sector, which is considered, for better or for worse, to be more responsive the State, shareholder and revenue than the public sector to market signals and collector efficiency imperatives. consumers, concerned with the prerogatives of public service 2.3 Available Reform Strategies (continuity, fair treatment, etc.) private shareholders, concerned with meeting a threshold of financial The reforms that have taken shape to varying viability degrees and by means of various mechanisms in employees and unions, which seek to the countries under study demonstrate that a preserve what is often a privileged wide range of institutional arrangements are status. CURRENTINSTITUTIONAL REFORMS 85
The key is to ensure that neither State, nor In short, this formula introduces a split private shareholders, nor unions arrogate to between infrastructure ownership firm and their sole benefit the firm's monopoly rents. operations firm. Many African countries have found it attractive either adopting it or actively (v) Reforms require an external catalyst to get considering it. started: the realization that reforms are unavoidable often comes in the context of It denotes a "specific scheme" for Africa that structural adjustment programs or external encourages stage-by-stage institutional audits. transformation. Under this scheme, and at least for a transitional period, the State retains This does not extend to choosing an identical ownership of the fixed assets and makes a reform model, however. In practice, only a few foreign operator responsible for running them final decisions have been taken thus far, and properly. Few countries seem prepared, many countries remain in a transitional phase however, to press on towards total privatization where nothing is irreversible. that would transfer to the domestic or foreign private sector assets now owned by the State. (i) In some cases, contract-plans signed with the State and that often rest on foreign Experience with operations contracting in C6te expertise, technical assistance, and twinning d'Ivoire raises a new question: is the operations with foreign operators, may represent a contracting model appropriate, and would it not durable solution. be better to select from the outset a more classic concession system, suppressing the dichotomy (ii) In other cases, change can be in a form of between infrastructure and operations firms (see performance management contracting. The Appendix II)? Both formulae have their local utility delegates management and supporters. Under operations contracting, the upkeep of the equipment to an outside State retains ownership of fixed assets and no partner for a limited period of three to five longer faces the difficulties of day-to-day years. management. But on the other hand, the fees that the operator pays to the infrastructure firm Under this scheme, the legal status of the are often insufficient for necessary investments. utility is unchanged. The foreign partner A classic concession features unity of command: manages the firm according to a negotiated the concession-holder is free to manage and to objectives contract, and its remuneration is invest, but it runs greater financial risks because largely incentive-based, with rewards or it is responsible for financing new equipment. penalties according to results. Many foreign firms still hesitate to commit at this level in a context where the State still (iii) Operations contracting represents a more controls tariff-setting and where outstanding ambitious approach. Here the local public receivables remain heavy (particularly from service authority makes a foreign company administrative services). responsible for operating the system for a long period (10, 15 or 20 years). A contract Sector reform, involving opening generation to binds the operator to the supervisory the private sector and granting concessions at all authority; it includes precise objectives with levels of the power supply chain, also encounters respect to results. The outside partner takes a technical difficulty that should not be under- charge of system operations, customer estimated: the dimension of African networks. services, and equipment maintenance. Its African grids are often modest in size and hence remuneration is a function of sales, and are poorly prepared for fragmentation into hence of its results. In counterpart the multiple independent firms. The problem is operator pays a fee to an infrastructure different when it comes to international ownership firm (societede patrimoine) which interconnections. Here, on the contrary, the manages and develops the infrastructure on large scale of infrastructure and the search for behalf of the State. These fees help renew contractors who are neutral to the different and increase the pool of capital assets for national sentiments at hand, may promote the operations firm (outside operator) to turning to several foreign partners. run. Competition among potential foreign operators in the granting of concessions represents a 86 CURRENTINSTITUTIONAL REFORMS further asset for African countries, which can justified public ownership and ministerial hope in this way to obtain the most favorable oversight-has shifted from the need to build financial terms. infrastructure to the sector's capacity to contribute to social well-being by means of It is difficult to assess what links exist between power supply of high quality, and if possible, at the selected institutional arrangement (assistance, low prices. performance management contracting, operations contracting, full privatization) and a country's Current reforms also help differentiate the cultural, technical, financial and geological structures and mechanisms of sector regulation characteristics. Nevertheless, one should more clearly than in the past. Required are a recognize that countries that are rich in oil, gas, long-term plan for investment in infrastructure, or water resources are unlikely to relinquish to and near-term efficiency incentives to improve private-and foreign-operators what they know distribution and the quality of supply. The are substantial rents. Creating an infrastructure snowballing rise of public debt burdens (deficits ownership firm that acts on behalf of the State lead to debt and in turn to higher interest offers a guarantee for the future when the payments and greater deficits) forces cuts in national resource potential is great. One thing is subsidies to public sector firms, in particular certain: the process of public disinvestment from those in network industries. electric utilities is a relatively slow one. On the other hand, it is well-established today that the Currently, extending generation and owner of the infrastructure need not be the transmission infrastructure is out of the financial operator, especially since these services can be reach of African electric utilities, even those fragmented and carried out by independent which have achieved significant improvements entities. Hence full-fledged privatization is not in performance. Even if current reforms permit the only solution; but rigorous corporate-style (as the evidence suggests they do) a durable management is certainly a requirement for improvement in supply quality and the convincing markets and garnering the launching of programs to extend the distribution investment necessary for infrastructure network, the financial constraints on upstream development. investment (plants, transmission) remain acute, and new legal formulae will be required in order 2.3.2 Preparing to Finance Future to attract outside capital. Hence the idea of Interconnections setting up "free zones" (zones franches) or internationalizing the financing of major capacity In the 1960s and 1970s, electric utilities usually investments such as the future Inga project. succeeded in developing the early infrastructure for power generation, transmission and In some ways, we may be witnessing or about distribution; but they were unable to provide to witness a pendulum swing back to the quality service to end users. Extensive and investment programs of the 1960s and 1970s, but accelerated accumulation of productive assets in national contexts and an international often superseded attention to the regularity of environment that have greatly changed. No supply, stabilization of voltage and frequency longer considered on a strictly national basis, levels, or diligence in repairs. new options for electricity supply cover a very broad range that extends from local independent The 1980s saw a pause in capacity investments production (industrial cogeneration) to regional to the profit of productivity investments. These interconnection. New institutional forms have included rehabilitating equipment and mushroomed: BOO, BOT, repurchase contracts reorganizing the utilities. Improving the quality by the public network of independent power, or of service required simultaneous attention to intercountry pools as in Southern Africa. In the turning around commercial management and future the highest stakes will reside in getting reinforcing technical capabilities. From this tirne new investment programs accomplished. on, performance indicators had more to do with Institutional transformations should not the quality of management than with the pace of jeopardize these projects, but rather should progression in capacity investments, as they had encourage their prospects for success. before. Recent developments suggest that true regional Progressively, the notion of what makes the markets may be forming around the larger sector and utilities "strategic"-which at first producer countries: South Africa, Mozambique, CURRENTINSTITUTIONAL REFORMS 87
Zambia, Zaire, Nigeria. These markets may In addition, making such operators compete foster large-scale energy exchanges and compete with one another may help to yield the most with national generation capabilities. Projects profitable financial terms. are already underway for private financing of interconnections, which suggests that there are The institutional choices being made today good prospects for profitability. Importer must help remedy the inefficiencies and countries themselves may gain from participation perversions of previous approaches. In some in the equity of the multinational firms that ways they clearly show the failure of public would finance such projects (in particular, with monopolies when these are not exposed to the respect to "free zones"). There is a double reason threat of competition. But these institutional for calling on foreign private operators, grouped choices must also, and above all, help address into consortia, to finance and manage these tomorrow's challenges, most importantly social interconnections: and economic development in Africa, and large scale equal access to electricity. The quasi- * capital requirements often exceed the bankrupt condition of many African countries possibilities of each country alone; requires, volens nolens, private involvement; and private partners, particularly foreign ones, are no * foreign involvement may help guarantee longer content with simply playing the role of "neutrality" in contexts where national financiers. rivalries may be significant. 88 CURRENT INSTITUTIONAL REFORMS
Attachment I: A Typology of Institutional Arrangements
We have attempted to group the twenty-two Established in 1980, ENE is a public utility countries surveyed into four distinct categories. responsible for power generation and Often, the line between categories can be hard to distribution in the entire country, minus the trace. Nonetheless, four directions of reform capital Luanda. ENE absorbed the two clearly emerge within this country set. remaining local utilities, SONEFE and CELB, in 1992. In Luanda, EDEL (Empresa de 1. Countries which have retained the status Electricidade de Luanda) is in charge of power quo and appear unwilling or unable to conduct generation and supply. The merger of ENE and major structural reform. In these countries, the EDEL is envisioned but has yet to take place. current situation is either considered adequate, Note that because of civil war and sabotage of or too conflictive to permit structural change. transmission lines, numerous small-scale diesel plants or gas turbines have been set up in the 2. Countries which are adapting their power outskirts of cities. They make up 30 to 40 MW sector institutions via plans to improve technical out of the country's total installed capacity of 480 and commercial management of the utilities. MW. Such approaches include: outside consultancies, twinning, program/performance contracting, Currently, top priority is to rehabilitate transformation of the legal status of utilities into equipment damaged during the civil war, and to commercial firms with greater autonomy, private complete the Capanda dam (520 MW), whose financing via partial capitalization of firms, de- two first turbines should be cornmissioned in integration of the electric power supply chain in 1996. Beyond the plan to merge ENE and EDEL, search of greater openness in firm management, there is no institutional reform on the cards. etc. Rather, the sector seeks international technical assistance, in particular through twinning. Both 3. Countries which have opted to transform the government and the World Bank favor their power sector institutions. Means to this opening the sector to independent production, end include broad-based privatization of public but for now, the situation is unchanged. enterprises, operations contracts with foreign utilities, and systematic opening of the BOTSWANA generation end to the private sector. An important or even central customer of the power The Botswana Power Corporation (BPC), a system, the State remains a shareholder (majority public enterprise, holds a monopoly on power or minority); it retains regulatory responsibilities generation, transmission and distribution. Its but withdraws from the role of sector operator, total installed capacity is 197 MW, with two coal drawing instead on the experience of foreign plants: Morupule (132 MW) and Selebi-Phikwe companies to redress utilities whose financial (65 MW). Power imports from Zimbabwe and situation is mediocre or even disastrous. South Africa meet about 20% of national demand. Numerous villages remain off the grid, 4. Finally, countries that hesitate; or better, and the Department of Electrical and Mechanical ones where debate is ongoing. In these countries Services (DEMS) has been placed in charge of institutional reform packages-often ambitious setting up diesel groups of 150 to 600 KW in the ones-are proposed but their final orientation principal off-grid villages. DEMS supplies has not been set; the proper institutional public administration services by priority, and framework is undetermined as yet.. supplies individuals when capacity permits. There are also plans to build a large four-unit 1. Countries Which Have Retained the Status 600 MW thermal plant fired by domestic coal, in Quo order to export power to neighboring countries, particularly South Africa. A pre-feasibility study ANGOLA is underway.
Early reform occurred in Angola's power ETHIOPIA sector after Independence, when ENE (Empresa Nacional de Electricidade) took over the assets of The Ethiopian Electric Light and Power the Junta Provincial de Electrificacao de Angola. Authority (EELPA), a public enterprise, enjoys a CURRENTINSTITUTIONAL REFORMS 89 monopoly in power generation, transmission and Under current conditions, from the distribution. It is supervised by the Ministry of institutional standpoint, there is interest in Mines and Energy. opening outward via interconnection, but no real pressure for privatization of ESCOM. Electricity represents only a very small part (around 1%) of national energy end-use. The SENEGAL principal grid on the central highlands possesses 377 MW installed capacity, of which 371 MW The public enterprise SENELEC holds the hydroelectric and 6 MW thermal. It consists monopoly in power generation, transmission and primarily of six interconnected hydroelectric distribution in Senegal. Installed capacity is plants. The "autonomous" secondary network about 900 MW for a national population of 8.3 comprises forty diesel plants and eight small million. In late 1992, the Senegalese government hydro units. Its total capacity is 37 MW. Only officially launched a national energy a small proportion of the country's 52 million reorganization program entitled RENNES 2000, inhabitants, about 10 percent, have access to featuring electrification of urban outskirts and electricity. medium-size cities, modernization of SENELEC's grid infrastructure, rehabilitation of the Cap des Power sector development is a public priority Biches plant, etc. In addition, Senegal that includes building new hydroelectric plants, participates in the Manantali dam in Mali (200 extending the grid, and constructing MW), whose production is expected to come on interconnections with neighboring countries. A line from 1999 on. recent document from the Ethiopian Energy Authority recommends ending EELPA's Construction and operation of the Manantali monopoly and opening the sector to private hydroelectric plant and its associated participation, at least in rural areas. Ethiopia's transmission grid are a project of the trinational decentralization plans aim to divide the country OMVS (Organization pour la mise en valeur du into fourteen separate autonomous States fleuve Senegal), joining Mali (52%), Senegal (33%), (provinces); however, the government seems and Mauritania (15%). unwilling to question the public monopoly, and EELPA's privatization is, for now at least, not on SENELEC's financial difficulties, particularly in the agenda. the collection of outstanding payments, and creditor pressures have spurred consideration of MALAWI a possible privatization process, or at the very least, an institutional transformation. To this The Electricity Supply Commission of Malawi end, the Ministry of Energy has asked a (ESCOM), a public enterprise, holds the consultant (HQI) to prepare a general audit of monopoly in power generation, transmission and the firm. Nevertheless, the status quo seems to distribution. Self-generation is legally possible, prevail for now. but only for own-use and subject to ESCOM's approval. This is the case of the sugar 2. Countries Which Are Adapting Their Power industries. ESCOM is generally considered to be Sector Institutions well-managed; thanks to tariff reform, it succeeds in financing its operations from its sales GHANA revenue. National electrification levels are low, however, and the country recently (end 1994) Generation, transmission and distribution of decided to join the scheme that aims to electric power in Ghana are the responsibility of interconnect all of Southern Africa. With 9 the public sector. Founded in 1961, the public million inhabitants, the country's installed Volta River Authority (VRA) owns 94% of capacity was estimated in late 1993 at 168 MW, national generating capacity (the remainder most of it hydroelectric. In the short term, belongs to large users in mines and aluminum); increases in power capacity rest on developing VRA sells bulk power to two public distribution local hydroelectric potential: thermal options are companies, ECG and NED. Founded in 1967, uneconomic because of oil import costs and low ECG (Electricity Corporation of Ghana) holds a coal resources. In the longer term, quasi-monopoly on power transmission and interconnection with neighbor country grids distribution in the South of the country, while (SADC) represents a valid option. the Northern Electricity Department (NED) holds a similar monopoly in the North. Note however 90 CURRENT INSTITUTIONAL REFORMS that NED is a subsidiary of VRA, and that VRA * increase in utility autonomy from the also sells directly to the large industrial users, supervisory authority; particularly VALCO. Autonomous generation is * invitation to independent producers, in possible, then, but requires VRA's agreement. In particular to develop the sugar industry's addition, VRA exports power to Togo and Benin, power generation capacity; and at the moment imports from C6te d'Ivoire. * opening CEB's equity to private, primarily local, investors. About 25% of the national population of 16 million have access to electricity. Installed KENYA capacity is about 912 MW, of which 95% is hydro and 5% thermal. Kenya's current power system structure is split among five different firms and agencies, each of The Ministry of Mines and Energy oversees which owns assets in power generation, whether VRA, its subsidiary NED, and ECG by means of hydroelectric, geothermal or diesel: performance contracts. The possible privatization of ECG and NED represents a * KPLC (Kenya Power and Lighting plausible working hypothesis. Studies are Company), a mixed-capital firm created in underway that consider introducing private 1983 with 60% public and 40% private operators into the power sector, by means of capital, is responsible for power distribution independent production with a separation of across the country and also runs (but does generation, transmission and distribution not necessarily own) about ten diesel plants activities. For the moment, a performance and several hydroelectric units. contract singed in early 1994 binds ECG and the * KPC (Kenya Power Company), an entirely SAUR-EDF consortium, which is handling the public enterprise set up in 1954, which public firm's customer service management. owns two hydro and one geothermal plants This delegation of commercial management may which KPLC operates; KPC also imports represent a first step toward privatization of the power from Uganda; power sector. * TRDC (Tana River Development Company), a public enterprise formed in 1964, which MAURITIUS owns three hydroelectric plants run by KPLC; The Central Electricity Board (CEB) is a public * TARDA (Tana and Athi Rivers enterprise that holds a quasi-monopoly on Development Agency), a public water generation and a monopoly on transmission and resources development agency formed in distribution in Mauritius. Total installed 1974, which owns two KPLC-run hydro capacity is 335 MW; 86% belongs to CEB, the plants; remaining 14% to the sugar industry (the FUEL * KVDA (Kerio Valley Development cooperative alone operates 22 MW). The sugar Authority), a public water resources complexes sell CEB the power they produce, development agency formed in 1979, which from bagasse during the sugarcane harvest owns one KPLC-run plant. season, and from South African coal the rest of the year. CEB's generation capacity divides into In practice, KPLC runs and maintains most of 80% thermal and 20% hydro. the plants under the terms of "management agreements." A deregulation project is currently A public enterprise overseen by the Ministry of in gestation: it would rationalize power sector Energy, CEB is generally considered well- organization by separating the generation managed; in particular, it boasts a high rate of function from transmission and distribution, and payment collections. would set up a regulatory entity. The result would be creation of a new generation company A recent debate on the company's institutional which would regroup assets currently scattered evolution rejected both the status quo and the among different enterprises, and a single-buyer idea of full privatization with separation of the transmission and distribution firm which would generation, transmission and distribution also handle system control. The downstream functions. segment would be entrusted to a "renovated" KPLC. The principal changes would occur on An intermediate solution is emerging, with: the upstream segment, particularly since the future framework explicitly calls for participation CURRENTINSTITUTIONAL REFORMS 91 by independent producers, who would sell Assouan. This project for a very-high power to the transmission and distribution firm voltage line between Zaire and Egypt would under BOO schemes. In short then, the two enable power export to the Middle East and main vectors of reform policy in the sector are Europe. This vision of a "Grand Inga" lies vertical de-integration and introduction of on the 2015 horizon... private production. On the institutional level, it seems that the ZAIRE Zairian Ministry of Energy envisions more and more clearly "internationalizing" the Inga site. Zaire's SNEL (Societe Nationale d'Electricite is The project would require colossal means: an a public enterprise in a monopoly situation. Set estimated twenty to thirty billion dollars to up in 1970, SNEL at first merely oversaw develop Grand Inga and build the Zaire-Egypt construction at the Inga site; but with the transmission line. Given these requirements and commissioning of Inga I in November 1972, it the current difficulties of the Zairian public became sole enterprise in charge of power utility, construction and operations of Grand generation and transmission. A law of 14 July Inga could be vested in a multinational firm. 1974 enshrined SNEL's monopoly and the public Privatizing SNEL is not on the agenda, however; firm absorbed all of the various pre-existing but improving commercial management private companies. (commercialization) doubtless requires a performance contract with the State as well as Total installed capacity is 2526 MW. It divides assistance from a foreign consultant. In any into 2470 MW of hydroelectric capacity event, foreign assistance will be essential to (including 351 MW at Inga I and 1424 MW at rehabilitate the existing Inga facilities (I and II). Inga II) and 56 MW thermal. Zaire exports a significant share of production (21%) toward ZAMBIA Congo, Zambia, Zimbabwe, Rwanda and Burundi, thus earning foreign exchange. The With 1750 MW, Zambia's installed capacity two largest export customers, Zambia and exceeds national demand. The bulk of Zimbabwe, pay their bills regularly, Congo production capacity consists of hydroelectric apparently does not. Within Zaire, however, the facilities at Kafue Gorge, Kariba North, and rate of collections is only around 10%. Of a Victoria Falls. A public enterprise, ZESCO population of 44 million, only a very small share, (Zambia Electric Supply Corporation), handles around 5%, have access to power, despite the generation and distribution, and exports a country's vast hydroelectric potential estimated significant share (20 to 25%) of production at 100,000 MW. towards Zimbabwe. In addition, power from Zaire destined for Zimbabwe also transits Several self-generators combine for 135 MW of through Zambia. Several interties with installed capacity. The national power system is neighboring countries are planned. When SADC structured into three grids: West, South, and decided to form an electricity "pool" in late 1994, East. Zambia, joined by Angola, had some reservation about the common water resources management Current priorities of the Zairian power sector, project. according to the 1985-2005 Plan Directeur (Master Plan), include: Various institutional reforms are currently under consideration under the stewardship of * cleansing SNEL's commercial management the Zambia Privatization Agency. The aim of so as to assure at least a minimum level of these reforms is not a total privatization (as in self-financing; the petroleum sector), but rather to restructure * rehabilitating the equipment at Inga, where ZESCO with a view to commercialization. The 1994 production (2838 GWh) was only 23% idea is to set up efficient management with the of capacity (12000 GWh); help of foreign expertise. Signature of a * reinforcing the Inga-Shaba transmission line performance contract between the company and in the perspective of increased use for the State is also planned. exports, toward South Africa; * development of a vast interconnected network, particularly prefeasibility study of a direct-current line between Inga and 92 CURRENTINSTrrUTIONAL REFORMS
ZIMBABWE CIE (Compagnie Ivoirienne d'Electricite) is a private firm whose equity is primarily held by The Zimbabwe Electric Supply Authority foreign companies. Fifty-one percent of CIE's (ZESA) is an integrated public enterprise with a capital belongs to SISP (Societe Intemationale de monopoly in power generation, transmission and Services Publics), itself a holding company distribution. The national electrification rate is joining SAUR (65%) and EDF (35%). The around 20%. Installed capacity is 1295 MW remaining 49% of CIE's capital distribute among thermal and 666 MW hydroelectric (Kariba dam). the Ivorian state (20%), private shareholders Particularly in drought periods, Zimbabwe meets (20%), and employees (5%). Note also that EDF part of its power demand via imports from holds a 35% interest in SAUR-Intemational Zambia and Zaire. Imports are expected to (subsidiary of SAUR in the Bouygues group). develop further; interties are planned with CIE's mission is to run the national electric Mozambique and South Africa. An import power service (generation, transmission and ceiling of 25% of demand appears to have been distribution) under an operations contract set, however. The government's Economic (farming-out)). Structural Adjustment Program plans the evolution of relations between the state and the Under the terms of this operations contract, public utility by means of an objectives contract: local public authorities grant an operator greater management autonomy for the company, exclusive use of the infrastructure. The operator increased electrification, improvements in is responsible for running the system and also management. To this end a consulting contract commits to maintaining the equipment according has been signed with EDF to help ZESA's to the terms of the contract specifications, which performance level reach that of a well-managed also sets quality norms for generated and public enterprise within two to three years distributed power. It remunerates itself directly (according to the bidding documents). EDF is off its intake. It uses the infrastructure in associated with KPMG Peat Marwick in exchange for a fee; this fee is paid to the conducting this consultancy. Already, concrete ownership firm (societi de patrimoine) and in measures are being implemented, improving principle serves to rehabilitate and increase management and encouraging the government to existing infrastructure. accept opening production to private investors. The institutional reform which C6te d'Ivoire 3. Countries Which Have Transformed Their initiated in 1990 has today become a reference Power Sector Institutions point or "Ivorian model." Although its assessment is a matter of debate (see Annex II), COTE D'IVOIRE it represents in any event a scheme that has attracted the interest of a number of countries. Installed capacity in the C6te d'Ivoire power system is 930 MW, of which 600 MW hydro, 200 GABON MW thermal, and 100 MW independent thermal and isolated sets. The system devised in 1990 The SEEG (Societe d'Eau et d'Electricite du separates the owner and investor functions, Gabon) is a limited liability company held in which are vested in the public-majority firm majority by the State (64%). It handles public EECI, from the operation functions, which are service in both water and electricity. Power is carried out by the private firm CIE. supplied by three independent networks (Libreville, Port-Gentil and Franceville) and 22 The State and EECI (Energie Electrique de la regional operations. In 1993, the bulk (703 GWh) C6te d'Ivoire) retain ownership of productive of SEEG's total generation (957 GWh) came from assets and responsibility for infrastructure and hydro sources; the hydro/thermal balance is investments. Formally a mixed-capital firm, different in terms of installed capacity, however EECI's equity is held primarily by the Ivorian (167 MW hydro, 134 MW thermal). Several oil state (92.3%), with 4.7% for the Caisse Francaise and industrial firms possess their own de Developpement, 1.3% for EDF, and 1.7% for generation capacity and produce about 100 GWh private shareholders. Since the set-up of the annually (in particular Elf and Shell). National Electric Energy Fund (FNEE) in April 1994, EECI no longer manages the infrastructure; Two years ago, the Gabon government decided its role now is to oversee the concession-holder on institutional reforms that would simplify the CIE and to conduct engineering studies. legal framework and create a public service with CURRENT INSTITUTIONAL REFORMS 93 a monopoly on generation, transmission, and assistance from a Canadian consortium of HQI distribution of electricity and water across the and Price Waterhouse to begin its technical and national territory (law of 7 April 1993). It would financial rehabilitation in preparation for entrust this monopoly by concession to SEEG privatization. (decree of 19 August), superseding the local concessions in Libreville, Port-Gentil and Determined in 1994, the new institutional Franceville; and would open SEEG's capital by frame provides for two separate firms: transfer of part of the State's equity holdings to a private operator. To this end, the Ministry of * ar infrastructure ownership firm, public in Energy solicited a consortium joining Lyonnaise character (ENELGUI), owner of all the des Eaux-Dumez, EDF and Hydro Quebec productive assets and responsible for International. However, this partial privatization management of present and future conceived in 1993 has not yet come to fruition. infrastructure. It handles investments and The important question at present is to know services debt from loans; to this end, it when the privatization law will finally be voted receives fees from the operations firm. and what mechanisms will be used to carry out * a private concession-holder (SOGEL, Societe the transaction. Guineanne d'Electricite) controlled by a foreign operator. Under a ten-year During this waiting period and in order to renewable concession contract, this initiate the measures required to turn around operations firm runs all technical, SEEG, which has been weakened by economic administrative, financial and commercial crisis, the consortium partners have formed power supply services. All existing or SOCAGI (Societe Africaine de Gestion et future infrastructure is placed at its d'Investissement) with 43% shares for Lyonnaise disposal, and it handles upkeep and des Eaux, 34% for Hydro Quebec International, maintenance duties. It bills customers and 23% for EDF. SOCAGI has accepted a according to a tariff set by the supervisory temporary management mandate. Already twice authority. The tariff consists of two parts: renewed, this mandate expired again on 30 June the concession-holder's remuneration and 1995. the infrastructure owner's fees.
GUINEA An international bidding procedure resulted in selection of the Franco-Canadian consortium of Despite substantial hydroelectric potential, HQI, EDF and SAUR. The consortium took over Guinea has for the past few years experienced power generation, transmission and distribution production shortfalls and frequent power cuts. from 1 July 1994 under a concession contract. Hopes for a (slow) turnaround rest on the Equity in the new operations firm divides among renovation and reinforcement of the Tombo the State (33.4%), Guinean private investors plant, and on the commissioning of the Garafiri (15.6%), and the foreign consortium (51%). The dam in 1999-if current obstacles, particularly division of equity within the consortium is 50% the final financial package and the question of for Hydro-Quebec International, 25% for EDF World Bank participation, can be lifted. Note International, and 25% for SAUR-Afrique. also that American, Russian, and French bauxite mining firms run approximately 150 MW of Guinea selected a formula that substantially autonomous generation capacity. resembles the one chosen in C6te d'Ivoire in 1990, although the Ivorian concession period is Discussions with the IMF have committed the longer (15 years). Guinea's scheme also involves Government of Guinea to a process of economic C6te d'Ivoire's partners EDF and SAUR. It also liberalization and State withdrawal from the resembles the framework used for water supply commercial public sector. In this context, in both countries. Water in Guinea involves an improving power sector management was infrastructure ownership firm SONEG and an viewed as a top priority. This required operations firm, SEEG, held by the state of institutional transformation of ENELGUI Guinea (49%), SAUR International (25.5%) and (Entreprise National d'Electricite de Guinee), the the Compagnie Generale des Eaux (25%). In public enterprise that was responsible for power electricity, SOGEL is currently experiencing generation, transmission, and distribution in the difficulties due to: country, with installed capacity of 89 MW. From July 1990, the public enterprise received technical 94 CURRENT INSTrIUTIONAL REFORMS
* delays in launching rehabilitation and and Africa's only nuclear power plant. At late reinforcement of generation capacity 1993, ESKOM's installed capacity was 39,746 (Garafiri dam and Tombo thermal station); MW. * failure to actualize the tariff structure, which is leading to financing difficulties. ESKOM provides direct supply to most of the mines and large industrial users. The MALI remainder-about 44% of production-is sold to town authorities that in turn sell to end-users. Mali's power supply comes for 80% from Note however that 60% of the population is still hydro sources in the Selingue and Sotuba dams. without access to electricity. ESKOM has repaid Generation-end development currently rests on all of its public start-up capital and has long completion of the Manantali dam, a handled its own financing by applying its net multinational project being built by OMVS (Mali, operating revenues and securing capital on the Mauritania and Senegal). At first planned for domestic and international financial markets. the late 1980's, this project is now due to be Town supply entities are estimated at 398 in commissioned in 1999. Mali's network consists number, which makes for a rather fragmented of a central interconnected grid around Bamako distribution system. In this light, ESKOM has and eleven regional networks. over the past few years bought up several town suppliers, which is seen as a favorable factor Power generation is divided between EDM towards electricity standardization. In addition, (Energie du Mali), a mixed-capital firm created ESKOM exports power towards Botswana, in 1960 and owned for 97.2% by the State (the Lesotho, Mozambique and Namibia. ESKOM is remaining 2.8% are held by EdF International), the world's fourth largest electric utility in terms and OERHN (Office public d'Exploitation des of installed capacity, and fifth in terms of sales. Ressources Hydrauliques du Haut-Niger), a It is considered a highly successful public public agency created in 1982 and owner of the enterprise. Selingu6 dam. OEHRN was responsible for running the dam up to 1990. Since then, EDM In late 1994, SADC (Southern African has taken over operating the plant and Development Community) framed terms for a transmitting its output to Bamako. OEHRN "regional electricity pool" with the region's other remains owner of the dam infrastructure, electric utilities, involving standardized pricing however. Note also that OEHRN features practices and interconnections. The system among firms slated for privatization in 1996. should be fully operational in late 1995 with ESKOM, Zimbabwe's ZESA, Zambia's ZESCO EDM and the state signed a contract-plan in and Botswana's BPC participating. South Africa 1989, and in 1994 a delegated management is a short-term net exporter of electric power, but contract was signed with an international in the long term it seeks inexpensive supply consortium grouping EDF International, SAUR- from the region's hydroelectric potential, Afrique, Hydro-Quebec and SOGEA. Thus, particularly Cahora Bassa and later Grand Inga. some restructuring of the power sector preceded the turn to delegated management. Total electrification of the country is a top priority. The current goal is power availability 4. Countries Where the Reform Strategy Is for 20 million people on the five-year horizon. Undetermined as Yet In 1992, the National Electrification Forum (NELF) recommended rationalizing distribution, SOUTH AFRICA which it found too dispersed and non-conducive for electrification activities. A National Power generation, transmission and Electricity Regulator (NER) was set up in distribution in South Africa are primarily public. November 1994; in late August 1995 it decided The public utility ESKOM, founded in 1923, is to suspend all new distribution licensing and to the country's largest enterprise. It owns 91% of maintain the current situation by means of the Republic's installed capacity and provides temporary licenses. NER has formed a task force 97% of electricity supply. The remainder of and given itself six months to make proposals installed capacity divides among five town for reorganizing the distribution function. boards and a small number of cogenerators. ESKOM runs seventeen coal-fired plants, three In the field of generation and transmission, gas turbine facilities, two hydroelectric stations, final licenses were attributed on 1 September CURRENTINSTITUTIONAL REFORMS 95
1995 to thirteen producers (ESKOM plus nine GWh per year, (equivalent to 30 MW). The local authorities and three private firms) and to quantity of annual imports from Akosombo dam one transmission firm (ESKOM). In this fashion, varies frequently, in function of poor rainfall the regulator chose a scheme with a single years such as 1983 or 1993 which force network operator while opening up Akosombo reservoir levels to drop, or technical generation-although in practice ESKOM retains unavailabilities such as the current retrofit work a dominant role in that area as well. on the dam's equipment. In the longer term, Ghana's internal demand will certainly force it to With respect to distribution, important changes cut back its export commitments to B6nin and are expected but the debate has not yet settled. Togo. The NER is currently considering three solutions: an integrated entity (ESKOM would receive a In 1988 CEB commissioned the Nangbeto dam distribution monopoly in addition to its which helped to reduce its dependence on VRA. transmission monopoly and dominant role in A new plant at Adjarala is planned for the generation); a national distribution firm coming years, but the project has not yet taken independent of generation and transmission concrete shape. functions; or several regional distributors (ESKOM plus suppliers for each of the larger The tight institutional and technical links metropolitan areas, for a total of five to seven among SBEE, CEET and CEB mean that plans to entities). The problem is how to balance reform either of the three cannot be undertaken economies of scale in distribution while factoring in isolation. SBEE and CEET have both in the counter-weight of large municipal undergone management restructuring initiatives authorities. in past years, e.g. Government of B6nin-SBEE program-contracts in 1989 and 1992. Privatization of ESKOM, once considered and Performance management contracting options are ruled out, is again a possibility. The State has under study in both countries but no decisions reaffirmed its intention to withdraw from the have been taken thus far. commercial public sector, but debate over ESKOM's possible privatization has taken a back CEB has encountered obstacles in management. seat to the problem of reorganizing the It suffers considerably from delays in payments distribution function. The question is likely to by its two customers SBEE and CEET, with regain prominence once the NER publishes its adverse effects on its own payments to VRA. The distribution proposals (within the next six to principal challenge in the long term is to identify nine months). new sources of power supply. Options other than the Ghana solution involve making use of BENIN AND TOGO (CEB) natural gas from Benin or Nigeria, in the context of the coastal gas pipeline that is likely to be The Communaute Electrique du Benin (CEB), built by agreement between Nigeria, Benin, Togo a joint public agency governed by the Benin- and Ghana. To promote financing for future Togo Electricity Code, holds the monopoly on investments, participation of independent power generation and transmission, with the producers in CEB's supply is currently under exception of small facilities and isolated units, serious study. for both Benin and Togo. It supplies electricity in Benin to SBEE (Societe Bninoise d'Eau et CAMEROON d'Electricite), a public industrial enterprise created in 1973, and in Togo to CEET Cameroon's installed capacity is around 800 (Compagnie d'Energie Electrique du Togo), a MW. Over 95% of power is generated from mixed-capital firm created in 1963. Although hydro sources, with three main facilities at Ed6a, they operate isolated units and thermal Song Loulou and Lagdo. Together five large complementation plants, SBEE and CEET are industrial users including Alucam absorb around mainly distributors of power they get from CEB. 60% of total demand. At approximately 25%, the In turn, CEB largely depends on deliveries from rate of electrification is relatively high. Ghana's Volta River Authority (VRA), with which it has a long-term supply contract. Note Power generation and distribution are a quasi- also that since January 1995, CEB has been monopoly held by SONEL (Soci6t6 Nationale importing part of its power needs from CIE in d'Electricite), a limited liability, public-majority C6te d'Ivoire via VRA's grid, for a total of 250 firm (93% State, 7% Caisse Francaise de 96 CURRENT 1NSTLTUTiONALREFORMS
Developpement). Founded in 1974, SONEL * Centralized operations directed by a operates two interconnected grids (North and Privatization Committee in the Office of the South). There are also a few self-generators. President; a Preliminary evaluation of assets of Since 1989, SONEL has initiated commercial privatizable firms; and financial improvements by signing a * International bidding procedures to select a performance contract with the State. There have foreign operator in the context of an been some positive results, but the overall appropriate institutional frame. economic context has not been favorable. The highest public authorities have promised to As a result of a bidding procedure held in withdraw the State from the public enterprises, October 1995, the firm Paribas was asked to and a privatization commission was set up in conduct a "privatization audit" and over the next 1995. A decree (ordonnance) of 17 August 1995 twelve months, will finalize terms of reference rules on the general status of public and for bids to select the operator/purchaser. The parastatal firms, but there has apparently been Privatization Committee and the creditor no decision so far in the case of electric power. agencies appear agreed on offering the future Plausible options range from opening SONEL to operator a direct concession contract. The list of private shareholders, to privatization, or simply required infrastructure and the condition of status quo. equipment for rehabilitation or construction would be agreed during negotiation of this CONGO concession contract. This scenario would allow the concession-holder to directly benefit from Congo's electric system involves four large concessional loans by the financing agencies. distribution nodes supplied by an interconnected The financiers may in that context seek to grid that draws its supply from two promote and encourage independent production hydroelectric plants, Djoue (1953) and initiatives, which would have the merit of Moukoukoulou (1979). Supply deficits are diversifying the set of outside operators overcome by provision from the Zairian involved. Up to several months ago, a C6te network. Imports from Zaire had decreased d'Ivoire-style operations contracting scenario was sharply after 1989, but rapidly rose back up after envisioned with separate infrastructure 1991 as the Djou6 plant became unavailable. As ownership and operation firms, but this appears a result, Congo now imports from Zaire around no longer to be on the agenda. A pure 35% of its power needs. The four distribution concession model with possible opening to nodes are Brazzaville, Pointe-Noire, Bouenza and independent production now seems most likely. Dolisie. In addition, diesel sets supply sixteen isolated rural centers. MADAGASCAR
A public enterprise set up in 1967, SNE A public enterprise, JIRAMA (Jiro Sy Rano (Societe Nationale d'Electricite) enjoys the Malagasy) has handled water and electricity national monopoly on power generation, provision across Madagascar's national territory transmission and distribution. SNE was formed since nationalization in 1976. It is a 100% by nationalizing and merging two "colonial" publicly-owned company. Installed capacity is companies, UJNELCO (Union Electrique d'Outre- 52% thermal and 48% hydroelectric. It primarily Mer) and SEEE (Societe Equatoriale d'Energie supplies the Antananarivo interconnected grid Electrique). Since then SNE has been considered (which accounts for 58% of capacity), the smaller a "pilot" State enterprise; its Director-General Fianarantsoa grid, and about ten different also chairs the Board. A National Conference of autonomous production facilities around the Congolese political forces opted in principle for country. JIRAMA is generally considered to liberalizing the national economy and privatizing achieve good results, despite an accumulation of the bulk of public enterprises. In August 1994, unpaid bills, particularly from Government Congo passed a legal framework (loi-cadre) on services. privatization. Government's orientation is very clear: it seeks The legal and regulatory framework selected at to draw foreign investment and to restore that time sets down the main principles that are enterprises to financial health. They require to guide the privatization program: opening "free zones" (zones franches) and privatizing the commercial public sector. CURRENT INSTITUTIONAL REFORMS 97
However there are political obstacles: in MOZAMBIQUE particular, the President and the Speaker of the National Assembly appear not to share the Prime A public enterprise overseen by the Ministry of Minister's liberal ideas. Privatization would Industry and Energy, Electricidade de primarily concern the water and electricity Mozambique (EDM) holds monopolies on sectors. transmission and distribution, and a quasi- monopoly on power generation. The Cahora In early 1994 the World Bank provided Bassa dam, however, belongs to an international Madagascar with draft legislation for the electric consortium owned for 82% by the Portuguese power sector, inspired by Chile's ultraliberal government and 18% by the Mozambican power privatization law. A legal framework (loi- government. Cahora Bassa accounts for 2400 cadre) on power sector liberalization MW of the country's total installed capacity of corresponding to the Bank's proposals was to be 3100 MW. Cahora Bassa could be expanded to submitted to Parliament during summer 1994. 4000 MW, and the country's total hydroelectric potential has been estimated at 11755 MW. It planned the opening of power production to Despite this potential, part of national supply private capital, transforming JIRAMA into a still comes from South African imports, limited liability company, and separating the especially in the southern metropolitan areas. management of the water and electric activities. EDM meets part of local demand by purchasing However it encountered strong opposition, and power bought from the Cahora Bassa consortium some now feel that a first priority should be firm HCB. The remainder comes from thermal improving JIRAMA's management by means of facilities (gas turbines) in Maputo, or from diesel a delegated-management arrangement, or an sets that operate in the principal country towns. operations contracting-driven privatization process along the Ivorian or Guinean models. A current commnercialization project for EDM would separate out the three functions of power generation, transmission and distribution. 98 CURRENTINSTrrUTIONAL REFORMS
Attachment II: C8te d'Ivoire: Lessons of an Experiment
A mixed-capital firm, EECI (Energie Electrique The system adopted in 1990 separates the de la C6te d'Ivoire) was set up in 1952, when ownership/investment function from the total installed capacity was no greater than 1000 operations function: KW: a wood-fired thermal facility and a few diesel sets. By 1995, production capacity * The State and EECI retain ownership of included six hydroelectric facilities (totaling 600 productive assets and are in charge of MW) and one thermal plant at Vridi I with three managing the infrastructure and steam units and four gas turbines totaling 230 investments. At the start of the convention MW. An additional 100 MW came from period, EECI was a true infrastructure independent thermal units and isolated sets. ownership firm. However, since creation of EECI's capital structure involves 92.3% State the FNEE (see below) in April 1994, EECI's shares, 4.7% CFD, 1.3% EDF, and 1.7% private role has been reduced to overseeing the CIE shareholders. When EECI was originally formed concession and serving as an engineering EDF's share was 15%; it decreased progressively, consultant. In this role, it must plan future and by agreement, as EDF abstained from investment; it is works supervisor on behalf successive equity injections. EECI's condition of the State and responsible for major progressively grew worse, with risky equipment overhaul and sector investments, uncollected bills, management development projects. errors, and foreign exchange debt. Technical degradation of productive assets, particularly the * CIE is a private Ivorian firm whose capital thermal units at Vridi, forced EECI to engage in is primarily held by foreign operators. Its costly imports of fuel for the gas-fired sets and mission is to run the public electric electricity from Ghana. In March 1990, the provision service, under the terms of a Ivorian government asked two French concession that in French legal terminology companies, the Bouygues Group (already is an affennage (operations contract). CIE involved in water distribution in Abidjan) and imports and exports power and is EDF, to take over the operation of the power responsible for customer services, daily sector. A concession contract was signed in operation and upkeep of facilities and Abidjan on 25 October 1990. On 1 November, infrastructure that make up a patrimnoine the newly formed Compagnie Ivoirienne owned by the Ivorian State. d'Electricite (CIE) took over operation of the generation, transmission and distribution system, CIE pays fees to the state and EECI receives a while EECI, the former public concession-holder, budgetary grant to cover its operating costs. The retained responsibility for the public fees that CIE pays the state via a special account infrastructure used in electricity, and overseeing (the FNEE) represent, in fact, the net total the application of the concession. remaining after CIE's own remuneration and settlement of fuel purchases. CIE's remuneration CIE was formed in 1990 as a limited liability is function of the number of kWh it sells, which company with the following capital structure: may not be the most powerful incentive 51% belongs to a holding company, SISP (Societe available. Intemationale de Services Publics), itself joining SAUR International (65%) and EDF (35%); the Two major advantages are claimed for this remaining 49% of CIE divide among the Ivorian system. First, the Ivorian state retains State (20%), private shareholders (24%), and the responsibility for infrastructure ownership and company's employees (5%). Meanwhile, EDF development policy. Second, daily operation has a 35% in SAUR International, which is a rests with experienced operators whose mission subsidiary of SAUR, itself a member of the is to improve the quality of service and Bouygues group. CIE's concession for the public commercial management. In the first year, the service in electricity runs 15 years; it is sole new firm succeeded in making operating profits operator of the system. of 2.5 million US dollars. Reducing non- technical losses and recovering uncollected bills was not simple, but was the price to pay to regain credibility and profitability. The CURRENTINSTITUTIONAL REFORMS 99 deterioration of production capacity requires that Already partly operational, Vridi II represents a EECI launch two major rehabilitation programs: scheme for independent production and private one for the hydro plants and one for the Vridi financing (an important note is that this thermal station. These actions are part of EECI's, "integrated" independent production project and not CIE's, mandate, but this division of came about in large part because of EECI's labor may cause problems: any failure on EECI's trouble raising the necessary funds to build a part can hamper CIE's daily functioning. A new generation plant). Finally, CIE and CIPREL problem exists in that CIE does not control any have passed a purchasing contract that sets the investment, including connection of new users. terms for use of the newly-generated power. Such a scheme probably has other flaws in terms of potential divergence of the two companies' On 28 April 1994, Cote d'Ivoire created a strategies. For this reason the operations firm National Electricity Fund (FNEE) designed to may have incentives to bypass the infrastructure ensure balanced financial management of power firm. sector resources and usage. FNEE is to service EECI's debt and public debt transferred to EECI; To develop the country's generation capacity, it makes payments for overhaul and extension EDF and SAUR, supported by the World Bank work; liquidates and pays EECI's back debts; and CFD, proposed in 1992 to apply natural gas and oversees the regular payment by CIE of its resources from the Foxtrot field, located offshore fees to the public sector. FNEE is placed under 80 km west of Abidjan, to power production by technical oversight of the Ministry of Energy and means of a gas pipeline to Abidjan. On 21 financial oversight of the Ministry of Finance. It December 1992 a concession agreement was also plays a part in electricity rate-setting. signed to this end with a newly formed firm, CENCI (Compagnie des Energies Nouvelles de Taken together, this is a rather complex la C6te d'Ivoire). CENCI would be owned for operational system, which could no doubt use 51% by SAUR and EDF (as with CIE, through a some simplification, but has certainly given joint subsidiary with 65% SAUR and 35% EDF), positive momentum to management and 20% by the national petroleum firm PETROCI, investment. At present, the Ivorian authorities 15% by the US firm Apache, and the remaining assess the electric power system according to the 14% by SIR (Societe Ivoirienne de Raffinage) and following financial criteria:33 several private banks. The project was to be operational by late 1996 or early 1997, but it was * self-financing ratio of 20% minimum suspended sine die in mid-1994. * power sector debt service coverage ratio of at least 150% At least in the near term, the Foxtrot project * rate of return to fixed assets of at least 8% has been replaced by a new scheme that involves * operating ratio of 85% to 90% maximum. tapping the newly-discovered Lion and Panther oil and gas fields, and increasing generation The Ivorian model (separate firms for capacity at Vridi. A new plant called Vridi II is infrastructure and operations) is a frequent being built by a private firm CIPREL under a reference in African institutional debates. When nineteen-year operations concession. CIPREL choosing an institutional transformation, should (Compagnie Ivoirienne de Production one prefer a direct concession (to a foreign or d'Electricite) is held for 75% by Valener, itself a domestic operator) or select the intermediate subsidiary of SAUR (65%) and EDF (35%). The operations contracting solution, whether on a first three of Vridi II's five 33 MW units were temporary or permanent basis? commissioned in April 1995; the remaining two should be ready in 1996, and a further 110 MW Operations contracting has certain advantages: unit is planned for late 1996. it allows the State to remain owner of the
This equipment will offer considerable production possibilities, which will meet demand 33 The operationsratio is derived by dividing operating for the next few years, allow supply to Burkina charges (which include depreciation but not debt service) by Faso and Mali which are soon to connect to the sales. The rate of return to fixed assets is the operating Ivorian network, and export to Ghana, Togo and result divided by the net value of fixed assets. The debt service coverage ratio is derived by dividing (operating B36nin. The combustible used for now is fuel-oil result + depreciation) by (interest payment + long term but will be replaced further on by natural gas debt reimbursements). The operating result, finally, is sales from United Meridian's Lion and Panther fields. minus operating charges. 100 CURRENTINSTITUTIONAL REFORMS infrastructure even as an outside operator takes The pure concession system also displays responsibility for improving management and advantages and disadvantages. The public service quality. The quality of service has service concession is a contract whereby a public increased considerably in C6te d'Ivoire, "conceding authority" (the State, or a local particularly in terms of supply continuity. The authority) entrusts a private or public average level of power cuts has gone from 50 concession-holder with conducting public hours to 19 hours in four years. The State no provision including an obligation of financial longer has to deal with operational involvement in the overhaul and extension of responsibilities but still controls investments. necessary infrastructure; this requirement is enshrined in the schedule of duties. From the This solution allows the outside operator to start then, the private concession-holder incurs a limit its financial risks, since it has no initial greater financial risk, particularly in countries obligation to invest in the infrastructure. But it where unpaid bills are high. In exchange, it also has disadvantages: the infrastructure firm gains greater room for maneuver. The State can be a costly "screen" to maintain; the meanwhile no longer needs to worry about operator's payments to the infrastructure firm investments (via a "screen" firm). Its oversight can be diverted from their goal, if the privileges are not suppressed: rather, the state as infrastructure firm fails to conduct the renewal regulator has to take over from the state as and extension investments required for proper owner. public service. As shareholder the State can recuperate the fees, which become a rent. On Many operators consider that a separate the other hand the infrastructure firm may find infrastructure firm set up through an operations that the fees it receives are insufficient for the contracting arrangement represents no more than required investments. In that case it will seek to an "empty shell" which cannot really invest draw on the public budget, or failing that, the because its fees are insufficient; rather, it may be projects will not be carried out. preferable to opt directly for the pure concession formula, which is more difficulty accepted (given nationalist sentiments) but economically more efficient. III Global Reform Trends and Institutional Options for Sub-Saharan Africa
by Robert Bacon and Luis E. Gutierrez
3.1 Introduction markets. Chile and Argentina have demonstrated the feasibility of such reforms in developing countries. Other developing The last decade has seen rapid change in power countries with smaller systems, like those of sectors around the world. Some SSA countries Peru and Bolivia are testing competitive reforms have reformed their power sectors, while several of their own. Several other countries have gone others are actively considering doing so. Some as far as introducing competition in sales, elements of the international experience may be allowing different generators to bid to supply relevant for SSA, while others less so. The direct to major consumers. Norway, the UK and purpose of this paper is to review the reform parts of the USA are seeking to extend this sales experience, and set out the possible reform competition to the retail level, allowing options open to African countries. consumers of all sizes to choose their own suppliers. The international reforms have included restructuring of the industry through vertical or Public enterprise reform has continued. Major horizontal separation; commercialisation of vertically integrated utilities in public ownership public enterprises, and greater private sector have introduced accounting separation between participation; and more formal and independent their generation, transmission and distribution regulation. businesses. New capacity has increasingly been put in private hands, through IPPs. These reforms have often included heightened competition. Many power sectors have In some cases publicly owned generation has traditionally competed for construction of new been sold. This has not been confined to the capacity. It is now increasingly common to developed world. There have been major sales allow competition on a "build, own and operate" in Latin America, and a minor privatization of basis, with independent power producers (IPPs). distribution in India with more in preparation. The US and, recently, the UK have followed this Privatization has included the small systems of approach. There has also been a rapid increase Peru, Bolivia,and Jamaica's JPS,with around 500 in IPP financing in Latin America and Asia. MW, is presently being privatized. In other cases the private sector has participated through In a number of countries with large power long term concessions. sectors short term competition has been introduced, allowing generators to compete to be An associated element in the reform process dispatched through creation of wholesale has been the development of independent
GOBAL REFORMs TRENDS 101 102 GLOBAL REFORM TRENDS regulation. This has been used both to promote increase that would be required to catch up at a public sector reform and to assist private sector later date. participation. Where the private sector is brought in under contract, as for many IPPs, the Second, a number of tariffs incorporate explicit contract can act as regulation. Where the private subsidies for low income consumers. However, sector is exposed to more market risks, and in these subsidies go largely to wealthier particular tariff risks, transparent tariff regulation households, those that can afford more is required. appliances. Furthermore, when coverage is extremely low, as is the case in most of SSA, Africa has also experienced some reform. there is no reason for thinking that electricity Some countries have attempted to improve SOE subsidy is a sensible way of delivering welfare to performance through performance contracts with the poor. public managers. Others, particularly in West Africa, have contracted with the private sector to Under low coverage and weak governance, manage their utilities. Private finance for new even lifeline block tariffs may constitute poor capacity has also started. mechanisms for welfare delivery. In the 1970s Tanzania had a subsidised tariff for the first 10 This paper brings together some of the kWh consumed every month. By the early 1990s experience of power sector reform internationally this had grown so that were substantial subsidies and in Africa to examine what options may be for the first 100 kWh, and continuing subsidies relevant for power sector reform in Africa. The for the first 1000 kWh of consumption every paper starts with a description of why reform month. In a country where only around 4% of should be undertaken. It then considers how the population had access to electricity, most of reform can be undertaken, looking in turn at: this subsidy was going to the more affluent. The structure of the lifeline block meant that - changes in the role of the public and private consumers with monthly consumption of 100 sectors; kWh or less received only around 6% of the total subsidies to residential consumption, with the - industry structure and competition; and rest being gained by consumers whose maximum demand was between 100 and 1000 * regulation, in particular price regulation. kWh per month. This tariff structure is being reformed. 35.2 Why Reform? Third, the technical efficiency of the sector in some countries has reached very low levels. The As we have seen in the previous paper, the impact has been to make the cost of producing a power sector in many SSA countries, as in some unit of electricity too expensive. Given but not all other developing countries, is government's inability or unwillingness to raise operating at very sub-optimal levels. There are tariffs, this has contributed to the disastrous two core problems. The utilities have been financial performance of many of the utilities in relatively inefficient performers, with (on SSA. average) poor power stations availability, high losses and excess levels of manpower. Coupled Low efficiency can feed through to high tariffs. with technical weaknesses, their financial When correcting for exchange rate distortions performance has been poor, realising returns on (using purchasing power parity exchange rates), investment well below their cost of borrowing, iwelve out of twenty SSA countries have tariffs and in many cases making a financial loss. higher than 15¢/kWh, and six of these have tariffs avove 30 cents. Considering the low The relation between tariffs, subsidies, costs incomes and affordability, clearly the power and revenues has four distinct problems. Firstly, sectors in Africa need to seek efficiency, as well even if utilities are operating efficiently, prices as simply financial viability for the utility. are frequently below cost recovery levels. The government, which has been the price setter in A final and important problem is that even virtually every SSA country, has used prices as where the electricity has been produced, not all an instrument for granting subsidies to users of of it has been paid for. The Bank median for electricity. Once prices have fallen behind costs arrears is 84 days, while the median for SSA is it has proved difficult to contemplate the large 131 days. The non-payment of bills, especially GLOBAL REFORM TRENDS 103 by other government departments, and because 3.3 Types of Reforms of actual theft (through meter tampering and unauthorized connections), is widespread in developing countries. The effect is that the extra Reforms can be divided into four main groups. costs of generation, which cannot be avoided The least radical reform is to corporatize and unless non paying users are disconnected, are commercialize the national power sector while not offset by revenues. This partly explains the leaving it in public ownership and under association in SSA (obseved in the previous performance contracts with public managers. A paper) of higher tariffs with higher arrears. second level of reform is to introduce some external management experience from the These related problems on the costs of private sector through the use of some form of production and on utilities' revenues mean that management contract to run the public sector profitability has been low for many utilities. utility. Some have been unable to recover operating costs. Others have had to depend on As part of the second group of refoms, the concessional lending for new investments. private sector can be given greater responsibility Subsidies have sometimes been hidden through for operations and maintenance expenditure, allowing relief on govemment debt. The lack of under an affermage contract. A third type of profitability means that utilities are not able to reform is to allow the private sector to own and self-finance investment, not able to raise operate specific new investments. Most often commercial borrowing, and not able to sign long these have been new generation investments term contracts (for example, for generation on a using independent power producers (IPPs). The BOO basis) without government or other fourth and most radical option is to allow the guarantees. private sector to take full responsibility for operation of existing assets and for investment, The power sector thus tends to have two whether through a long term concession or linked sources of inefficiency to its operation. through full change in ownership. Firstly, the direct involvement of governments in price setting places a barrier to financial viability Francophone countries, mainly in West and and hence to investment either by the state Central Africa, and Anglophone countries, industry itself or by the private sector. Secondly, mainly in Eastern and Southern Africa, have the structure of the industry provides little adopted rather different reform approaches. The competition, and so few direct incentives for former have tended to place greatest stress on efficiency. This tends to reinforce the problems introducing private sector responsibility for created by financial weakness. The various operations and in time new investment. models of power sector reform that have been Industry structure has often been left unchanged, tried elsewhere, both in developed and and assets retained in public ownership. developing countries, are addressed to ameliorating both of these problems. The possible approaches differ in how far they pass on responsibilities and risk to the private SSA is not alone in facing these problems and sector, and so how far stronger incentives in the global experience already provides some useful private sector can deliver efficiency gains. lessons and encouragement for tackling them. Management contracts and leasing arrangements There are no problems that are unique to SSA, may be tied to specific performance although it is true that certain difficulties are improvements. Full privatization, whether more widespread and more pronounced than in through ownership change or a long term other areas of the world. There is a wide concession, requires that the private sector spectrum of reform possibilities and the problem operator takes its revenue from final consumers. is to choose one that best suits the economic, political and cultural features of a given This also requires that tariff regulation is economy. Importantly, there is no presumption formalised, and Government constraints on price that a single model of reform will work best for setting are removed. every country. 104 GLOBALREFORM TRENDS
3.4 Role of the Public and Private several economic benefits are involved. The Sectors provision of irrigation and agricultural benefits should not be under the direct responsibility of the power sector. Separation of non-core Three broad approaches are possible. The first activities is seen as an important adjunct to is for the public sector to own and operate the corporatization and commercialization, and is power sector; the second is for the public sector certainly essential if future privatization is to be to own the power sector, but for the private considered. sector to play a greater role in operations, and sometimes investment. The third is for the Because of the lack of direct incentives built private sector to own the assets, or to invest and into public sector operation many governments operate under a long tenn concession. This (including Burundi, Ghana, Senegal, Zimbabwe, section describes experience with all three. Zambia and Malawi) have developed performance targets for the industry. 3.4.1 Public Enterprise Reform Performance contracting requires an ability within Government to set targets, review The first level of reform, and one that is progress and reward or penalise managers desirable before other more extensive steps can accordingly. Alas, the record of experience be considered, is to corporatize and shows that performance contractshave not been commercialize the power sector. If the industry an effective instrument to improve performance. can be given responsibility for its own budget, procurement, pay and employment then it has In some cases central Government can lack the procureatent,scopeao man emplomenyirenithas. resources to do this in a timely fashion. A recent greater scope to make efficiency improvements, mission to an African country found that a Managers can also be given incentives for cost performance target existed with the power reduction. utility, but that annual reviews of performance The intention of allowing the sector to act like were some years out of date, so it did not a commercial enterprise is that the managers wil constitute an effective mechanism for have the freedom to seek efficiency incentivising managers. improvements and to operate the sector in its own best interests. This strategy has a series of Performance contracts should be seen as associated steps that should be taken to improve btranstor mechanisms. Per alnctargent cand thelieiho of sucs. Ths.nld h be introduced without any legal instrument and thminorkresliucturi ofsuccess.Thesetor lo thatithus be done rapidly as a first step in the reform minorresponuibluso ofopwe sector bsiness,iand process. This lack of contractual force can also responsible solely for power sector business, and beawkns.Gvrmntmyvilethr the introuctionofperformane target ' be a weakness. Governments may violate their the itoutoopefraepart of the agreement, as was the experience in In many developing countries, and in some Bolivia. In theory, they have the benefit that the developed countries, governments have objectives of the enterprise are clarified and they develoDed~ ~ ~ ~ ~ ~ ar usuatnes accommntanehbteanroutino expanded the operation of the power sector into are usually accompanied by the introduction of activities not directly or even indirectly management information systems, and improved associated with the provision of electricity. Most auditing and accounting practices. of these activities are in essence purely commercial and could be carried out equally A problem for many countries in Africa is that well or better by the private sector. Repair and information is limited and is possibly inaccurate. maintenance of vehicle fleets, equipment At the same time, setting the appropriate maintenance~~~~~~of veil les qimn erformance standards is not always simple. manufacture, and various other services are perforancsaardsoisanotw simpl e commonly undertaken by the power sector. International comparators are one source of targets, but may be inappropriate. For example, These activities may be run very inefficiently determining the target number of employees per by managers whose main expertise is in different customer on the basis of those usually achieved fields. They are natural targets for separation in US or European utilities may be inappropriate and for possible privatization. In certain due to lower labour costs and more dispersed developing countries the power sector has been populations in African countries. involved in a broader range of activities, An effective corporatization and particularly in respect of hydro projects where Anm ercialization and commercialization program should be able to GLOBALREFORM TRENDS 105 deal with one aspect of the non-payment of bills. 3.4.2 Public Ownership and Private Targets can be set for the amount of bills Operation outstanding and the utility can also be given more authority to deal with theft. Metering can A more far reaching step in the reform process be improved, but this is likely to be costly in the is to contract out the management of the utility. short run. The major problem is likely to be the Ghana, C6te d'Ivoire Burundi, Guinea and Mali relation with other government departments. either have or are preparing contracts that Non-payment of bills by the government itself, combine continued public ownership with which is often a major user in developing private operation. The degrees of responsibility countries, can be corrected only if the and risk borne by the private sector vary. government has the political willpower to do so. The experience of the C6te d'Ivoire, which Since paying these bills is only an internal introduced this system in 1990, has been very government transfer, and does not affectthe total positive. The new company CIE, whose major budget, this is a problem where different shareholders are the French utilities SAUR and agencies are in effect each struggling to maintain EDF, has adopted a highly decentralized their share of the total government budget. In structure, with detailed descriptions of the long run this problem can be corrected only responsibilities, a good reward system, strong by overall public sector reform. Without such budgeting and time management procedures, reform, the scope for introducing any private and substantial training for its staff. Some 20% capital to the industry, whether for independent of its shares are quoted on the Abidjan stock power producers or for privatization of the exchange and employees can buy shares at existing assets, is limited because investors preferential prices. require effective evidence that bills will be paid. Power losses dropped from 19.8 percent to The methods used to improve the performance 17.4percent, while the average number of hours of a commercialized enterprise can include the of outage per customer dropped from 50 to 18. hiring, most likely for a short to medium period, Employees per customer were reduced from 9.5 of external specialists. Management assistance of to 6.9 while billing and collection also improved. this type, which has sometimes used expatriates, Some 2000 employees out of a total of 3200 have has been used in SSA with varying success. The received some form of training. arrangement can be made by a twinning agreement, such as that between Ontario Hydro In Burundi, where a team of five expatriate of Canada and the Volta River Authority in managers was given executive responsibility and Ghana. In other countries, such as Guinea and charged with improving operating performance Tanzania, there was less support and these and training local managers during a three year schemes did not work well. Again, where there period, personnel was reduced from 1500 to was a sense of crisis this temporary expedient 1000,with little social problems, by ensuring that was more likely to be seen as necessary by the staff released were placed in private firmnswhich local company. The purpose of such assistance were starting to carry out work previously must be to fill gaps in specializations, and to carried out in house (such as production of give local staff the opportunity to learn the wooden poles, connectionof new customers etc.). necessary skills so that they can take over at a The accounts receivable from the private sector foreseeable date in the future. were reduced from the equivalent of 9 months' sales to 3 months' sales. Our conclusionis that in theory is possibleto provide the same incentivesfor efficientperformance These examples illustrate the possibilities of in the public sector as in the private sector. In both short term arrangements and longer term practice, however, it is hard to create a clear agreements. One advantage may be that a commercial mandate and the required autonomy contract of this kind creates a stronger financial within the public sector. Given the need to performance, and so enables the company to corporatizeand commercialize,and given the poor sign long term contracts with private companies. expereincewith performancecontracts, managers, we The same impetus for change that brought about recommendusing managementcontracts with private the operations contract in C6te d'Ivoire also mangers. created an impetus for private sector financing of CIPREL, the latest addition to generation capacity. It could be argued that the financial 106 GLOBAL REFORM TRENDS improvements that go with an operations technical losses, and so about how well the contract also make such a utility more attractive contractor has performed against target. as a purchaser to prospective IPP investors. Our conclusion is that private sector participation Management contracts are likely to be of most under long term management, operations or benefit where the efficiency of the system is poor concession contracts has achieved significant and where there are skill shortages in the power improvements in power sector performance. The sector. The infusion of management skills made political willfor implementation has often been driven possible by the use of such a contract is likely to by poor performance -or sometimes near collapse- be the most rapid way of improving operating of the utility concerned. It is an approach that and financial efficiency, while at the same time appears to have been adopted to a greater degree in improving staff skills. The duration of such a Francophone rather than Anglophone Africa, and contract and its overall success will be crucially there may be useful opportunities for exchange of dependent on the government's commitment to experience. However, the long term impact and the improving the performance of the power sector. issues raised on completion of a concession,are yet to The obvious danger is that it can be used to be addressed. strengthen the operating performance of the company while the contract is in operation, but 3.4.3 Private Ownership and Operation is used as an excuse for not undertaking the more fundamental reforms required for long run The private sector can be given responsibility sustainability, such as the removal of the for investment and operations, and earn its political process from price setting. revenue from tariffs under a long term concession. Alternatively the assets can pass into Management contracts also have the added private ownership through outright privatization. advantage that they can be rapidly implemented, The most common reform to date has been for since it is unlikely that any legislative changes the private sector to be given full responsibility are required to put one in place. Given the for new generation capacity, through IPP experience elsewhere in Africa, both in power contracts, while existing assets remain in public and other utilities, there is a market in such ownership. contracts, and a bidding process can be utilized to find the best partner. Independent Power Producers (IPPs)
In many cases private sector management Where there is a need to increase the capacity contracts are rewarded against specific of the system, but this cannot be financed from performance targets. Until there is hard traditional sources, governments have the option information on performance, it would be of allowing independent power producers (IPPs) premature to set targets for efficiency gains to enter the market. This is usually done through private sector involvement. Under one through the IPP agreeing a two-part contract contract presently being negotiated, the first with the utility itself. Where the utility is output of the private sector operator will be a set financially weak, the investor may require of accounts which will be accepted by the guarantees from Government, or from other auditor without qualification. Once this has sources. Alternatively, private finance can be been achieved, the contract will be revisited to attracted in to build and operate new determine what efficiency gains can be transmission lines, as is being done in Pakistan. realistically achieved in subsequent years of the However, the potential efficiency gains from contract operation of the transmission network are lower than from generation. Measurement of performance may also raise problems. A performance management contract A separate paper discusses experience in was agreed in Ghana in 1994. Payment was private financing in the power sector in Africa. partly linked to success in reducing commercial Private capital will enter only if the political and losses from the level of 10% at the beginning of economic conditions are sufficiently attractive the contract. Commercial losses are measured and the government will have to ensure that the through gross generation less technical losses. conditions are suitable. Private generation may However, due to lack of metering within the also appear to be high cost. The cost of capital system there can be some uncertainties about - based on the required returns to equity and the cost of commercial finance - is likely to be well GLOBAL REFORM TRENDS 107 above the costs of borrowing from international In India, much use has been made of financiers or from domestic public sector sources. negotiation with preferred bidders. However, it is increasingly clear that this does not result in The high financing costs of IPPs may be offset the cheapest deals for the utility. It also reduces by the effects of competitive bidding to secure transparency in bid evaluation. For both the contract, and by greater efficiency after reasons, competed projects are preferable. completion. This can be reflected in contractual terms that require high availability and high The traditional method of assigning projects thermal efficiency. The technical and managerial for private sector development is for the utility expertise of sponsor companies is such that they to draw up the expansion plan and assign should be able to offer least cost solutions to the specific projects for private financing. Projects expansion of the sector. involving large hydro schemes may be harder to finance privately, at least initially. Costs are A further advantage is that the introduction of much less certain than for thermal plants, where efficient firms into the industry, coupled with the there is a higher degree of standardization. The reforms necessary to attract private capital, tends higher cost of capital for the private sector may to spill over to the performance of the public also mean that there is a preference for projects sector company, even though there is no direct that are quick to construct and which yield competition between the two for selling power. revenue quickly, which again makes hydro This "comparative competition", as occurred in projects less suitable. Bolivia between ENDE and BPC, gives a "benchmark" by which the public sector firm can The bid documents for an IPP, and the basis be judged within the country. on which bids will be evaluated, should be carefully prepared. Experience in other There is now substantial experience of IPPs countries, for example Colombia, has shown that from a number of developing countries. In the bids may be made on non-comparable bases. Philippines alone 35 private sector plants New bids may then be required, or else the risk producing some 5000 MW are in operation or is run that the project is assigned to a bid which under construction. Relatively small economies appears the lowest, but which may turn out not have used IPPs, such as Jamaica, Guatemala and to have been the lowest cost if it had been made the Dominican Republic, where barge mounted on a truly equivalent basis to other bids. This diesel generators have entered the system. An again is an area where management consultants important lesson has been the speed with which can have an important role to play in bringing to private power can enter the market. The bear their experience from other countries on Philippines started with "fast track" schemes to how to set up the bidding process. meet a severe power crisis, but has now switched to international competitive bidding. In addition to identifying particular projects The barge mounted diesel in Guatemala was in for financing, it is possible to identify specified operation just over one year after the power MW requirements, and leave the private sector purchase agreement was negotiated. to identify the least cost source. As regional interconnection and bulk power trade develops Once the government has decided to allow around Africa, trade may increasingly figure as IPPs to enter the sector there are a number of one option to consider. crucial decisions that have to be made. Firstly, it has to be decided which projects should be The basic arrangement for selling power from given to the private sector; secondly, the bidding an IPP is based on a power purchase agreement and selection process has to be determined; and (PPA). Typically such a contract includes a thirdly, the arrangements for selling power to payment per kW made available, which is the utility have to be decided in principle. All designed to cover fixed operating costs, debt three of these questions can be answered in service and the return on equity. It also includes various ways, depending on circumstances, and an energy charge, paid per kWh generated, it is important that good decisions are made at which is designed to cover marginal operating the outset, since experience from other countries costs, principally fuel. suggests that design mistakes can be costly to alter. There may also be a "take or pay" clause which guarantees the IPP a given market and helps it to offset the risk from its fuel supply 108 GLOBALREFORM TRENDS agreements. Such an arrangement, coupled as it Our conclusion is that IPP financing is certain to usually is with a predetermined price (fuel costs increase. Governments should be aware of the are usually index linked), has the effect of importance of competing IPP projects, and the need removing one large source of uncertainty for the for transparent assessment criteria based on their power producer. impact on total system costs. The scale of IPP financing available will be limited, and the need for Because take or pay clauses distort least cost guarantees high, until purchasing utilities are made dispatch, the utility needs to use a system financially stronger. simulation model to examine closely the impact on total system costs. It may find that it has to Privatisation run the plant while backing down plant with lower operating costs. In one IPP project in The most far reaching reform is partial or total India, the utility thought that a 90% must-take privatization of existing power sector assets. obligation was a very successful outcome, but This introduces the clearest long term mandate subsequently became concerned that this could for profit maximization, and so efficiency. It require it to back down much cheaper plant, and requires a credible regulatory regime to (a) to spill water on some occasions. remove tariff setting from political interference, (b) ensure an efficient utility which is profitable, Guarantees are often sought by the IPPs also to and (c) ensure the gains from efficiency are cover payment risk and exchange risk in order to shared between the company and consumers. make the project as attractive as possible. Many developing country governments fail to pay the Privatization is the most complex mode of power sector utility for their own use of power, reform because it requires several major changes or hold tariffs down at a later stage so that the to the legal, institutional and economic utility has inadequate revenue to meet its framework of a country. Initial experience of contract obligations to the IPP. The private this approach to reform was in industrialized sector producer will often look for some countries (the United Kingdom, Australia, guarantee that it will be paid. The provision of Portugal) or in larger middle income countries such guarantees has a cost to the government, (Chile, Argentina, Malaysia). However, a great since it in effect uses resources which could have deal has been learnt about the process, and small been used elsewhere. low income economies, such as Bolivia, Peru and Jamaica, have shown success in putting a Similarly, because of uncertainties on the succesfull privatization program into action. exchange rate and currency convertibility, guarantees are often required to ensure that Given the complexity of the task, it is essential foreign currency receipts will be risk free. Again that the government be strongly committed to these guarantees tie up domestic resources for such a reform. Implementation may require a the government and add to the total costs of the few years. Decisions have to be made at the project. outset about the desired long run structure of the sector, because once an electricity law has been The limited experience to date of IPP financing introduced and companies sold (possibly in a in Africa is summarised in the paper on private restructured form) to the private sector, it is financing. C6te d'Ivoire has implemented the extremely difficult to make further changes, such CIPREL project as an IPP. Tanzania is presently as altering the regulatory framework or splitting processing Songo Songo as an IPP. A number of the companies into more entities in order to other countries are looking to compete additions increase the amount of competition in the market to capacity. As a result IPP capacity in Africa is for electricity. likely to increase. However, the same country conditions that have led to very low foreign There has been little activity on privatisation to direct investment in many African countries will date in Africa. The private sector has been hinder IPP contracts. In addition, the financial attracted in to operate concessions, but not to weakness of the purchasing utilities requires a take over assets. This is unsurprising, since the high level of external guarantees, and so fails to regulatory framework is not in place for major fully remove generation investments from the privatisation. Private investors are attracted by public sector. macroeconomic stability and institutional, legal and regulatory transparency, factors which have been lacking in several SSA countries. GLOBALREFORM TRENDS 109
A recurrent and significant concern is the 3.5 Industry Structure and ability of SSA to compete for international Competition private investment. The basis for this concern is the fact that private investors around the world have generally invested in large systems, and in Many countries have used reforms to industry countries with sophisticated financial markets structure as a means of introducing competition and technical support services. However, and increasing sector efficiency. In England, experience from other sectors and the smaller generation assets have been split into three main developing countries of Peru, Bolivia and companies, and new entrants encouraged. Jamaica, suggest that the true preconditions for Generation has been separated from transmission successfully attracting private investments are and distribution. Reforms in the US are not market size or domestic capital market but presently introducing a higher degree of transparency in all its aspects, namely: competition in generation and in retail supply. Countries that have maintained a high degree of * ensuring macroeconomic stability, vertical integration, such as France, have still particularly keeping inflation under control; made progress on accounting separation between * providing a clear regulatory environment, different levels of the industry. particularly providing credible restraints to the arbitrary intervention of the The rationale for industry restructuring has government; been to enable the introduction of competition. i allowing investors to earn adequate Vertical separation, in particular between financial returns; generation and transmission, allows new e establishing clear property rights and generators to compete equally. Multiple dispelling the fear of expropriation of generators may allow the introduction of short investment; and term competition to dispatch. And multiple * entering firm contractual agreements, supply companies, with open access to particularly over the repatriation of profits distribution networks, creates potential for from investments. competition in supply to major customers or to small consumers. Provided these conditions are met, private investment will come in to exploit the Africa has traditionally maintained a high opportunities available without resort to degree of vertical integration. The main expensive subsidies or tax breaks. However, Sub exceptions to this are: Saharan governments need to formulate transitional strategies for attracting private * major generating utilities, such as VRA in participation in energy supply, taking account of Ghana or the hydro development companies the wide range of recent experience elsewhere, in Kenya; while they build up reputations for sound regulation and economic management. In doing * owners and operators of transmission and this, SSA countries should be able to draw on distribution networks, such as ZCCM in the international community for their experience, Zambia; and know how and assistance. * distribution and supply companies, often We believe that the private sector will come into the with municipal ownership, as in South power sectors of SSA. The governments however Africa. need to formulate transitional strategies to attract it, taking account of the wide range of recent experience In addition, there are a few examples of third elsewhere, while they build up reputations for sound party access to transmission under wheeling regulation and economic management. In doing this contracts. However, in most cases transmission they can draw on the help offered by donors in is fully bundled within an integrated utility. various forms such as technical assistance, cofinancing and guarantees for private investments. There are some examples of competition for new generation, discussed above under IPPs. To date all of these sales have been through long term contracts to an incumbent utility. Dispatch will typically be on the basis of the energy charge in the contracts, modified as necessary by 110 GLOBALREFORM TRENDS
"take or pay" clauses (which may mean that the vertical separation is reduced. Their are also marginal cost of energy is essentially zero at costs to vertical separation. As Electricite de some periods, since payment will have to be France and others have pointed out, regulation made in any case). becomes more complex as the sector is unbundled. For small systems, this may offset The single buyer model, used in Northern the benefits of unbundling and competition. Ireland, and some other countries, was designed to deal with a relatively small system (2400 Some countries have the option of buying MW). In Northern Ireland, the four privatized power from a neighbour, through an generating plants all sell under power purchase interconnecting link. Trade in electricity is agreements to a single power procurement discussed in the paper on regional business, which is also responsible for despatch. interconnection and bulk power trading. This This business then sells under a bulk supply can provide one source of competition to tariff to the retail business. The contract energy domestic generation. charges are designed to approximate actual costs, so that generators are indifferent as to whether The third form of competition found in some they are despatched (energy prices just cover economies is at retail level. This requires energy costs), but need to declare themselves multiple generators to have equal access to the available in order to obtain capacity prices. The transmission and distribution networks, so that costs are then all passed through to final they can compete to supply final consumers. customers. The creation of separate supply businesses may provide few benefits while incurring extra costs The system has worked well in terms of in small power systems. This is particularly improving the availability of the generators. It likely to be the case where the possibility of has also reduced their fuel costs, although the wholesale competition,with large consumers free gains have not been fully shared with to buy from more than one supplier, is limited consumers. A model of this kind could be by the number of such consumers. repeated in an African country which sourced all generation from IPPs. The large consumer market has been typically been defined as consumers taking more than 1 A more radical innovation may be the MW. It may be much easier to introduce introduction of competition to be dispatched. competition for consumers of this size. Retail Multiple generators may bid to be dispatched, competition is therefore most feasible where with the purchaser relying on competition to there is a substantial market for large consumers. ensure that their bids approximate their marginal operating costs. However, in small power Where supply competition is feasible, this sectors it may be very difficult to introduce may strengthen the financial position of IPPs. genuine competition between generators, either Often major industrial consumers are stronger because there are just too few plants to form financially than the utility itself. If the IPP is meaningful companies, or because the plants are able to agree direct contracts, or to compete with so different in the merit order of despatch that the utility for such direct contracts, this may there are only weak possibilities of capturing reduce some of the risks in IPP financing. larger markets by improving efficiency. Multiple consumers - whether large industries Experience from several countries (notably or distribution businesses - also reduces the risk England and Wales, and Chile) has shown that for IPPs. At present an IPP sponsor is typically if individual generators control too large a share faced by a single purchase for all its energy. This of the market they can often manipulate output creates a risk that commercial pressure or availability to increase profits. Studies of the post-negotiation will seek to push the private England and Wales and Swedish configurations operator down to marginal operating costs, and have suggested that four or more fairly equal prevent it recovering fixed costs. These risks are size firms are required to obtain effective great in any situation where contract competition. enforcement is not reliable, particularly great Where it is not feasible to separate the where there are cross-border contracts, and generation sector in this way, the benefits of apply particularly to hydro projects (where fixed horizontal separation (ie, multiple generation costs are much higher and operating costs much companies) can be small and the need to pursue lower). GLOBALREFORM TRENDS 111
Many of the most promising investments in rapidly this final sanction is used. The US for Africa fall precisely into this category. example makes great use of legal hearings, while Investments in hydro in Zaire for export to its in the UK this tends to be a final recourse for neighbours or Southern Africa, or investments in utilities disputing the regulator's hydro in Uganda for export to Kenya, provide recommendations. good examples. Where these investments are faced by a single, monopsonistic buyer, they will Public enterprise reform will not be successful be more risky than where they are faced by in the long term unless utilities can become multiple, competing purchasers. financially independent of Government. Similarly, utilities will be unable to borrow The arguments for industry restructuring are commercially, or to sign long term contracts (for mixed. Several countries have elected to example for BOO financing) if their own maintain vertically integrated industries financial position is not strong. The present post-privatization. Malaysia (6000MW) kept its negotiations over the Songo Songo IPP in industry vertically integrated at privatization in Tanzania illustrate the protection that private 1992, and recently Jamaica (500MW) has made a investors need in such a situation. Long term similar decision. Clearly these issues have to be private sector participation, through concessions addressed on a case by case basis. or ownership change, will also require confidence that the final tariffs will be set at a Our conclusions it that most sub-Saharan power level that allows an efficient operator to be sectors, other than South Africa itself, are likely to be profitable. too small to introduce effective spot competition in generation. Some small economies may elect to Some additional finance can be raised for the remain vertically integrated. However, in many power sector, for example through independent countries there is scope for competition in new power plants, but this will require Government capacity (through IPPs and imports) and there may guarantee until the utility is financially sound. be scope for greater competition in supply to major For that reason, tariff regulation is a necessary consumers and distribution businesses. The first step in the long term solution to financing preliminary focus is likely to be simply on mobilising problems. Typically that regulation requires two investmentfinance, but the experience elsewhere has elements. First, utilities should have incentives been that IPP participation has created pressures for to be efficient, to protect the interests of more open access to transmission networks and more consumers. Second, efficient utilities should be fundamental industry restructuring. allowed to earn a return on assets equivalent to their cost of capital. In some African utilities, 3.6 Regulation the first of these has been given inadequate attention, leading to tariffs above US cents 30/kWh. In others, the second has been Many of the present problems in the sector neglected leading to low tariffs, or distorted stem from Government intervention in price tariffs with high subsidies for selected groups, setting, often resulting in low tariff levels, and to losses by the utility. Private sector participation in specific generation projects can be regulated through contract. At the heart of any power sector reform that However, development of autonomous utilities, has been put into place has been the willingness and involvement where the private sector takes of the government to remove itself from tariff risk, require more transparent approaches interfering with price setting. The public utility to price regulation. (if it remains in state ownership), or the newly privatized utility need to know that prices will Regulatory approaches differ a great deal be allowed to rise to cover costs of operation around the world, but have underlying (including investment costs). Once it is clear similarities. The regulatory methods are that the government is willing to allow prices to intended to mimic the effects of competitive rise to cover costs from their previously loss markets, and so ensure that companies earn a making levels, and that it will continue to do so, return which is similar to their cost of capital. there is an incentive for new investment to enter The main forms of regulation - rate of return and the industry. At the same time raising prices to price capping - both have this at their heart. cost recovery levels, where this is necessary, will Regulation is enforced finally through the reduce consumption. In some cases this can be judiciary. However, countries differ in how 112 GLOBALREFORM TRENDS a substantial benefit overall by relieving Price reform is the easiest step to take bottlenecks to demand in the short run. administratively, even if not politically, but it is the easiest to undo. A government that raises Experience suggests that governments, once tariffs to cover costs, may well find that after a they have allowed prices to fall behind costs for year or two it is under pressure to let tariffs fa1l whatever reason, are very reluctant to increase behind again, thus creating a permanent cycle of them sharply at a later date to catch up. Often loss making for the sector. Thus, although tariff a sharp rise in electricity prices proves very reform is a necessary condition for the long term unpopular, particular to the better off members success of the power sector, it is not a sufficient of the economy, who often are the more condition. Other steps must be taken to give a influential members of the society. Only when chance of sustainability. the sector has reached an absolute crisis, as occurred in Colombia, Peru, and in Argentina in Fundamental reform can also assist in 1988 and 1989 with extensive blackouts, is there removing tariffs from the political agenda. In sufficient pressure for the government to the C6te d'Ivoire example cited above, tariffs are improve matters and thus allow unpopular set under a formula which covers three costs; the measures to be taken - it may then be better to State's return for leasing assets and for new pay higher prices rather than to have no investment, the cost of fuel and bulk power electricity. purchase, and the operating costs, including profit and taxes. Initially this led to a 10% fall in Where this occurs the government has a tariffs, although subsequently there were "window of opportunity" to make substantial increases to offset devaluation. reforms. C6te d'Ivoire illustrates a similar process in Africa. Fundamental reforms were If the government makes no reform movement, implemented in 1990, at the point where the price setting will typically be decided by the EECI (Energie Electrique de Cote d'Ivoire) was Ministry of Energy or the Ministry of Planning, losing $240M/year. This poor financial often in conjunction with decision making at the performance was coupled with poor technical highest level. This means that every time tariffs performance, creating an impetus for have to be adjusted detailed political fundamental change. considerations are involved and the sector itself will have rather little impact on the outcome. Experience also suggests that, in the absence of Most reform scenarios are designed to weaken a long standing interest in power sector reform, this link, so that a degree of autonomy in price the window of opportunity will prove rather setting can be achieved. Whatever the reform short. Governments may have elections to face that is undertaken, the government will always or other pressing problems to deal with, and have some way to influence the outcome if it so thus are unwilling to pursue power sector desires, but the less institutionalized within the reform over several years. For this reason it political system the price setting is, the greater appears that where possible changes should be the chance that prices will be allowed to track made that can be implemented rapidly and costs over time. which are not easily reversible, such as the introduction of management contracts and the The countries which have developed transparent opening of the market to independent power price regulation approaches, such as Cote d'Ivoire, producers. have done so to achieve major private sector involvement. Our conclusion is that autonomous and More radical reforms, such as privatization of transparent price regulation is a necessary the existing sector, are likely to take longer to precondition to any situations where the private plan and implement, and are at risk of collapse sector takes tariff risk, and would also be a means of before they actually are finalized, through lack of improving performance of publicly owned utilities. persistence by the government. For this reason it is important that the simplest steps should be taken immediately, and that the government 3.7 Reform Strategy does not attempt in a single step very complex reform packages which will take several years to implement. Setting goals which turn out to be Many of the problems of the electricity sector infeasible to achieve in a short period may are part of more wide ranging problems of the discredit the whole reform process. management of the economy. Policies to GLOBALREFORM TRENDS 113 improve performance of the electricity sector in A particular problem in improving efficiency isolation are not likely to be sustainable. General is that labor costs are likely to be too high, and public sector budget reform is required to that labor shedding itself will impose short run provide a background in which power sector costs on the industry or on the government. The reform can be viable, particularly in the case example of Burundi, where a plan of where the industry continues largely in public redeployment into the private sector was sector ownership. However, much can be done implemented, shows that some adjustment of the in the short run to improve the performance of payroll can be made without the need for large the power sector, while other more fundamental severance costs. The overall analysis of the changes are being designed and implemented. sources of inefficiency is also very important here - some efficiency gains can be made with In order to determine the reform strategy and relatively little expenditure, such as improved most suitable options for a country it is bill collection and plant maintenance and necessary to: operation. Identifying the most cost effective actions will indicate the extent to which labor * agree objectives for the power sector, such shedding is the most urgent step required. as the efficiency, financial viability and political/social objectives discussed in this State run utilities, even where they have been paper; run as commercial entities with a hard budget constraint, have often been inefficient. Private assess performance of the existing utility sector participation can help provide a clear against objectives, and the causes of any mandate for managers in the power sector, poor performance; and stronger incentives for efficiency and help enforce better tariff regulation. The options for * identify a reform programme that addresses mobilising private sector participation are some the causes of poor performance. form of long long term contract, and full ownership change (in whole or in part) and this Where the principal problem is the efficiency will depend both on the government's of the sector, rather than the level of tariffs, the willingness to relinquish all direct control over focus must be on providing appropriate the sector and also on the timescale available for incentives for the management of the industry. reform. Where tariff setting at a level well below costs has been the principal problem, then the focus Where reform is urgent and there is little time must be on a way to remove government to plan out a new sector and to draft new influence from having too direct a control over electricity laws, then privatization will be seen as the industry. In many countries both aspects a later step. In such a case management or need to be addressed. operations contracts may be the most effective short to medium term action. It is important not The first step of commercialization and to set too long a contract term, or else the possibly corporatization assists in both cases. possibility of more extensive reform through This can be done while more detailed plans are regulation and privatization will be put off drawn up for the future. An important aspect of unnecessarily. this step is to try to separate non-power activities from the new company so that it is not given Where there is a willingness to contemplate responsibility in other fields. As an interim step privatization, then prior action may be required the commercialized company can be given on industry structure. Realistic views on the performance targets to be met. At the same time possibility of introducing competition for the government must decide on a tariff strategy mainstream activities must be articulated. Both which will enable the new company to be generation and the large consumer market are financially viable after a short period of time. targets for the introduction of competition, while This may include tariff reform, reductions in the peripheral activities are suitable for privatization costs of new capacity and operations, and without regard to sector operation. possibly debt relief. A number of African utilities, in particular those with a high share of For small systems, or systems dominated by hydro, carry high fixed cost obligations for debt one or two generating plants, the possibilities of service. introducing effective spot competition are very limited. It may be simpler and more cost 114 GLOBALREFORM TRENDS effective to maintain a vertically integrated Once the new structure of the system has been industry. determined then the duties of the regulatory body can be adjusted to match that structure, The introduction of retail or supply and the electricity law can be constructed. With competition requires several suppliers. It also the law in place it is important to establish the requires that is economically sensible to split regulatory commission before the actual distribution into several entities, so that no single privatization takes place, since the initial distributor has monopsony power with respect regulated prices and other conditions (quality of to purchases from power producers. The service and license provisions) must be expansion plan of the sector will be important in determined before the actual sale itself. The determining future structure, since a rapidly appointment of the commission and its initial growing sector may soon be able to work both take considerable time, which accommodate enough firms to make competition emphasis the fact that the totality of the possible. privatization process may take a few years to implement. The configuration of the transmission system must be taken into account in deciding whether A major reform strategy, involving privatization there can be effective competition between and the introduction of a regulatory agency, is a generators. Where there are weaknesses in the complex operation and a sequence of phases needs to transmission system one plant can have effective be planned and implemented. Firstly there is monopoly power (must be despatched) despite preparatoryand design work in which the overview of the presence of several other plants. Investment the appropriate reform is articulated. Secondly there in the system can improve the situation, but the is the preparatory work in which the details of the costs of transmission investment may be seen as desired reform are worked out, including the drafting a relatively low priority at a time of generation of new laws. Thirdly comes the actual capacity shortages. implementation of the program. For the reform to work it is necessary that there is political commitment The possibilities for developing the sector as well as economic need; the ownership and through encouraging stand alone developments leadership of the reform process must be local; and in areas not connected to the main grid must there should be resources available to respond to the also be evaluated and, where this is thought to requirements of the program. If these conditions hold be feasible and desirable, steps taken to set a then power sector reform in SSA can be just as framework to facilitate this. successful as it is proving to be in other countries that have taken this step. IV. Social Impact of Sector Reform in Sub-Saharan Africa
by Luis E. Gutierrez'
4.1 Introduction energy sectors-to increaseand sustain long- term efficiency and to attract private capital-require significant price hikes. This paper examines the question of how Sub- Economic analysis reveals that such policies Saharan African (SSA) policymakers can deal have serious economic, financial, and with the social impact of sector reform, environmental consequences: (i) energy specifically the associated rise of commercial subsidies are expensive, leading to an energy prices to economic levels. Several overblown demand and higher investment developing and formally centrally planned requirements, all of which are manifested in countries around the world have already deadweight losses in the economy (lost growth reformed their energy sectors along market potential); and (ii) distorted energy prices lines, dismantling their traditional vertically signal the wrong consumption and investment integrated monopolies,introducing competition, choices, promoting a misallocation of resources. and opening the sector to private initiatives. Making a transition to economic pricing Commercial energy prices are a precondition -parity intemational prices for energy for successful sector reform and privatization. tradables, and for nontradables, market- Several SSA policymakers are considering determined prices where competition is reforming their power sectors along similar possible and regulated prices where not-is lines, they are concerned however about the thus necessary but often politically difficult. resulting price hikes and the political The difficulties arise because large energy price opposition that these may engender. increases have a significant impact on households, services, and industries. The shift to economic pricing may in fact International experience confirms that large represent a shock because many governments energy price increases have often triggered civil in transition and emerging market economies unrest. Several past attempts to raise energy have long served social and political objectives prices too quickly and by too much have by setting prices far below cost-recovery levels encountered stiff political resistance, including through subsidies and cross-subsidies. Several riots and extended civil unrest in several countries contemplating the reform of their countries (e.g., Ecuador, Jamaica, Nigeria,
1 This paper represents an ongoing three year World Bank effort in trying to refine the methodologiesfor assessing the social impact of market based reforms in the energy sector. Previous applications of these methodologies include Venezuela and Bolivia. Gutierrez [19951, Venezuela: Efficiency Repricing of Enerzg, IBRD, and 119961,Restructuring and Capitalization of the Electricitv Supply Industrv: An Outline for Change ESMAP.
SOCIALIMPACTS OF REFORM 115 116 SOCIAL IMPACTS OF REFORM
Ukraine, and Venezuela). To improve the deterioration and the debt crises of the 1980s, chances of success in reforming energy prices, energy prices in several countries have been policymakers need to consider who will be undergoing adjustment to opportunity-cost affected and by how much. Then they must levels since the mid-1980s.2 Energy "price figure out how to cope with the negative shocks"-or rapid changes in energy effects. Armed with this information and a prices-are of particular interest to developing strategy, policymakers can go directly to their countries and transition economies where populations to explain the economic and social domestic energy prices have historically been benefits of efficiency pricing and to reassure heavily subsidized and a substantial gap exists them that the negative effects will be avoided between prices and economic costs of supply. or managed, thus ensuring a smoother reform process. Energy subsidies were common in most oil-exporting developing countries during the How will raising electricity tariffs affect 1970s and most of the 1980s, including Bolivia, inflation?, What are the options to mitigate the China, Egypt, Ecuador, Indonesia, Mexico, effects of increasing electricity tariffs on low- Nigeria, Peru, Tunisia, and Venezuela. Several income households?, and What is the optimal of these countries (i.e., Ecuador, Indonesia, transition policy in the specific context of each Mexico, Nigeria, and Tunisia) had similar levels Sub-Saharan African (SSA) country? These of energy subsidies as a percentage of energy are the fundamental questions that policy exports. In all these, energy exports provided makers ask themselves faced with the need to approximately 50 percent of total export raise energy prices to commercial levels. These revenue. are the questions we attempt to examine in this paper. Energy subsidies were also important in several energy importing countries. However, In sum, we examine the implications of with the policy pressures of structural efficient electricity pricing on general prices adjustment, several of these developing and the welfare of households. The dual countries and transition economies began purpose is to help policymakers examine the balancing the adjustment and fiscal needs with options at their disposal to mitigate the the political and social concerns of their negative social consequences of commercial populations. There were significant pressures pricing, and to assist them in designing an in both type of countries to raise prices to cost appropriate transition strategy that responds to recovery levels, such as: (i) the massive the specific conditions of their countries. increases in prices of imported oil, gas, and electricity in the formerly socialist countries; (ii) The structure of this paper is as follows. The the need to foster investment, thus allowing next section presents the background for the commercial returns on investment, and for study. We first examine what happens in the depreciation to cover the costs of replacing economy when prices are raised to their capital assets; (iii) reduce the burden on the efficiency levels. The third section examines national budget; and (iv) enable electricity the inflationary impacts of these tariff increases. prices to reduce the grow of demand and foster The fourth section analysis the welfare effects energy conservation. on households, especially low-income households. The fifth section examines some of 4.2.2 Methodological Framework the available options to mitigate the effect of energy price hikes on the poor. The last section The economic consequences of raising energy provides the conclusions. prices can be grouped into macro- and microecononmic effects. Macroeconomic impacts 4.2 Background to Price Reform include the effects on: Inflation, the fiscal budget, and incomes and outputs. Separating these macroeconomic impacts requires general 4.2.1 Need for Economic Prices equilibrium models that were beyond the scope of this paper. We thus examine only the As mentioned in the introduction, the economic and social effects of energy price reforms are of major concern for policymakers 2 We use the terms economic prices, efficiency prices, in a democracy. Because of the macroeconomic and opportunity costs interchangeably. SOCIAL IMPACTS OF REFORM 117
impact on the consumer and the producer price utilities -average sales revenue, expenditures, indexes of electricity price hikes in a cross- etc.- a limited number of inferences can be sample of countries. Microeconomic impacts drawn. Nevertheless, we can make at least consist of the effects on: Costs and outputs of three reasonable observations. producers, and the consumption, income, and welfare of households. We thus examine these First, electricity prices in SSA countries vary impacts on residential users, distinguishing widely. Our comparison of average tariffs them by income classes so as to assess the (Figure IV-1) shows that ten SSA countries impact on low-income families, the main (Zaire, Zambia, Malawi, Cameroon, Zimbabwe, concern of policymakers. South Africa, Ghana, Ethiopia, Nigeria and Mozambique) were paying tariffs below 5 4.2.3 Sample of Countries ¢/kWh in 1994. Such prices are lower than LRMC and tariffs in most countries. For Given the variety of SSA countries and the instance, in Asia and Latin America, with few scarcity of reliable economic and sector data, exceptions (China, Nepal, Vietnam, Ecuador, we narrowed down our sample to countries we Honduras and Trinidad Tobago), the average could get information on, where tariffs were tariff falls between 7 to 14 US¢/kWh, while 13 below opportunity costs and which could be US¢/kWh is the average tariff in OECD considered representative: Nigeria in west countries. Five countries collected tariffs above Africa; Kenya in east Africa; Zambia and 15 cents per kWh: C6te d'Ivoire, Senegal, Malawi in southern Africa. Unfortunately we Gabon, Sierra Leone and Guinea. Two were were unable to include a Francophone country, paying between 10 and 15 ¢/kWh (Mali and nor one in central Africa. Mauritius), while four were between 5 to 10 c/kWh (Kenya, Madagascar, Tanzania and For comparison purposes, we selected Uganda). Poland, a transition economy in central Europe; Venezuela, a petroleum exporter in Latin Senegal America; Ecuador, Peru and Bolhvia,among the Mali- countries in South America with lower incomes SierraLeones- Z per capita and large rural populations. With Malawi =M this sample of compator countries, we hope to Uganda- provide a relevant comparison to SSA SouthAfica ._. Elthooia-z/) | Indu*nial countries. ZtbiaaI IIdsra igeia r Residential c6te dvoi UK S_Lonc -w1 /Nra Sierraernie -Z' 9 _I ,M,a1l - .Z/rZ5U.ZU/I I Iolivia marmB aunt Polan TanzaunaCr rr ;-ufŽ:2i7Z7 / l l2 l Ecuador- Madagasar V Mozaunflqe I I 0 5 10 15 20 25
Southi _I I I I U ameoont- I Figure IV-2: Industrial and Residential Tariffs
CpluleTYZZ4fZZffDfDffffEDN Second, industrial tariffs in eight out of Norway X i thirteen SSA countries subsidize residential PXlndnld3ZEXEm s | S consumption. Figure IV-2 compares residential VeCnezuaKl and industrial tariffs. Industrial tariffs should 0 5 10 15 20 25 3D 35 normally be lower than residential, up to 2/3 in US 0 perkWh average ( as in Norway, Chile, Peru, the UK Figure IV-1: Average Tariffs and Poland), given the added low voltage FigureAverage IV-1: Tariffs distribution costs and lower consumption levels of households. This is the case for South Africa, 4.2.4 Electricity Prices Senegal and Mali, while in Tanzania and Malawi the industrial tariff is about 1/3 of the Given the crude nature and questionable residential one. The remaining countries all quality of the financial information of the 118 SOCIALIMPACTS OF REFORM have higher ratios, suggesting cross how each income group benefits from the subsidization from industries to households. subsidy and by how much. In general, general price subsidies are regressive, benefiting more Mali - the affluent because they can afford to consume SienraLeone--M Mauritius- ////H////////////////*i:rS more. Kenya-__ Malawi- 3 _ Ghanbia < On average, only 10 percent of the population Guinea-'Mf ~ _ in SSA has access to electricity. This rate eria however hides a large disparity between social SouthAfrica groups. Access to electricity has mainly Poland- 7zz concentrated in urban and peri-urban Peru - UK ~ households, while relatively few rural EBolvar households are electrified. Households in the Norway I hint cost lowest income categories have almost no access Chile / If Tariff to electricity. Thus, tariff hikes are unlikely to China J significantlyZf ; affect the poor as a whole, simply 0 5 10 15 20 because so few of them have electricity. US perkWh Figure IV-3: Average Tariffs and Unit Costs This result does not, however, diminishes the equity problem for two reasons. First, this definition of poverty (e.g., lowest income Third, electricity tariffs in SSA do not groups) probably understates the numbers of generally cover the costs of supply. Previous urban poor (who typically have electricity). studies had concluded that tariffs in most SSA Secondly, while only a fraction of the poor in countries failed to meet either the economic SSA is electrified, the effect of tariff increases objective of the tariff structure reflecting the will be more severe on the poor households marginal cost structure (economic efficiency), with electricity and may disincentive those that nor the financial objective of average tariffs would like to have access. reflecting average cost (ensuring financial viability). 'Since the studies were done, several SSA raised their tariffs, making significant Poland- progress, there is still however a considerable Zambia way to go. Nigeria I Given the difficulties in getting the data, unit costs and revenues could only be compared for Bolivia eleven SSA countries (see figure IV-3). Six of Key these failed to cover costs in 1994 (Zambia, Kenya I Malawi, Kenya, Ghana, Nigeria and Mali), Venezuela while two of the comparator countries also exhibited tariffs below costs (Poland and Malawi I Venezuela). In consequence, utilities are thus generally strapped of funds, unprofitable, 0% 1% 2% 3% relying on government subsidies, and Shareof GDP increasingly unable to respond to the challenge Figure IV-4: Electricity Subsidies as a of improving access to their rapidly growing Percentage of GDP populations. As figures IV-4 and 5 show, energy subsidies 4.2.5 Electricity Subsidies are expensive and regressive. General subsidies lead to an overblown demand, higher Policymakers' concerns about price reform investment requirements, and the many have largely to do with misconceived ideas of subsidizing the wealthy few. In all five countries in our sample, electricity subsidies are significant, going from a low of 0.2 percent of 3 World Bank, Review of Electricity Tariffs in GDP for Malawi to a high of 2.7 percent for Developing Countries During the 1980s. Energy Series Poland, which has the highest electrification Paper, 32, 1990. rate. The main problem is not however with SOCIAL IMPACTS OF REFORM 119 the magnitude of the subsidies, but their 0.5 percent of household electricity subsidies, in regressive nature: The higher the household Zambia 4.5 percent, in Malawi 5.6 percent, and income, the greater the subsidy realized. General so on. This constitutes significant savings to subsidies clearly depend on per-unit usage. As taxpayers. With the released funds, the a result, higher-income households, which have governments could advance social spending in the greater stock of electricity-using appliances, education and health. As an example, Nigeria benefit more than poorer households. Thus, could build with the released funds 1,460 whereas a poor consumer in Malawi receives 6 primary schools (or 230 secondary or technical US¢ a year in electricity subsidies, the rich one schools), Zambia 495, Kenya 227, and so on. gets $3.21 -the richest 10.4 percent of the population receives 51 times the subsidies per 4.3 Impact on General Prices person than the poorest 37.4 percent gets!.
Kenya hInitially,cost-push inflation-when input prices Kenya gX\X\\\\\\@\@\\\\\\\\\\ rise faster than productivity, observed with Malawi major increases in energy prices- will affect costs of living and production. Depending on Zambia the response of wage settlements to the increase in consumer prices the effects of raising energy Nigeria I prices may spread through the economy, Venezuela : I4 leading to a general price increase. There are, & | course,I I ofcompensatory effects. Since the Vtenezuela 2 p I I government generally subsidizes these a| enterprises, raising energy prices to cost Poland _ recovery levels reduces fiscal subsidies, which in turn (depending how these are financed) 0 50 100 150 200 reduces the need for taxation or the need for Ratioof Rich to Poor deficit finance (less money creation). Since Figure IV-5: Subsidies to the Rich Relative to these are deflationary effects, the net the Poor inflationary effect depends on each country's structural and policy conditions. If on equity grounds subsidizing non-poor consumers is unfair for taxpayers, then all the Table IV-1 presents the tariff increases needed funds needed to subsidize poor households to align domestic prices in our surveyed would usually amount to a fraction of all countries. Given the size of the price hikes, electricity subsidies. In Kenya this fraction is adverse inflationary effects are thus likely to
Table IV-1: Tariff Increases Required to Reach Opportunity Costs in Nine Countries (%)
SSA Countries Nigeria Zambia Kenya Malawi 1 S (1993) (1992) (1994) (1994) Residential 379.1 312 79.3 Industrial 192.8 312 79.3 7.9 Commercial 192.8 312 79.3 Comparator Counitries Poland Ecuador Bolivia Peru 1Venezuela ComparatoCountrie (1983) (1992) (19) (1993194) (1993) Residential 148.0 144.4 86.4 51.6 105.0 Industrial 244.4 70.5 30.6 16.5 0 Commercial 244.4 0.8 3.5 6.9 0 Note: These price changes are the % A of paasing from the domestic price (Pd) to the economic price (PJ); i.e., 100 x (p1- Pd) / pd 120 SOCIAL IMPACTSOF REFORM
Table IV-2: Inflationary Effects of Efficiency Pricing Given a 100% Increase in Tariffs (%)
Nigeria Zambia Kenya Malawi Poland Venezuela Ecuador Bolivia Peru Cost of Living First-round 5.0 3.2 1.3 3.8 2.07 1.6 2.1 3.5 2.5 Second-round 1.6 .1 .8 .4 .02 0.6 .4 1.1 1.3 Total effect 6.6 3.3 2.1 4.2 2.09 2.2 2.5 4.6 3.8 Producer Cost First-round 2.4 1.9 .7 1.2 4.18 4.18 1.9 3.3 4.2 Second-round 2.2 0 .9 .6 .03 .03 .4 1.2 1,4 Total effect 4.6 1.9 1.6 1.8 4.21 4.21 2.3 4.5 5.6 Sources: Own estimates based on World Bank input/output models.
ensue. energy costs have worked their way around the system and relative prices have found their Input-output (I/O) analysis techniques are new long-run equilibrium. A typical example of generally used to assess the inflationary effects, a second-round effect is the increase in food specifically the impacts on the cost of living costs that follows the increase in prices of and producers' costs. An I/O table shows, for plastic containers, packaging material and other each industry, the distribution of inputs electricity-using-inputs in the first-round of purchased and outputs sold. All inputs and effects. outputs are in currency units (i.e., the expenditures for inputs and the market value To assess how relevant is the inflationary for outputs). A caveat is in order, however: impact across economies, Table IV-2 Since inflation estimates derived from I/O summarizes the impact on living and producer analysis do not consider the dampening effects costs for an increase of 100 percent on on inflation that would result from a decline in electricity tariffs in our sample of countries. taxes, or in deficit finance, nor do they account The direct and indirect effects of the first round for increases in productivity and energy are presented together. end-use efficiency, these inflationary estimates constitute the maximum values. The real The magnitude of the impact depends on the inflationary outcomes are likely to be lower. structure of the particular country's economy -specially the relative weight of industrial Tariff increases affect consumer prices and value added-, and the composition of the producer costs in two rounds of effects. In the consumer's basket of goods and the producer's first round, there are the direct and indirect inputs. Thus, a rise of one hundred percent in effects. The prices of goods and services with electricity tariffs leads to a maximum increase electricity inputs are affected directly via their in the cost of living of 6.6 percent in Nigeria input-output relationships. The indirect effects and to a minimum increase of 2.1 percent in result as the cost increases to other sectors (e.g., Kenya (see Fig. IV-6). The maximum increase industry, transport, and services) are passed on in producers' costs, given the same 100 percent to consumers as higher prices for the goods tariff increase, corresponds again to Nigeria and services they purchase. An example of this with 4.6 percent and the lowest increase to type of indirect effects is the increase in the Kenya with 1.6 percent. Overall, the price of plastics that follows the rise in the inflationary impact on the cost of living is price of electricity. The second-round of effects higher than the impact on producer costs for occurs once the entire effects of the increase in our sample of SSA countries. SOCIAL IMPACTS OF REFORM 121
Nigeria - _ _higher for the less developed countries in our sample -the SSA countries, Bolivia and Malawi- 1Ecuador-, while the inverse holds for Peru, Zambia- |Venezuela and Poland. Kenya -ll I I I I IWe have also estimated the expected Bolivia - ~~~~~~~~inflationaryimpact given the required tariff increases in Table IV-3. Efficiency pricing in Peru-- + Nigeria, Zambia, Kenya and Malawi would Ecuador Costsof: raise the cost of living 17.0, 14.6,1.6, and 0.08 Venezuela- § 7 Produc+ion percent respectively, while in Poland, Ecuador, Poland- i 1 Living ] Bolivia and Peru by 4.1, 2.8, 2.7, and 1.4 percent respectively. Although the absolute price 0 1 2 3 4 5 6 7 impacts appear large, they are small compared Percent(%) with the required increase in energy prices. Figure IV-6: Inflationary Impact of a 100 % Moreover, they represent only a fraction of the Increase in Electricity Tariffs recent levels of inflation experienced by these countries -Nigeria 57.5 percent, Zambia 189.0 percent, Ecuador, 45 percent in 1993, etc. As Figure IV-6 shows, the results are somewhat different for the more industrialized Although the inflationary impacts in comparator countries. On the one hand, the consumer and producer prices look like those one hundred percent increase in residential encountered during the "oil shocks" of 1973 by tariffs leads to a maximum cost of living the net-energy-importing countries, there is an increase of 4.6 percent in Bolivia and to a important difference. Efficiency pricing of minimum increase of 2.1 percent in Poland. On electricity raises tariffs to cost recovery levels, the other, the maximum increase in producers' inducing an internal transfer of rents rather costs corresponds to Peru with 5.6 percent and than an external, promoting overall economic the lowest to Ecuador with 2.3 percent. efficiency (i.e., higher productivity, employment, and incomes, and a downward Although the data sample is relatively small, pressure on the permanent rate of inflation the results suggest that the lower the level of from lower tax needs and/or less deficit development the greater the impact of finance). Unfortunately, a limitation of the I/O electricity tariff raises on the consumer's basket analysis is that it does not consider the of goods and services than in the producer's expected medium- and long-run deflationary basket of inputs, due to the relative greater effects from an improvement in the fiscal weight of consumption goods in the overall situation. Furthermore, higher electricity tariffs economy. On the other hand, the more will be offset by interfuel substitutions and industrialized a country is, the higher the conservation, as new, less-energy-intensive impact on the costs of production will be. Thus, technologies penetrate the marketplace. the inflationary impact on the cost of living is
Table IV-3: Inflationary Effects of Raising Tariffs to Opportunity Costs (%)
Nigeria Zambia Kenya Malawi Poland Ecuador Bolivia Peru Cost of Living First-round 14.00 14.50 1.00 0.05 4.08 2.50 2.50 1.20 Second-round 3.00 0.10 0.60 0.03 0.06 0.30 0.20 0.20 Total effect 17.00 14.60 1.60 0.08 4.14 2.80 2.70 1.40 Producer Cost First-round 4.60 14.39 0.60 0.08 9.24 1.32 0.94 0.68 Second-round 4.20 0.02 0.70 0.03 0.06 0.35 0.29 0.26 Total effect 8.80 14.41 1.30 0.11 9.30 1.67 1.23 0.94 Sources: Own estimates based on World Bank input/output models. 122 SOCIALIMPACTS OF REFORM
Table IV-4: Energy and Electricity Shares by Income Classes (%)
Countries QI -Low Q2 Q3 Q4 Q5 Q6 -High Total Nigeria 15.9 7.9 7.8 9.2 9.1 Electricity 8.0 3.9 3.0 4.5 4.2 Zambia 6.0 5.2 4.5 4.0 3.4 4.2 Electricity 2.9 3.1 3.2 3.3 3.3 3.2 Kenua 9.9 4.5 4.5 4.5 4.5 Electricity 1.4 1.9 1.9 1.9 1.8 Malawi 12.1 10.4 8.9 6.9 3.8 Electricity 5.9 6.3 6.4 6.5 3.2 Poland 35.4 40.2 40.5 37.9 38.7 Electricity 6.7 6.1 5.3 4.7 5.4 Ecuador 5.7 4.9 3.8 4.0 4.0 2.7 4.0 Electricity 2.1 1.7 1.8 2.3 2.3 2.3 2.1 Bolivia 7.4 6.1 5.5 4.5 2.9 4.9 Electricity 5.8 4.4 3.9 3.6 2.3 3.6 Venezuela 2.1 2.3 3.5 2.3 2.5 Electricity 1.0 0.9 1.0 0.7 0.9
Sources: ESMAP household energy surveys.
Noting the following two points about the be considered, because there is always I/O analysis is important. First, I/O analysis substitution at the margin. The second lesson provides a ceiling on the inflation impact. The is that the price effect should be examined from outcomes on the costs of living and production the point of view of the impact on the are likely to be lower. The first round of effects household budget across income groups, on the general price level is more likely to because the expenditure share on energy varies occur than those from the second round, as with income. In this paper we only consider these are likely to happen at the same time as the impacts of electricity tariffs increases. the deflationary effects from efficiency pricing. Furthermore, the results represent only the As with the inflation impacts, first- and expected maximum response to changes in second-round of effects on households are energy prices, not a permanent response. likely to occur with the introduction of Second, despite the limitations of I/O analysis, efficiency pricing. The first-round effects I/O is useful in showing the likely immediate consist of the direct (the welfare reduction from pressures on costs in the economy, providing the price increases of household fuels) and the guidelines for policymakers and reducing the indirect (the welfare reduction from the price uncertainty about the consequences of price changes of other household necessities) effects reform. from the introduction of efficiency pricing. The second-round effects are the distributional consequences of the increase in productivity 4.4 Impacts on Households and incomes by efficiency pricing. These effects are difficult to estimate and require extensive modeling of the economy. In what follows, we As the often-stormy political response to illustrate the calculations involved in energy price adjustments has shown, computing the first-round of direct effects in policymakers must learn to cope with the our cross-sample of countries. negative effects on the poor. The first lesson of experience is that all household fuels need to SOCIAL IMPACTS OF REFORM 123
Collection and analysis of consumer expenditure survey data from developing countries presents some unique problems not found in similar data sets from developedcountries (Sundrum 1990). The most serious problems revolve around the measurement of income and expenditures. These difficulties in measurement in developing countries result from (1) the survival of traditionalforms of personalrelationships; (2) economies that are less monetized, resulting in wages often paid in kind; (3) the large proportion of the laborforce engaged in agriculture or other subsistence activities; (4) the weaker transport and marketing infrastructure, which means that commodity prices vary between different regions to a much greater extent. These characteristics are more strongly developed in lower-income groups within a country where economic activities in the informal sector are more prevalent. As a result, comparison across income groups may overestimate the degreeof inequality, especially in rural and less monetarized sectors of the economy or where direct cash transfers or subsidized prices are present.
Rather than using income as a measure of inequality, total annual expenditures could provide a proxy for permanent income (Poterba 1989). Since households may move across income categories, classifying them as well-to-do or poor based on annual income data may be misleading in long-term economic studies. The notion that households behave on the basis of long-term income underlies the life-cycle and permanent income theories of consumption (Carroll and Suimmers 1990). In economies where a large proportion of non-monetarized transactions occur, it might be reasonable to expect that examination of expenditures for a market commodity will remain constant. However, as markets develop within the country and more expenditures are monetarized, total expenditures will increase, particularlyfor poor members of society. As a result, the comparison of relative expenditures across groups will not be a good measure of equity.
Box IV-1: Consumer Expenditure Data and the Permanent Income Hypothesis
4.4.1 Household Expenditure Budgets LDCs4 ; 15.9 for Ql and 9.2 percent for Q4 in Nigeria; 12.1 for Ql and 6.9 percent for Q4 in Income surveys are required to find out how Malawi; 10.0 for Ql and 3.9 percent for Q4 in much of the household budget is spent on each Kenya; 5.7 percent for Ql and 2.7 percent for fuel by income class. This allows estimating Q6-six income classes-in Ecuador; 1.6 which income class benefits most from the percent for Ql and 0.8 percent for Q4 in present subsidies, by how much, and which Venezuela, and so on (see Table IV4). The class suffers most from their removal. lesser shares in Venezuela are due to the higher However, as Box IV-1 shows, several problems incomes and lower prices compared with exist with income data in developing Lithuania and the other LDCs. Considering economies, requiring the use of expenditure that food expenditures take about half the surveys. household budget, the 18 percent spent in average by poor households on energy is a Table IV-4 presents energy expenditure significant burden that helps to explain why shares by income classes for the sample large and sudden increases in energy prices are countries. The header row shows the generally met with so much popular resistance. household income classes. Expenditure in electricity, for instance, is the electricity paid as Second, wealthier households spend in five a percentage of total expenditures during the out of seven countries a higher proportion of month by the households in that income class. their energy expenditure on electricity than Thus, the lowest-income households (Q1) spend poorer households, which validates the fact that an average 8.0 percent of their total budget on electricity is the fuel of choice by consumers. electricity in Nigeria, and 4.5 percent on Households will switch to electricity with as kerosene. their income raises. In Zambia, for instance, the wealthy used 94 percent of their energy Although expenditure shares are not strictly expenditures on electricity, while electrified comparable across countries, comparisons are poor households used only 48%. In Ecuador, useful to identify patterns and trends. Data on higher income households used 85% of their energy for home use (i.e., without transport energy budget on electricity, while lower fuels) shows that energy expenditure shares income household used 37%. In Nigeria and decrease with income: 17.9 percent for Ql and
2.1 percent for Q6 in average for thirteen 4 Luis Gutierrez-Santos, 'How to Deal with the Social Impact of Sector Reform". Pacific and Asian Tournalof Energy. Vol. 5 no. 2. December 1995. 124 SOCIALIMPACTS OF REFORM
Poland this relationship did not hold, perhaps very large tariff increases6 . This suggests that because of the massive subsidies to petroleum for the cases examined, countries facing large products in Nigeria, the use of cheap and tariff increases with wasteful energy inefficient electric heaters by poor households consumption, an elasticity of -0.5 seems in Poland, and problems with the quality of the appropriate. data. Two key criteria by which the social impact Another observation is that, in general, of a tariff increase can be judged are (i) the poorer households spend more of their share of the household budget taken by budgets on electricity than do richer electricity purchases and (ii) losses in consumer households. In thirteen LDCs, the poor use surplus. In the case of the former, policy nearly three times as much of their budgets on makers may have a view on the maximum electricity than the rich.5 This relationship held acceptable proportion of the household budget in four out of seven cases in our cross sample that should be spent on electricity. Subsidies, of countries. In Nigeria the poorest 20% spend or income support, would then be required to nearly twice as much of their budget on keep the share below this maximum level. This electricity than the richest 20% of households. measure does not, however, takes into account Comparisons with other developing countries the reduction in consumption that households show a broadly similar share of electricity in typically undertake when the price of electricity the household budget: for example, in Bolivia rises. Both the increase in monthly electricity (5.8 for Ql and 2.3 percent for Q5), in costs and the loss in quantity are incorporated Venezuela (1 percent for Ql and 0.7 percent for in the loss in consumer surplus 7 . This is Q4), and in Poland (6.7 for Ql and 4.7 percent illustrated in Figure IV-7. for Q4.
4.4.2 Estimation Approach Cost
In order to undertake this analysis we use a TCo spreadsheet model to simulate the effect of a tariff increase on purchases of electricity and TC hence expenditures. The extent to which PO- consumption of electricity falls because of a price rise depends on the price elasticity of - Fixed charges demand for electricity. Bohi (1981), Westley (1989) and Gutierrez (1991 and 1995) present summaries for several country studies of both short and long-run elasticities. Price elasticities | > of demand vary considerably, although the studies quoted suggest a cluster value of Qo kWh around -0.5 as reasonable for residential Figure IV-7: Alternative Charging demand. A key determinant of this elasticity is Mechanisms the scope for substituting alternative energy sources for electricity. In the short run it is Denoting the existing tariff paid as P and the generally only feasible to replace electric new tariff as P', the difference between them is lighting (with kerosene pressure lamps or then AP. The same goes for the kWh candles), as the capital investment in electric consumed (Q and Q'), with the change in refrigerators and other durables makes quantity identified as AQ. The loss in consumers unwilling to switch. In practice, the consumer surplus (CS) resulting from a tariff far lower quality of lighting produced by increase can be written as: candles, and even kerosene lamps, makes households with electricity slow to switch back to other lighting options at anything other than 6 Kerosene wick lamps for example achieve only approximatelya 20th of the luminousflux of an 18 W fluorescentlamp. 5 Luis Gutierrez-Santos,"How to Deal with the Social 7 It is importantto bearin mind that totalsocial welfare Impact of Sector Reform". Pacificand Asian Tournalof is not capturedsolely by the consumersurplus but by the Energy. Vol. 5 no. 2. December1995. sum of consumerand producersurplus. SOCIAL IMPACTS OF REFORM 125
Table IV-5: Welfare Losses and Subsidies
Nigeria Zambia Poland Malawi Bolivia Venezuela Kenya Welfare Loss (% of income) Q1 19.09 6.03 4.75 3.80 2.67 1.81 0.52 Q2 9.18 6.44 4.02 2.75 2.17 1.63 0.71 Q3 7.24 6.55 3.53 1.99 2.00 1.73 0.71 Q4 10.74 6.77 3.10 1.44 1.92 1.28 0.71 Q5 6.69 1.26 Subsidies (US$) Q1 0.8 0.6 33.5 0.1 3.0 5.4 0.1 Q2 0.8 2.7 50.5 0.2 5.3 8.6 14.9 Q3 0.8 11.1 74.1 0.3 8.1 13.0 14.9 Q4 0.8 37.9 105.8 3.2 12.8 20.2 14.9 Q5 22.2 27.4
67 dollars. However, the poor experiences 8 ACS = APQ' + 1/2(APAQ) . almost the same decline in welfare of 6 percent of his income as do the richer household. This can then be expressed as an annual loss in money terms, or in relative terms as a 35- 25% percentage of the household income budget. S Subsidies (Yl)
. 30 -+ Welfare loss (Y2) i20% 20 4.4.3 Results 25- 20 - ~~~~~~15% Considering the tariff increases in Table IV-1, we have estimated the likely impacts on the X 15 10% o .0~~~~~~~~~0 expenditure budgets and welfare of the a different income classes of residential users in a Zambia, Malawi, Kenya, Nigeria, Poland, 5m Bolivia, and Venezuela. 0 -0% Figure IV-8 and Table IV-5 tell a compelling QI Q2 Q3 Q4 history: Wealthier users, although getting most Income classes of the subsidies, generally experience less Figure IV-8: Electricity Subsidies and welfare loss from the tariff hikes. On the other Welfare Losses by Income Class hand, lower income users, those in Ql, although receiving less of the subsidies, In terms of the effects of the price hikes on experience the highest drop in welfare from poorer households incomes, electricity raising tariffs. A lower income household in consumption and welfare, these vary according Nigeria, while receiving 3.85 dollars a year in to the levels of subsidies and household subsidies ($27 for the rich in Q4), will incomes (Table IV-6). For instance, a poor experience a welfare loss of 19 percent of its household in Nigeria, while receiving 3.85 annual income (11 percent for the wealthy). In dollars a year in subsidies, will experience an Zambia, a poor user gets 55 cents worth of increase in electricity expenditures of $40.4 electricity subsidies a year, while the rich gets dollars -9.5 percent of its budget-, a demand reduction of 54.3 percent, and a welfare loss of 19 percent of its annual income. In Zambia,
8 This linear approximation to the demand curve is given the lower subsidies, a poor user will presented only to illustrate the concept of consumer expend 6 dollars more a year, consumption will surplus. In the analysis we employ the more conservative decline 51 percent, and welfare will drop by 6 (and conceptually sounder) constant elasticity demand percent of its income. curve for all consumer surplus estimates. 126 SOCIALIMPACTS OF REFORM
As shown above, our preliminary analysis electricity. Given less to spend on other items, indicates significant tariff increases for the poor effectively become poorer. This has residential consumers in the countries in our led some governments in similar positions to sample. These increases are required to reach seek a transitional solution by replacing some economic prices, but do not take into account of this lost income in the form of additional either efficiency gains nor the companies' welfare payments. financial requirements. The real tariff increases are thus likely to be different. We thus carried 25% out a sensitivity analysis to different tariff Malaw increases (from 0 to 250 percent). Figure IV-9 Niger- present the effects of the altemative tariff hikes 20% ...... B olivia on the budget shares taken by electricity. The -antbia...... first observation is that poor households in _ - Kenya Nigeria and Malawi spend a significant portion of their incomes on electricity. A doubling in 10%2 the price of electricity, will mean for the Nigerian poor users going from 8 to 13 percent ...... of their expenditure budgets to pay for less 5% electricity consumption, and poor households ...... in Malawi will go from 8.5 to 14 percent. Poor 0% households in Bolivia and Poland also spend a o% 50% 100% 150% 200% 250% significant share of their budgets on electricity. Tanifflncrases The remaining two SSA countries, a doubling Figure IV-9: Tariff Increases and Budget or a trebling of tariffs will not have major Shares of Low Income Households impacts on the household budgets of the poor; i.e., a tariff increase of 250 percent will mean an Economic theory suggests that targeting the increase from 3 to 7 percent for Zambia, and poor directly via income support is more cost- from 1 to 3 percent for Kenya. effective than any indirect support via subsidizing goods or services, such as Table IV-6: Income, Demand and Welfare electricity, consumed by all types of Changes of Poor Households from Tariff households. Our data shows that less than 49% Increases in Zambia, 48% in Nigeria, 46% in Kenya and 38% in Malawi of electrified households are TinCOme Demand Welfare Loss classified as poor. It would naturally be more Reduction Reduction eWare OSSefficient to target relief to these households US$ % % US$ % directly rather than to also subsidize the Nigeria 40.4 9.5 54.3 80.9 19.1 consumption of electricity of the more than half Zambia 20.6 3.0 50.7 41.2 6.0 households defined as non-poor. Poland 134.7 2.4 36.5 269.4 4.7 Malawi 7.8 1.8 17.7 15.5 3.7 Cost Bolivia 15.1 2.1 8.3 18.9 2.7 i Venezuela 15.3 0.9 46.8 30.6 1.8 2 KenVa 42.5 0.3 15.9 84.9 0.5 p I - -
I l\
I I
4.5 Options to Deal with the Price D Impacts on the Poor Do
Qo Q] kWh(quantity) 4.5.1 Social Welfare Payments Figure IV-10: Impact of Exceeding the As illustrated above, one of the effects of an Minimum Block increase in electricity tariffs on the poor is to raise the share of expenditure taken by SOCIAL IMPACTS OF REFORM 127
Unfortunately, the options for direct income In some SSA countries, the fixed and energy support to low income consumers of electricity charges are combined into a minimum annual are extremely limited. No national social fee for a minimum consumption block. After security programs could fulfil this function. this first level, more tariff bands exist as Those programs that exist offer either work consumption increases. Figure IV-10 illustrates opportunities from public works (FIS) or the alternative charging mechanisms. If the localized food for work. Consequently, the low income household wants to consume less SSA governments would face grave difficulties than Q0, he still needs to pay J?, although the in identifying the poor among electricity actual cost to the system of supplying his consumers (as they are not generally existing consumption is TC, which is less than T§' up welfare recipients) and no obvious method of to consumption Q0. delivering targeted income support. Given these obstacles it appears that any transitional 4.5.3 Connection Charges relief from tariff rises will necessarily be in the form of subsidies on electricity consumption. In some countries, the charge to be connected to the electricity grid can be the main barrier to Table IV-7: Connection Charges the electrification of poor households. The cost of providing a connection depends on the Connection fee length of the low voltage line, the type of meter Company ($US) installed and whether or not a new transformer is required. In areas already electrified, the EDM -Mozambique 600.0 cost is restricted to low voltage line and a BPC -Botswana 530.0 meter, and a range of $US 80-300 is typical.
CRE -Bolivia 412.0 Large up-front connection charges limits household connections in reticulated areas, so ZESCO -Zambia 55.0 that a subsidy may be considered. Table IV-7 ZESA -Zimbabwe 30.0 illustrates the range of current charges in several SSA countries and in a city in Bolivia. ESCOM -Malawi 22.0 When one considers the low household incomes, the connection charges of Mozambique, Botswana, Bolivia and Zambia seem difficult to be afforded by the poor. In 4.5.2 A Change in the Tariff Structure Mozambique, the connection policy requires users to bear all connection costs up-front. We begin by considering the existing tariff Since average urban incomes are less than US$ structure as it has a fundamental influence on 70 per month, this cost excludes most how price rises are transmitted to various households. In Botswana, for instance, the income groups. The tariff structures faced by national median income is about $530. These retail consumers in the SSA countries examined figures suggest the need for introducing are both unusual by international standards adequate financial schemes for connection and, sometimes, regressive. That is to say that charges to tackle the problem of low normally the poorest consumers pay affordability. proportionally more for their electricity than richer households. International comparison Another issue concerns the appropriate level of reveals that residential electricity tariffs the subsidy. The optimal solution will be to typically comprise a standing (or fixed charge) meet the social objective of the government at which does not vary with consumption, and an least cost. If the objective is to encourage energy charge per kWh. Economic theory electricity connections of low income suggests that the fixed charge be related to the households and the obstacle preventing this is costs of connecting consumers to the electricity the large initial cost of connection, the solution grid and servicing the connection. The charge is to limit this initial cost. This does not for energy should then reflect the marginal necessarily imply a subsidy. costs of generating and distributing electricity to the consumer. CRE in Bolivia offers potential members the option of paying a US$ 400 lump sum, US$ 500 over five years or US$ 600 over 10 years. In Sri 128 SOCIALIMPACTS OF REFORM
Lanka, the distribution entity has acted as a typically less than 10 percent of the poor have facilitator to persuade banks to make loans on electricity. There is a danger, therefore, that very favorable terms to cover the cost of subsidies spent on electricity (rather than on connection. Instituting a 10-year payback period services used more extensively by the poor) for the cost of connection could well achieve would be transfers to the richer sections of the the objective of making connection to an population. To reduce this danger, a means of electricity supply affordable for relatively low targeting subsidies to low income electricity income households without a subsidy. To put consumers is required. The method typically this in context, a US$100 connection fee paid used to do this relies on the fact that electricity over 10 years at a commercial interest rate of consumption is lowest among low income 12% would require a monthly payment of US$ groups. Hence attention is focused on some 1.46. minimum or lifeline consumption block.
If a subsidy of the connection charge is found Table IV-8: Lifeline Blocks necessary, it should be: Country kWh Block US$/kWh * Explicit and visible to consumers -one 0.045 element of the regular payment would be "the subsidy provided for the connection Kenya 0-50 0.010 of low-income households;" and Tanzania 0-100 0.014 * Targeted, where possible, to reduce the (energycharge) cost of the subsidy -this could be done 0.36 using the number of rooms as a criterion (servicecharge) for subsidizing the connection. Any such policy should give most households in any Sri Lanka 0-10 0.014 one area the same connection fee -if not, 11-50 0.027 there is a danger of houses with subsidized connection illegally re- supplying slightly larger houses. Splitting out the fixed cost element of the tariff and the first energy segment (e.g., 20 kWh Where the main obstacle is a high initial cost per month) allows a subsidy to be targeted to of connection, any lump sum subsidy would this minimum consumption (lifeline) block. have to be very large to bring the cost down to Many developing countries have adopted such an affordable level. Here the combination of a a policy. Some examples are provided in long-payback period and a subsidy on the rate Table IV-8. of interest charged is likely to be more efficient. An average of 20-50 kWh per month appears 4.5.4 Lifeline Consumption Blocks to be the range for such lifeline blocks. However, if the rationale for such a policy is to In this section we are seeking to identify ensure lighting and, perhaps, use of a radio for relevant options for minimizing the impact of electrified low income households, then the electricity tariff rises on low income lifeline block should be limited to 20 kWh per households. It is important to note that this month4 5 . rules out a general subsidy on the price of electricity as currently granted in most of the As for who should have access to a countries in our sample, because as we have subsidized lifeline block, two possibilities exist. seen this type of subsidy is regressive, The The first is to restrict the subsidy only to those benefit of the general subsidy rises directly with consumption of, for exarnple, 20 kWh per with the amount consumed. Richer month or less. This has the advantage of households, who consume most electricity, targeting the subsidy to the poorest households would thus gain most and poorer households and should, therefore, be the cheapest option - would gain least.
This argument is reinforced if money raised 45 For a householdwith 2 x 60W bulbsand a 5 W radio by taxation is used to finance the electricity all operatedfor 4 hours per night the monthly energy subsidy. Sales tax is paid by all, whereas consumption would be 15 kWh. SOCIAL IMPACTS OF REFORM 129 as relatively few households consume so little. improving access and developing additional There are, unfortunately, two major difficulties capacity. However, the additional costs this with this approach. As Figure IV-10 shows, imposes on poorer households may prove this policy can lead to a huge jump in the difficult to bear and be politically unacceptable. marginal cost facing consumers as they pass the minimum consumption block. This tends to This provides a justification for some form of trap consumption at this low level, and is government subsidies. In deciding the form, economically inefficient, leaving many extent and duration of the subsidies it has to be households frustrated. Administrative costs noted that there is little evidence to suggest can also be significant in identifying those that the consumption of electricity by one consuming only the minimum and billing household provides other, non-electrified, accordingly. Households who exceeded the households with significant benefits4 6 . This is minimum consumption slightly may refuse to not to diminish the importance that households pay the full cost of their consumption, attach to having electricity, but to emphasize potentially creating problems of nontechnical that the benefits from electrification losses. overwhelmingly accrue to those who receive it. The fact that electrification provides private, The second option is a universal lifeline rather than public, benefits suggest that those block. Given the difficulty of targeting the who receive them should pay for them. That is lifeline block only to those who consume very to say, no intrinsic reason exists for subsidizing little, governments have typically chosen to electricity in the way that there is, for example, make a lifeline block available to all consumers. in subsidizing the provision of primary That is, the first 20 kWh per month are education. subsidized whatever the household's monthly consumption level (e.g., whether it is below or Moreover, it has been noted previously that above 20 kWh per month). This alternative is a subsidy on residential electricity tariffs is also likely to be more practical. regressive and a very poor mean of directing income transfers to low income households Having identified who should receive the -as most of these are not electrified. There are subsidized lifeline block, one should then far more effective ways of redistributing consider how the tariff structure of such a income. For these reasons a long-term subsidy block would be organized. There are seems undesirable. SSA governments can meet arguments to suggest subsidizing the inelastic their welfare objectives more effectively if they component, the fixed cost (standing charge). do not rely on a subsidy on electricity By doing so, the actual cost of increasing consumption. consumption (the marginal cost) can be reflected even at low consumption levels. This leaves the objective of mitigating the sudden effect of a cost-related tariff increase on The option of subsidizing the monthly low income households, which we call the standing (fixed) charge has the advantage that "fairness objective." A sharp rise in the budget the poorest households that choose to consume share taken by electricity may cause hardship less than the full lifeline block will be better off. and prove sufficiently unpopular to derail Moreover, the scheme continues to send the reforms which would provide benefits for the "right signal" about increasing consumption, as country as a whole. the energy tariff reflects marginal cost. Administration may also be easier, as the To target those electrified households with subsidy is per connected household, and its low incomes we have suggested directing any value does not depend on metered household subsidy to a lifeline block of electricity. Over consumption. time, households' incomes are likely to expand with economic growth, reducing the budget 4.5.5 How Long to Subsidize share taken by electricity. They will also be able to restructure their energy use and switch It appears likely that residential electricity tariffs will need to rise to reflect the economic costs of supply. The benefit of these higher 46 This is particularly so in Bolivia where the vast tariffs is to offer sufficient return to generators majority of electrified households live in urban areas with to encourage private sector involvement for alternative sources of energy to electricity. 130 SOCIAL IMPACTS OF REFORM away from electricity if necessary. This 4.6.2 Criteria to Be Met by Any Financing suggests that a subsidy on electricity to meet Mechanism this "fairness objective" should be flexible and transitory in nature. It should br tied to the Whether a cross-subsidy or more general tax growth in household incomes. When the revenue is used to support a lifeline block, the income share taken by electricity is deemed criteria for a "good" tax should be applied. socially acceptable, the subsidy is eliminated. Such a tax should:
4.6 Alternative Financing . generate enough revenue to cover state Mechanisms expenditure (effectiveness);
* wherever possible, be levied where it The primary means of financing current causes the least distortion in the economy, subsidies to domestic consumers appears to be both in the static sense of allocating via cross-subsidies from industrial and resources to the best use; and in the commercial users. These cross-subsidies are dynamic sense of creating the right inefficient in the sense that they diminish the patterns of growth in production and competitive advantage of productive users. consumption over timne (least distortion); This raises the question of how SSA governments will finance future subsidies to * treat consumers and producers fairly, domestic consumers. The options we consider compared with those in other sectors, and next are: not subject the poor with relatively higher taxes than the rich (fairness); and * additional tariff increases on electricity consumption above the minimum * be levied where administering is easy for consumption block the taxpayer and the authorities * excise taxation (simplicity). * direct taxation, and * addition to VAT. These general principles have the following implications if the subsidy is to be financed We begin, however, by considering just what from the government budget: would be required to sustain the subsidy and the criteria to be met by any financing * The subsidy should be explicitly included mechanism. in the budget and made a subject of political scrutiny, rather than being 4.6.1 Magnitude of the Required Subsidy achieved by some transfer outside the budgetary mechanism (e.g., a special levy Following our discussion of lifeline on hydrocarbons). The latter may be less consumption blocks, we consider the example controversial, but it is also a distortion and of Bolivia. Let us say that the government is less open to scrutiny. agrees to provide a 100% subsidy for the first 25% of any increase in cost on the minimum * The granting of the subsidy should be consumption block. From an average of US$ fiscally neutral, which is to say it should 0.064/kWh this would mean US$ 0.016/kWh. be accompanied by a tax increase (or Given an average minimum consumption block expenditure reduction) elsewhere in the of 32.9 kWh/month and total grid-connected budget sufficient to offset it. This is households of some 438,000, the total annual necessary to avoid upsetting the fiscal cost would be approximately US$ 2.8 million or balance of the government, which is an Bs 12.1 million at current exchange rates4 7. To important consideration in managing the put this in context, data on household overall economy. expenditure shows total household spending on electricity of approximately US$ 58 million in * The accompanying tax increase (if this is 1992. what is decided) should be on as broadly- based a tax as possible, to avoid creating large distortions in other prices in 47 The figure for total grid-connectedhouseholds is economy. Each of the various tax derivedfrom ENDE statistics1992. instruments available to governments has SOCIAL IMPACTS OF REFORM 131
some advantages and drawbacks, but part of the revenue to energy strong reasons exist to believe that broad- subsidies. based taxes on domestic consumption provide an appropriate platform for raising revenue: If the subsidy is to be financed by raising the price of electricity consumption for larger 4> Taxes on international transactions. consumers (a cross-subsidy) it should: Overall, these should not be changed, because this interferes with * minimize the distortion in consumer productive efficiency and external behavior which implies raising the price of balance, and may contravene treaty the least price elastic fuels and those obligations. consumed by the largest proportion of the population; 4 Personal income tax. If this tax is sufficiently well-administered and * not artificially raise the price of inputs in broadly-based, it may provide a the production of goods and services; and suitable platform. Yet in countries like Bolivia with a very uneven income * be clearly identified on the monthly bill distribution, the tax is usually paid by presented to consumers. only a small proportion of the population and is difficult to collect. The middle condition rules out cross- Thus direct taxation is unlikely to subsidies between industrial or commercial and offer a suitable means of financing the residential users. We are left with raising the proposed subsidy. price of electricity for larger residential electricity consumers and using this revenue to 4 Broad-based consumption taxes such finance a subsidy on a lifeline consumption as VAT or general sales tax. These block. Table IV-9 summarizes the most likely taxes generally provide a suitable options for funding the subsidies. platform, because they are easy to administer, affect only final 4.7 Summary and Recommendations consumption and leave productive efficiency alone, and are levied at relatively low rates. The only This paper examined the likely impacts of objection may be that they fall partly sector reform and how to deal with on the population whose energy is them-specifically the increases on electricity being subsidized. The validity of this prices that usually accompany restructuring. objection depends partly on details of Market-based reforms imply significant price the taxes: often items important to the hikes that may lead to social unrest, which in poor such as basic foodstuffs are turn may lead policymakers to procrastinate or exempt or taxed at lower rates. Even vacillate. General energy subsidies are if the tax is proportional to household expensive, however, and lead to deadweight consumption, the burden is shared losses. Thus, if policymakers are aware of the much more widely than the size of the impacts of the price reform, how the subsidized target group. economy will be affected, how much the poor will be affected, and how best to mitigate the 4> Excise duties. More narrowly-based social impacts, this information may empower consumption taxes, such as those on them to go out publicly to explain the benefits road fuels, also provide a possible of the reform and ultimately to carry it out. platform for tax increases. They are easy to administer, and generally fall An input-output analysis is generally the on goods which are not very price preferred instrument for assessing the sensitive. Nonetheless, there is a inflationary impacts of raising energy prices to danger of distorting input prices their efficiency levels. The examples for when fuel is taxed (but not if alcohol Nigeria, Zambia, Kenya, Malawi, Poland, or cigarettes bear the burden). If this Ecuador, Peru, and Venezuela show that option was used, the tax authorities efficiency repricing of energy would lead to should avoid permanently allocating small increases in consumer prices and 132 SOCIALIMPACTS OF REFORM
Table IV-9: Options to Fund Subsidies for Lower Income Groups
|Advantages | D3isadvantagesl
Addition to VAT
Effective -given a broad base only a very Unfair as only a minority of poor households small increase is required. are electrified but most households will pay this tax.
Low distortion on intermediate goods Possible distortion of demand for some (businesses reclaim VAT). consumer goods with a high income elasticity of demand.
Simplicity -it is already in place and accepted
Additional excise duty
Effective -widespread consumption of fuel Possibly unfair as only a minority of poor and cigarettes, for example households are electrified but many households (but perhaps not most) will pay this tax.
Low distortion as the price elasticity of Distortion if fuel is taxed as an intermediate demand for these goods is low -the price of good -as even a small price increase could the taxed item does not rise much as a result. raise the price of other goods and services.
Simple -if the system is already in place.
Increasing the cost of electricity for larger residential consumers
Fair -those paying will almost certainly be Ineffective/Limited base -the cost borne by richer than those receiving. each consumer will be greater than for VAT for example
Simple -metering and billing already exists
Limited distortion if (and only if) the price elasticity of demand is low
producer prices and that these vary directly pricing fosters economic growth, helping with the magnitude of the price distortion. If domestic incomes, and reduce tax needs (higher the price distortion is significant, the increase in tax revenue from higher income levels, less prices will be similar to those encountered need for government contributions and for during the oil shocks of 1973 by the deficit finance). Over the long run, the energy-importing countries. The main reduction in cross subsidies leads to a decline difference is that the transfer of rents will be in productive costs. Furthermore, in the internal rather than external, and productivity, short-to-medium run, higher energy prices will employment, income, and tax revenue levels be offset by interfuel substitution, energy will likely increase, leading to a decline in the conservation, and the penetration of new, permanent rate of inflation. less-energy-intensive technologies into the marketplace. After an initial period of adjustment, the general price increases will probably slow, and Efficient pricing of energy, although compensatory effects will take over. Efficient improving the overall macroeconomic SOCIAL IMPACTS OF REFORM 133 framework, will impose hardships on the poor. income support provided. However, direct These hardships will derive not only from the welfare payments are not feasible in most direct effects of economic tariffs (such as the developing countries, and restricting subsidized increase in electricity expenditures by lower- energy charges to those consuming little creates income groups and the reduction in electricity a disincentive for consumers to move upward consumed) but also from the indirect out of this group. For electricity, a compromise effects-the price increases that will follow in is to offset the rise in tariffs with a subsidy on their basket of goods and services. Initially, all the fixed cost of supply (the standing charge). consumers will see an increase in the cost of This should be the preferred option if the fixed living. However, this increase will be cost (standing charge) is a sufficiently large transitory and will moderate as the initial element of the monthly electricity bill for impact is absorbed into the economic structure poorer households to make this feasible. If not, and the offsetting medium- and long-term the subsidy should be restricted to a lifeline tendencies take hold. block to cover essential needs (which are unlikely to be more than 20 kWh/month) and Electricity subsidies to residential users made available to all households. significantly favor the middle- and upper-income households. In Kenya, a wealthy Trying to mitigate the impact of large energy user receives US$ 15 per year in subsidies, price increases on the poor is a valid policy while a poor one gets 9 ¢; i.e., the affluent objective. However, it should be stressed that receive in average 173 times what the poor subsidizing energy is a very ineffective and gets. The same situation prevails on all the inefficient means of supporting the poor countries in our sample. overall, and that once a subsidy is granted, it becomes very difficult to remove. The benefits of subsidizing energy consumers are not only inferior to the value of the As for the sources to finance these subsidies, resources used but less than the benefits of efficiency energy pricing would release enough allocating the equivalent subsidy to budgetary funds for the government to pay for infrastructure or to social and human capital them. Another option exists for electricity: a formation. In Nigeria, if the govemment cross-subsidy among residential consumers. subsidized only low-income households, the Each government needs to choose its preferred subsidies released could fund the building of option. In principle, the first option should be close to 1,460 primary schools or 230 secondary the preferred one: funding all subsidies from or technical schools every year. the national budget. However, both options can work. Moreover, for electricity, if the To offset the sudden increase in electricity subsidies are relatively small, targeted only to costs to poor households, the government may the very poor, and explicitly stated, a wish to provide transitory subsidies. Ideally, cross-subsidy is feasible and likely to be fairer poor households should be identified and than other options. 134 SOCIALIMPACTS OF REFORM
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by London Economics
5.1 Introduction purpose of this paper is to review some of the key issues, and to see how far international experience is of relevance to the development of Regional integration and bulk power trading regional interconnection in Africa. can substantially reduce power system costs. Reserve can be shared. The operating costs of an The paper starts with a review of the present existing regional network can be minimised. position in Africa. This includes a brief System expansion costs can be reduced through summary of the physical capacity, the planning on a regional basis. institutional position in the power sector, and the contractual arrangements for trade. The capacity The physical constraints to trade, including the for regional interconnection, and the volume of need to develop transmission networks can energy trade, are compared with a number of usually be overcome-at a price. The other regions of the world. commercial constraints to trade can prove more difficult. Failure to agree on pricing systems, or Section 3 looks at the potential for further to enforce contractual obligations, can block trade. This describes the possible costs and trade proceeding even when it is in both parties' benefits arising from trade, as well as interests. summarising some studies on the benefits from trade in the region. The key constraints to long-term firm power trade are often political. Countries are unwilling Section 4 considers the main issues that arise to rely for a key economic input such as power in developing regional interconnection and bulk on neighbouring countries. They are even more power trade. These include pricing of bulk cautious of relying on power being wheeled energy, pricing and access to transmission, the from more distant sources across one or more institutional framework, and the overall policy neighbouring countries. towards electricity trade.
Many other parts of the world have 5.2 Present Position encountered similar situations, where increased electricity trade is potentially economic but there are strong constraints on its proceeding. The
REGIONAL INTERCONNECTION 137 138 REGIONAL INTERCONNECTION
This section describes the present context for * Cahora Bassa which, once lines are regional interconnection and bulk power trade in completed, will provide exports from Africa. It starts by summarising the present Mozambique to Zimbabwe and South make up of generation capacity and energy in Africa; Africa. It then looks at interconnection capacity, and bulk power trade. The contractual and * Inga, which allows Zaire to export to Congo institutional arrangements for trade are then and Zambia; covered. * Akasombo, which has provided for exports 5.2.1 Generation capacity and energy from Ghana to Togo, Benin and Cote d'Ivoire; The paper on utility performance provides statistics on generation and capacity in sub- * Kainji, which has provided for Nigerian Saharan Africa for a subset of countries, covering exports to Nigeria; and around 90% of total generation. Figure V-1 below shows total installed capacity for these * Ruzizi I, which has allowed for exports countries in 1992. As can be seen, total installed from Zaire to Rwanda and Burundi, and capacity is dominated by South Africa, which Ruzizi II which is jointly owned. accounts for over 50% of generation capacity for the sample. Figure V-2 below illustrates for our sample the share of hydro in total energy, during the same period. The weighted average share of hydro in annual energy production was 18.9%. This [SSA 461ff%] reflected the low share of hydro in South Africa and also in Nigeria. However, of the 19 ,122,087/X//m/SEj, countries in the sample, thirteen obtained more than 50% of their energy from hydro and seven received over 90% of energy from hydro.
Zaire Uganda Zamb/a-hrgRSXyiSaiiEl< >l\e E N Ethiopia- . _.______:'_'R______Ghana- rameimn- Malawi- South Africa53.9%1 Kenya Tanzania Mali Gabon- Madagascar- Figure V-1: Installed Capacity, 1992 (MW) Zimbabwe-- Nigeria- Guinea - Mauritius- South Arica - One of the main drivers for trade to date has Senegal l_l_ l been the availability of hydro; the mismatch 0% 20% 40% 60% 80% 100% between countries which have economic hydro E HydoCap * Therm/lCap (X) resources and the countries with the greatest n NuclearCap. (%) E OtharCap.(%) load; and the potential for mutual benefits from integration of hydro and thermal systems. The Figure V-2: Installed Capacity by Type great majority of electricity trade in Africa to date has been based on hydro capacity, including: These figures illustrate the discrepancy between the location of hydro generation and the location * Kariba, serving trade between Zambia and of load. There is a similar discrepancy between Zimbabwe; the location of economic potential for hydro development and load. This is illustrated in * Owen Falls, allowing for exports from Table V-1 below. Uganda to Kenya, Tanzania and Rwanda; REGIONAL INTERCONNECTION 139
Table V-1: Hydro Potential and Installed Capacity Installed Economic Max. annual technical hydro Country hydro capacity potential potential 1990 (MW) (MW) (MW) (GWh) West Africa Benin 0 300 700 2500 Burkina Faso 14 100 200 800 Chad 0 - 30 150 Cote d'Ivoire 885 1800 3000 14000 Gambia 0 - - - Ghana 1072 1000 2000 10000 Guinea 47 2200 5000 30000 Guinea-Bissau 0 30 60 300 Liberia 81 1100 2000 11000 Mali 54 900 2000 10000 Mauritania 0 - - - Niger 0 235 235 1330 Nigeria 1938 6000 12400 38000 Senegal 0 250 500 2500 Sierra Leone 2 400 1300 6800 Togo 65 230 450 1700 4158 14545 29975 129080 East Africa Djibouti 0 - - - Ethiopia 372 5000 12000 60000 Kenya 583 1000 6000 30000 Somalia 5 150 150 600 Sudan 283 2000 2700 19000 Uganda 156 1800 2800 14000 1399 9950 23650 252000 Central Africa Burundi 28 200 800 4000 Cameroon 583 8000 23000 100000 Central African Rep. 22 - - - Congo 120 3000 11000 50000 Gabon 323 6000 18000 80000 Rwanda 56 100 600 3000 Zaire 2499 45000 120000 530000 Southern Africa Angola 434 8000 23000 100000 Botswana 0 - 1 5 Lesotho 2 50 450 2000 Malawi 146 400 900 6000 Mozambique 2360 3000 15000 72000 Swaziland 44 200 600 3000 Tanzania 333 2000 9500 40000 Zambia 1963 6000 12000 54000 Zimbabwe 666 3000 3800 20000 5948 22650 66251 297005 Grand total 15136 109545 293276 1445085 "Sources: The World Bank, Energy Department, Paper No. 17, and "Future Role of Hydro electricity in Sub- Saharan Africa", Water Power and Dam Construction, March 1991. 140 REGIONAL INTERCONNECTION
The history of trade to date has largely been the * Southern Africa, with an increasing degree result of integration between hydro and thermal of interconnection between Zambia, systems. However, gas is playing an increasing Zimbabwe, Malawi, Mozambique, role in new generation. Cote d'Ivoire's Botswana, Namibia, South Africa, Lesotho development of new gas-fired generation has and Swaziland. allowed it to export to CEB (serving Togo and Benin). The development of Songo Songo in East Arica Tanzania opened up the possibility of exports to Kenya, although this is not an element of the A number of these interconnections have long first phase. histories. Kenya and Uganda have been interconnected since 1953. The interconnection It is not yet clear whether increased use of is designed to allow for export of surplus gas-fired generation will lead to increased trade capacity from Owen Falls. The present in gas or electricity. The decision on whether it connection is at 132 kV, has 30 MW capacity, is more economic to export gas or electricity will and runs from Tororo to Juja. vary from case to case, and depends on the calorific value of the gas, the capacity involved The interconnection from Uganda to Tanzania and the distances to be transported. Low btu is also at 132 kV, and runs from Mataka to gas, high capacity and long distance all favour Bukoba. The originial intention was that this electricity trade. should transfer 15 MW, but recently transfers have been restricted to around 5 MW. A 33 kV Non-economic factors also play a part. Trade line to Rwanda, from Kabale substation, is in primary energy, rather than electricity, may be presently under construction. perceived as less risky since primary energy can be replaced, even if expensively, through West Africa imports. On the other hand, energy exporting countries may prefer to see capacity developed West Africa creates potential for trade through in-country to serve a regional base. The impact the existence of power systems with different of gas on future electricity trade is still to be generation bases. Ghana's Volta River Authority seen. (VRA) is almost entirely hydro, with a large reservoir at Akasombo. Togo and Benin are 5.2.2 Regional Interconnection and Trade served by Communaute Electrique de Benin (CEB) which historically has largely depended Interconnection capacity on VRA for capacity.
The present regional interconnection capacity Cote d'Ivoire's utility, Energie Electrique de is summarised below. In addition, a number of Cote d'Ivoire EECI), has operated a hydro countries have sub-transmission voltage thermal system, with an increasing share of interconnections. thermal plant. (Since 1990, operation and maintenance of EECI's system has been The main regions where interconnection is transferred to Compagnie Ivoirienne d'Electricite found are: (CIE) under a concession agreement). Cote d'Ivoire has total system capacity of around 918 * East Africa, between Uganda and Rwanda, MW, of which two-thirds is hydro. One third is Kenya and Tanzania; from the thermal plant at Vridi, although this tends to operate much below installed capacity. * West Africa, with existing interconnections Thermal capacity is now being boosted by the between Cote d'Ivoire, Ghana, Togo and addition of a gas-fired plant. The CIPREL Benin, and between Nigeria and Niger, and (Compagnie Ivoirienne de Production planned interconnections from both Cote d'Electricite) facility is in two phases. Phase I d'Ivoire and Ghana to Burkina Faso; provides 99 MW.
* Central Africa, with interconnections from The original driver for interconnection was the Zaire to Congo, Rwanda, Burundi and substantial capacity available at the Akasombo Zambia; and hydro plant in Ghana. The construction of Akasombo was tied in with the energy requirements of the VALCO aluminium factory, REGIONAL INTERCONNECTION 141 but led to excess capacity in relation to Ghana's Central Africa requirements. In 1972, a double circuit 161 kV line provided an interconnection to CEB, linking In Central Africa, Zaire has acted as an Akasombo to Lome in Togo. Since then, VRA exporter of energy due to the availability of has supplied the bulk of CEB's generation, cheap hydro. Interconnections exist to Congo, although with some reductions during 1982-84 Rwanda, Burundi and Zambia. due to the drought. The interconnection to Congo dates back to In 1984, a 225 kV interconnection was made 1968, when a 30 kV line was put in service between VRA and the system of EECI (Energie between Kinshasa and Brazzaville, although an Electrique de la Cote d'Ivoire). This is a single earlier interconnection existed at 6.6 kV. A 220 circuit 225 kV line from Prestea in Ghana to kV line was completed in 1983, also between Abobo in Cote d'Ivoire. The transmission Kinshasa and Brazzaville. Trade has fluctuated, capacity is limited by stability constraints, and in part in response to the availability of capacity affected by the operation of the two systems, but within Congo, but by 1993 imports accounted for is around 100-130 MW. 31.2% of Congo's energy consumption. A second line is one of the options considered for As with East Africa, the original driver for expansion of capacity in Congo. interconnection was the existence of hydro capacity, and trade was geared principally A +- 533 kV HVDC line runs 1,700 km. from towards export of Ghana's surplus energy. More Inga II hydropower station to Kolwezi. This recently, the construction of new gas-fired line, which was constructed in 1983, links Zaire's capacity in Cote d'Ivoire has led to exports from Western and Southern provinces. The Shaba Cote d'Ivoire to Ghana, and through Ghana to province of Zaire is linked to Zambia by a 220 CEB. kV circuit running from Karavia to Luano. This connection was developed around 1955, to The trade in this region provides two supply the copper belt in Zambia. This allows interesting examples: exports from Zaire to Zambia. By wheeling through Zambia, Zaire can also export further * long term dependence on trade for firm South. However, the capacity of the existing power. CEB supplies both Togo and Benin. interconnection to Zambia would prove a These two countries have relied on firm constraint on further deepening of trade. power imports as a long term substitute for domestic generation capacity; Zaire was connected to Rwanda in 1979, at 110 kV, and to Burundi at 70 kV, also in 1979. The * the shifting roles of hydro and gas. While interconnections are from the hydro most substantial electricity trade in development at Ruzizi. The first phase has seen sub-Saharan Africa has historically been exports from Zaire. Ruzizi II is jointly owned by hydro-based, gas is likely to plan an all three countries, and managed by SINELAC increasing role. This has been the case here, (also jointly owned by the three countries). with Cote d'Ivoire shifting from being mainly an importer to an exporter as its Southern Africa new gas-fired capacity has come on line; and Zambia has an entirely hydro grid system. Zimbabwe also has 750 MW of hydro, all at * wheeling. Most electricity trade in Africa is Kariba South. Otherwise, Zimbabwe has 920 at the border between two integrated MW mine-mouth coal-fired generation, and 325 utilities. However, EECI is now exporting MW of older coal-fired capacity based in urban to Benin through Ghana, so raising issues of areas. Until recently, this has been the basis for wheeling charges and firm transmission the largest electricity trade in Africa. rights. The Zambia: Zimbabwe interconnection dates Nigeria and Niger have had an interconnection back to 1960. The impetus for interconnection since the 1970s. The line between the two was the Kariba hydro scheme, designed to meet countries also assisted with linking North West demand from industry in Zimbabwe and the Nigeria to the grid at the time it was copper belt in Zambia. The two systems are constructed. linked through 2x330 kV connection at Kariba. 142 REGIONAL INTERCONNECTION
Trade has been very substantial, mostly based on Finally for this region, ZESA in Zimbabwe was exports from Zambia to Zimbabwe. Figure V-4 connected to BPC in Botswana in 1990, through below shows the transfers across the a 220 kV line between Francistown and Zambia-Zimbabwe interconnector between 1978 Bulawayo. Until the completion of the Matimba and 1992. Bulawayo line, this has been the line that has enabled power transfers to and from South 4000- 700 Africa and countries to its North, by wheeling through Botswana. As BPC's system is small in 3500 . ^ ts -600 relation to both ZESA and ESKOM, that has 3000 - 1 u . . 4 \ I -_ 500 caused some stability problems.
2000 - As shown above, Southern Africa is the most (D u g Y - 300 highly interconnected region in Africa. The map 1500- at Annex 1 shows the location of the 5000 0 Jl t 200 interconnections discussed above. 500 -~~~~~~~~100 Although the focus of this paper is on -0 sub-Saharan Africa, it is also worth noting that 1978 1980 1982 1984 1986 1988 19901992 there is a long running interconnection between 2 Energy (GWh) (Y1) Algeria, Morocco and Tunisia. -.-- Demand(M149 (Y2) Figure V-3: Zambia and Zimbabwe 5.2.3 International Comparisons Interconnector Relatively few areas of the world rely heavily on cross-border electricity trade. In Western Europe, the main driver for trade has been For Zambia, electricity trade has been a major France's very high level of nuclear capacity. This source of foreign exchange. However, the has been exported, principally to the UK and to drought conditions in the early 1990s led to Italy, as baseload capacity. The availability of reductions in trade, on the basis of force cheap hydro in Canada has played a role in majeure. much of the trade between the US and Canada. In the former Soviet Union there is a high degree ESKOM in South Africa operates a system with of integration through a series of regional grids. a small amount of nuclear, some pumped However, with falling demand many countries storage, and large amounts of coal-fired thermal are relying on domestic capacity rather than capacity. ESKOM is far larger than other utilities trade. in the region. In 1992, ESKOM sales were 138,000 GWh. Zambia, Zimbabwe and Botswana The Nordic countries provide an interesting had combined generation of 18,763 Gwh. example of the potential for - and to date the limits to - development of trade between ESKOM has been interconnected to Botswana countries with similar cultures and languages. since 1980, through a 132 kV line between Again, differences in generation capacity create Gaborone and Spitskop. It has been connected the potential for trade. Norway's system is close to Namibia since 1982, via a 220 kV line between to 100% hydro. Denmark is almost entirely Aggeneys and Kokerboom. A 400 kV line thermal. Sweden and Finland have a mix of between Matimba and Bulawayo (known as the hydro, thermal and nuclear capacity. There is Matimba:Insukamini line) will provide also a long history of interconnection, with the interconnection with Zimbabwe from 1995. A 400 first interconnector between Denmark and kV connection from Cahora Bassa to Zimbabwe Sweden being built in 1915. NORDEL was is also under construction. founded in 1963 to promote the efficiency of the entire Nordic electricity supply industry. ESKOM was connected to Cahora Bassa in Mozambique in 1975, through a +- 533 kV DC Despite this history of close co-operation, line. The line, with transfer capacity of 2075 electricity trade has been limited by Government MW, was destroyed during the war in policies which have tried to maintain the benefits Mozambique. This line is now under of cheap Norwegian hydro for consumers in reconstruction. Norway, and equally have tried to avoid REGIONAL INTERCONNECTION 143 excessive reliance on firm power imports. and Kenya, designed for export of hydro However, power sector reform within the region capacity from Owen Falls, runs for 50 years. has acted to increase cross-border trade. VRA's firm contract with CEB has been based on ten year tranches, with the current contract Table V-2 below shows the estimated finishing in 1997. interconnection capacity in MW against installed capacity, and energy trade in GWh against total In other cases, the contract provides a long generation. NORDEL, the UCPTE and the term framework but trade volumes are decided sample countries used in the paper on utility through annual negotiation. VRA's contract with performance (covering 90% of capacity in EECI was of this kind. sub-Saharan Africa) are shown. The UCPTE and NORDEL data is taken from their respective Southern Africa includes examples of both Annual Reports for 1994. African data is from a short and long term contracts. These also need variety of sources, and covers annual data to reflect the rapid developments in during the period 1992-1994. Compared to interconnection in the region. For example, these international comparators, electricity ZESA's contract with ESKOM allows for a interconnection and bulk energy trade in Africa specified volume of firm power as soon as the is relatively underdeveloped. interconnector is complete, reducing as new capacity becomes available from the Table V-2: Interconnection Capacity and interconnection to Cahora Bassa. Energy Trade [Interconnec. [Energy trade]/ Services supplied: Contracts can cover the Region cap.] / [Inst. [Total supply of firm power, energy or simply cap.] % generation) (%) emergency supply. Firm power contracts are UCPTE 20.5 1 1. typically expressed in charges per kW per day, month or year. However, uncertain hydrology NORDEL 13.3 18.3 has meant that power may not be as firm as SSA (19 3.01 3.62 originally intended. VRA has been obliged to countries make reductions of up to 20% in its firm power sample) supply to CEB, by mutual agreement, in 1983 and 1994 when the reservoir sank to low levels. Zambia was also obliged to claim inability to supply under the force majeure terms of its 5.2.4 Contractual Structure contract with Zimbabwe in 1992, due to the impact of the drought. Contractual structures vary, and details of contracts are not in the public domain. The commitment implied by firm power However, this section summarises some of the supply may be balanced by a "take or pay" common features of electricity trade contracts requirement. However, enforcement around Africa. mechanisms to ensure firm power supply are not always fully developed. Some contracts for Parties to contract: Electricity trade proceeds example speak of firm power supply, but allow under contracts between vertically integrated that supply to be adjusted up or down, with utilities. Often these are supported by similar variations in energy, and so clearly are Government to Government Agreements, not firm. indicating the continuing major role of Governments in African power sectors. The only Energy is charged on the basis of kWh flows. Independent Power Plant (IPP) in Africa, Very few contracts make a differential charge for CIPREL in Cote d'Ivoire, sells all its power to energy according to time of day or season. CIE and does not have direct export contracts. However, some Southern African contracts The Songo Songo IPP in Tanzania will also not differentiate between peak, standard and be developed on the basis of export contracts, off-peak hours, and between weekdays, although this was considered when the plant Saturdays, Sundays and holidays. was first under consideration. In many cases, utilities have arrangements for Contract length: Firm power contracts can run emergency supply. Typically, this is for up to for long periods. The contract between Uganda six hours, but it may last for much longer. 144 REGIONALINTERCONNECTION
Zimbabwe provided support to Zambia in 1989, inflation rates (for example, 6% per year over the following the catastrophic accident at Kafue life of the contract). power station. 5.2.5 Southern African Power Pool Pricing: energy trade tends to be based on variable operating costs incurred or avoided at Recent progress on the Southern African specified plant. In some cases this is used as a Power Pool (SAPP) means that this region now basis for negotiation. In others, the price per has a more formalised approach to contracts for kWh is not explicitly set in relation to incurred electricity trade than elswhere. The approach or avoided cost. taken is briefly summarised here.
Pricing of firm power takes account of long The SAPP builds incrementally on the existing run rather than short run marginal costs. Under structure of electricity trade in the region, based the contract between VRA and CEB, studies of on long term contracts. It both provides a LRMC in the two systems form the basis of price framework for these contracts in the future and negotiations. The historical basis of pricing firm seeks to complement them with a framework in power exports from Zambia to Zimbabwe was which shorter-term trades can take place. an 8% return on assets, at replacement value. All members are obliged to meet their Most exchange is at the border, and only a few accredited capacity obligation which, simplified, countries have developed transmission pricing. means that they have to have sufficient capacity South Africa has introduced internal to cover forecast monthly peak demand plus transmission pricing. Zambia also has a pricing sufficient reserve. The reserve requirement is set mechanism for ZESCO to use the network assets on the basis of annual peak demand, and is 19% of ZCCM, the mining company which is also for thermal systems, 10% for hydro systems, and ZESCO's largest customer. However, in most a weighted average for mixed systems. This cases explicit transmission charges are only made obligation must be met through the member's in cases where countries are wheeling power. own capacity, through purchasing firm power, or Examples include Ghana (wheeling power from through leasing capacity from one or more units CIE in Cote d'Ivoire to CEB); Zambia (wheeling outside its system. Failure to meet this power from SNEL in Zaire to ZESA in obligation is penalised. Zimbabwe) and BPC (wheeling power between ZESA and ESKOM in South Africa). The pricing arrangements for the SAPP are set out in schedules to the Operating Agreement. Wheeling charges in Southern Africa have The Schedules envisage 13 different types of typically been based on a charge for losses, and transaction, and can be simplified into four a contribution to the fixed costs of the categories of contracts transmission system. In some cases the contribution to fixed costs has also been based . Firm power contracts with a duration of on a percentage of power wheeled. Where more than 7 days (Schedules F and K); specfic lines have been developed for trade, their cost may be annuitised (including a return on . Interruptible contracts with a duration of capital) and operation and maintenance costs more than 7 days (Participation power, covered under the wheeling agreement. Schedules G and L), where power may be interrupted by outages and maintenance of Wheeling charges in Ghana are still to be the plant underlying the transaction; agreed. however, it is expected that they will include an element for losses and a contribution . Short-term interruptible contracts with a to the fixed costs of the system. range of notice periods from zero (Economy energy, Schedule C) up to 24 hours (System Currency and indexation. Most countries have energy, Schedule B and Surplus Energy, chosen to price trade in US dollars. Indexation Schedule D); and is typically against the US CPI. However, in Southern Africa there are a number of examples . Mutual support contracts such as operating of contracts denominated in Rand, and indexed reserve (convertible into System energy if against inflation in South Africa. Some Southern required, Schedule H), Emergency energy African contracts have also included fixed REGIONAL INTERCONNECTION 145
(Schedule A) and scheduled outage energy applies to Emergency Energy, Firm Power (Schedule J). and Participation Power); or
Energy charges under the schedules are * Non-firm, where the wheeler may curtail or provided, although different charges can be set interrupt the flow based on technical or by agreement between the two parties. For the economic considerations without penalty . most part charges are set in relation to incurred or avoided cost. The exception to this is energy Capacity has to be reserved for the wheeling banking (Schedule E) which is on a split savings transaction for as long as the underlying (energy basis. or power) transaction; if the underlying transaction lasts more than 3 months this Where prices are related to marginal cost, this reservation of capacity must be contained in a is set as a proportion (>100%) of the incurred written agreement. The reservation is on a take cost of the exporting system or a proportion or pay basis, or with notice of cancellation of at (<100%) of the avoided cost of the importing least 3 months. Both the capacity and the system. Procedures are laid down for the charges for wheeling are determined by the calculation of the production cost, and for an chronological order in which the wheeling index to be used if costs are not recalculated. contracts are signed. The focus is on the costs of thermal systems, and the schedules leave trade between two Wheeling charges under the SAPP Agreement hydro-dominated systems to be decided through are structured as follows: negotiation. * Rent of Assets, based on the levelised Wheeling in the SAPP agreement capital costs (based on agreed replacement values) of the transmission facilities used for The SAPP agreement is structured for trade at wheeling, in proportion to the use made of the borders between vertically integrated them to implement the wheeling utilities, or single purchasers. It sets no transaction. For firm transactions 100% of requirements for internal transmission pricing, the rent is recoverable, but for non-firm but does regulate wheeling charges. Wheeling is transactions only 50% is recoverable; defined in Article 2.4.5 of the Agreement as: * Opportunity Cost of Foregone Benefits, "transmitting a contractual amount of power being the financial loss due to a) the over specified time periods through the system displacement of Firm Sales which the of an Operating Member who is neither the wheeler could otherwise have made, b) the Seller nor the Buyer of this power". lost opportunity to connect new large customers, c) the loss of potential An Operating Member commits itself "to allow contributions to system costs by other the wheeling of capacity or energy through its transactions and d) the loss of potential system where this is technically and savings in distribution costs due to cheaper economically feasible". When wheeling energy becoming available elsewhere; "endangers the wheeler's facilities or interferes with its obligations towards its own customers * Extra Transmission Losses (positive or or other Members" this circumstance is reported negative), which are based on a comparison (Article 5.3). If load grows faster than forecast in of transmission losses with and without the such a way that wheeling becomes detrimental wheeling transaction in question and are to the Member's obligations to its own usually compensated by extra generation by customers, this constitutes sufficient ground for the Seller. The magnitude of the losses is the wheeling arrangement to be renegotiated, calculated first for the firm transactions in except in the case of long term wheeling chronological order, and then for the contracts (over three years). non-firm transactions in chronological order.
Wheeling can be either: The attribution of transmission assets for the purposes of the rent calculation is performed, * Firm, where the wheeler guarantees the ignoring common equipment, by means of load wheeled power the same priority as to any flow studies either expost (based on metered firm supply to its own customers (this data) or exante (based on agreed typical 146 REGIONALINTERCONNECTION conditions). Rent is based on replacement costs generation from thermal capacity to replace more assuming a remaining lifetime of 25 years and a expensive generation capacity in Togo/Benin real discount rate of 4%. and Cote d'Ivoire, and to reduce the risk of disconnection in these countries and in Ghana. The rent formula is set to provide the wheeler with the financial means to replace the assets at Overall benefits from energy exchange were the end of the 25 year period. The real rate of estimated in the range 21-49 Million ECU per return is set at the relatively low level of 4% year, at 1987 price levels (equivalent to US$ xxM, because it is believed that the financial risk of also in 1987 prices). It was also assumed that building transmission facilities is less than that the project enabled the postponement of about of generation assets. It also partly compensates 200 MW of planned new thermal capacity, as for the lack of an allowance for the fact that well as postponement of some other transmission existing transmission assets are already partly investments. depreciated. The unit replacement costs of transmission lines are specified in detail for the More recently, the SADC Energy Project current financial year. looked at regional generation and transmission capacities in SADC member countries. The 5.3 Costs, Benefits and Opportunities benefits were estimated through comparing the costs of a regional expansion programme with the costs of independent system expansion. 5.3.1 Benefits A number of different expansion options were The benefits from interconnection include: examined. The base case, Plan A included:
* pooling of reserve; * upgrading of the interconnection with Zaire;
* reduced operating costs, in particular * development of a 220 kV link between through integrating the operation of hydro Zambia and Malawi, and between Malawi and thermal systems; and and Mozambique;
* reduced expansion costs, through allowing a completion of the link between Cahora a broader set of options to be considered in Bassa and Zimbabwe, and rehabilitation of system expansion. the link between Cahora Bassa and South Africa, both by 1995; and The benefits from pooling reserve can be particularly significant for small systems. In his * development of Batoka hydropower as a paper to the World Energy Council's 15th. 1600 MW regional project. Congress, Peter Lewis of EPD Consultants gave the example of a 600 MW reduction in reserve Comparison of the model of integrated requirements through integration of two systems, regional development with independent both with peak demand of around 4,000 MW. development showed savings of US$785M (1992 prices) per year over 1995-2010. A number of studies have attempted to quantify benefits. The interconnection study for 5.3.2 Costs VRA-CEB-NEPA was carried out by Danish Power Consult, in association with SwedPower The main physical cost associated with through a number of studies in the late 1980s. regional interconnection is for the transmission They looked at the benefits from a 330 kV line linkages. These linkages are relatively high cost between substation Volta, close to Accra in in Africa because of the low population densities Ghana, and substation Ikeja West close to Lagos and long distances involved. It is noticeable that in Nigeria. The CEB system was also assumed some of the longest established trades in Africa, to be connected through a 330/161 kV between Uganda and Kenya and between Ghana transformer. and Togo/Benin, have involved relatively short transmission linkages. The benefits of the project were to allow VRA hydro to be exported to NEPA during wet years. Longer linkages are justified where the capital During dry years NEPA would be able to export and operating cost savings in generation justify REGIONAL INTERCONNECTION 147 them. However, this may require very large The AfDB has subsequently commissioned additions in capacity to justify the link. A paper further work on a number of these. A feasibility at the recent Cairo conference quoted a cost of study of interconnection between Zaire and US$15 billion for phase 1 of the interconnection Egypt was recently undertaken by Electricite de project to link hydro capacity in Zaire to Egypt France. Other developments reviewed by the and via Egypt to Europe. ARPIS study have already taken place, or have proved infeasible because of political 5.3.3 New Opportunities disturbances.
Overview Additional interconnection projects
The African Development Bank commissioned The OMVS project in Mauritania provides a a background study in 1989 for the African further example. The Organisation for the Regional Interconnection Study (ARPIS) Development of the Senegal River (OMVS) was programme. This study, undertaken by Gilbert set up in 1972. The Manantali Dam, in Western Commonwealth International Inc. (GCII) Mali, provides the possibility of development of identified the following interconnections for hydro power for Mali and for export. As further study, in order of priority: presently proposed, the project would consist of a 200 MW hydro electric plant, construction of * extension of the West African grid from connections to Bamako (286 KM), to Dakar (920 Nigeria to Zaire, and review of the case for km) and to Nouakchott. However, project scope upgrading the Inga-Kolwezi line in Zaire; in the short term will be dependent in part on the availability of finance. * development of links between Ethiopia, Sudan and Egypt, dependent on analysis of This project is actively under discussion. the economics of hydropower development Issues include: in Ethiopia; * the elements to be included in the project to * development of a sub-Saharan Grid linking maximize its present value, and ensure all Nigeria to Sudan, and so linking the West three countries benefit; African Grid through to Egypt; * the arrangements for pricing its output. udetermining the need for reinforcement of Use of price signals for the use of energy the West African Grid from Cote d'Ivoire from Manantali would probably result in a through to Senegal and Mauritania, high share of energy going to Mali, to including an inland tie from Nigeria displace high-cost thermal generation. through Chad and Mali to Mauritania; While all countries could share in the resulting profits, there may be political * creation of South West African linkages, issues in the allocation of energy as well as through Angola and Namibia to Botswana; the allocation of revenues; and
* having reviewed the feasibility of hydro * the arrangements for private sector development, looking at the feasibility of a participation in project management. North East Grid including a tie between Kenya and Tanzania; Southern Africa will have become considerably more interconnected, when the * examining the feasibility of lines through Matimba:Bulawayo line is in operation, and Uganda to Burundi and Rwanda from a when links from Mozambique to Zimabwe are North East Grid, and the possibility of a completed and to South Africa are restored. further DC line to link up with the existing However, links to other parts of Africa still need HVDC line in Zaire; and strengthening. The connection between Zaire and Zambia forms a weak link, and would need * reviewing the case for reinstatement of the to be strengthened if additional hydro capacity HVDC line from Cahora Bassa to South in Zaire were to be developed for export. Africa. There is also a lack of connection between Southern and Eastern Africa. One connection 148 REGIONALINTERCONNECTION that has been under discussion is between have to be accepted by both parties, and seen to Zambia and South-Western Tanzania. If such a provide a fair share of the benefits from trade. link were in place, it would allow Tanzania to consider imports from existing, or additional, The first issue to be clarified is whether the hydro capacity in Zambia as an alternative to trade is paying for capacity and energy, or hydro development in Tanzania itself or simply energy. There are two distinct ways of expansion of gas-fired capacity. This project paying for capacity in wholesale electricity could also hold out the possibility of private markets around the world: sector financing of transmission, with or without linkages to private sector development of new * generators (or exporting countries) enter generation. into a two-part contract. Capacity charges are set to enable the seller to recover the Uganda also holds out possibility of new fixed costs of capacity. Energy charges are exports around the region. The Bujagale project, set to reflect marginal operating costs; and if fully developed, would mean that domestic capacity exceeded demand for some years to * generators are paid a price that reflects the come. Export possibilities would include Kenya, system marginal cost. This may be set but also Tanzania and Rwanda. through generators bidding into the wholesale market (as in England) or A number of projects are under discussion. A through the costs of the marginal plant (as distinction can be drawn between those that in Chile). In both cases, all generators other allow for organic growth (for example through than the last selected are paid more than the extension of existing West African operating costs, and so can recoup capacity interconnections into Burkina Faso) and those costs. that allow for step changes in interconnection capacity. In the latter category can be included: No countries in Africa have yet developed a wholesale market of the second kind described * extension of the existing West African above. For the time being, most electricity trade interconnections into Nigeria and through separates capacity and energy trading. This may Nigeria down into Zaire; be through two-part contracts for capacity and energy, as in many Southern African contracts. * linkage of Zaire into Rwanda and Burundi It may be through a requirement for sufficient and through them into East Africa. capacity, as in the SAPP, so that short-term trade Although some interconnection exists, major is explicitly in energy. Alternatively, it may be new development would require a linkage through an export price which pays for both to the HVDC line running from Inga to capacity and energy, as in trade between VRA Kolwezi; and and CEB, but which does not provide varying signals on system marginal cost. * connection of Southern Africa to Eastern Africa, perhaps through a new If energy payments are based on marginal interconnection between Zambia and operating costs, the question becomes whether Tanzania, and interconnection between this is the marginal costs of the exporting or Tanzania and Kenya. importing systems. So long as the price is between these two boundaries, trade will 5.4 Key Issues proceed and the price will determine the allocation of the benefits from trade. The outcome of this negotiation will be determined 5.4.1 Pricing bulk supply by the market power of the two parties. Trade will be advanced if both parties feel the Contracts for electricity trade involve procedure for price setting is transparent and negotiation. Typically, trade is mostly one way. fair. Trade can proceed whenever prices are above the system marginal cost of the exporting Thesis: most electricity trade in Africa will for country and below the system marginal cost of some time to come be based on either two part the importing country. Price signals are needed contracts or simply trading of opportunity that allow trade to proceed. However, they also energy. Agreements which lay down principles for pricing, and which are accepted as fair by REGIONAL INTERCONNECTION 149 both parties, will assist in expanding electricity access tariffs has been instrumental in increasing trade. the amount of trade within and between regions.
5.4.2 Transmission pricing and access A fair tariff for access should:
If electricity trade is to proceed, it needs to * be based on the costs of allowing access; incorporate information on the costs of and transmission. So long as trade is between two utilities, at their borders, this can be done * allow access for all on a "level playing internally. Where energy is being wheeled, field". This means that the conditions for pricing systems and transmission rights need to any two loads carried at the same time and be developed. If IPPs are developed for export, between the same points should be the internal transmission pricing and access rights same, regardless of whether they originate will also need to be developed. with the native utility or with wheelers.
Economically efficient transmission prices Control of transmission provides the means to reflect the marginal cost of transmission, made control generation. Utilities tend to fear that up of: allowing other generators to have open access to their transmission systems will affect the * marginal losses, which are above average competitive position of their generating plant. losses; For that reason, development of open access will be closely tied to progress on power sector - congestion costs, from running generating reform, and the creation of more competitive plant out or merit order due to transmission wholesale and retail electricity markets. constraints; and One factor that may speed up this process is • a marginal capacity cost, reflecting the the desire to mobilise private capital for new probability of losing load in the generation investments. The best sites for new transmission network. generation investment are often not those with the strongest domestic markets for electricity, or Even where transmission tariffs accurately the most favourable frameworks for foreign reflect marginal costs, they are unlikely to direct investment. Private investment will be recover fixed costs and so make transmission facilitated if IPPs can agree complete or partial entities financially viable. As a result, some export contracts to stronger economies. That in mechanism is needed to cover the fixed cost turn will require that they are able to guarantee element. access to transmission networks and firm transmission rights. As discussed above, a number of countries wheel power and charge for it, including Ghana, Thesis: transmission pricing and access is very Zambia, Zimbabwe and Botswana. Few undeveloped. If major new projects are to be countries have developed internal transmission developed in part or in whole for export, both pricing. However, South Africa has done so and enforceable transmission rights and transparent a number of other countries have partial pricing and efficient transmission pricing will need to be of the networks. For example, Zambia's utility, established. ZESCO, also pays for use of the networks of the mining company, ZCCM. 5.4.3 Policy on Firm Power Trade
Open Access It is relatively easy to develop systems for trading in surplus energy. It is in the interests of One of the conditions for an efficient set of both parties, provided a framework can be transmission and wheeling transactions to agreed for sharing the benefits from trade. The emerge in sub-Saharan Africa, is that utilities risk is low, since if trade is interrupted both should be offered access to one anothers' parties will simply incur the costs they would networks (so called third party access, the first have incurred in any case without trade. two parties being native generators and their customers) on fair terms. The insistence of Firm power trade raises greater risks for both Federal regulators in the USA on such open parties. If capacity with low operating cost (such 150 REGIONAL INTERCONNECTION as hydro capacity) has been built for export, the distribution entities. It would then have exporter runs the risk of being held to ransom. confidence that if one purchaser reneged, it Once the fixed costs are sunk, the importer may would be able to sell elsewhere. seek to renegotiate the contract, and prevent fixed costs from being recovered. Similarly, the If there were multiple purchasers seeking importer runs the risk that firm power will not contracts from the hydro plant, it is more likely be available and that penalties under the contract that the price would rise to avoided costs from cannot be enforced. The importer then bears the other investment, and less likely that the price cost of unserved energy, which may be much would be driven down close to marginal higher than the alternative of developing operating costs. domestic capacity from the outset. The third solution may be precedent. These problems can be overcome if Experience suggests that firm power trade is not cross-border contracts can be made fully as risky as described above. Contracts have been enforceable. However in many sub-Saharan enforceable because they have been in both African countries domestic contract law is parties interests. It is true that the link between already weak, and there is little confidence in Cahora Bassa and South Africa was largely cross-border enforcement mechanisms. The risks destroyed during the civil war in Mozambique. faced by both parties create a real obstacle to the However, links between Zambia and Zimbabwe development of regional interconnection. and between Ghana and Togo/Benin have been However, firm power trade is where the greatest remarkably stable despite major disturbances in benefits lie in the long term. the importing country.
This mistrust is not confined to Africa. In Thesis: the risks to both parties are the main NORDEL, despite its long history of close links, deterrent to firm power trade. These risks will be Norway pursued a policy of no net trade for reducedif power sector reform removes or reduces the many years. More recently, it has set limits on monopolypower presently enjoyed by most utilities in total energy exports and enforced this through Africa. requiring licences for major export contracts. Many other countries have adopted policies 5.4.4 Institutional Framework aimed at maintaining absolute, or a high degree of, self-sufficiency in domestic generation. A good deal of attention has been paid to the institutional framework for trade. The study on There are a number of ways the risks can be linkages between VRA, CEB and NEPA included reduced. The first is ownership. If a country is a specific study on institutional models for concerned about how new generation will be co-operation. More recently, the SAPP has operated, it can take an ownership stake in the drawn heavily on the experience, and in some plant, and the transmission linkage. This is the cases the software, of US pools and in particular solution adopted for the next addition to MAPP (the mid-Atlantic Power Pool). capacity in Laos, for export to Thailand. It is the approach taken for Ruzizi II in Zaire, and being International experience suggests considerable considered for Manantali in Mali. There may be progress can be made on international trade a number of other instances where trust can be without a highly developed institutional developed through allowing joint or multiple framework. This was time for example of trade ownership of generation and transmission, between England and France, and with NORDEL. However, there are limits to what can The second is to change market power. At be achieved through simple bilateral, or present, an IPP is often faced by a single, sometimes trilateral contracts. monopsonistic, purchaser. If it was faced by multiple purchasers, it would have greater In particular, they may be of limited assistance confidence in its ability to sell power and receive in reducing the mutual uncertainty about pricing a fair price. For example, a private sponsor for trade. An example is the split savings principle a hydro plant may not be confident that fixed for trade between Norway and its neighbours. costs can be recovered from a purchasing utility. This broke down following power sector reform, However, the position would be different if it and had to be replaced by new pricing could sell direct to several large industries with mechanisms. strong balance sheets, and to electricity REGIONAL INTERCONNECTION 151
Thesis: an institutional framework for agreeing whether through asset sale or a long term trade volumes and pricing principles can assist in concession, creates the strongest profit incentives promoting regional interconnection and bulk power within the utility. trading. Second, once a utility has incentives to cost 5.5 Trade and Power Sector Reform minimise it will improve information on generation costs from different sources. This can be achieved through improved management Regional interconnection is often economically, information systems. Alternatively a utility can and financially, attractive. The reasons why develop transparent price signals between trade has not developed faster may be connected generation units and the rest of the utility with the lack of commercial objectives within through accounting separation and virtual power utilities themselves, or in their response to contracts with its own generators, or through full objectives. Development of regional separation with generation units being placed in interconnection and bulk power trading is subsidiaries or under new ownership. assisted in a number of respects by power sector reform. More commercial relationships may improve the quality of price signals. For example, trade The first is the development of a clear between Scotland and England prior to the UK commercial mandate. Public utilities often suffer privatization was based on the avoided cost in from an unclear mandate. Although they may the English system. Despite Scotland's low be expected to operate in a commercial manner, generation costs, this led to low exports. After they may also have conflicting objectives to the introduction of a more commercial develop rural areas, maintain employment levels environment, and more transparent pricing and in other ways act non-commercially. As a systems, trade developed rapidly and result, utilities may have conflicting objectives interconnection capacity was expanded. and no clear way of selecting between them. Third, cost minimisation requires a level In a commercial environment, utilities will playing field for all generators. For the reasons seek to maximize profits. If their revenue is discussed above, this requires open access to the subject to regulation, they can best do this transmission networks, so that interconnection through minimizing costs. As a result, they may projects are not disadvantaged. It is assisted by become more active in seeking out low cost the development of competition in supply, so sources of energy and new capacity, including that interconnection projects are not faced with regional interconnection. the market power of a single buyer.
This change in objectives and management Thesis: power sector reform is fundamental to the incentives can be achieved through reform of full realisation of the opportunities for regional public enterprises. Simple reform of utility interconnection and bulk power trading. The objectives, for example through a performance simplest reforms are those which give the utility contract, may however provide them with little incentives to maximise profits, and which remove long term protection from political interference. them from political interference. Industry Corporatisation of the utilities may be more restructuring, which allows trade contracts to effective, by providing the protection of compete on more equal terms with domestic Company Law. Private sector participation, generation, is also important. 152 REGIONAL INTERCONNECTION VI. Financing Africa's Power Sector: Issues and Options
by Coopers & Lybranxd
6.1 Summary general climate for foreign investment and identifythe reformsneeded in the power sector to make private sector participationattractive. The performanceof state-ownedpower utilities in sub-Saharan Africa has been, in most Multilateraland bilateralagencies can provide countries and by most measures,disappointing. support which will facilitateprivate finance,as With public sector resources under intense well as providing loans and equity directly to pressure, the private sector presents a possible privateprojects. Some forms of support, such as solution to the problemsof under-fundingand World Bank Mainstream Guarantees for lack of investment. Our paper discusseswhat commercialfinance, arc only available to the African countries can do to attract, and make relatively few African countries eligible to best use of, private sector resources to borrow from the Bank (as opposed to IDA). complementpublic sector resources. Insurancecover from ExportCredit Agenciesis also only available to a limited number of Privatesector skills and investmentcan lead to countries. For the rest the focus needs to be on moreefficient management of resources.This will forms of private participation, such as improve both internal cash generation and the management contracts, that do not call for credit worthinessof utilities. In addition,where significant capital investment, whilst working the conditionsare right, private financecan be towards conditionsthat improve the country's mobilisedto provide funds for the refurbishment standing in the international financial of old,inefficient equipment, and for expansionof community. the sector to meet unsatisfied demand for electricity. We do not wish to suggest that there is a single correct strategy for all of sub-Saharan There is a broad spectrum of types of private Africa. However,there is a common approach participation ranging from simple service to developinga financingstrategy based on: a contractsto completedivestiture of utilities. All careful and realistic assessment of the current regions have experienceda massive increasein position of the power sector, and of the these forms of private sector activity in recent conditionsunder whichprivate financemight be years exceptsub-Saharan Africa. To rectifythe made available;development of sound priorities position governments need to improve the and a clear vision of the role of the private sector
FlVANCINCVISSUES AND OPTIONS 153 154 FINANCING ISSUES AND OPTIONS
in meeting them; and establishment of a coherent capacity of 2.5GW or less; only 6 countries have plan of action to achieve these priorities. more capacity. South Africa has by far the largest system, accounting for 72% of the There are five key lessons which Africa can production and 65% of the capacity. learn from the experiences of other developing countries: Table Vl-l: Electricity Production and Capacity in sub-Saharan Africa, 1990 *Successful private participation requires plenty Country Production - Capacity - MW of careful preparation and dedicated effort. GWh South Africa 155,812 39,905 Countries everywhere are competing for A ' private sector resources - African countries Nigeria 9,946 4,040 must work towards an "enabling environment" Zimbabwe 9,558 2,038 in order to attract private finance on beneficial Zambia 7,771 2,436 terms. Zaire 6,155 2,831 6 countries 1,000 to 6,000 500 to 2,500 One successful project can have an enormous 10 countries 500 to 1,000 175 to 500 impact on sentiment, but the first is always the 21 countries less than 500 less than 175 most difficult. Total SSA 216,206 61,912 Sources: The World Bank, PolwerSector Statistics forDevelopini Private sector money is more expensive than Countries 1987-1991; World Development Report, 1994 public sector finance, but the higher costs reflect, in part, the failure to make explicit the risks borne by public sector internally funded 6.2.1 Rationale for Private Sector investments, and they should be outweighed Participation by efficiency gains and the benefits of additional investment. Earlier papers have brought out the problems and challenges facing the power sector in Keep things simple where possible. The sub-Saharan Africa, there is no need to repeat lessons of existing projects are that them here. In the context of these challenges, governments should avoid very large projects, what benefits can be expected from private which are complex and often controversial. sector participation? Private sector participation will, given the correct framework and incentives, 6.2 Introduction bring new skills, technology, and management techniques to the sector, leading to more efficient operation and management of resources. Greater This paper sets out the benefits of greater efficiency will improve both internal cash private sector participation in Africa's power generation and the credit worthiness of utilities. sector. The paper begins by discussing why In addition, private finance can be mobilised to private participation is both appropriate and provide funds for the refurbishment of old, beneficial to Africa; in part two, the paper inefficient equipment, and for expansion of the investigates the various forms of private sector to meet unsatisfied demand for electricity. participation using examples of their successful application in Africa and in other developing Private investment can also provide countries; part three examines the conditions that considerable benefits to the wider economy - attract private investors; and part four discusses incoming funds help the balance of payments (in the development of a financing strategy the short term), and private funds can reduce appropriate for sub-Saharan African countries pressure on fiscal deficits enabling projects to be and the practical steps that can be taken to completed that would otherwise not happen or implement it. freeing resources for other spending priorities. The sums involved are very substantial. A 1990 It is worth beginning with some basic statistics. World Bank paper "Capital Expenditure for Sub-Saharan Africa has installed generating Electric Power in the Developing Countries" capacity of some 62GW and produced about consolidated projected expenditure under power 216GWh in 1990. As the data in Table VI-1 sector least cost development plans and provides shows, most systems are small with installed the most up to date estimate of the cost of FINANCING ISSUES AND OPTIONS 155
expansion in the electricity sector. Between 1989 * management contracts to transfer and 1999, sub-Saharan Africa (excluding South responsibility for certain core operations; Africa) was expected to spend $10.8bn (1990 * Build Own Operate (BOO) and other dollars) on new capacity, including $5.7bn on an concessions for financing, new assets; and increase of 4,000 MW in generating capacity. * divestiture to sell existing electricity Although the exercise has not been repeated for businesses. the 1996-2005 period, the previous estimates give an impression of the volume of funding We give examples of each form of private required. sector participation from developing countries around the world, of which a small number are The role of the private sector is to complement in Africa. However, as we discuss at the end of the public sector rather than replace it. Part of this section, the extent of private participation is this role is the provision of resources that are far greater in Latin America and Asia. scarce in the public sector, and given continuing financial constraints, sub-Saharan Africa has little choice but to welcom such resources and work In Oman, the management of meter reading, billing, towards greater private participation if it wishes and collection services is contracted out to the to expand and modemise its electricity sector. private sector. The contract is awarded to a single company and is periodically put out to competitive tender. The private sector is able to utilise skills and Having established the rationale for private technology which are not available to the government sector participation we shall now examine the and keep costs to a minimum. A series of clearly possible forms it can take and use examples to specified standards ensure that cost cutting does not illustrate the benefits that such participation can lead to a reduction in performance. The contractor bring. bears the costs of unpaid bills, providing a strong motivefor effective revenue collection. The contractor 6.3 Forms of Private Participation in is paid a commission on the value of bills raised, Electricity which increases with the value billed. Box VI-1
Although the electricity industry is still dominated by the public sector on all continents, 6.3.1 Service Contracts a wide range of different types of private sector participation are now well established in both The first form of private participation we the developed and the developing world. The consider are service contracts. This is the most different forms of private participation reflect the limited form of private participation with little or different objectives of the host governments and no investment from the private contractor. the level of commitment on both sides. At one However, service contracts serve as a useful extreme the UK has privatised almost the entire route into greater private participation because electricity industry while, at the other, many they provide observable benefits such as reduced countries are only now starting to contemplate costs and improving service quality without seriously the possibility of independent power requiring wholesale sector reform, which can projects or the transfer of managerial initially be politically difficult. In certain responsibility for some power utility operations important areas, such as meter reading, billing, to the private sector. and collection, they can have a very substantial positive impact on cash flow and thus on We describe below the four main types of financing. private sector participation and illustrate them by summarising the main features of a number * The main features of service contracts may of examples. The types of private sector be summarised as follows: participation we consider are: * Definition: Transfer of responsibility for service provision. * service contracts to contract out * Typical Applications: Maintenance of responsibility for delivering particular power stations, meter reading. services; * Benefits Available: Clear accountability, cost reduction, improved performance. 156 FINANCING ISSUES AND OPTIONS
* Basis for Payment: Performance related 6.3.3 BOO Concessions service charge. * Conditions for Success: Careful Build, Own, and Operate concessions go an specification of deliverables/level of service. important step further than most management Financially viable utility to act as purchaser. contracts in that the private sector finances * Other Points: Contracting out particular construction of new assets and owns them, services can overcome skill shortages often usually throughout their operational life. found in the public sector. Generation schemes are the most common form of private participation, largely because the The example of a service contract in Oman assets are discrete and easily ring fenced from described in Box VI-1 highlights the merit of this the rest of the utility's operation. Restructuring approach. or reform of the utility is important because private investors will be reluctant to invest 6.3.2 Management Contracts unless the utility operates on commercial lines, with tariffs set within a regulatory framework Management contracts go a step beyond service designed to secure financial viability. In contracts, with the contractor being given addition to generation there are now BOO responsibility for managing a core function, transmission schemes, for example in Pakistan. introducing commercial disciplines and often Such projects are providing an ever increasing executing new investment, although in most proportion of new infrastructure throughout the cases asset ownership and thus financing world, not only in the electricity sector, but also remains with the public sector. Such contracts in transport, water, and other sectors. increase the efficiency of a utility and can pave the way for private equity participation. The The main characteristics of BOO concessions main features of management contracts are: may be summarised as follows:
X Definition: Transfer of management * Definition: Award of the right to build, responsibility for a core business activity to own and operate an asset and sell the a private contractor. output or service under a long term * Typical Applications: Operation and contract. maintenance of a power station. Operation * Typical Applications: Provision of new gas and maintenance of a distribution and turbine, combined-cycle power generation retailing activity. plant. e Benefits Available: Clear accountability, * Benefits Available: Allows investment to cost reduction, improved standard of service proceed which might not otherwise have and, in certain cases, finance for new been possible. Transfer of operating risks to investment. the private sector. Provides a benchmark * Basis for Payment: Many possibilities, for levels of efficiency. ranging from a performance related fee to a * Basis for Payment: For generation, share of revenue or profits. conventional Power Purchase Agreements * Conditions for Success: Careful (PPAs) remunerate fixed costs through a specification of area of responsibility capacity charge and variable costs through between management contractor and asset an energy charge.. owner. Adequate tariff levels and * Conditions for Success: Allocation of risks appropriate incentive structures. to the parties best able to control them. * Other Points: A few management contracts Financially sound power purchaser with transfer responsibility for new investment to direct or indirect government backing for the contractor. A termination payment contractual obligations. Ability to convert linked to asset value may be part of the revenue to foreign currency. remuneration package. Management * Other Points: BOO schemes are now well contracts may be precursor to taking an established in many countries for equity interest in the business. generation, and the first transmission projects are now being awarded (see Box Box VI-2 below gives two different examples VI-3 on Pakistan). of successful management contracts. In countries which are able to attract foreign investment, the normal approach to BOO FiNANCINGISSUES AND OPTIONS 157
Since 1990,Cote D'Ivoire'selectricity industry has beenrun undera managementcontract, by a privatecompany, CIE (CompagnieIvoirienne d'Electricite, 51% of which is ownedby SAUR (a subsidiaryof Bouygues)and EDF (Electricite de France).The remaining49% is ownedby Ivoirianinvestors, including 20% listed on the Abidjan stock exchange. Underprivate management, revenue collection has improved,losses have been reduced, service quality has beenenhanced and the industry is no longera burdenon governmentfinances. In addition,the customer:employeeratio has increased from 105 to 145 without any redundancies,in fact employmentsecurity has increased.The successof the projecthas given both thegovernment and the investorsthe confidenceto proceedwith Africa's first privatepower generation project, Vridi II, a 99MW power stationfuelled by Cote D'Ivoire's offshore gas fields.
PhambiliNombane - 'Forwardwith electricity'.A consortiumof East MidlandsElectricity, ESKOM, and EDF has been undertakingan electrificationprogramme of 65,000households in the townshipof Khayelitsha,under contractwith ESKOM (in its roleas South Africa's main electricityutility). The consortiumhas a threeyear constructioncontract, followed by a fifteen year operationand maintenancecontract. The consortiumdesigned the system, which uses prepaymentmetering, to be lowcost in both constructionand operation.The constructionis managedby the consortium, largelyvia subcontractors,and ESKOMpays the consortiumafixed sum per connectedhousehold. The electricitytokens aresold via localvendors on a franchisebasis, and prepaymentremoves any problemof collectionfrom customers.The consortiumpasses all revenuesto ESKOM and receivesa monthlyfeeper connection.ESKOM has benefitedbecause it has learnedbest practicefrom the otherconsortium partners, which it is ableto implementthroughout its organisation. The localpeople benefit from a new supplyof energy,cheaper and safer than thefuels they wereusing previously,and the decentralisedoperations of the consortiumprovide jobs and trainingto localpeople. This programmeprovides an exampleof how theprivate sector can reduce the costs of electricificationin high densityurban areas, although thefinance is still providedby the utility.
Box VI-2 generation schemes involves some form of Sponsors and lenders to a project will also wish solicitation, followed by bid evaluation or to be confident that the purchaser will continue negotiation and then award. Awards may be to be able to pay for the capacity and energy. At based on the results of a competitive tender the minimum, addressing the risk of default by based on pre-qualification of bidders, or be the power purchaser will require a clear subject to bilateral negotiation on a first come, regulatory framework for setting retail tariffs to first served basis. If there is sufficient investor secure the financial viability of the purchaser. It interest, competitive tender should be the will often, in addition, call for some form of preferred option because it is transparent and government guarantee or support for the should deliver private investment at least cost. purchasing utility's obligations, at least until A range of approaches to pricing also exists. In power sector reforms and regulation are in place some cases the price may simply reflect the and operating effectively. result of the competitive tender. In countries where there is a substantial capacity deficit, for Fuel supply arrangements also call for careful example Pakistan, standard prices and contract allocation of risk. In a conventional BOO terms may be posted for all projects which are generation project, shortage of fuel will mean signed up. Elsewhere a formula to give a that the capacity is unavailable and no payments pre-defined rate of return may be used to set the will be made under the PPA. Fuel supply must contract price. be secured by reserving indigenous fuel supplies for the project, and by negotiating a fuel supply agreement with a financially robust fuel supplier, Risk allocation is of crucial importance. Project ideally contracted on a competitive basis. Where sponsors are willing to manage most risks the fuel supplier is a state enterprise, project arising from plant construction and plant sponsors may also seek some form of official performance, but will not normally accept underwriting of its contractual obligations. demand risk (the risk that the plant's output will Alternatively, the project can be conceived as an not be used). Power purchase agreements for energy conversion facility in which the purchaser generation schemes therefore use a two part is paying for the right to have fuel converted to pricing approach in which the purchaser pays a electricity. This energy conversion or toll capacity charge for available capacity whether or processing approach has been widely used in the not it is despatched and there is a separate Philippines as a method of managing fuel supply energy charge for the actual energy produced. risks. 158 FINANCINGISSUES AND OPTIONS
Some variants of BOO generation schemes are support, both of which can facilitate private summarised below: capital from other sources. For example, the Commonwealth Development Corporation * Basis for solicitation: Preferably project (CDC) provides both equity and loan finance to specific (with location, size, and fuel all a wide range of projects on a co-financing basis. determined by the power purchaser), but The IFC provides equity and debt, and can also can be "loose", ie bidders are asked to facilitate private finance by organising 'B' loans, propose any baseload station using any fuel where commercial lenders provide funds on and the proposals are compared. better terms under the umbrella of the IFC which * Basis for Award: Preferably competitive is the lender of record, thus giving commercial tendering but can be bilateral negotiations lenders a degree of comfort. The World Bank is on a first come first served basis if not able to lend directly to the private sector but competition is impractical. can do so indirectly through funds established * Pricing: Based on result of competitive and managed by a local Development Finance tender, or on a cost plus formula to give an Institution. The World Bank also provides a agreed rate of return, or using a standard range of guarantees that can cover part of the benchmark price for all projects. risks and extend the range and terms of credit * Fuel: Project sponsors responsible for available to a project but these are not available purchase of fuel, or power purchaser buys to "IDA" countries. fuel and pays project for energy conversion (tolling). Some of the key features of project finance are * Transfer on Expiry of PPA: The PPA may summarised below: require project transfer to purchaser upon expiry, but the best option is for the private * Definition: Type of lending for which the operator to continue to run the plant by primary security is the cash flows of a negotiating an extended PPA. project or segregated business activity rather than the assets of the sponsors or Although BOO transmission schemes are still developers. Lenders may have limited in their infancy, the same principles apply. The recourse to sponsors in specific complexity of fuel supply is clearly not relevant circumstances, eg failure to complete. but the idea of a performance linked charge for * Applications: Financing construction of availability is being used. Transmission schemes new projects, eg BOO schemes, or purchase also raise new issues such as the need to ensure of an existing asset or business. that the host utility has the option, for example, * Commercial Arrangements: Securing cash to add additional sub-stations or linked flows with adequate certainty requires a transmission lines at a later date. minimising of risks through a series of interlocking contracts with parties A standard feature of all BOO schemes is the responsible for engineering, procurement use of project finance under which lenders and construction, fuel supply, power usually have only limited recourse to the project purchase and, potentially, with the sponsors for loan repayment. This contrasts government. Government support may be with balance sheet financing where the loan is needed for contractual obligations of state secured on the assets of the sponsor's business. companies. Project finance is particularly well suited to * Sources of Loans: Commercial banks, major infrastructure projects where, by careful ECAs, multilateral and bilateral agencies, management of risk, the uncertainty in project and bond issues (possible only under cash flows can be reduced to a minimum making special circumstances). the project itself acceptable security for lenders. * Sources of Equity: Project finance is usually associated with high gearing. Equity may Project finance can be raised from commercial be provided by sponsors/developers, banks, through Export Credit Agencies (ECAs), equipment and fuel suppliers, bilateral and and from bilateral and multilateral agencies. multilateral agencies, and specialist finance Commercial lenders are often reluctant to take companies or funds. on developing country risks. These may be mitigated by the involvement of international Box VI-3 below provides two examples of BOO lending agencies who provide direct and indirect generation schemes, one in the Philippines and FiNANCINGISSUES AND OPTIONS 159
another in Jamaica, in both of which CDC has and Thailand has sold shares in a specially been active. The third example in the box established generating company, EGCO, on the describes a BOO transmission scheme in Pakistan Stock Exchange. Divestiture is not therefore just where the project agreements have recently been an option for rich countries. installed. However, divestiture is not an easy option. 6.3.4 Divestiture Direct investment calls for a stable, liberalised economy, as discussed in the next section, and BOO schemes involve financing new investment careful consideration may be needed concerning in the private sector, and management contracts the structure of the sector before divestiture transfer responsibility for managing but not takes place. If the forces of competition are to be owning existing assets to the private sector. A effectively harnessed, divestiture of a vertically natural progression from this is the full integrated utility may not be the best approach: divestiture of electricity utilities to the private it will, in any case, usually be considerably sector, leaving the state responsible only for easier to sell off existing generating assets than policy and regulation. Success depends on to divest distribution businesses. Establishing a whether a regulatory structure, including tariff sound regulatory framework and undertaking an setting, can be established which is acceptable to accurate valuation will also be critical. This both the government and the new owners. means that obtaining the best value from a Where such confidence exists, divestiture is divestiture may call for a programme of possible. For example, Argentina has sold most preparation, which can be done in partnership of the federally owned assets to trade investors with the private sector, followed by sale of a
In 1990, the Philippines passed a Build-Operate-Transfer law establishing a legal framework for the provision of power by private investors. The resulting inflow of private finance has helped the Philippines to overcomnean electricity crisis, contributing to a strong economic recovery. As the programme has progressed,the process has become streamlined, with the National Power Corporation(NPC) establishing model contracts, and the award processchangingfrom closed bilateral negotiations to competitive bidding. As investor confidence has increased, so the size of projects has increased and the cost has fallen. One recent example is Pangasinan, a $1.4bn project to provide 1200MW of coalfired capacity. Because the NPC was not considered an acceptable credit risk, its obligations were guaranteed by the government. The project is based on an energy conversion agreement, whereby the fuel is supplied to the project by the NPC, thus removing fuel supply risk from the private sector. The project wasfunded largely by export credits, with equity from CEPA, the lead sponsor, and loans and equityfrom both the IFC and the CDC.
In an effort to modernise and expand its energy sector, Jamaica produced an Energy Sector Deregulation and PrivatisationProgramme, endorsed by the World Bank and the InterAmerican Development Bank, to provide a framework for private participationin the industry. One important element of this was the invitation of private bidsfor the provision of new generation capacity. Contracts are awarded after a transparent, competitive, bidding process, managed under the guidance of the World Bank. The private projects adhere to Jamaica's least cost development programme, with thefirst contract, for a 60MW diesel plant, awarded to the Jamaica Private Power Company (a US owned company, listed in Jamaica) to sell electricity at 6.9c/kWh. Multilaterals were key to gaining external finance - the World Bank and the InterAmerican Development Bank are subordinatelenders, via the Jamaican Energy Loan Fund, and the Commonwealth Development Corporationhas provided equity and loans. The privatefinance was provided by a combination of deferred equity and bond finance. The 20 year power purchase agreement allows JPPC to suspend all obligations for up to 18 months in the event of a natural disaster or political event, and the government has agreed to provide foreign exchange in the event of a re-imposition of exchange controls. The success of these projects has led to the government undertaking a divestiture of the entire electricity industry.
Following the successful completion of negotiations for a number of IPPs including the 1200MW Hub River power station, Pakistan launched a Build, Own, and Maintain (BOM) transmission programme earlier this year. Under the programme, the private sector is tofinance a number of important expansions of the transmission network. In March of this year, NGC (the National Grid Company of the UK) was selectedfrom a significant number of bidders to undertake the first two transmission projects following a competitive tender. Together, the two projects will add 1,400km of 500kV transmission line. Pakistan has managed to attract such interest, despite economic and political problems not dissimilar to some of Africa's, because it set out a clear policy, and has demonstrated, via the Hub River project and others, that it is committed to sustained private participation in its power sector.
Box VI-3 160 FINANCINGISSUES AND OPTIONS
stake in the company to private investors. The access to capital market for future fund value of the share retained by the state will rise raising. as performance improves and may be sold at a * Basis for Payment: Equity will be later date. remunerated through dividends paid out of profits. One benefit of a gradual approach to * Condition for Success: Financially viable divestment is that the government retains a say businesses with good prospects. as a shareholder for a longer period, which gives Established regulatory framework for price time to establish or reinforce regulatory control. Secure basis for conversion of institutions. This is important because price dividend payments to foreign currency and regulation, setting and monitoring customer repatriation, unless finance is provided by service standards, and supervising competition domestic investors. all require considerable skills and resources. The * Other Points: Divestiture is much easier for government may, even in the longer term, retain existing generating assets than for some influence as a shareholder through such distribution, where revenue depends mechanisms as the retention of a golden share directly on consumers. with special rights. In addition to these four categories, there are two other methods by which the private sector Lucelecprovides an exampleof the successfulflotation can participate in the electricity industry: of an electricityutility in a small country.Lucelec is the monopolysupplier of electricityon the islandof St. Auto-generation, where generation capacity Lucia, serving 32,667 customers with 33.6MW of is provided by an industrial concemn, capacity (1993 figures). The company was, before flotation, owned by the government of St. Lucia, primarily for its own use, but surplus CastriesCity Council,and the CDC. CDC has been power can be sold to the utility; and instrumental in preparingthe companyforflotation, * Entrepreneurial activity, whereby private restructuring its balance sheet to make it more entrepreneurs satisfy unmet demands by attractiveto investors,advising on the establishment providing electricity in areas not served by of a satisfactory regulatory framework, and the utility. An example of such provision is underwritingthe share issue. The key to successful in Kenya where photo-voltaic cells made flotation was establishinga tariff mechanismwhich available by the private sector provide gave investors confidence that tariffs would be electricity to thousands of rural households determinedwithout politicalintervention, and would and businesses. be high enough to provide a reasonablereturn on equity. The capitalraised has been used to refinance We have now described the main forms of the company and fund new investment.Wehvno dscidtemanfrsf _the_company_and_fundnewinvestment. private participation in the electricity sector and Box VI-4 have given examples from a number of different developing countries of the different approaches. To what extent is sub-Saharan Africa benefiting The key features of divestiture are summarised from private participation and the investment below: that can flow from it? Two of our examples - CIE in C6te D'Ivoire and Phambili Nombane in * Definition: Sale of partial or total ownership South Africa - were African, but these are interest in an electricity business to either a virtually the only cases that exist, although a trade investor (eg another utility) or general number of other projects are under discussion investors. elsewhere in Africa. This contrasts with the * Typical Applications: Introduction of a substantial number of BOO projects and strategic partner into a business with an divestitures which have already happened in equity interest. Sale of a separable asset, eg, Asia and Latin America, and with the well a power station to a trade buyer. An Initial developed programmes to extend private Public Offering to raise new equity capital participation further that are being implemented and position the company for further issues. in these regions. * Benefits Available: Access to new management skills to improve efficiency. The electricity industry in sub-Saharan African Raise cash to finance new investment. Gain countries is dominated by small systems, with the exception of South Africa (see Table VI-1) FINANCING ISSUES AND OPTIONS 161
Table VI-2: Project Finance and Foreign Direct Investment in LDCs relative to GDP, 1994 -rngi19PocFinance#Net Foreign Direct Gross Domestic Percentages in 1994 ProjectIinvestment-' Productec SSA (includingSouth Africa) 4.1% 2.9% 7.6% East Asia 58.0% 54.8% 35.5% Latin America 10.0% 24.2% 34.1% Other developingeconomies 27.9% 18.2% 22.8% TotalDeveloping Economies $22.6bn $77.9bn $3,571bn Sources: ' Euromoney;-' WorldBank;Y World DevelopmentReport, 1995 and the demand for electricity is growing more can be divided into three broad areas, which are slowly than in other regions of the world. examined below in turn; economic factors, Nevertheless, African governments and utilities political factors and institutional factors. Some of are, on the whole, still operating within the these factors may be difficult to achieve quickly, traditional public sector approach and are failing but it is important to recognise them as goals. to take advantage of the benefits that private Private participation can still be possible where participation can offer. No figures for overall the factors are lacking but will be more difficult private investment in the power sector exist, but to realise and will usually have to focus on Table VI-2 gives data for all infrastructure project management contracts rather than the new finance and for all direct foreign investment in investment. different regions in comparison with GDP. Sub-Saharan Africa has clearly not been able to The main economic factors are: attract an equal share of either project finance or direct investment. a. macro-economic stability - ideally steady economic growth, low inflation and a stable To understand the reasons for this state of affairs currency; and what can be done to change it, we now b. general provision for currency conversion consider the factors that influence the private and repatriation of profits or at least a clear sector when deciding where to devote its limited commitment to grant specific rights in this resources for project development. area to foreign investors - the countries which use the CFA clearly enjoy an 6.4 Factors influencing private advantage in this respect; investors c. a sustainable debt burden - ideally with a good credit record and access to commercial lenders. The more that a government The factors that attract foreign investors fall into appears to be doing to relieve their debt three broad categories: burden, or at least to manage it responsibly, the greater will be the willingness of private * the policy environment at country level; investors to commit funds. In addition, if * appropriate policies for the electricity sector; such efforts meet with success, Export and Credit Agencies in developed countries * the availability of attractive opportunities become more willing to extend cover, an for private participation. important factor in attracting private investment; and At country level, the most important role for d. successful dialogue with the major ILAs the government is to create an 'enabling (International Lending Agencies) - foreign environment' in which private investors can investors are given much comfort by operate, without uncertainty or instability. The governments that are following programmes intention should be to adopt policies and agreed with the IMF and the World Bank. establish a legal framework that is attractive to private investors in any sector of the economy, The main political factors are: but the size and long life of investments in the power sector makes this especially important. a. stability, giving investors confidence that The components of this 'enabling environment' government policies are not volatile or subject to indiscriminate change; 162 FINANCING ISSUES AND OPTIONS
b. a programme of economic reform country is to attract commercial finance, it must encompassing the principles of work towards gaining eligibility for such liberalisation, deregulation, and private institutional support. participation where these are lacking; and c. an absence of armed hostilities, either with Table VI-3: Selected Country Risk Ratings neighbouring countries or with political groups within the country. countr ies countries) The main institutional factors are: South Africa 46 Botswana 52 a. a transparent legal framework for Philippines 53 commercial activities that enables companies Zimbabwe 66 to be set up, registered, and run without Ghabwe70 undue difficulty, along western lines, Ghana 70 b. an independent judiciary that can be relied Gabon 83 upon to protect property rights and resolve Kenya 93 disputes rapidly and cheaply - for example, C6te DIvoire 96 to enforce asset security; Jamaica 97 c. in addition, investors will gain extra Dom. Republic 102 comfort from a country's membership of Nigeria 125 and adherence to international arbitration Zambia 135 organisations such as ICSID (World Bank), Tanzania 140 UNCITRAL (United Nations), or the ICC Guinea Bissau 162 (International Chamber of Commerce, Mozambique 164 Paris). This will give assurance that disputes, should they arise, will be settled Source: Euromoney, September 1995 independently by a third party; d. adequate local accounting and tax skills for an investor to get good assistance in Although it is important to recognise that these navigating the local company and tax laws. are the ideals that governments should work If domestic skills are weak, experienced towards, it is equally important to note that the foreign advisors may initially be necessary; absence of the textbook 'enabling environment' e. the ability of the utility to enter into legally does not prohibit private sector participation in binding and enforceable contracts with the the electricity industry. The Philippines, private sector; Pakistan, Jamaica and the Dominican Republic f. maturity of domestic financial markets, have all attracted substantial private investment allowing funds in local currency to be but rank below many African countries on the raised and partners to be found locally, both lists of credit rating agencies (see Table VI-4). of which are important to foreign investors; Even if private finance is unavailable, the sector and can still benefit from private participation g. a competent bureaucracy with good through service and management contracts; for co-ordination between Ministries to smooth example, Guinea-Bissau's electricity sector is run the procedural aspects of negotiations, successfully by a private sector firm under a applications for permits, required management contract despite very poor ratings. clearances, etc. The means of overcoming weakness at country This is an investor's wishlist. It is unrealistic to level often involve support from ILAs to expect most countries in sub-Saharan Africa to reassure private investors, provide guarantees satisfy it in the foreseeable future. Sub-Saharan against specific risks, and make available some Africa generally has poor ratings from credit of the loan and equity finance required. Other agencies (see Table VI-3 below), and much of solutions are possible at a project level, for sub-Saharan Africa is not currently eligible for example, if a country has a major exporter which World Bank Mainstream Guarantees or ECA also consumes large amounts of electricity, the cover (see Table VI-4 for the OECD Consensus foreign currency earnings from the exports could country classifications which form the basis of be used as security for payments. availability of cover from ECAs). Thus, if a FINANCINGISSUES AND OPTIONS 163
At sector level the factors that attract private capacity, despite a perception of relatively high investors are a combination of the opportunities country risk on the part of finance providers. for investment in the industry and an extension Kenya also provides evidence that high tariff of the 'enabling environment' to sector-specific levels do not discourage electricity usage, with measures, each of which will build confidence the country experiencing rapid growth in the amongst potential investors. number of rural households receiving power from relatively expensive solar generated power, a. the government should be committed to a provided mostly by the private sector. clear programme of sector reform which aims to increase private sector participation Finally, there are factors that influence the and, preferably, has the support of attractiveness of individual opportunities: international lending agencies, primarily the World Bank. Policy in this area will a. opportunities need to be well defined and determine which activities are open to responsibilities clearly allocated so that the private sector participation and the form role of the private sector is certain; that it can take; b. project size is important. If a project is too b. the regulatory structure is very important. small, transactions costs will be a significant There should be clear principles for setting cost burden, whilst if it is too big it may be tariffs at realistic levels, clear rights for politically controversial and could present utilities to collect money owed, including too great a risk to be financed economically; the right to disconnect non-paying and customers, and good payment records by c. for BOO investment, there must be scope to public sector consumers. This is of direct mitigate risk which cannot be adequately relevance to electricity distribution but is managed or controlled. The simplest also of importance for generation projects, example is the use of the capacity charge in because it gives investors confidence that BOO generation schemes to insulate the the purchaser will be able to meet its project from demand risk; contractual obligations; and d. for BOO equity investors, the returns on c. the industry structure and commercial offer must be adequate to remunerate their arrangements determine what opportunities investment in the project, including the exist for the private sector to manage or to pre-contract development costs which can purchase elements of the electricity sector often be significant, especially for a and how any new private sector BOO country's first project. Retums are best projects will relate to the rest of the sector. measured as an Intemal Rate of Retum on a real basis (ie excluding inflation) in order Sub-Saharan African countries have, on the to take account of the time value of money. whole, been relatively slow at adopting the Experience suggests that returns on invested sector reforms necessary to facilitate private equity capital of between at least 15-25% in participation in the industry. However, where real terms are necessary, depending on reform has been embraced, benefits have soon capital structure and the basis of risk followed. For example, Kenya has made a clear allocation. policy commitment to sector reform and, as a result, is attracting significant interest from To obtain a better understanding of the factors private investors bidding to provide generating which are discouraging private participation in Table VI-4: OECD Consensus Country Risk Classifications Risk category Sub-Saharan Countries
Category I - low risk None
Category II.A - moderate risk Gabon and South Africa
Category II.B - moderate risk Botswana, C6te D'Ivoire, Namibia and Nigeria
Category III - high risk All others 164 FINANCINGISSUES AND OPTIONS
Africa's power sectors we interviewed 11 banks of country risk. It is in this area that external or financing institutions and 6 equity investors. guarantees, if available, can be essential. The The two primary obstacles that emerged were a two main ones are: lack of credible opportunities, and a perception of high country risk. The first concern can be * the World Bank's mainstream guarantee; addressed relatively simply by new policies for and sector reform, providing opportunities for * the guarantees of the MIGA (Multilateral private participation in generation, distribution Investment Guarantee Agency) and transmission. The second concern leads directly to a reluctance amongst sponsors and The most appropriate and potentially useful lenders to commit funds, especially for the long guarantee is the World Bank's Mainstream time periods required by power projects. The Guarantee, which is specifically targeted at factors which the financiers consider essential are mobilising commercial loan finance for government stability, support from major infrastructure projects. It guarantees commercial multilaterals, and a commitment to sector reform loans but not equity, and is available for projects backed by legislation. Even with these, the in any country eligible for standard IBRD consensus was that although project sponsors borrowing from the World Bank, of which there would be interested, ordinary commercial are only seven in sub-Saharan Africa. The lenders probably would not. Nevertheless, the guarantee can take two forms; firstly, a partial message was that, given the right circumstances, risk guarantee, which provide up to 100% cover the private sector would participate in, and bring for contractual obligations of governments or benefits to, the African power sector. government owned enterprises, covering eventualities such as bureaucratic delay, changes When asked how to improve the prospects for to currency regulations, and even a deterioration private participation, our respondents had the in the macroeconomic situation; the second form following suggestions: of the guarantee is a partial credit guarantee which covers up to 100% of non-payment by a. an extension of cover from export credit governments or government owned enterprises. agencies to countries not at present eligible Such cover is usually targeted at only part of the - ECA credits have formed the bulk of the commercial financing, usually the later loan finance for most of the successful BOO maturities which commercial banks consider the projects in developing countries; most risky. It should be noted that the World b. greater use of finance and support from the Bank requires a full counter-guarantee from the ILAs (primarily the World Bank Group and relevant government. the IMF) and other development oriented lenders such as CDC; MIGA offers insurance to private sector c. increased eligibility for, and availability of, investors against risks such as expropriation, the guarantees available from the World war, currency transfer, and breach of contract, Bank Group to underwrite the obligations of for up to 20 years. The MIGA guarantees fill a national governments; gap in the insurance market for long term d. involvement of local investors, which coverage of large projects in developing provides important knowledge of the countries, where private cover is either political and economic environment, and prohibitively expensive or not available at al. local finance to balance the project's foreign MIGA also has a standard 90 day period before exchange financing requirements; and claims are met, during which time attempts are e. incorporation of the lessons learned from made, often successfully, to resolve the problem. other regions to reduce delays and the At present, MIGA limits exposure to a maximum development costs. This might suggest, for of $50m per project and $175m per country. This example, using best practice solicitation does not prevent it becoming involved in, and procedures and standard PPA contracts. contributing to investor confidence in large projects, and it is able to act as a re-insurer in These are useful suggestions and the first three order to cover larger amounts. In addition, point to a key issue. While a government can MIGA cover is available for investments in pursue sector reform and earmark attractive virtually every country in the region. investment opportunities for private sector participation, it is difficult to change perceptions FINANCINGISSUES AND OPTIONS 165
Having discussed the factors that can enable The basic approach to developing a financing private participation and the availability of strategy involves three steps: remedies, we are now in a position to consider the basis of a workable strategy for Africa in a. a careful assessment of the current position order to attract private participation and private in the power sector and of the likely extent finance for power sector development. to which the private sector will be prepared to participate; 6.5 Developing a Financing Strategy b. development of a clear realistic and achievable vision for the future of the power sector and the role of the private We have focused so far on the forms which sector within it; and private participation can take and the factors that c. setting out a plan to move from the current attract private sector investment. But it would position towards achievement of the vision. be wrong to suggest that the private sector offers a panacea for all Africa's financing problems. Each country needs to make an honest Rather we believe that the private sector can assessment of its standing in the international complement the resources available from the financial community. Sub-Saharan Africa public sector in a number of important ways - includes at least one country with easy access to we have described examples where private the international capital markets. At the other sector management has helped to improve extreme there are many countries which are not performance and hence increase internal cash eligible to borrow from the World Bank (IBRD, generation, and examples where the private as opposed to IDA borrowing) and are not sector has invested directly to undertake specific considered an acceptable risk by the major ECAs. projects or to buy existing assets. A sound financing strategy will recognise the synergy For those countries who fall at the bottom end which exists between public sector finance and of the spectrum of country risk as perceived by private sector participation and seek to harness the international financial community, there is, it. In this section, we outline the necessary steps frankly very little prospect of attracting private which should be followed in the development of investment without very extensive support from a clear and coherent strategy for involving the multilateral and bilateral lending agencies, and private sector in the electricity industry, and end this too may be hard to gain. In some by highlighting the lessons learned from the circumstances, the agencies will make exceptions, experiences of private power projects in other for example, for the proposed gas fired power developing countries. station at Songo-Songo in Tanzania, but such projects, and the support they require, are not Two fundamental points must be made at the easily replicated. For countries in this group, the outset: priority should be to gain eligibility for the full range of institutional support. Meanwhile, these a. first, a power sector financing strategy countries can still benefit from private which includes private sector participation participation by focusing on management or cannot be considered in isolation from the service contracts where risks to the private sector rest of the economy. Thus, if foreign are much more limited. Even countries with investment is discouraged in other sectors, severe economic problems, such as Guinea it will be difficult to adopt a significantly Bissau, have been able to work successfully with different approach in the power sector; and the private sector on this basis. Management b. second, we do not wish to suggest that contracts can also lead on to provision of private there is a single solution for all of finance for new projects, as the example of C6te sub-Saharan Africa. Each country may d'Ivoire shows. require its own unique strategy. However, For countries which are fortunate enough to we do believe that there is a common have a higher standing in the international approach to strategy development and that financial community (eg, are eligible to IBRD there are a number of common ingredients borrowing from the World Bank and benefit that can be incorporated into a strategy from cover from some of the major ECAs) the specifically tailored to a particular country. possibilities are far greater. The full range of options for private participation will, in principle, be available, although it would be 166 FINANCINGISSUES AND OPTIONS
prudent to build a track record of working with especially as private participation grows. The the private sector through management contracts key areas to consider in looking at reform are: or BOO concessions before contemplating divestiture. This is the path followed, for * the structure of the sector including, for example, by Pakistan which started with BOO example, whether generation should be generation schemes and is now selling some of separate from network activities; its existing thermal power stations. * the commercial arrangements that apply between sector entities (eg type of contracts) The assessment of the current position in the and with autoproducers or operators of power sector will draw on existing analysis to private distribution networks (eg those answer the following questions: sometimes owned by mining companies) where scope may exist for more effective * is there scope for significant improvements use of resources; and in efficiency to reduce costs and thus * the basis for retail tariff regulation to ensure improve internal cash generation? the financial viability of efficient companies * if so, where is this potential? for example, is - while social objectives have often there potential to make a significant increase dominated tariff setting, willingness to pay in generating plant availability or to among poor consumers can be much higher improve the efficiency of meter reading, than might be expected, as the solar billing and collection; powered rural electrification in Kenya * what are the expected future investment demonstrates. requirements and where do the priorities lie? For example, in some countries the The vision for sector reform should include a main requirement is to provide additional realistic and achievable view of the role of the generating capacity, while in others it is to private sector. The final element of the strategy deliver existing or potential generation to will be how to achieve this vision of private areas of unmet demand; participation. Here, Africa has an important e how much traditional public sector advantage; it can learn form the pioneering financing can reasonably be expected and efforts, sometimes very protracted, of handling where do financial constraints pinch the private sector participation in Asia and Latin most? America. There is now a substantial body of best practice on which Africa countries can draw, If the issue is primarily about financing new with the help of the ILAs and qualified advisers. investment, the best place to start (assuming What are these lessons? private finance is available) will usually be generation projects, which have a well The first lesson is the importance of careful established record of private financing. This preparation. The nature of private sector may apply even if the most pressing investment participation and the issues it raises needs to be requirements are in transmission and thought carefully through in advance. For distribution. In these cases private finance will example, will the utility or the government free up public sector resources for the priority handle negotiations with the private sector or areas. If there is only a limited requirement for what role will each play? What are the terms of new investment in generation, some form of the contract or commercial arrangements on regional distribution franchise, in which the offer? Will the government be able to guarantee private sector takes responsibility for new the utility's obligations? Will a guarantee of any investment could be considered, although there sort from the World Bank or MIGA be available? is only limnited experience with such How will conversion of local currency to foreign arrangements to date. Alternatively, it may be exchange be addressed? possible to identify a major transmission project suitable for letting on a BOO concession basis. This preparation must clearly extend to the project or opportunity on offer, as well as the The vision which emerges from these supporting arrangements. Our respondents told considerations should ideally cover reform of the us of their perception of a dearth of projects. power sector as a whole and not just the limited Project preparation, especially for the first involvement of the private sector in one part of private sector commitment, will be vital. For it. They are, in many respects, inseparable, example, for BOO generation projects, it will FINANCING ISSUES AND OPTIONS 167
usually be better initially to select a specific scope for harnessing the forces of competition at project from the least cost development a later stage, eg, by limiting the duration of a programme (as opposed to a loose solicitation management contract, or by awarding of for any project) and earmark it for private subsequent schemes on a competitive basis. participation, with the benefit of access to site survey and other information. Thermal Fourthly, there is a need for realism about the generation projects are also usually easier as risk-reward trade-off. The risks to be transferred there is less that is site specific. The whole to the private sector need to be ones which the process of preparing the country, the sector, and private sector can control (eg, construction cost individual projects for private participation can and plant performance, but not demand). The take considerable time and effort, thus it is host country also needs to realise that the greater important to begin the process as early as the risks to be taken by the private sector, the possible. higher will be the returns demanded. Although private sector money is more expensive than Secondly, it is necessary to reach out to the public sector finance, part of this apparent private sector. So many countries are now expense is due to a reflection of the fact that the seeking private participation that private cost of risk is not explicitly reflected in publicly investors have a choice. In a sense, countries are financed projects. In addition, the additional competing for private sector resources. The costs of private sector finance should be attractions of a country and the projects it offers outweighed by efficiency gains, and the benefits need to be put across in a positive way. This of investment that would not otherwise have will mean promotion brochures, publicity taken place. Attempts to attract private finance campaigning and presentations which should not compromise the guiding principle of demonstrate the commitment of the government 'value for money' but when comparisons are to pursue its vision. made, policy makers should ensure that they take full account of the risks that the public Thirdly, the first project can have an enormous sector takes when it finances projects internally. impact on sentiment. While some form of competitive tendering for opportunities is Finally, keep it simple where possible. The undoubtedly the best approach for an lessons of existing projects are that governments established programme of private participation should be wary of very large projects, which are in BOO schemes or in divestiture, it will often be often controversial and high risk. Hydro projects acceptable to enter into bilateral negotiations to can prove to be complex because of the special attract the first project or contract. The cost may siting considerations and their environmental be a little greater than with a competitive bid, implications. For similar reasons, if cross border but the result will be more certain and the transmission interconnectors are to be demonstration effect of a successful project will considered, the private sector should ideally make any additional short term costs negotiate with one country only (the most worthwhile. The impact can be contained by creditworthy) and not become involved in the careful selection of the project to make it complexities of intemational negotiations. attractive to the private sector, whilst leaving 168 FINANCING ISSUES AND OPTIONS VII. Improving Power Utility Efficiency
by Gunter Schramm
7.1 Summary4 8 strongly supported by multi- and bilateral development banks and aid agencies, with the former alone providing almost US$35 billion in Production capacity of publicly owned power financing over the last ten years. However, utilities in developing countries, Sub-Saharan while capacity and production increased rapidly, Africa included, has increased rapidly, but their the overall performance and service reliability of average performance declined substantially, in many utilities actually declined. spite of strong efforts to the contrary by the outside financing agencies supporting them. A Network losses, power outages and account detailed study of power plants in 17 countries receivables increased, economic rates of return has concluded that the key elements causing this declined, and debt service ratios dropped. poor performance are institutional, rather than Performance was especially poor in Africa, technical. There is a lack of clear objectives for where many power plants required rehabilitation the utilities, a lack of' autonomy of management, after just a few years of operation. gross interference by governments in staffing and day-to-day operational decisions, insufficient Motivated by these disturbing findings, tariff levels, poor revenue collection and lack of economic development agencies from Denmark, accessto foreign exchange. These issues must be Finland, Germany, the UK, UfNDP,the USA and addressed first if lasting improvements in the World Bank agreed in the late 1980's to fund performance are to be brought about. a systematic investigation of the causes of poor power sector performance. For this purpose, a Between 1971 and 1989, electric power multi-year, multi-country cooperative, World production in developing countries increased at Bank-managed project entitled Electric Power an annual average rate of 8%, or between 1.5 to Utility Efficiency Improvement Study (EPUES) 2 times faster than GDP. This growth was was organized. The objectives of EPUES were to: (1) identify the causes of poor utility performance; (2) suggest remedial programmes;
48 The contentof this paperis largelybased on the author's and (3) prepare recommendations for financing paper "Improving Power Utility Performancein Developing agencies, electric utities and governments to use Countries", Utilities Policy, Vol. 3, No.1, January 1993, in the planning and implementation of future pp. 51-56.
IMPROVING UTILITY EFICIENCY 169 170 IMPROVING UTILITY EFFICIENCY
projects. A Core Report, published in 1991, cover 77 plants in 28 countries, providing a total summarizes the EPUES study. of 198 observations.4 9
The report discusses the main problems found 7.2 Major Problems in power plants in 17 developing countries, explores in detail the causes of these problems, and suggests possible solutions. The Compared with power plants in industrialized investigation was based exclusively on the countries, a typical publicly owned plant analysis of diesel power plants because these are investigated during the study was characterized similar all over the world and their performance by low production, low revenues, high costs, is known to be robust and efficient with proper unreliable performance, and short engine maintenance, but subject to rapid deterioration lifetime. Few plants in the study were with poor maintenance. Limiting the financially viable; for most, electricity tariffs investigation to diesel plants thus enabled the were too low to cover even the operating costs of analysts to identify the causes of inefficient generation. This problem was compounded by operation without having the results obscured by inefficient revenue-collection systems. Even extraneous technological factors. This made it government agencies frequently did not pay possible to compare systematically the their bills, or paid them months after they were performance of well over 100 plants worldwide. due. However, the findings of the Core Report and the recommendations, subsequently summarized The quality of electricity output was often low. in a set of guidelines, that were published in Unscheduled power outages and unacceptable 1994 by the World Bank under the title voltage fluctuations were common, forcing "Improving Electric Power Utility Efficiency, industrial users to provide their own back-up Issues and Recommendations", apply to all types electricity supply. of electric power plant and utilities. In many instances, waste oil was dumped near Of the ten chapters of the Core Report, only the plants, causing local pollution problems and one addresses technical issues, while eight serious long-term groundwater contamination. explore the human-institutional-related functions In a few cases, chemically treated or and policies needed for utility operation. The contaminated cooling water contributed to final chapter summarizes the recommendations. environmental degradation. The report focuses primarily on human rather than technological factors because EPUES found Inputs to the power plants were frequently too that most of the substantive causes of inefficient high. The number of labour hours per unit of plant operation are associated with functions and production was typically 10-15 h/MWh, which policies controlled by government and utility compared poorly with 0.5-4.0 h/MWh in the UK personnel. and the USA. The number of unskilled workers was especially high. As a tool for identifying the causes of plant inefficiency, EPUES used a measure called Best Engine efficiency with respect to both fuel oil Practices Plant Efficiency (BPPE). This measure and lubricating oil consumption was often lower quantified efficiency, using a set of technical than manufacturers' specifications. In general, inputs, their associated prices, and the plant's fuel consumption was 30-40% higher than energy output. If a utility had more than one anticipated. In some cases, efficiency was so plant, the utility's efficiency was calculated as the poor that theft of fuel and lubricating oil was the average of all its plant efficiencies. The plants or only plausible explanation. Because fuel cost utilities were given BPPE ratings, and the causes typically accounted for 70% of the total variable of low (inefficient) or high (efficient) ratings cost of operation, low fuel efficiency often were determined by examining various aspects seriously damaged the plant's financial of their operations. To compare plants in performance. developing countries in developed ones, the study's date base ultimately was expanded to
49 W.E. Diewert, "Efficiency Measures for Diesel Electric Power Plant", World Bank, Dec. 21 1993, processed. IMPROVING UTIUTY EFFICIENCY 171
Table WI-1: Average Efficiencies Country or Region Observ. Average Min. Max. Efficiency I U.K. .668 .404 .849 U.S.A. (Private) .760 .577 1.000 Canada (Public) .733 .733 .733 Australia .741 .551 .941 Spain (Private) .636 .636 .636 Gibraltar (Public) .502 .359 .623 FalklandIs. (Public) .761 .738 .789 Caribbean .736 .503 .920 Ascension Is. (Private) .729 .655 .804 Guadalcanal (Public) .765 .765 .765 Jordan (Public) .435 .407 .463 Mauritius (Public .614 .441 .820 Tanzania .508 .379 .630 Gambia (Public) .612 .558 .665 Guinea-Bissau (Public) .424 .381 .447 Mali (Public) .262 .196 .328 Mozambique (Public) .462 .462 .462 SierraLeone (Public) .571 .524 .602 Somalia (Public) .279 .211 .346 Indonesia (Public) .477 .387 .594 Philippines (Public) .472 .372 .622 Guatemala (Public) .530 .530 .531 Papua New Guinea (Public) .609 .336 1.000 All .630 .196 1.000 Note: A perfect score would be equal to 1,000
The typical power plant production cost, 7.3 Methodology including capital costs, was US$0.147 (1989 $) per kWH. Fuel, lubricating oil, labour, materials and capital costs were 50%, 4%, 6%, 5%, and 35% of The hypothesis of the study was that utility total production cost respectively. If only operating inefficiencies arise from deep-seated, variable costs were considered, then fuel, largely human and institutional-related lubricating oil, labour and materials were, problems. The hypothesis was confirmed by the respectively, 67%, 5%, 9% and 7% of the total. investigation, which found that even the most easily recognized problems - lack of foreign Engine maintenance was usually poor, making exchange to buy spare parts, for example, are plant efficiency heavily dependent on age. In difficult to remedy. Other less obvious problems many instances, an engine lasted only a fraction - such as lack of autonomy - are even more of its normal lifetime, which greatly increased difficult; and a number of problems are the plant's capital cost per unit of production. In interdependent. The methodology was, several countries, average engine lifetimes were therefore, to identify causes of major problems as low as five to ten years. Many maintenance quantitatively by correlating sets of possible problems were due to non-standardization. causal factors with power plant efficiency, using BPPE as the efficiency measure. Not all causal factors, however, could be quantified in numerical form. BPPE was defined as the ratio of the best practice unit cost to the actual unit cost for each observation. Hence, the value of each 172 IMPROVING UTILIT EFFICIENCY
observation had to be between zero and one, Gambia was run by an expatriate German with one representing full efficiency, meaning engineer and the average efficiency for Tanzania that actual unit cost could not be reduced any was higher due to the addition of the rather further. The required explanation for the efficiently run Williamson Diamond Mine derivation of BPPE is rather complex5", and (Mwadui) observations to the state run plants. cannot be discussed here. Only some of the Thus, the overall performance of the state run most interesting results have been shown in plants in the African developing countries was tables 1 and 2 below. Table VII-1 shows results not good. by country, while Table VII-2 shows results by type of ownership. It was found that some plants exhibited an enormous amount of waste, particularly plants in The average efficiencies for the advanced Africa. On the other hand, many Caribbean industrial countries -- .760 for the U.S., .741 for developing countries have surprisingly high Australia, .733 for Canada, .668 for the United plant efficiencies. Kingdom, and .636 for Spain, -- were all above the average efficiency for the entire sample, .630. The following factors have some tendency to The performance of the Caribbean utilities was be associated with increased efficiency of a plant: surprisingly good; they averaged an efficiency of (I) a younger plant, (ii) a larger plant, (iii) a plant .736. The only Caribbean country that had an that used heavy fuel oil, and (iv) a plant that average efficiency below .7 was St. Vincent with was privately owned. As can be seen from Table an average efficiency equaling .594. VII-2 the positive effect of private ownership was particularly striking in developing countries. The average efficiencies attained by developing countries in the Pacific region were .609 for Table VII-2 indicates that on average, the Papua, New Guinea; .477 for Indonesia; and .472 efficiency of privately owned power generation for the Philippines. plants is .726 compared to .587 for the publicly owned plants - a 14% absolute efficiency For the African region, the best average advantage and a 24% relative efficiency efficiencies were attained by Mauritius (.614), advantage for the privately owned plants. Gambia (.612) and Sierra Leone (.571). These efficiencies were close to the sample average Qualitative Analysis efficiency of .630. However, well below average Because only some of the causal factors could efficiencies were attained by Tanzania (.508), be quantified, a qualitative analysis of the many Mozambique (.462), Guinea Bissau (.424), mission reports and other study documents was Somalia (.279), and Mali (.262). Furthermore, it also undertaken. Four broad problem areas were is interesting to note that the Kotu plant in identified and analysed: (1) government-utility Table VII-2: Average Efficiency by Ownership Type of Ownership Avrg Eff. Min. Max. Private .726 .423 1.000 Public .587 .195 1.000 U.K. -Prv .614 .423 .776 U.K. -Pub .692 .404 .849 Australia -Prv .750 .632 .839 Australia -Pub .735 .551 .941 Caribbean -Prv .760 .572 .919 Caribbean -Pub .647 .549 .816 Tanzania -Prv .618 .610 .630 Tanzania -Pub .472 .379 .557
relationships; (2) utility management problems; 50 Interested readers should request copies of Professor (3) power plant operating problems; and (4) Diewert's paperfrom the World Bank Industry and Energy financing agencies policies and procedures. Department. IMPROVING UTILUTYEFFICIENCY 173
7.4 Main findings human related activities were not thoroughly appraised before projects were funded. Appraisal reports often made over-optimistic With respect to government-utility assumptions about load growth. EPUES also relationships, the major finding was that found that the policy of tied aid of some autonomy is a key factor in a utility's operating financing agencies was the cause of lack of efficiency. In general it was found that privately standardization in many plants, which caused owned utility operations performed substantially operational and economic inefficiencies. This better than publicly owned ones. In the latter, problem was compounded by the fact that lack of autonomy was found to be the cause of appraisal teams often did not include the costs of a number of problems. For example, many non-standardization in their project analysis. governments had foreign exchange restrictions Finally, the study found little evidence of project that interfered with efforts to order spare parts; monitoring by the financing agencies; they and the lack of spares severely impaired usually focused primarily on the installation of operating efficiency. Many governments also hardware, on construction of appurtenant imposed contradictory objectives on utilities, structures, on training during the construction such as low tariffs with a simultaneous and commissioning periods, and on other requirement to be profitable. Governments also short-term programmes. The study also found set non-competitive wage scales and interfered in that assistance programmes generally did not hiring and daily operating decisions. For each give utility managers clear signals about the utility in the study, EPUES therefore focused on importance of maintaining the value of capital nine attributes of the government-utility equipment. relationship to determine the degree to which the utility was able to operate autonomously. Firom these findings, the study identified ten human causes of poor plant performance: With respect to utility management and plant operating problems, the study found few 1. lack of autonomy; institutionalized training programmes, but many 2. conflicting utility objectives; unstructured, on-the-job training programmes, an 3. lack of management accountability; almost total lack of training for middle 4. insufficient training; managers, as well as other training deficiencies. 5. unavailability of internal utility resources; There were other management problems. 6. poor management quality; Revenue collection was generally poorly 7. lack of financial transparency; organized and monitored. Turnover of skilled 8. insufficient revenues; manpower was too high. Manpower planning 9. lack of timely access to foreign exchange; was often weak. Planning was nearly 10. inappropriate financing agencies' policies non-existent, with the exception of new project and procedures. construction. Utility managers, especially at the middle management and plant levels, did not The Core Report makes both qualitative and have adequate information systems. The semi-quantitative arguments that these 10 factors information problem was pervasive. Many are the major variables determining poor plant plants had inadequate records, labour input was performance. not adequately monitored, billing and collection systems were inadequate, inventory information 7.5 Recommendations was non-existent, and financial information was usually not available at the plant or even the utility level in coherent for one. Current cost The Core Report's and the "Issues and accounting was generally not used, and historical Recommendations" papers' recommendations are cost accounting was useless in many countries concerned with five sets of issues: (1) power because of rapid inflation. sector development objectives; (2) government-utility interactions; (3) utility With respect to financing agencies' policies and management and manpower problems; (4) sector procedures, the study found many weaknesses in organization and sources of investment capital; project appraisals. Specifically, it appeared that and (5) financing agencies' policies and manpower and training functions, utility procedures. autonomy, management controls, and other basic 174 IMPROVING UTILITY EFFICIENCY
Power Sector Development Objectives comprehensive definition of the alternatives The Issues and Recommendations assume that for system expansion. the parties all share a common set of sector development objectives. These objectives are as follows: Electrification policy. Efforts to develop the power sector in any country should take account * Aim for the least-cost solution compatible of the extent to which electrification contributes with technology appropriate for local to economic growth by supporting industrial, conditions. The solution should not semi-industrial, commercial, and agricultural overlook efficiency improvements, activities. Rural electrification should only be rehabilitation, and demand-side undertaken if it contributes to economic growth. management. To contain costs, all feasible alternatives, including various forms of renewable energy, * Build and maintain institutions capable of should be considered. If system expansion is planning and implementing programmes likely to entail financial losses to the utility or to that guarantee availability, efficiency, and any implementing agency, the project should not sustainability for each power project be undertaken unless clear and enforceable over its designated life span. arrangements have been made to compensate for these losses. If subsidies are granted for projects Ensure the financial viability of the or project components that are not financially operating utility. self-sustaining, donors, governments and utilities should understand from the outset what benefits * Ensure protection of the environment. are expected, who the beneficiaries are, and who will have to pay for it. Furthermore, subsidies * Ensure cooperation among financing should not be established without creating the agencies and the utility to achieve shared possibility of revoking them after a set period of development goals. time.
These objectives reflect the fact that the two Long-term expansion planning. Physical most important issues in power sector expansion of system capacity should be development are electrification policy and undertaken only when all other solutions for long-term expansion planning. Accordingly, the attaining the desired service level have been "Issues and Recommendations" mandate that unsuccessful or determined to be more costly. development should be based on the following As a rule, physical expansion is preferable only principles: if it is not feasible to reduce demand and/or increase supply and available capacity by: * Investments in the power sector should be a vehicle for promoting economic growth and social well-being in developing * demand-side conservation measures; countries. * demand management such as time-of-day demand shifting; * Power sector projects must compete with * reducing technical losses for all system other investments aimed at contributing to components; this overall objective and should be * improving existing system availability, executed only if they prove optimal in operating efficiency, and reliability; and/or terms of inter-sectoral allocation of scarce 0 rehabilitating existing physical assets. funds.
* Investment projects must show advantages Government-utility interactions against competing projects that provide the same services, and they must result in the With regard to government-utility interactions, least lifetime-cost solution compared the Core Report found a close correlation to other projects. between a utility's level of autonomy and its efficiency of performance. The Report * Projects should be compared using a total specifically recommends that "during appraisal system approach, which requires a financing and donor agencies should assess the IMPROVING UTILITY EFFICIENCY 175
level of autonomy of the recipient utility and, if prevents the utility from forcing its customers to the latter is found to be low, attempt to increase pay their bills (particularly when the customer is the utility's autonomy before providing a government or government-owned and entity). financing". Accordingly, the "Issues and Recommendations" outline the critical conditions Convertible currency. Access to convertible for utility-government interactions if electric currency is essential for efficient utility utilities are to operate efficiently. The operation. In this regard, a major issue that government should: must be dealt with decisively and permanently is the frequent delay in obtaining central bank or * define clear, non-conflicting objectives for import licensing agency approvals for needed the utility's performance; spare parts, particularly in emergency situations. * allow the utility to operate with a high The outside financing agency must take into degree of autonomy; account that in countries with a chronic scarcity * allow the utility to charge adequate tariff; of foreign exchange, the government's ability to * ensure the availability of convertible set up such mechanisms may be questionable. currency according to the needs of the In such a case, a project that requires substantial utility; and amounts of convertible currency for its operating * refrain from interfering in staffing questions costs should not be undertaken unless the beyond appointing competent top managers financing agency can include or ensure the who are then held accountable for the availability of foreign exchange over a reasonable utility's performance. period of time.
These conditions are particularly important Utility Management and Manpower where government is the controlling owner of Problems the utility. Utility managers must have substantial control over their operations in matters concerning Clear objectives. Government and the utility personnel, salaries, incentives, overall financial must agree on the statutory and performance management, and contracts; and must accept full objectives on which the utility can base its responsibility for their decisions and for overall long-term investment planning and can measure performance. Technical and financial assistance its performance. As a minimum, there should be agencies can help to promote managerial agreement on a target rate of return for the autonomy by, for example, providing necessary utility. This rate should be calculated in real training and expertise; and by delaying terms net of nominal price increases, and should committing funds for new investments until an take account of exchange-rate fluctuations, autonomous operating environment is revaluation of assets, and distortions such as established. subsidies on fuel. When qualified local personnel are not Utility autonomy. Financial autonomy and full available to assume increased responsibilities, cost recovery are fundamental objectives; to that autonomy can be increased by hiring expatriate end, the utility generally should not be given advisors or by contracting out specific activities, funds on preferential terms. Funds received by such as maintenance or billing and collection. the government from foreign donors should be Such arrangements can be a transition to greater on-lent at appropriate commercial market rates, reliance on local personnel after they have with the utility being, in principle, obligated to received appropriate training. bear the foreign exchange risk. Financing agencies should monitor on-lending terms for To retain qualified personnel, a utility's salary aid to the power sector, including those and compensation structure must be competitive provided for technical assistance. within a country's labour market, and should include tangible incentives for superior Tariffs. Utilities cannot operate efficiently: (a) performance as well as clear sanctions for poor when the government prevents the utility from performance. Complete job security based on charging adequate tariffs; and/or (b) when the rigid civil service rules is usually utility is unable to collect its bills in a timely counterproductive for job performance. manner because of inefficiencies in billing and Overstaffing, particularly in unskilled job collection or because political expedience 176 IMPROVINGUTLITY EFFICIENCY
categories, is an endemic problem in many of new power sector investments (supplemented government-owned utilities. lately by environmental assessments) does not ensure efficient utility performance, and The costs and benefits of such measures therefore is not adequate for achieving the should be compared to find the optimal solution objective. for each case. Where serious management problems exist, the design of assistance packages As EPUES has shown, the major causes of by outside agencies should always focus on economically wasteful utility performance in resolving these problems first, before financing developing countries are poor governance and is provided for system expansion activities. inadequate institutional and management structures and practices, usually combined with Sector Organization and the Sources of inadequate revenue flows and a lack of timely Investment Capital access to foreign exchange. The most critical Electric power systems are highly factors affecting sustainability and successful capital-intensive and require substantially more operation of the utilities are: investment capital than a utility is able to accumulate internally. As a number of recent * autonomy of the operating institution; studies have shown, developing-country utilities * clear, non-conflicting goals shared by the are experiencing a huge financing gap that can utility and the supervising body; no longer be covered by government grants and * good top management; loans. Other sources of capital must be found. * adequate human resources; institutionalized Utility financing options to be explored should and effective training; include: * adequate technical resources; * access to foreign exchange; e a self-financing ratio of not less than 30%; * financial transparency; direct private sector participation through: * sufficient revenues; and e Build-Own-Operate and Transfer (BOOT) * appropriate financing agencies policies. schemes; e joint ventures between public and private EPUES has concluded that these factors must partners; and be satisfactorily addressed if financial assistance * development of regulatory structures that strategies are to succeed in achieving the desired allow privately owned co-generation plants objectives. In general, in systems with poor to sell surplus power to utilities at prices operational performance and inadequately that reflect the utilities' own opportunity performing plants and equipment, assistance costs of generation. measures should initially emphasize remedial action, institutional change and rehabilitation of For utilities seriously to consider such options, existing plants and equipment to remedy the laws, rules, and regulations must be developed identified shortcomings. that encourage private sector participation; these should include security of tenure and rate The sustainability of a project over its lifetime regulations that allow private investors to must be central to any planning and assistance operate profitably. Ideally, the government's strategy. The strategy must evaluate life-cycle role should be restricted to that of an effective costs, which must be identified in terms of power sector regulator. impacts (who pays what costs), among other criteria. Evaluating costs and impacts is The major objective of financing agencies' particularly important in countries with an assistance to developing-country power sectors endemic shortage of foreign exchange. Where is to stimulate economic development. The severe foreign exchange difficulties are EPUES study and other evaluations have shown, anticipated, any other than a life-cycle financing however, that the agencies' traditional reliance approach will result in disappointing project on economic, technical, and financial evaluations performance. VIII. Performance improvement of utilities: Indicators and incentives
by Hugh Ashby and Gary Conway
8.1 Introduction These can be identified as:
8.2.1 International Economic Pressures The aim of this paper is to examine firstly, the changing global trends in the energy supply Electricity cost savings and efficient supply industry. We look at the underlying reasons are a vital national issue. Countries that are for these changes before considering their able to offer both cheap labor and competitive impact on the electricity supply industry, electricity prices will have potentially strong particularly in Sub-SaharanAfrica, and examine growth opportunities in the future. Hence the the need to incentivise management. The third pressure on utilities to become more efficient objective of this paper is to examine and and competitive. understand the driving forces behind the business and how these driving forces can be Given Africa's abundant supply of natural managed to enhance the performance of the resourcesand its comparativelycheap labor, Africa utility. Once these driving forces have been should be in a much stronger position than it identified and measured, the utility should use currently is. The vital issue is how to restructure these measurements to put strategies in place the powersupply industry in Africa tofully harness that will enable them to compete with the best and exploitthe opportunitieswe are presentedwith. in the global industry. 8.2.2 Customers Increasingly Demanding 8.2 Key Factors Behind the a GreaterChoice Changing World of Electricity With the globalization and integration of the Supply world economy,there is increasingpressure on industries to compete and perform. The The electricity power industry, as we know it, electricity industry is no exception. As is in the process of undergoing fundamental customers come under increasing competitive and dramatic global changes that wil continue pressure, both locally and internationally, they until after the turn of the next century. are demanding greater choice of services and Although the nature of the changes varies from questioning the ability to monopolies to continent to continent and from country to provide the most effective and cheapest country, there are powerful underlying forces services possible. Changing techology and the which have initiated these sweeping changes. emergence of independent power producers
INDICATORS AND INCENTIVES 177 178 INDICATORS AND INCENTIVES and "global utilities" are encouraging primary goal becomes one of a "national customers, particularly large industrial and subsidizer," rather than concentrating on the manufacturing corporations who have generally bottom line and increasing efficiency. In the subsidized domestic and other uses for long run, such practices are harmful to both the decades, to demand lower prices, higher electric utility and to the national economy. In quality and better services from the industry. addition, management and employees are often nothing more than government bureaucrats, Failure to respond to our customers' with little or no incentives to ensure that they changing needs will sound the death knell for maximize the efficiency and effectiveness of the traditional utilities. utilities they are employed in. Maintenance of the status quo, rather than meeting the 8.2.3 Increased Competition for Capital in customers' needs and facing the changing the International Financial Markets industry, is the order of the day.
Utilities, like all other businesses, compete in A further competitive problem for SOE's is local and international markets for capital. The that capital tends to flow to those entities who only difference is state-owned entities (SOE's) are able to provide the highest possible returns generally use the debt market, while private and lowest risks. The lower the risk, the lower companies use a combination of debt and the cost of capital, and the more willing equity. The bottom line is that both types of investors are to invest. The key is to entities need access to this capital and thus restructure in such a way that investors will must compete for it. clamor to invest in the utility, rather than the utility having to beg or persuade investors to Sack, 1985, argues that the form of ownership invest in them. affects both the supply and cost of capital to utilities. Although private firms have a greater As newly restructured and privatized debt risk than nationally owned utilities (the companies enter the global debt and equity debt of public firms has an effective state markets, older, more stable privately held guarantee), private firms also have shareholder utilities find themselves facing stiffer demands for greater returns. This demand by competition for capital. More often than not, shareholders usually ensures that they are the newly restructured utilities are from optimally structured and operate efficiently. developing countries and in spite of a higher SOE's tend to have fewer incentives for country and business risk profile, they are able maximizing efficiency and hence offer little to offer extremely favorable returns. Investors attraction to potential investors. Generally who used to invest in traditional, privately speaking, this puts them at a competitive owned utilities are increasingly attracted to disadvantage when compared to privately held these newly restructured utilities offering better utilities. returns.
According to World Bank sources, over the To keep their old investors and attract new period 1979-1988 average real power tariffs investors, the traditional utilities are under declined marginally in developing countries. pressure to reform their business and make However, along with the decline in tariffs, them more competitive. quality of service deterioration, large increases in both technical and non-technical losses, poor 8.2.4 Declining Governmental Budgets plant maintenance and a marked deterioration in management performance, have been also Another critical factor behind the changes the order of the day. (World Bank, 1993) In taking place in the electricity industry is the fact, many SOE's are forced to operate in a fiscal strain faced by developing countries' manner that is sub-optimal and actually governments. This pressure is increases their cost of production. Often SOE's services such as health, education and are used to fulfill governments' political and infrastructural development. Encouraged by social goals. "Over-employment," the granting the World Bank and IMF, these governments of cross subsidies and forcing the utility to are increasingly allowing and actively seeking embark on activities that are harmful to its foreign investment and financing in the effectiveness are often considered to be normal electricity industry. The World Bank has costs of doing business by the SOE's. Their outlined that Bank lending for electric power INDICATORS AND INCENTIVES 179 will focus on countries with a clear face. If government were not using financial commitment to improving sector performance. resources to invest in the electricity supply This stance is in line with its policy to industry, the funds could be applied elsewhere. encourage countries to aggressively pursue the Government should concentrate its skills and commercialization, corporatization and private resources where they can be most effectively sector participation in a developing country's employed, that is, on primary social issues such energy policy. as education, health care and social care. Business experts, on the other hand, should be given the task and responsibility of providing Malaysx~a- affordable, sustainable electricity. An electric
S. Korea- :; ~ Vutility -? that is operated in a competitive business environment, using sound managerial Japan - - i techniques, will be able to acquire the necessary
China- funding it needs from investors.
India- _ = = 8.2.5 Pressure Against Monopolies
Argentina There is increasing acceptance amongst
USA- economists and utility analysts that electric
______------_ utilities are no longer natural monopolies. 0 2 4 6 8 10 12 Instead, they are global competitors. The type of utility, whether privately held or EI Electnicity _ GDP government owned, is of little consequence. Figure VIII-1: GDP & Electricity With global competition the issue is which Consumption Growth ownership structure produces the most 1985-1991 competitive and effective industry. The reasons behind this policy are that in Rather, it is the traditional attributes many countries the lack of a sound electric associated with the utility industry such as infrastructure inhibits economic development economies of scale and its natural monopoly and adversely affects living standards. The status, that are increasingly being questioned. problem facing these countries is not merely The idea that bigger is best is no longer the fact that capacity shortages exist, rather it s assumed. the cost of supplying the infrastructure that is financially crippling governments. According to World Bank sources, there is a strong, 8.3 Globalization of the Electricity positive correlation between electricity consumption and gross domestic product, with Industry electricity consumption being somewhat higher than that of GDP, particularly in developing In the next several years virtually every utility nations (See Figure VIII-1).Intenxseeayerviulyeeyuiiy in the world will be transformed so as to be In economies where resources are scarce the unrecognizable from the companies we know cost of supplying the infrastructure reduces the today. The idea that electricity is the epitome amount the government can spend on other of a local business--plants built in one country social infrastructural investments. There are or region, to serve customers living and two arguments as to why government should working in that country, paid in local currency, not be using public funds in the sector of the and regulated by the local political structure--is economy. The first argues that the more outdated. business governments get involved in investing in the business sector, the less opportunity Ironically, perhaps those whohold on to such there is for the private sector to invest in. In views are closest to the industry--some of the effect, they are crowded out of the economy by politicians, managers, analysts, and investors government. who live and work in the electricity industry every day. However, the message is clear. The second argument applies to the chronic Unless they come to grips with the changing shortage of funds some developing countries dynamics of the industry, management will 180 INDICATORS AND INCENTIVES find itself without jobs, politicians without generation industry. This will result in costs posts, and investors with stranded investments. being driven down as utilities vie for customers. No longer will power be brought 8.3.1 The Emerging Electricity Industry from subsidized, expensive, inefficient producers. Instead, pure economics will To meet the changing conditions described in determine where electricity is purchased and the first section, the electricity industry has what the true market price is. The trend is belatedly been driven to undergo clear. The introduction of competition is the transformation in almost every aspect of its first and most important step in re-engineering business, from operational to regulatory and the industry to meet the increasing demands of financial restructuring. making local economies globally competitive.
Although the nature of every restructuring The type of competition introduced is, program has characteristics peculiar to that however, critical to the success of the program. particular program, this section identifies four Operational restructuring programs are fraught primary areas of restructuring. These are: with failures or partial successes due to competition being ineffectively introduced. (i) The operational structure of the enterprise Argentina and the UK are contrasting examples (ii) Regulatory change of success and failure stories. Argentina has (iii) Financial restructuring some thirty generating participants in the local (iv) Reshaping the role of management and market. The large number of competitors employees allows prices to be dictated by the market and has resulted in significant reductions in (i) Operational Changes generation prices. The UK electricity supply structure, on the other hand, is nothing more The ever changing environment has resulted in than an oligopoly where two major generators changes in the production (generation), dominate the market. transmission and distribution of electricity. The traditional vertically integrated utility as we In most restructuring cases the transmission know it is being broken up into separate and distribution industries have tended to entities. The economies of scale and natural remain regulated, natural monopolies. monopoly arguments (particularly in the Transmission lines have been separated from generation sector) are both being increasingly generation assets to prevent undue market questioned with changes in technology and the power of dominant generating plants. To increasing belief that bigger is not necessarily encourage competition, open access tariffs have more efficient. been introduced in some countries. This allows generators equitable access to the transmission Government-owned utilities are facing grid. increasing criticism to justify national generating monopolies. Where legislation Distribution companies continue to be prevents other entities such as independent carefully regulated, generally using the process power producers from generating electricity of an acceptable rate of return. More and entering the market, the result is generally progressive and competitive utilities have increased costs due to price distortions, poor introduced incentive rate making to encourage policies and a lack of management control and increased productivity. A successful example incentives to be productive. These of this type of incentive is being practiced in inefficiencies result in local industry and the restructured UK industry to encourage cost manufacturers becoming competitively retarded reduction and to increase business expansion. and thus unable to compete globally. In the The incentive included the setting of a price long term , inefficient national utilities will cap for electricity sold by the utility. The cap force local industry to relocate and invest in is linked to the inflation rate and indexed countries with cheaper and more favorable accordingly. Components of the tariff are economic environments. adjusted to keep in line with the changing production costs that are not accurately The future of low-cost competitive entities reflected by the inflation rate. Under this lies in the breakup and introductions of regime, cost savings and sales growth mean sufficient, effective competition in the increased profits. Other examples of incentive INDICATORS AND INCENTIVES 181 programs include profit sharing schemes independent of political pressure. Nor does the between utilities and customers. legislative environment dealing with inflation- based adjustments seem to be clear. In the UK, However, the constant evolution of new cost reduction incentives have brought about technology and the changing economic large decreases in the real cost of generation; environment are forcing a break-up of the however, this was not translated into a lower capital-intensive and legislative barriers to electricity price. The legislative environment entry. The point we want to emphasize is that did not consider the equitable sharing of these economics and not regulations or political gains. Consequently, the shareholders have ideologies will determine the future of tended to reap almost all of the benefits, successful, globally competitive utilities. causing public and customer anger towards Market forces rather than regulation will both the regulator and the utility. The issue provide incentives to the power sector to has become an emotional and political one. maintain and enhance power plant performance Should the Labor Party win the next election in and to sustain or decrease power costs to the the UK, it is likely that it will try to institute end user. (Salvaderi/Stallard, 1995) additional regulatory control. This sends a vital message to both utility managers and (ii) Regulatory Changes those responsible for regulation of the industry, if we want to keep government from interfering As a result of global competition, customer with the industry, regulation must work! demands and competition for capital, regulators are in the tenuous position of trying to regulate On a more positive aspect, Argentina's an industry that no longer exists as they knew successful restructuring can be largely it. This is an ideal opportunity for regulators attributed to the creation of a well-defined and to get back to basics. Their primary function is transparent environment. to ensure that power is made available in the most effective manner possible. Aspects of Issues new regulatory bodies face in the delivery that need to be monitored include the future include the phasing out of subsidies and quality of supply, cost, reliability and removal of price distortions. For this to transparency. happen, the regulator must allow the mechanics of the free market to function effectively in an There are any number of regulatory environment in which the regulatory bodies structures. However, there are six critical have removed themselves from political characteristics that need to be considered when persuasion and ensured their independence in defining the regulatory environment. These order to balance the diverse interests of all the include: parties concerned.
* Safeguard the rights of all parties. (iii) Financial Restructuring * Independence from political and corporate pressure. As the industry evolves so will the financial * Clear and consistent legislation. structures that currently exist. The change in * A legal system and appeals process that ownership from a nationally owned utility to is clearly defined. that of a privately held company will have an * Transparency of operations. enormous effect on both the risk facing the * Equitable sharing of efficiency gains organization as well as the potential to earn among all parties. large profits.
The regulatory role has an enormous The distinct business characteristics of each of influence in determining the success of the the unbundled or broken up businesses will restructuring process. International investors attract different types of investors with assess the regulator in determining what type different investment profiles. Generation, for of industry will evolve. In Brazil, for example, example, is a capital-intensive and capital- the regulator's ineffectiveness and inability to appreciative business. The distribution part of make its annual inflation-based adjustment has the business may attract investors looking for a created regulatory uncertainty and has made dividend yield. potential investors cautious. The delays stem from the regulator not appearing to be 182 INDICATORS AND INCENTIVES
SOE's are finding it increasingly difficult to factor to establishing and maintaining managers raise capital. International aid agencies are who are leaders in the industry. increasingly cynical about the SOE managers unwillingness to transform the way their Management of utilities should not allow utilities operate. If these utilities are to survive, themselves to be victims of the structures new, more flexible and entrepreneurial ways of within which they feel compelled to operate. doing business must be examined. Examples of Rather they should fight to overcome barriers this include Public-Private Partnerships, where imposed by traditional and outdated concepts, government utilities and private investors work and feel empowered to demand the tools to closely together. However, in order for realize superior world-class performance. potential investors to be interested, SOE's are going to have to offer a business environment 8.3.2 Motivating the Workforce which is stable and attractive to would be investors from the private sector. It is not sufficient that management merely devise correct strategies to meet the Predatory global utilities are on the hunt for opportunities and threats of a rapidly changing under performing electric utilities that they can environment. They must ensure that the purchase at rock bottom prices. Once workforce is properly motivated and rewarded purchased they put a new management team in to achieve the desired end states. place and begin the process of getting the utility operating efficiently. To avoid becoming In setting up a system that brings together a take over target, we as utility managers, need the high level objectives of management and to ensure that our utilities are as lean and the everyday concerns of the workforce that effective as possible. must perform the activities necessary to make it all happen, it is vital that consideration be (iv) Management and Workforce Restructuring given over how to align the aspirations of the workforce with those of management. From a The last area of change in the emerging worker's perspective, the growth or motivator electricity industry that we focus on is the factors that are intrinsic to the job include reshaping of management and the workforce to advancement, achievement, recognition for meet the demands of the new industry. achievement, the work itself, responsibility, and growth. The dissatisfaction/avoidance, or Changes in the electricity industry have hygiene factors, that are extrinsic to the job necessitated a change in both management style include company policy and administration, and management philosophy. A new breed of supervision, interpersonal relationships, more aggressive, less bureaucratic, managers is working conditions, salary, status, and security. emerging. There is a clearer, although not yet complete, understanding that the industry is a Regrettably, electric utilities, and in particular competitive one and that it is also a global one. those that are controlled by the state, tend to Management, forced by pressures of a changing impose the de-motivating factors rather than industry, has had to re-invent both the industry release the energy that is contained among its and their roles. Failure to meet the changes in employees. the demands facing them has led to large scale replacement of management. This is well A study by Unipede, representing all illustrated by the fact that when the UK European and many other countries' views, industry was reshaped, some 33% of all concludes, "In an environment of increasingly management posts were lost. The lesson is that sharp competition, and where the customer is there is little place for bureaucracy in the new becoming even more demanding, electricity industry. undertakings must constantly improve both the productivity and the quality of their services." There is also recognition that to make an electric utility successful, it must have a strong "These efforts cannot succeed through and effective management team. A multitude technical progress alone. The human factor of incentive and performance related schemes will play an ever more important role in the are in place in utilities to compensate and changes to be accomplished. For this reason retain top managers. This is a critical success the issue of personnel motivation is taking on fundamental importance." INDICATORS AND INCENTIVES 183
"Remuneration systems can be powerful tools * Ongoing assessments and formal reviews for motivation. Undertakings must therefore which lead to surprise-free overall move toward greater flexibility and an evaluation. increasing ability to acknowledge such qualities * Helps the employee evaluate his progress as skill, productivity, responsibility, availability, toward meeting the commitments creativity and adaptability to change." contained in his performance contract. * Provides the employee and manager with Given these considerations, it is incumbent on the opportunity to discuss and where both the management and govemors of necessary replan the performance electricity undertakings that proper attention be contract, and renegotiate performance paid to the management of performance within priorities. the undertaking. * Takes into account the individual's accomplishments, his implementation of Performance systems must be created that the undertaking's vision, mission, and achieve the following objectives: strategy and those strategic priorities applicable to his job. * Improve business unit performance by * Assists the employs to develop and linking the undertakings high level goals maintain a strategic vision of his job. to individual goals. * Facilitate behavior congruent with the But performance systems alone are not desired culture of the undertaking. sufficient.. Management must appreciate that e Enhance employs development to meet performance evaluation is not an end in itself, the undertaking's organizational but part of the management process of objective performance objectives. setting, planning, implementation, evaluation e Enhance the individual's sense of worth and replanning. in the organization, by setting clear goals and motivating employees to achieve 8.3.3 Rewards For Performance them. i Provide rewards and recognition for Reward systems need to strike a balance employees who meet and exceed between recognizing the individual's efforts challenging but realistic targets. towards self improvement, his contribution to * Appropriately manage unsatisfactory the team and the team's performance, and the performance. performance of the business as a whole. In addition, it is important to ensure that the Tlhe essence of effective reviews is to provide quantum of the reward is predictable and individual team members with a clear commensurate with the value added to the indication of how they are performing in terms business. of agreed outputs and objectives. The process includes: Reference has already been made to the allocation of productivity gains between Table VIII-1: Contract Example
GROUP INDICATORS (40%) | MEASURE WEIGHT TARGET PERF. RATING Company Net profit R Mill 10% 2543 Group Operating cost R/MWh 10% 3.76 Customer Satisfaction Availability 20% 90% PERSONAL INDICATORS (60%) Department Operating cost R Mill 10% 67.5 Affirmative Action % BAC 20% 50% Style Judgement 10% Customer Satisfaction Complaints 20% NIL Overall Perforrnance 184 INDICATORSAND INCENTIVES employees, customers and shareholders. Other express it in numbers, you know something bases, such as Economic Value Added (EVA), about it. When you cannot measure it. When are much utilized to ensure proper you cannot express it in numbers your quantification of employee rewards. The choice knowledge is of a meager kind." of the basis is dependent on the culture within the organization and the freedom allowed by 8.4.1 Nature of the Business the current system of governance. Experience shows that the more transparent the Traditionally, electric utilities have functioned relationship between value created and reward, as integrated entities which, in exchange for and the greater the freedom enjoyed by having captive customers who have the management to recognize valuable service, the obligation to pay, have the obligation to supply better the resultant performance. and ensure continued supply. The integrated utility based business has resulted in the 8.3.4 Performance Contrast different economic characteristics being internalized and in regulatory based pricing A means of ensuring that the employee is rules being applied. adequately developed, directed, motivated and rewarded, is provided by the concept of a The electricity supply industry can be viewed performance contract. This contract establishes as being made up of a number of different the degree to which predetermined and processes: negotiated targets, aligned with corporate and divisional objectives, are achieved and defines * A production function which converts the degree to which rewards are related to primary energy fuel into electric energy. group, divisional and business unit * A transport function which interconnects performances. power stations with the retailers of electricity. An example of such a contract is * A quality enhancement function. demonstrated in Table VIII-1. * A production scheduling and dispatch function, which can take the form of a By creating such a contract, and regularly deterministic centrally controlled determining the reward, and renegotiating the dispatch. or a competitive auction or next review period, it is possible to market function (the so-called power continuously align the workforce with the pool). strategies necessary to meet the ever changing * A retail transport (distribution) function. challenges of the fickle environment, and * A merchandising (selling) function. meaningfully compensate those responsible for the organization's success. Most utilities in developing nations are SOE's that take the form of vertically integrated 8.4 Using Information to Understand undertakings. They are thus subject to the same the Business structures in terms of management autonomy and rewards, the availability of capital and foreign exchange as other state departments We have argued that if utilities want to and SOE's. The impact of these constraints are compete globally then processes and structures not examined in this paper, suffice that the must be put in place to enable us to compete. motivation and incentive levels are lower than But this restructuring is not sufficient. To those found in the private sector. sustain the revamped processes and structures that were discussed in the second section, one The critical factor is that management of must be able to understand the nature of the SOE's must not allow themselves to become business and put performance indicators in victims of the structures and confines under place which enable us to make the necessary which they are expected to operate. Rather, adjustments to sustain continuous they should fight to overcome the bureaucracy improvement. The British Scientist, Lord Kelvin they face and demand the tools to realism (1824 - 1907), captured the essence of this issue superior, competitive performance. most eloquently when he said: "When you can measure what you are talking about and The vertical integration of activities, in conjunction with archaic business practices INDICATORS AND INCENTIVES 185 peculiar to the State, results in the inability to power stations). and rewarding performance in provide business performance information terms of financial returns. critical to successful managerial decision making. For this reason alone, it is critical that 8.4.3 Benchmarking utilities are unbundled. Another way of understanding the business 8.4.2 Unbundling may be obtained by determining where certain functions stand in respect of key performance Part of the performance indicator process is indicators in companies which are considered the breaking up of the utility. Such unbundling world leaders. Table VIII-2 below gives a allows one a clearer perspective of performance powerful indication of the fact that although and thus to identify the problems and the utility being measured may have successes. competitive advantages in some areas, these advantages are eroded by poorly performing The vertical integration of activities results in sectors within the utility. This benchmarking the inability to provide business performance exercise allows management to get a stronger information that a modem manger requires as understanding of the business and then take an essential took It is critical that the separate corrective strategies. activities be unbundled. Unbundling, in the regulatory sense, is " the separation of management and accounting from production. 8.5 Using Information. to Drive the transmission and distribution activities" and is Business. "an essential means of ensuring the transparency of operations" (European Council document on the Internal Market for Electricity 8.5.1 Making the Best of Best Practices and Gas). By organizingthe accounting functions As well as having been used increasingly by By oraizn th aconig.ucin uilities in recent years, the principle of according to standardized rules it is possible to benhhmarkin is beginn toe pple by identify correctly the costs and thus prices of regulators when assessing the performance of each activity, which is a prerequisite for the utilities. introduction of a system of Third Party Access ut s. (TPA). Although the concept of unbundling The principle underlying the concept of was conceived as a means of supervising benchmarking may be summarized as "making participants in a competitive regulated system, the best of' best practices." Benchmarking it has a much more important function in the management of a vertically integrated utiity successfulbusinesses and applyg them within inasmuch as it allows management a deeper one's own business. However, the application insight into the business through measurement of bencbasingwhn buiess isn sipl of separate activities. Unbundling focuses on . b improving each activity's performance rather panacea for success. Being essentially impr ovintheundertakg acit a whole. Indeed,by fundamental shift from the traditional way of than on the undertaking as a whole. Indeed, by dogthnsinestobudraknwh carrying the process further, and ringfencing or thcare. Thedfolowin elev enth corporatizing the activities, so that each activity been sugesTed aslnsuing hve sucess a is regardedis egrdd ass a separatespartean and independentideenen "bestbeen suggestedpractices" programas ensuring (Doakes, the successR., 1992). of a business, it is possible to stimulate the forces of competition within the organization and (i) Build a commitment to sharing -sharing thereby provide the incentive for greater with outside companies is obviously the performance. means of identifying appropriate best
Such ringfencing involves considerably more practice, but sharing goals and values than the accounting demarcation of each among employees is crucial to engender division. It involves the separation of the teamwork necessary to effect change. management between the distinct activities, and ii Increase your tolerance to risk taking the setting up of arms-length transactions . u a .. . between them. It could also involve direct -ele duetiltie aretorca tionay is competition between some of the divisions (e.g. 186 INDICATORS AND INCENTIVES
Table VIII-2: Benchmarking Utility X X Sampleo |++-
Thermal Efficiency (%) 34 39
O&M (Rand/kWh) 41 22
Labour (employees/GW) 412 81
Annual Capital exp (R/kWh) 19 5.5
Availability (%) 77 90
Reserve Margin (%) 23 15
Load Factor (%) 51 58
Customer/Employee 313 71
- This is a sample of the worlds best utilities in each of the areas measured.
with the state and the regulatory (v) Select your targets carefully -to focus the authorities. Management must actively company's resources and set up some seek the support of regulatory authorities initial role models for success it is and other stakeholders, including trade important that the initial performance unions, to allow fundamental changes in areas targeted for change be selected the utility's modus operandi if the carefully. Selection criteria include the introduction of best practices is to be involvement across company organization effective. lines to encourage sharing and teamwork and high impact issues that are both (iii) Set your sights on excellence visible and will rapidly make a significant -benchmarking is not simply applying a different to the success of the business. band-aid strip to a Problem and hoping it will heal itself. Radical surgery or strong (vi) Focus on processes -the achievement of doses of medicine need to be taken to best practices requires a fundamental shift ensure that the end result is of the from being concerned about who does highest degree of excellence. what or who "owns" things to focusing altogether on what is being done and how from a corporate perspective. (iv) Don't be preoccupied with numbers -benchmarking is not simply an exercise (vii) Recognize that change will effect in determining how the various utility employees -the introduction of best activities stack up against the practices into the work place will have a performance indicators of others, and profound impact on the workforce. It is being complacent when your own imperative that the changes are seen as performance appears good or non threatening but rather as an disheartened when they are not so good. opportunity to benefit both workers and Rather use the comparative indicators us the business in the long term. a means of identifying where best practices might be found, and for setting (viii) Plan your outside visits -visits to other goals for achievement . Always, however, companies to study their best practices the driving force must be the must be thoroughly prepared to ensure achievement of excellence, the utter that all the relevant issues are addressed dedication to doing and being "the best." and the right people learn what needs to be done back at home. INDICATORSAND INCENTIVES 187
(ix) Favor adaptation over copycatting productivity changes. Basing performance -simply replicating another's practices, incentives purely on profit performance is however good they may be, will be dangerous, since it runs the risk of rewarding counterproductive unless consideration is management for windfall gains due to given to the underlying philosophies, exogenous effects (lower inflation. interest rates practices and processes for conducting etc.) and failing to reward for real business. The best practice team must improvements resulting from total productivity thoroughly understand what drives the gains. best practice, such as management style, empowerment, trust, communication, It is important to report on total productivity employee recognition or rewards, and performance and quantify what it means to the then challenge what it is in your own business in financial terms. By doing this we business that inhibits the achievement of not only have a better understanding of the excellent dynamics of productivity, but also can measure what the productivity changes are worth in (x) Monitor but don't bridle enthusiasm financial terms. Another advantage of -employee enthusiasm for adapting best quantifying the productivity changes in practices can and must be the energy that financial terms is that it assists in identifying keeps a best practice effort going and how big the cake is and how it might be shared sustains implementation. among the key stakeholders of the business e.g.: (xi) Give the participant something in return -to continue to derive value from * Customers through funding lower targeted best practice companies, it is electricity prices useful to feed back to them the lessons * Employees through the payment of learned during implementation, and offer performance related bonuses opportunities where they might improve * The Business through retention for future their processes even further. In this way growth or debt reduction a continuing dialogue will take place * Shareholders through dividend payments between parties committed to achieving excellence. Figure VIII-2: Methodology Productivity and Price Recovery 8.5.2 Productivity Measurement
Productivity, since it is a measure of real wealth creation, is another useful tool for Se SE measuring business performance and allocating value among customers, employees and the * + cb. 5r Nirr Cb p. owners of the business. AV'_ Po0u INC
Although most organizations are wont to LWb1 BSk& -Cbv_T publish productivity performnance,thiis is almost QUA=U YSE PRIMB invariably in terms of the limited case of relating output to a single resource (e.g. kWh 0td v r sales per employee or return on assets or sales) The methodology under ying the and does not show the total financial impact on determination of total productivity the business of productivity gains or losses. measurement is demonstrated in the following Indeed, it is quite possible that a productivity table, which shows how changes in value are gain for a single resource (e.g. manpower) may desegregated into quantity changes and price be more than offset by the consequential effect changes. Productivity is not quantified productivity loss in another resource (e.g. by multiplying the changes in quantity (of capital) if the former gain has been achieved inputs and outputs) by their prices and the merely by substituting plant for people. price effect by multiplying the price changes by the quantities of the base period. Productivity Profit, particularly in the short term, is not a can be further split between the components of good indicator of productivity since it fails to growth and efficiency. differentiate between price effects and total 188 INDICATORS AND INCENTIVES
By doing this for each resource (e.g. primal million was due to improved utilization of the energy, manpower, materials, operating organization's existing capacity as a result of resources, and interest and return on equity increased electricity sales. The remaining R342 capital) and adding them together it is possible million came from improved business to reconcile the total change in productivity efficiencies. and price effects with the change in value which is the net profit of the business. 8.5.3 Balanced Scorecard
Wickam Skinner in his memorable article Over time, managers tend to develop myriad "The Productivity Paradox," warns that operational and physical measures that track introducing programs to boost productivity in the activities of the business but fail to provide isolation are more than likely to negatively the means to influence the strategic direction impact on competitiveness and thus push the that the business must follow. Very often these goal (of productivity improvement) further out measures are solely technical and financial, of reach. The better ways to compete that use resulting in a very detailed analysis of the manufacturing as a strategic resource are operations of the business from a narrow "quality, reliable delivery, short lead times, perspective, but not providing senior executives customer service, rapid product in reduction, with measures that help them direct the flexible capacity, and efficient capital company in the increasingly competitive deployment." Thus total productivity environment that prevails today. Usually these measurement should be seen as one of a set of measures have been incorporated as ad hoc performance measurement tools. issues have arisen. Many are no longer relevant to today's changing circumstances. Table VIII-3: Productivity Statement (R million) A means of providing a balanced 1994 1993 presentation of both financial and operational measures, while at the same time focusing on critical areas of the business through the use of Net Income 2 268 1 646 clear performance targets aligned with strategic Net income (previous year) 1 646 1 489 priorities is the Balanced Scorecard, a phrase Change for the Year 622 157 first coined in an article in the Harvard Attributable to: Business review in 1992. Wealth Reinvested 430 11 The Balanced Scorecard provides executives Productivity 93 237 with a comprehensive framework that Price Recovery 337 (226) translates a company's strategic objectives into Growth 192 146 a coherent set of performance measures. It provides four different perspectives from which 622 157 to choose measures, namely:
Eskom, the South African electric utility, uses (i) Financial: How do we look to a "Productivity Statement" in its Annual shareholders? Financial Report. The measurement provides (ii) Customer: How do customers see us? insight into business performance by analyzing (iii) Internal Business: What must we excel the change in net income between two periods at? in terms of the impact on productivity, inflation (iv) Innovation and Learning: Can we and growth. Productivity improvement occurs continue to improve and create value? through the more efficient use of all operating capital and creates additional wealth thereby A very simple example of a Balanced driving long term business improvement. Scorecard that a local electric utility might Improvements in productivity performance adopt is shown in the Table above. during the year created an additional R93 million which comprises a gain of R625 million By giving senior managers information from in productivity savings from the core business these four different perspectives, the Balanced of which R532 million was used to fund Scorecard minimizes information overload by abnormal expenditure (electrification). Of the limiting the number of measures used, and R625 million, it is estimated that some R283 brings together, in a single management report, INDICATORSAND INCENTIVES 189 the seemingly disparate elements of a thus demonstrating the better use of planned company's agenda. outages. A sustainable improvement in availability results in the deferment of 8.5.4 Eskom's 90:7:3 Initiative investment in new capacity as well as the optimal use of existing generating plant. As an example of an electric utility's attempts to meet the challenge of a "quantum leap" in The availability of Eskom's 35000 MW of performance, we describe the current initiative plant in 1994 was 80%. It plans to increase this of the generation division within Eskom (South to 90% by the end of the century. Studies show Africa). Improving the availability of that the costs of improving beyond this point generation plant is one of the few means exceed the concomitant benefits. The savings available to a modem electricity utility industry resulting from the deferral of capital to respond to the over increasing demands of expenditure on new plant alone amount to a customers for improved performance. permanent reduction of some $3000 Million. In addition, benefits may be derived from savings in replacement energy and reduction in
operating/maintenance costs. SURVIVE CashFlow Management of power stations are incentivised to achieve this improvement by GROW Return on Capital way of contributing to the vision of Eskom's becoming the world's lowest cost supplier of electricity by the end of the century. through the catchphrase 90:7:3 (90% availability. 7% planned outage, 3% unplanned outage), and the promise of rewards related to the savings that RESPONSIVE SUPPLY Durationof will be derived from such sustained interruptions improvement. To this end, availability represents 50% of the weighting in a power GROWTH New connections station manager's performance contract. Although the program to achieve this significant change is planned to take place over a number of years. comprising training and gS>P: retraining of staff in world best practices rescheduling of plant maintenance programs DELIVERY CAPABILITY Plant Availability carried out by external contractors, and prioritizing of plant protection criteria, a PRODUCTION Productivity dramatic improvement has already been EXCELLENCE manifest, inasmuch as the gas availability is expected to exceed 84%.
8.6 Conclusion
TECHNOLOGY ThermalEfficiencI This paper has attempted to identify the key underlying factors propelling the changes in the GROWTH Coursescompleted electricity supply industry. It has highlighted international economic pressures, the growing customer demands for choice, international financial markets, fiscal pressures and choices A recent study of availability (unit capability faced by governments, multi-monopoly factor) among utilities in some 40 countries sentiment and globalization of markets affected shows an increase of 2% in the availability of by advancements in the telecommunications fossil-fired steam turbines over the period 1991- and information technology arena. Given these 93 when compared with 1986-1990. This is pressures, no utility in the world can afford not almost entirely attributable to the reduction of to recognize that it must compete in a global the unplanned component of unavailability, environment. 190 INDICATORS AND INCENTIVES
The second part of the paper dealt with and We finally looked at three performance considered the actual changes taking place in indicators to assess how sustainable these four areas - operations, regulation, financial changes are - the balanced scorecard method, and human resources. The consensus is that in productivity measurements and benchmarking. order to have an electric utility that is It is evident that in order to survive as a utility, competitive it must be structured in the most it is necessary to understand the business and effective and efficient manner possible. Every measure against the best. This involves a country will have a structure that is unique to commitment to sharing knowledge, skills and that particular country. However, there are technology (particularly in the Sub-Saharan some good examples (both successful and region), a focus on excellence and the failures) that can be used to learn from. determination and drive to see this process through to the end.
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by P. Gregory Fazzari
9.1 Introduction EPUES selected as its object the performance of diesel plants. This was not because the study team attributed any preponderant importance to This paper has been prepared as a follow-up to diesel technology or had any special interest in the Electric Power Utility Efficiency it. Rather, the team believed that because the Improvement Study (EPUES), which investigated technology of diesel plants was so standardized, the disappointing performance of the power the problems encountered in different countries sectors in a number of developing countries. would be either the same or so similar that sound cross-country conclusions on the overall An initiative of several international performance of the plants could be drawn. organizations, including the United Nations Hence, the team believed that differences in Development Programme and the World Bank, performance between plants would not be and the bilateral technical assistance agencies of influenced so much by the type of diesel Denmark, Finland, Germany, the United equipment as by organization-specific Kingdom, and the United States, EPUES began characteristics. its investigation phase in 1988 and concluded in 1991. The "Core Report" of the study team was The study in fact revealed that the most salient published by the Industry and Energy differences in performance were attributable to Department of the World Bank in 1991, and a institutional and managerial factors. That is, special volume of issues and recommendations when the hardware and technology questions and a power efficiency checklist were published had been removed as issues, plant performance in 1994 in the World Bank Technical Papers, depended mainly on the quality and motivation Energy Series. In addition, a major statistical of the staff. Ultimately, then, the fundamental study has been prepared by Professor Erwin issues underlying good utility performance as Diewert of the University of British Columbia, reflected in the study appear to be human with the cooperation of Dr. Gunter Schramm and Mr. W. Teplitz-Sembitsky; it will be published in the near future.' Christoph Menke and P. Gregory Fazzari, Improving Electric Power Utility Efficiency: Issues and 1 CentralProject Team, Energy DevelopmentDivision, Recommendations,World Bank Technical Paper 243, Industry and Energy Department,"Core Report of the Energy Series(Washington, D.C.: World Bank,1994). W. Electric Power Utility Efficiency Improvement Study," Erwin Diewert, "EfficiencyMeasures for Diesel Electric Energy SeriesPaper 46, WorldBank Industry and Energy PowerPlants," draft availablefrom author of presentpaper, Department, Washington, D.C., September 1991. 1995.
STAFFINGISSUES 191 192 STAFFING ISSUES resource issues rather than mechanical or * The technology it employs is well known, technical ones. is accepted worldwide, and changes only slowly. Technical obsolescence is thus Hence, the present study, which attempts to seldom of concern, at least for the main deal with the most visible and important issues power installations. involving staffing, career, and training, with the * A utility requires a reliable and stable staff understanding that these are of prime concern to operate efficiently. It must be prepared for utility management. to obtain and keep such staff.
Several of the conclusions of the EPUES study Staff as an Essential Component of the have already been implemented. The German Enterprise Ministry of Cooperation (BMZ) has adopted the An electric utility, like any business enterprise, recommendations of the study and has made uses an array of natural, technological, financial, their application mandatory in the evaluation of and human resources. The natural resources are diesel projects to be financed by the German largely a given; the factors surrounding their government agencies (GTZ and KfW). Several of accessibility-such as land, water rights, the recommendations are being applied in the reservoirs, and rights of way-are a little more evaluation of power projects in general. flexible; certainly, land use can be mninimized, for example by avoiding large hydro projects that 9.2 Staffing Within Electric Utilities displace many people and replacing them with less intrusive projects. Still, the basic circumstances generally cannot be changed Unique Characteristics of Electric Utilities much. Similarly, the basic technology does not An electric utility is essentially a commercial allow a great variety of choices in the sense that enterprise, and as such cannot escape the rules the optimal solutions are not difficult to select, and constraints of the marketplaces in which it especially when they have been in worldwide operates. Still, it has some unique characteristics use for years. Almost all of the technology is in that set its operations apart from other industrial the public domain, and acquiring it poses no and commercial enterprises: substantial costs such as purchase of patents or development of special products. In any case, * As a public service it affects the interest of utilities should view the latest advances in a large number of users, and its power technologies with caution, until they have performance can become the subject of proven to be risk free. The exception is in the intense public scrutiny, especially if its control facets of the utility. Here, the reliability of supply is less than introduction of solid state designs and digital satisfactory. Utilities are generally in a processes cannot be delayed, and this in turn monopoly position, and consumers usually requires that the technical skills of the staff are cannot switch to an alternative supplier. upgraded apace. Therefore, any perceived shortcoming may give rise to strident criticism, which the The financial resources absorbed by an electric utility should try to avoid because its utility are large both in absolute terms and consequences may be unexpected. On the relative terms. Not infrequently, the utility is the other hand, the business is steady and, largest user of capital in a developing country. within limits, quite predictable. Little can be done to hold down the amount of * It absorbs huge amounts of investments investment absorbed, other than carefully that remain immobilized for long periods, selecting the least-cost solutions; ensuring that typically 30 years. The utility is often a existing facilities are fully utilized before new very significant borrower of foreign ones are built; and making certain, through exchange, and its debt service can be a proper maintenance, that they are available at all considerable burden on the country's times. These are significant problems, but they balance of payments. are not within the purview of this paper. * The cash flow is small compared with the capital invested. Thus, the utility's internal This leaves human resources as a key area in cash generation is seldom sufficient to let which good management can and should make the utility grow without depending on the a difference. It should be observed that staff is providers of savings and of finance. the most valuable and often durable asset of an enterprise even if it is not mentioned in the STAFFINGISSUES 193 financial statements, other than as a cost. Hence, it follows that the same care should be Installations can be built or rebuilt, and applied for the selection and keeping of staff as equipment can be bought and repaired in a span for the choice and maintenance of the facilities. of months or years at the most. But staff may If the facilities are expected to last and run take takes tens of years to train and develop. In continuously for thirty or forty years, then the developing countries in particular, good staff utility must select its staff to ensure that it is cannot be bought on the open market; they must qualified and motivated to keep them running be nurtured. True, foreign technical assistance properly. can always be obtained, but that is a short-term solution, and it is costly both in monetary terms Staff to Meet Basic Requirements and in its deleterious influence on company Businesses such as spinning mills or canning morale. factories can be run profitably with mostly unskilled labor given only a moderate amount of The Link Between Staff and Utility training and supervision. This is not the case in Performance an electric utility. Technology may have evolved slowly in the last hundred years, but it With the capital-intensive technologies nonetheless requires technically qualified currently in use, the amounts of savings or employees. Many of the devices available today credits that must be invested for each user for control, protection, communications, and served by a utility are of the order of thousands recording did not even exist twenty years ago. of dollars. When the amounts invested are Older and simpler designs can no longer be measured by each utility employee, the obtained. comparison is generally of the order of hundreds of thousands of dollars. Clearly, such costly New utility devices and technologies call for a facilities should not be entrusted to unqualified level of education among staff that is far higher or uncooperative staff. For the utility to function than what could be accepted in the past, as it ought to, the staff must be of the same high involving careful selection of candidates, quality as the facilities. With investments of this followed by long periods of apprenticeship and order of magnitude, a utility must operate specialized training. The main requirements for without waste, unnecessary costs, or damages the candidates can be summarized as: that can be avoided. The pitfalls any utility may face from poor operation are numerous and may . Educational and technological arise from any of the following events: qualifications * Reliability and sense of responsibility - Energy not supplied to users. The utility . Experience in similar work, and sufficient loses revenue when it is unable to satisfy confidence to perform under stress. the demand of the users for whatever reason; more importantly, it loses their Of these requirements, the easier ones to goodwill, which is essential for an quantify are the requirements for general enterprise that is totally dependent on a education and for technical education or fixed set of users and cannot change its aptitude; these are dealt with below. Experience market. The users, of course, are the first in similar work is a matter of record or of testing to suffer significant economic losses if the the applicant. Assessing the other power supply on which they are counting qualities-reliability, responsibility, and fails. confidence-is necessarily a matter of the * Damage to facilities caused by faulty or interviewer's judgment, subjective or imperfect inappropriate operation. This gives rise to as that may be. repair costs, power outages, and ultimately either increases the energy not supplied or The degree to which these qualities are forces the utility to replace it with energy necessary, or what the educational requirements from a more costly source. are, will vary with the job positions. This leads * Inadequate utilization of resources or of to the question of staff classifications, considered facilities. This implies that a sunk cost or below under the heading "Issues and Problems." an investment stops producing the benefits that are expected from it, and is thus Performance Indicators wasted, at least for the moment. A utility may not have immediate competitors in its domestic market, especially if it has a 194 STAFFING ISSUES monopoly, but it cannot avoid being compared Another indicator can be either the energy with utilities elsewhere. When a utility has to produced or the energy sold, expressed in raise funds in foreign exchange-as it must do so megawatt hours (MWh) per employee per year. sooner or later-it presents itself in a global market. Potential investors will compare it with Each department of a utility can devise its own utilities in other countries that are competing for indicators depending on its inputs and outputs. the same funds. Given that the technologies are During the EPUES work, the team developed a basically the same, comparisons can and will be composite indicator for the efficiency of a made on the basis of performance. thennal generating plant (a diesel plant in the case in point). The team termed this indicator A host of performance indicators have been best practice efficiency, defined as the ratio of devised for the various facets of a utility. Some the production efficiency of the plant in question deal with cost efficiency, price efficiency, and compared with the production efficiency of the quality of service. Attachment 2 lists a number best plant considered in the study that had of indicators that are in use, without in any way similar or comparable characteristics. This implying that the list is complete. We will leave indicator was well correlated with labor and fuel aside indicators that are mainly concerned with efficiency, and as such it appeared to depend financial data or customer satisfaction and briefly heavily on the mode of management and review some factors that deal with staff operation of the plant. The straight cost of efficiency. production, $/MWh, was considered less satisfactory as an indicator, since the costs of the A commonly used indicator of staff efficiency inputs and outputs vary too much between is the ratio of the number of users served per plants and countries (this is discussed further in utility employee. This can vary across a wide W.E. Diewert's forthcoming statistical study.) range, between 10 and 500, depending on the country and on type of utility management. In 9.3 The Experience of African general, the higher the ratio, the better the Utilities utility's performance is likely to be. Still, this is a fairly coarse indicator that should be used with A Profile of Manpower in African Utilities caution. A low ratio would certainly indicate One of the results of the EPUES effort was a that a utility is overstaffed, but it might also profile of staffing in 23 utilities in the 22 African indicate that the company has branched out and pountries visited (see "Core Report"). A has become an industrial conglomerate rather cuntri isited (ee (Core Reot). than an electric utility only. For example, the summary iS given here (Table IX-i). enterprise might carry out services or. manufacurie min-ht carryouseproductt s o The salient conclusions of the investigation were that only 25 percent of the utilities were procured just as well from outside supphlers; or, appropriately staffed, 20 percent were it may have extensive and exceptionally labor understaffed, and 55 percent were overstaffed. intensive distribution systems; another utility, in Almost all (91 percent) had problems with the contrast, may only supply a few wholesale users. skill mix; that is, they did not have personnel Attachment 3 reports these ratios for a number with the appropriate skills for the plant. The of African and other utilities and shows the next mostimportantproblem was the hiring and range of variation. firing process, followed by problems of staff morale. Table IX-1: Staff Profile Summary, 23 African Power Utilities
Total ReportedHiring ~~~~Staff Staff numbersStaff numberTotal of skillsReported mix andHiring firig Training Incentives moralea developmentplanning & utilities problems (P) (A) (P) (A) (P) (A) (A) TP A
Shortage 4 4 2 3 2 4 0 2 0 0 2 3 Appropriate 6 4 1 3 2 5 1 3 2 0 0 0 Overstaffed 13 13 8 9 3 6 4 4 7 1 5 10 TOTAL 23 21 11 15 7 15 5 9 9 1 7 13 Percentage 100 91 48 65 30 65 22 39 39 4 30 57 (P): Problem being reported. (A): Corrective action planned. STAFFING ISSUES 195
assessment of the present situation involves Lack of skilled staff, or an unbalanced mix of evaluating the qualifications and performance of skills, was found at all levels, from management individuals. This must not only be done in a fair to semi-skilled personnel. The other problem manner, but it also must be perceived as fair. areas identified, such as hiring and morale, are Defining the utility's goals requires assessing the all connected and may well be rooted in the organizational structure, work practices, absence of staff planning and development productivity, and appropriateness of the programs, or in their unsatisfactory technology. These tasks in turn require persons implementation. with experience and understanding of local needs and conditions. Once this is done, a Utility Performance and Staff Efficiency decision must be made concerning the skills that Another important relationship highlighted are missing in the company; whether it is during the study was that between staff reasonable to hire people from the outside; or efficiency and plant performance. The number whether it can be cost effective to invest in of staff hours expended to produce one upgrading and training existing staff. megawatt hour of energy in a diesel plant was correlated with the Best Practice Plant Efficiency Table IX-2: Staff Performance Measures (see Table IX-2 below). As the table shows, the P efficiency of the staff and the quality of the Power Country Hours per BPPE utility's performance are clearly correlated. A H 45.2 0.14 A M 78.4 0.32 9.4 Issues and Problems B M 23.4 0.52 A J 3.2 0.60 A CC 34.5 0.60 The Need for Staff Planning and A DF 623 0.62 Development E D 13.6 0.63 Staffing problems can and should be handled B L 10.4 0.69 by proper planning and implementation of a A LL 13.0 0.70 staff management program. In most of the cases A G 23.9 0.73 studied, management appeared to lack clear A D 4.0 0.84 objectives, whether linked to short- or long-term A A 8.8 0.91 goals, and procedures were often undefined. A L 3.0 1.00 When written procedures and regulations B GG 0.8 1.00 existed, they were enforced weakly if at all, in -' Numberof employee hours per megawatt-hour of response to pressures from various sources. electricity produced. b/ Best Practices Plant Efficiency
While these problems have been recognized by The general rule is not to attempt too financiers and donors, the remedies fundamental a change but rather to work toward offered-consultants, training, and the ideal situation gradually in small but feasible fellowships-have seldom been cost effective, and steps. As mentioned above, the essential part is they have seldom had a long-term effect. to define a program that is capable of being implemented rather than striving for something A comprehensive staff planning and conceptually perfect from the very beginning. development program can show where the needs are and how to address them. The essential part, The Personnel Manager however, is to implement the program. Successful implementation of a staffing and staff development plan requires that a high-level Conceptually, the planning process seems manager should be placed in charge. This is so simple and self-evident. Stated most basically, it not only because the function is a vital one but is a matter of determining the present situation also because the appointment communicates to and comparing it with an achievable goal. In staff and outsiders that the top management practice, the process will encounter resistance considers the work important and invests the from most quarters, as many will fear that their incumbent with the necessary authority and positions, established rights, and perquisites may support. All too often the personnel manager is be lost in the change. Apart from that, an limited to an administrative role, largely concerned with recording and keeping track of 196 STAFFINGISSUES decisions by others, and deprived of any utility of national policies that were not designed effective say in the handling of personnel. The for or by it. When a utility is treated as a part of importance of personnel management thus the government civil service because the should be recognized, and as a first step the government happens to be the controlling executive responsible for it should be placed shareholder, personnel policies are inevitably very close to the general manager in importance affected unfavorably. As indicated above, and authority. requirements for utility staff are quite different from those for civil servants, and the The post of personnel manager requires a responsibilities involved are also different. A strong and competent person in any case. The utility thus should not be subject to standards manager and personnel department may be and regulations devised for other institutions subject to heavy and frequent pressures by and should be allowed to develop its own outsiders to support the hiring of favored policies in hiring, firing, transfers, salary and candidates. Patronage is common in benefit scales, selection and promotion based on democracies, where politicians try to reward merit, and so on. Moreover, these processes must their supporters with good appointments, and be transparent and consistent to avoid suspicions similar processes are in operation under other of favoritism. forms of government as well. Whenever the utility is state owned or depends on government A utility in a developing country will have cooperation, political and patronage pressures enough problems in locating qualified candidates are to be expected. To render the personnel and should not be hampered by external manager immune from-or at least less bureaucratic constraints. susceptible to-such tactics, the appointment should be for a definite number of years, the When the basic requirements for the staff have attributes and functions of the job should be been outlined and summarized in a set of clearly stated, and the decisions of the incumbent reasonably detailed position schedules, it may should not be subject to ratification by a board of well be found that the mere fact of having these directors or by another government agency. definitions severely shrinks the pool of qualified applicants. Hence, the first problem the Staff Classifications personnel department will encounter will be to In a large utility, staff positions may have find a pool of qualified applicants, or, where this formal job descriptions, titles, and detailed is difficult, to develop one. The initial hurdle is requirements. In a smaller one, such refinements frequently the education requirements. may not be used, but whoever does the hiring Developing countries seldom have large pools of still must know and understand what is needed. technically educated persons, not least because This may sound simple, but it requires the such persons do not expect to find suitable local decisionmaker to have an intimate knowledge of jobs and may routinely move elsewhere. the enterprise. Therefore the hiring problem will be difficult during the first years. But as it becomes known Job or position schedules should be prepared, that a good education can lead to a good job at formally or informally, for each type of position. home, more applicants will both prepare and The basic categories that must be defined or present themselves. agreed between the supervisors or managers are the function or job description, the length of the Other incentives may induce technically appointment before transfer or termination, the trained individuals to regard employment in an requirements for education and experience, the electric utility as more than a mere meal ticket. necessary character or psychological makeup, the For example, the utility may offer a number of ability to abide by and work to fixed rules, and advantages to staff: the aptitude to respond to the system of rewards and sanctions that go with a performance * Competitive remuneration and evaluation. Attachment 1 gives a sample better-than-average fringe benefits schedule and set of basic staff qualifications for * Permanent employment (job security different types of positions. unless a major mistake is committed) * Years between transfers Hiring and Retaining Qualified Staff * Slow but certain career prospects One of the more common problems in hiring motivated and firing staff concerns the application to the STAFFING ISSUES 197
Value placed on experience rather than on Rotation of personnel is a necessity for a originality. variety of reasons, such as to ensure that the appropriate skills are available at the place Monetary compensation is normally not high, where they are needed, or to help the employee but it must be competitive with the private develop through exposure to different sector to prevent losing experienced staff to challenges, or to give employees an opportunity other enterprises. As indicated, the for promotion. These moves imply transfers of compensation levels should not be shackled to staff, and these involve a set of problems that the brackets that are applied to civil service need attention. The problem of housing the staff employees. Rather, utilities should target the needs careful consideration lest it turn into an compensations offered by industry and unreasonable burden for the utility-for example, commerce for comparable skills, although they if it decides to own the houses rather than to pay do not need to match them precisely. Utility a cash salary sufficient for the appropriate employees often enjoy generous fringe benefits accommodation. that make up for lower monetary compensation. Medical and accident insurance, retirement Terminations are always difficult matters. A benefits, and vacation allowances can be quite system of adequate fringe benefits, such as early attractive. However, the traditional practice of retirement, could cushion layoffs necessitated by providing free electricity to staff needs to be staff reductions. When a termination is required curtailed in many cases, as it can easily lead to for unsatisfactory performance, it is essential that abuses. the system of evaluation is transparent, understandable, and seen by the particular A fringe benefit that is quite valuable to more employee and by other employees to be applied ambitious employees is the opportunity for impartially, objectively, and with understanding. continuing education and technical training. It After all, not everybody is cut out to work in a should be clear that such training can and utility, and a particular individual may be more should lead to promotion or to transfer within successful in another environment. the company, and training should be organized with such career objectives in mind. Continuing Apprenticeship Programs education enhances the individual's morale and Especially where qualified staff is difficult to makes the employee more valuable to the utility. hire from the outside, a utility program of apprenticeship will be valuable. Students from It should be stressed that adequate technical schools could be admitted for a few remuneration is in the best interest of the months as part of their study program. This employer. If the remuneration is so low that would allow the utility to have an initial contact employees must take a second job to survive, with the persons that would make it easier to they will not be able to give their best to the decide whom to hire after graduation. In utility and will be more inclined to indulge in general, any new employee should be considered absenteeism and pilferage. The utility will thus probationary and should serve a period of lose more than it saves. If management is not apprenticeship before being accepted as a concerned about overstaffing, just because permanent staff member. salaries are so low that it does not cost much, it should be remembered that overstaffing can be Training of Replacements a contributing factor to poor utility performance. When an employee is being considered for a The connection between overstaffing and plant transfer or promotion, the individual should be performance is detailed under "Experience of required or expected to train a replacement African Utilities." before moving on. This implies that staff moves should be planned at least six months in Transfers and Terminations advance. Incumbents are given at least partial Employee performance evaluation is complex, responsibility to ensure that their successors are and this paper does not attempt to deal with it. capable, adequately trained, and possess all the It should be noted here, however, that ESKOM information and documents necessary to handle has developed a staff evaluation system, a set of the job. Elementary as these points may seem, objective performance indicators, and incentive their implementation would be a great novelty programs that will be described in detail by an and efficiency enhancement for some utilities. ESKOM speaker at this symposium. These considerations about planning transfers 198 STAFFING ISSUES lead directly to the larger subject of career 9.5 Education and Training Issues planning.
Career Planning and Advancement While the basic power technology changes Opportunities only slowly, equipment designs are changing Although change comes slowly in an electric more rapidly, and new features, such as utility, eventually it arrives, and staff must be solid-state components, are now commonplace. prepared for it. Quite apart from normal New designs and features are being forced upon attrition, expansion is often faster in a the utilities simply because the earlier, simpler developing country than in an industrialized equipment is no longer manufactured. Staff will one, and it brings the need for more staff. Thus, have to be upgraded apace with the new candidates for change or promotion must be installations, and the level of education needed identified and their careers or advancement to hold a position in a utility will continue to fostered. This is a demanding task that calls for increase. This has happened in industrialized interaction between employees and supervisors. countries, where few utilities employ staff It starts with the apprenticeship program, which without a technical or professional education and can be set up to allow the apprentice to work for where the operations are carried out with many an appropriate period-say, six months or a fewer staff than in developing countries. year-in different positions or departments, with the purpose of discovering special talents or A utility should prepare for this. Care should interests and finding an appropriate be taken to hire only staff that has the level of organizational niche. When the employee has education the utility will need and that will gained permanent status, he or she should be allow them to have a satisfying career before given an opportunity to participate in continuing them. Dealing with the problem of redundancies education programs to prepare for transfers or is painful and costly for all concerned, and it is for other positions. A program of rotation better to prevent it from arising by hiring between positions would be helpful not only to well-prepared candidates from the beginning. promote employee loyalty to the utility rather than to a department but also to show that good Types of Education and Training performance is rewarded. Especially if a transfer In a developing country, a utility cannot expect is perceived as a distinction, independently of to be able to hire staff that meets its exact whether the remuneration improves, i-. can help specifications. It will have to take the best to improve morale. It must not be forgotten that candidates and spend money on training them. among technical specialists the opinion of one's Training, however, is a worthwhile but peers can be as important an incentive as a expensive investment in human resources. material reward. Therefore, it should be kept to the minimum necessary for the desired result. It should also Continuing Education target the staff that shows the most promise and Continuing education is an essential should not be expended on staff that are likely to component of career progression. It is up to the move to other positions, inside or outside, where company to give the employees the opportunity the training they have received will no longer to learn and develop. This does not need to be benefit the organization. In brief, an investment a set of especially costly programs. Instructors in training should be considered as any other from within the utility should be the backbone of investment-it should be justified by the expected such programs. In the beginning, help and results and should be subjected to an evaluation technical assistance from abroad will be needed of benefits versus costs. to get the programs started, but the continuing work must build on local resources. The following paragraphs outline the types of education and of training that are of interest to A technical training center within, or even a utility. outside, the utility could combine two functions in the same premises: that of overall training of Basic Education. Basic education involves the apprentices for longer periods, and that of traditional three "Rs": reading, writing, and continuing education with shorter courses. More arithmetic, which should be imparted in the about this is said below, under "Some Training primary schools. The secondary schools should Centers in Africa." provide the candidates with the ability to write compositions (to write coherent reports) and the STAFFING ISSUES 199 ability to apply logic and to reason (for problem the rapidly evolving state of the art. This is solving). Graduates should have a capacity for discussed below under "Continuing Education." independent study without continuous external It is therefore a matter for the individual to assistance (for further development). A working ensure that the investment made or received in knowledge of a foreign language is important, higher education remains relevant. Personal since neither textbooks nor instruction manuals dedication is of great importance. are available in many of the local languages and dialects. The high cost of higher education means that it cannot be the responsibility of the utility. If All this must be provided by national public or any proof of this is needed, it can be seen in the private school systems. The utility cannot difficulties that ESIE (a high-level engineering function adequately if it does not have access to school established during the 1980s in a pool of qualified applicants, nor would it be Bingerville, C6te d'Ivoire, for utilities), has had realistic to expect it to run remedial classes for in attracting fee-paying students. Hence, the insufficiently prepared entrants. utility will have to hire whoever fits its requirements. To widen the pool of applicants, Technical Education. At this level, candidates the utility may be well advised to include in its preparing for employment in technical position search candidates from other countries and not in a utility should undertake a two- to four-year to limit the pool to the local job market. course in mechanical, electrical, or instrumentation technology, or a similar Specialized Education. This area is properly discipline. A prerequisite is secondary the concern of the utility and must be provided education, which must impart basic notions of for at the utility's expense. This is especially applied science in physics, thermodynamics, true when substantial numbers of employees fluid mechanics, magnetism, electricity, and so must be given similar specialized skills. on, depending on the specialization desired. Graduates from technical schools are prepared Students should become familiar with units of for a variety of general tasks, but such training measure and with measuring equipment. They often must be supplemented by specific should learn to interpret technical drawings and instruction. One example is the training of to draw sketches as needed. A moderate level of linemen to work on distribution lines. In computer literacy is also highly desirable. addition, detailed training in the use of computers and specific software packages is This type of education is normally provided by important for all staff, but especially for the a vocational or technical school. Its graduates administrative employees. Maintenance and would find positions with a variety of employers repair of diesel engines may be the subject of (industry, repair shops, contractors), not specialized courses if the utility has a number of exclusively with a utility. A vocational or such plants. Courses and training installations technical school is extremely important for a will have to be set up either by the utility or, if developing country and should be treated as a it is too small, in joint venture with another priority for education. The school must be set utility. Specialized education with the attendant up and financed by the community or by the practical training is best carried out in the state. It cannot be expected that the utility country of the utility or in a neighboring country would establish one for itself because it could where conditions are comparable. Training in not afford it, and because only a minority of the industrialized countries is not always cost graduates would join the utility. It is, however, effective because the conditions and the in the interest of the utility to support and assist problems are too different from what the staff this type of school. has to contend with at home, and the cost per employee is vastly greater. Higher Education. University or advanced technical college education is needed only a for Continuing Education. This, too, is the a relatively small number of utility employees, as responsibility of the utility and should be made long as the utility has a fair number of good available to all employees in the technical, quality technicians in its ranks. A university administrative, and support categories to enable degree includes a base of general knowledge them to update and to upgrade their skills. The onto which a specialization is grafted. Such opportunities for such education should be specialized knowledge must be updated publicized, and, if necessary, time off work, or periodically if the graduate is to keep abreast of leave of absence should be considered where 200 STAFFINGISSUES suitable. A typical field for such activities is to technical and linguistic, since time for instruction make as many of the staff as possible is usually limited. Thus, if trainees have worked computer-literate. Once staff is familiar with for years with similar equipment from another computers, many specific techniques can be manufacturer, they may learn quickly to deal grafted onto this skill. A training facility should with the new features of a similar piece of be set up and kept by the utility. equipment. But if trainees have never worked with comparable equipment, brief on-the-job Highly Specialized Training. This type of training may not be sufficient. training can be adopted when only small numbers of employees need some very Technical Assistance. Technical assistance in specialized training to perform their jobs. An the form of individual expatriate experts is a example would be the maintenance of gas or frequently employed means to maintain steam turbines, hydroelectric generating units, operations at a technically acceptable level while high-voltage circuit breakers or transformers. some employees are being trained or upgraded. This training can be given by the instructors It must be realized that this is a short- to from the manufacturers in conjunction with the medium-term measure, as the expert or experts installation or major overhauls of their will remain on post only for one to three years. equipment. It should be remembered that the It is a good way to prevent accidents or instructors from the supplier should be maloperation of expensive new installations, but experienced in this task and sent for the specific complementary solutions must be programmed purpose. The installation supervisor should not for the long term. The best strategy is to use the be expected to do it, because the primary task of technical assistance to buy time to find or this individual is to erect and commission the develop long-term talent to take over the job. equipment on a tight schedule, and to exacting specifications. Experts coming in as part of TA will generally do their best to give on-the-job training to the It is always preferable to conduct highly staff they work with, but this has its limitations. specialized training in the country of the utility. When they leave, the person who replaces them Under special circumstances, however, it may be may not continue with the same style and necessary to carry out the training overseas. An procedure. Thus some of the practices and overseas stay of two to twelve weeks is quite mentality that were taught may no longer be expensive, and care must be taken that such an applied, as the new expert or replacement sets investment bears fruit. To illustrate the import the tone of work. of such a course, Attachment 4 describes a specialized training program for diesel engines. To prevent such discontinuities and the waste Not only is the cost of training quite high, even of effort they may bring about, a coherent if it is included in the price of the equipment, program of training and of policy is but the training course cannot easily be repeated indispensable. It should ensure general a few years later. This requires a careful agreement and understanding within the utility selection of the students to ensure that they of the goals of the program, its long-term policy, derive the expected benefits from their stays. In and the existence of a group set up to implement general, it should be incumbent upon the all this coherently, taking into account that supervisors and managers to arrange that individuals will come and go. Bringing in a sufficient numbers of staff receive training and to professional training organization that has a ensure that for at least two or three years they proven record of success in these programs is are not transferred away from the plant where one way to solve the problem; establishing a their skills are needed. twinning program (discussed below) with a utility of appropriate size and characteristics is On-the-Job Training. Staff can obtain another. instruction in the form of on-the-job training-for example, by assisting a factory supervisor in Some Training Centers in Africa installing, assembling, testing, and A number of training centers have been commissioning a piece of equipment, and established in Sub-Saharan Africa with support learning by watching the supervisor and and guidance from specialized training consulting the manuals. To be effective, organizations. Most of these are either technical however, this process requires trainees who or vocational schools or a combination of the already have substantial prior knowledge, both two. The students attend a two- to four-year STAFFING ISSUES 201 course that alternates classroom instruction with but for a description of its scope and operating practical and production work. The streams of results the reader should refer to the specific instruction offered are generally metal working, ESKOM publication available to the participants mechanics, automobile repair, and electrics. The in this Symposium. main purpose of these schools is to prepare students for jobs in the general market. A craft 9.6 Twinning Programs certificate of technical education is a good basis for joining an apprenticeship program in a utility, but training centers are not designed to General prepare students for specific apprenticeships. Twinning arrangements involve setting up a Specialized training centers have been set up in medium- or long-term relationship between a several countries, as noted briefly below. utility in a developed country and one in a developing country. The developed-country The TTI (TakoradiTechnicalInstitute)hasbeen utility, which should have well-established operating in Ghana since 1982 and turns out systems and procedures and be able spare approximately 110 technicians per year after a higher-level staff, can in this way transfer its four-year course. The courses, which have a operational technology and methodologies to substantial practical component, cover support the utility in the developing country. metalworking, electrics, and auto repair. Zambia has the ITC (Industrial Training Center) in In practice, twinning generally focuses on Lusaka, which is slightly smaller than TTI and achieving an improvement in day-to-day does not include an electrical stream. Zimbabwe operation of the developing-country utility by has both the VTC (Vocational Training Center) providing experienced staff who can help with and the HIT (Harare Institute of Technology), hands-on management practices. The transfer of which can accommodate up to 650 students in know-how occurs through daily, work, and even two- to four-year courses. In Namibia, the social contacts, and can be more effective than VTCN (Vocational Training Center of Namibia) short-term technical assistance. A number of can graduate 60 tradespeople per year after a twinning arrangements have worked for long two-year course. In Lesotho, the Lesotholi periods in African countries (see the list of Polytechnic is being established jointly by ODA countries and institutions in Attachment 5). of Great Britain and GTZ of Germany. All other centers mentioned here were organized by GTZ. One desirable feature of twinning arrangements is that the two utilities should not These training centers do not prepare vary greatly in size and type of organization. journeymen technicians for the specific tasks a The supplier utility, from an industrialized utility offers, but they do provide their graduates country, should not be so large as to have only with a good base upon which the specialized highly specialized staff. Such individuals might skills for the utility can be grafted. find it difficult to cope as a generalist in a developing country with the myriad of problems A training center designed specifically for an that arise in a small utility and that cannot be electric utility was set up in Freetown, Sierra shunted to another specialized department. A Leone, for the NPA (National Power Authority). possible answer is to use smaller utilities as This graduates 24 students per year after a suppliers, where all-round expertise is easier to three-year course, half in mechanics, and half in find than in large organizations. But small electrical subjects. It has also arrangements for utilities can seldom spare regular staff for continued education in specialized fields overseas missions. This problem has been including mechanical fitting, welding, line solved on several occasions by assigning the construction, cable laying, and switchyard twinning tasks to recently retired experts or to operation. A comparable training center was executives close to retirement. Such individuals built in Bujumbura, Burundi, for Regideso, but is often can be spared at the home utility, can work not active at present because of the intemal at moderate cost, and yet have a lifetime of conflict. experience to offer. Moreover, they can still call for backup from younger colleagues for special This section does not attempt to present a problems. complete overview of training centers in Africa. The ESKOM Training Centre, for instance, must be listed as a major and very efficient institution, 202 STAFFINGISSUES
Table IX-3: Twinning Arrangement, Rwanda unless terminated, it will be tacitly extended for two years at a time. e Electrogaz Neckarwerke Item | (1992data) (1994data) The two utilities are fairly well matched in Number of 25,000 620,000 size, as the data show (Table IX-3). Users Number of 1,923A' 1,897 The implementation of the agreement has been Employees slowed by the upheavals of 1994 but is expected Peak Load 37 1,471 to pick up as the situation becomes more normal. MW Burundi. In neighboring Burundi, a similar Energy sold 145 8,588 arrangement has been in force since 1985 GWh between Regideso and MUAG, also a a' Plus 2,100 temporaries. medium-sized German power utility. MUAG has provided the services of experts in hydro generation, switchyards, and distribution. The A practical advantage that the recipient utility expatriate staff have been particularly useful can gain from twinning is that the supplier during the current period of ethnic strife. They utility is often in a position to contribute at no have been able to continue their assistance cost to the recipient equipment that it no longer relatively unhindered, as they were not seen as uses but that still has years of useful life. part of either ethnic group. Several of the Typically this would be distribution transformers technical staff of Regideso have taken part in and switches that have been retired and replaced visits and stays in Germany in connection with because of changes in the system. This helps initiatives of continuing education. Staff from overcome financial constraints to system the supplier utility, including a recently retired expansion in the developing country. executive, help with the coordination of a major project, the rehabilitation of the distribution Two Ongoing Twinning Arrangements systems in Gitega and Bujumbura. Two ongoing twinning arrangements are described briefly below. In this case, the utilities were fairly well-matched in size, but a comparison of the Rwanda. In 1992 Electrogaz of Rwanda main data shows some interesting variations entered into a five-year cooperation agreement (Table IX-4). with Neckarwerke, a medium-sized German utility. The cooperation focuses on the electric power activity of Electrogaz, leaving aside its The load densities are, of course, extremely water and gas activities. The agreement covers different. Regideso serves a country with 10 generation, transmission, distribution, and million inhabitants, yet has fewer users than metering. It provides for visits and exchange of MUAG, which serves a region with 130,000 personnel, advice and support in technical and inhabitants. A perfect match cannot be achieved, organizational matters, an apprenticeship so an approximate one must do. program, and some specialized training. Each party pays its own personnel, but the German Finally, it should be noted that twinning Ministry of Cooperation contributes travel and arrangements are essentially cooperation transport costs. Each utility appoints a agreements intended to support the coordinator who, together with a counterpart developing-country utility. The supplier utilities from the other utility, handles plans, programs, give advice on organizational matters but do not and implementation. The agreement is intended take any direct part in the management and do to be the basis for a long-term relationship, and, not participate in the ownership of the developing-country enterprise. STAFFINGISSUES 203
Table VIII-4: Twinning Arrangement, Burundi as personnel manager, who should report directly to the CEO and should be Item Regideso MUAG adequately shielded from external (19I aa (94dt)pressures. Number of Users 21,000 39,000 * The tasks of the personnel manager should be to prepare and update a staffing plan Number of 900 (+1000 140 and to manage all procedures and activities Employees temp.) concerning the staff. This individual Peak Load MW 23 158 should implement staffing plans, procedures, and activities in all their Energy sold GWh 107 879 aspects, in concert with the heads of the operational divisions. Hiring, remuneration, and employment procedures shall be designed to suit the 9.7 Conclusions and needs of the utility, not imposed by Recommendations analogy with other government departments. Still, the utility must not act in isolation but must take into The above considerations can be summed up consideration local customs and in the form of several conclusions and institutions. recommendations: - Performance goals shall be agreed and set for departments, teams, and individuals. - Personnel and staffing issues are of Progress toward these goals shall be paramount importance for a utility and monitored and conducted in a transparent should be given the full attention of top fashion. A reward and sanction system management. shall be implemented. * Physical or financial constraints may be hInternal training programs and continuing beyond the ability of management to education initiatives shall be an integral overcome, but personnel and staffing part of the utility's work program and issues are very much within the power of shall be allocated the necessary multi-year management, and management's success budget. will be judged by the performance of the * Shortage of financial resources should not staff of the utility. be allowed to constrain good personnel - The management of staff issues should be management. The staff should be treated entrusted to a high-level executive, serving as the most valuable asset the utility has. 204 STAFFING ISSUES
Attachment 1: Staff Classifications for an Electric Utility
General A description in writing should be available for each position. It will outline:
- The purpose of the position within the organization, - How it relates to others, - A description of the tasks and duties. - Level of responsibility, - Duration of appointment, - The working environment, hazardous or dangerous conditions. - The minimum requirements that the individual must meet, such as Educational level, Type and length of experience required, Specific physical and mental abilities, constraints if any, Familiarity with other languages, Need and ability to communicate, Ability to work with tools and equipment.
This outline should not be treated as confidential, especially as it is subject to change as the utility grows and changes. The salary ranges of the position should also be made known to possible applicants.
Examples of Definitions by Category Outlines would be prepared for all categories of staff, and would typically include: Management - Technical -Administrative - Operation - Auxiliary and Support Staff.
Examples of summary definitions for each category are outlined below. For the sake of simplicity they are in outline form, and not all characteristics are filled in, as they would be in a real case.
Management - Purpose: Management of utility or of major/autonomous divisions. - Relationships With the owners or with their representatives; - Duties Interpretation and implementation of corporate objectives. - Duration of Appointment: 3 to 5 years, - Performance should be subject to rewards and sanctions. - Requirements Background in technological subjects., with a good understanding of administration, 5-10 years experience in utility business Technical Staff - Purpose Operate and maintain the facilities of the utility, - Relationships With management and with O&M staff. - Duties Monitor performance of facilities. Supervise O&M staff. For new facilities, supervise suppliers, and contractors. Program and plan work on existing and new plant. - Duration Indefinite, rotation after not less than 3 years. - Performance: Must meet defined and recognized standards. STAFFINGISSUES 205
- Requirements: Secondary or higher schooling - aptitude for technical work. Must be capable of understanding the utility system, hardware and software design. Utility experience required for higher positions.
- Training: Periodic upgrading of skills through utility sponsored training.
Administrative Staff
- Function: Administration of non technical facilities and resources. Recordkeeping and control
- Relationships With management, with all other staff, and with public.
- Duties Administer all non-technical assets of the utility. Keep records, ensure implementation of orderly procedures in a coinsistent manner.
- Duration Indefinite, rotation after not less than 3 years.
- Performance To meet precise and well defined standards.
- Requirements: Secondary or higher schooling; aptitude for administrative work. Must be capable of understanding modem information systems. Background in administration, not necessarily in utility business.
- Training: Periodic upgrading of skills through utility sponsored training.
Operations Staff
-Function: Operate and maintain facilities according to best utility practice
- Relationships With technical staff, for reporting and advice.
- Duties Operate facilities, recognize and prevent operational problems, liaise with technical staff for corrective action and improvements..
- Duration Indefinite, rotation as appropriate.
- Performance To meet established standards.
- Requirements Primary or secondary schooling, aptitude for technical work.
- Training Company sponsored training.
Auxiliary and Support staff
- Function: Help other categories, and complement their functions.
- Relationships: With operations and with administrative staff.
- Duties As required by the staff they support.
- Duration Indefinite.
- Performance As appropriate
- Requirements: Primary or secondary schooling, ability to understand written instructions.
- Background: Not necessarily in utility business.
- Training: To be offered if aptitude shown, in view of upgrading the employee to another position. 206 STAFFINGISSUES
Attachment 2: Measures of Efficiency
Cost Efficiency 1. Fuel rates (kJ/kWh or gram/kWh sent out * Coal Fired, or Oil Fired Steam Plants Gas Turbines Combined Cycle Plants Diesel Plants
2. Reserve margin, or ratio of available capacity to rated capacity (percentage or hours/year)
3. Availability of Plant (percent of year or hours/year)
4. Total System Losses (Energy sent out less energy billed)
Service to the Public 1. Loss of load probability, or outage rate.
2. Coverage; percentage of population with access to electricity
3. Impact on the environment
Price Efficiency 1. Real Financial Rate of Return
2. Self financing ratio
3. Billing and collection efficiency
4. Debt to equity ratio
5. Demand Management: Time-of-day tariffs and penalties to cover actual cost of service Incentives to contain peak loads
Adapted from Anderson, July 1994, World Bank FPD Note No.15 STAFFINGISSUES 207
Attachment 3: Indicators for African Power Utilities
Number of Users Served per Employee
Country (Year) Users Employees Ratio of Users per Employee Angola(1989) 136,000 4,500 30 Benin(1988) 57,000 1,100 52 Botswana (1991) 23,000 1,649 14 Burkina Faso (1991) 69,800 1,244 56 Burundi (1989) 14,000 899 15 Cape Verde (1988) 13,000 261 50 C.A.R. (1988) 8,000 557 32 Djibouti (1988) 21,000 714 29 Ghana (1988) 264,000 6,510 41 Guinea Bissau (988) 13.000 n.a n.a. Guinea (1991) 40,000 1,535 26 Ivory Coast (1989) n.a. 3,722 n.a. Kenya (1987) 222,000 6,720 33 Lesotho (1991) 10,300 n.a. n.a. Malawi (1991) 46,800 2,172 22 Mali (1991) 41,000 1,353 30 Mauritius (1991) 228,000 1,861 127 Mozambique (1988) 375,000 3,800 99 Niger (1991) 46,000 1,218 38 Nigeria (1988) 2,061,000 32,900 63 Rwanda (1991) 14,000 1,487 9 Sao Tome Principe (1988) 8,000 320 25 Senegal (1988) 195,000 2,260 86 Sierra Leone(1988) 35,000 1,530 23 Swaziland (1989) 15,000 450 33 Tanzania (1990) 175,000 6,700 26 Togo (1989) 49,000 1,009 49 Uganda (1989) 129,000 2,188 59 Zaire (1989) 145,000 4,378 33 Zambia (1988) 150,000 5,100 29 Zimbabwe (1991) 310,000 7,310 42 Note. Data for Cameroon, Chad, Congo, Djibouti, Equatorial Guinea, Ethiopia, Gabon, Maldives, Mauretania, Somalia, were not available. Source: Power Sector Statistics for Developing Countries 1987-1991 - WB, December1994 208 STAFFINGISSUES
Attachment 4: Outline of Specialized Training Program for Diesel Engines
This program is a typical one of manufacturers of medium speed diesel engines, who have a large enough market to justify setting up in-house training courses for the staff of their customers. They would have teachers, classrooms and teaching aids available. The courses are designed for customers'staff having already a basic technical knowledge. They would consist both of classroom teaching and of practical work, as follows.
Classroom teaching component.
Description of engine and of its component parts. Description of engine auxiliaries such as governors, turbochargers, pumps, fuel injection devices, etc. . Description of plant auxiliaries such as centrifuges filters, heaters, radiators etc. Description of control and supervision systems. Analysis of fuels and lubricants, characteristics of cooling liquid.
The teaching process would be supported by visual aids, such as slides, charts,videos, and by demonstration of sections of engine components.
Practical Component
This would include:
Assembly and dismantling of the main components of the engine. Adjustments and settings. Measurement of component wear and guidelines for reutilization of worn parts.
The practical work is held in one of the factory's assembly bays on engines being prepared for shipment, or on engines undergoing tests. Engine components may be set up in the classroom.
Duration
The courses run from 2 to 16 weeks depending on whether they are intended for operators, or for maintenance personnel. The participants should not be more than 10 or 12.
Prerequisites
To ensure the success of the training the participants should be selected among candidates who have a sufficient degree of knowledge and of mechanics. The timing of the courses should be such that the trainees can be assigned to work on the engines they have been trained for soon after their return to the country of origin. STAFFING ISSUES 209
Attachment 5: Twinning Arrangements between Power Utilities in African Countries
Country RecipientUtility Supplier Utility Financed by
Botswana BEI British Council
Burundi REGIDESO MUAG GTZ
Ghana ECG ESBI
Ghana VRA Ontario Hydro
Kenya KPLC NIEA British Council
Nigeria NEPA ESBI ODA
Rwanda EL.GAZ Neckarw. GTZ
Uganda UEB BEI
Zimbabwe ZESA BEI Source: 1992 study by PA Consulting Group 210 STAFFING ISSUES X. KfW's Support for Improving Performance of Electric Power Utilities
by Uwe Ohls2
KfW, as a development Bank, carries out in the The appraisal criteria are concentrated on the frame of the bilateral government-to-government aspects of assistance the financial cooperation on behalf of the German Government. Technical assistance is * allocative efficiency rendered by GTZ. KfW provides also funds on * production efficiency and its own for export credits and project financing. * environmental standards.
About DM 500 to DM 800 Million p.a. of the In order to ensure allocative efficiency of German Financial Cooperation funds are scarce resources and sustainable development invested in the energy sector, mainly for power the price of electric power has to reflect its projects. This comprises generation, transmission economic cost. The minimum requirement in this and distribution. respect are as follows:
During the past decade there was a trend in * Cost average by tariffs should be above of the deterioration of utility performance in 65 to 80 % of economic cost. In the medium Developing Countries. In many Countries, where term full cost coverage should be reached. we were involved, the tariffs and collection rates In any case 65 % serves as a minimum were low, the production efficiency inadequate requirement. and the sector were heavily subsidised. The main * If tariffs are subsidised the share of target for power projects in the frame of German non-productive consumption (mainly Financial Cooperation is "to ensure adequate and residentials) in the increase of supply by sustainable economic development". To reflect the project shall not exceed 40 %. this target better, KfW developed the "Operational Appraisal Criteria for Electric The minimum requirements for production Power Projects" which were approved by the efficiency has to be stipulated as follows: German Government. Those guidelines serve now as minimum conditions under which the * Project candidates shall be in line with the power sector of a developing country may be least cost expansion planning promoted * availability time ratio of existing plants should be higher than 75 %
2 Mr. Uwe Ohls is Chiefof the Energy and TelecommunicationsDivision in the TechnicalDepartment of the KreditanstaltfiurWiederaufbau (KfW).
KFW'sSUPPORT FOR IMPROVING PERFORMANCE 211 212 KFW'sSUPPORT FOR IMPROVING PERFORMANCE
* transmission and distribution losses shall The only way trying to solve these problems is be lower than 20 % (technical and the introduction of commercial principles. This non-technical) closes the circle to the requirements of this * excessive reserve margins in the system Symposium here at ESKOM'S premises. Once should be avoided there is a clear performance contract between the * adequate environmental standards have to government and the utility management, I share be met. the view of Dr. Maree, Chairman of ESKOM, who had said yesterday "Efficiency is the These key tests measures are the efficiency of responsibility of the management". I believe that, the overall sector performance. In case the refering to responsibility, accountability of criteria of the allocative efficiency are not met, management and onwership, most of the financing of projects is not adequate. The problems can be solved. promotion of the sector as a whole is then only possible in the frame of sectoral adjustment Remains the question what did we learn as programmes. donors from this EPUES-exercise:
At the same time when we developed our * The introduction of commercial principles appraisal criteria we joint the EPUES (Electric is as or even more important as new Power Utitility Efficiency Study) initiative of the investments Worldbank and other donors in order to look * the german government has decided to use into more details on the reasons for the poor the developed guidelines operational performance of the Utilities in * based on a government-to-government developing countries. Although the exercise was understanding (we are a bilateral donor) done on diesel generating plants the results can and assuming our minimum criteria are easily be transfered to utitlities as a whole. The fulfilled, we are ready to assist our partners results presented have shown clearly that the (Utilities) for a medium or longer period of reasons for the poor performance are more in the time and to join the process of introduction areas of framework conditions, autonomy of of commercial prinicples stey by step management and clear and consistent objectives, * In parallel to the financing of investments than in the area of pure technical operation. we are ready to enter into a dialog on More or less all common commercial principles operational improvements and are hurt. If the developed check-list, as a kind of restructuring the sector framework key test, is filled in for a Utility or a plant the conditions. This shall be done in a results show you the deficits very cleary. coordinated way with other donors. XI. GTZ's Support for Efficiency Improvement
by Peter Engelmann
Mr. Engelmann, GTZ Senior Technical Adviser, Improvement Study", the joint study of the is a power engineer with broad experience in the World Bank, GTZ and various international development and application of appropriate donors. electric power transmission, distribution and generation systems. He has introduced energy Mr. Engelmann has broad experience in saving methods in power supply and established negotiations with ministries and public power demand side management techniques. utilities on project design and development of strategies on institutional strengthening Mr. Engelmann has extensive experience in the especially in the field of Technical Co-operation. planning, management, monitoring and evaluation of technical assistance projects During his 29 years of professional carrier he financed by the German Government. He follows travelled on several official missions in various international development in the power sector developing countries and gained experience in and integrates the newest standards and socio-cultural behaviours of partners in the methods in the power sector planning within professional field. He has special skills in technical assistance projects of the German rehabilitation of hydro power plants, erection, Government. commissioning,operation of diesel power plants, planning and operation of electric power Within GTZ Mr. Engelmann is responsible for distribution systems including establishment of the dissemination of the main findings of the institutional strengthening procedures. He has a "Issues and Recommendations" as stipulated in broad experiencein manpower development and the "Electric Power Utility Efficiency training of power utility personnel.
GTZ's SUPPORT FOR EFFCIENCYIMPROVEMENT 213 214 GTZ's SUPPORTFOR EFFICIENCY IMPROVEMENT
Mr. Engelmann's Statement: with the national education system and the respective ministries. The Issues and Recommendations of the Electric Power Utility Efficiency Improvement GTZ is prepared to assist also the utilities Study (EPUES) related to man-power represented here in this seminar according to the development underlined the thesis of GTZ that regulation of the German Ministry of Economic training and upgrading of technical and Co-operation and Development. non-technical utility staff is the back-bone of a company's success. This particular issue is fully Let me offer our capability to support you in in line with the development policy of the detecting the weak points -if any- in your Government of the Federal Republic of Germany. company by adopting the Issues and Recommendations of EPUES. It is common sense that the improvement of skills is followed by the increase of motivation if If the results of such investigations shows in parallel human resource development i.e. further demand on Technical Assistance you carrier system, participation on the utility's have to refer your request on Technical efforts and benefits takes place in the enterprise. Assistance via your authorities to the German Embassy in your country for further Therefore, GTZ has given and is still providing consideration. support to utilities in various developing countries in training and establishment of system On behalf of the GTZ I wish that this seminar development in personnel recruitment, training, stimulates in your utility an enforced thinking in upgrading of technical and non technical staff. respect to human resources development as an This includes the establishment of rules and important management tool. guidelines for selection, curricula and examination of personnel in close co-operation Thank you Annex 1: Symposium agenda
Tuesday, December 5, 1995
Plenary Session John Maree Auditorium
9:00- 9:30A e-w-
The Honorable Stella Sigcau Minister of Public Enterprises Republic of South Africa
Dr. John Maree Chairman, Eskom
9:30 - 9:45 A.M - INAUGUA ADRS
Christopher Bam, Vice President International Finance Corporation
9:45 - 10:00A.M. OPENING ADDRESS
Richard Stern, Director Industry and Energy Department The World Bank
10:00 - 10:30 A M Refreshment Break
SYMPOSIUM AGENDA 215 216
BACKGROUND FOR POWER SECTOR REFORM IN SUB-SAHARAN AFRICA
Session Chairperson: The Honorable Paul Dessou Ministry of Finance, Benin
10:30 - 11:15 A.M. How do the Power Sectors in Sub-SaharanAfrica Compare? Mr. Alioune Fall, Director, Ministry of Energy - Senegal
11:15 - 12:00 P.M. The Institutional and Regulatory Situations of African Power Sectors Mr. Marcel Niat, Chairman, UPDEA/DG - SONEL - Cameroon
12:00 - 1:00 P.M. PANEL DISCUSSION Mr. Alioune Fall, Director, Ministry of Energy - Senegal Mr. Robinson Mwanza, Managing Director, ZESCO - Zambia Mr. Crispus N. Mutitu, Permanent Secretary, Ministry of Energy - Kenya Mr. Patrick Rutabanzibwa, Commissioner for Energy & Petroleum - Tanzania Mr. Marcel Niat, Chairman, UPDEA/DG - SONEL - Cameroon
1:00- 2:30 P.M. LUNCH
Luncheon Keynote Speech Social Aspects of Power Development in Sub Saharan Africa Mr. Phumlani Moholi, Eskom SYMPOSIUMAGEANDA 217
ISSUES AND OPTIONS FOR POWER SECTOR REFORM
Session Chairperson: The Honorable Lamine Fadika Minister of Mines and Energy, Cote d'Ivoire
2:30 - 3:15 P.M. Global Issues and Trends in Power Sector Reform Peter Cordukes, Industry and Energy Department, The World Bank
3:15 - 4:00 P.M. Regional Cooperation and the Need for Reform Mr. Tore Horvei, Chief Executive, SADELEC
4:00 - 4:15 P.M. Refreshment Break
4:15 - 5:30 P.M. THREE CONCURRENT BREAK-OUT SESSIONS
REFORM ISSUES IN OTHER COUNTRIES: ANY LESSONS FOR SUB-SAHARAN AFRICA? jeue: Congella Room Roo>. . Mr ee Adtim Group Group 1: EastAfrica Group II: Southern Africa Group III: WestAfrica Chairperson Mr. Crispus N. Mutitu, Mr. Raphael Mollel, PS Mr. Zadi Kessy Marcel PS Ministry of Energy PDG-CIE Ministry of Energy, Tanzania Cote d'lvoire Kenya
Moderator Mr. Shasi Desai Mr. Abdourahmane N'dir Chairman, CEB General Manager, Mauritius SENELEC, Senegal
Rapporteur Mr. Ben Dramadri, PS Mr. Robinson Mwanza Mr. Agbeviade Galley Ministry of Natural ZESCO Director General, CEET Resources Zambia Togo Uganda
5:30 - 6:00 P.M. Delegates Reconvene in the John Maree Auditorium for Presentations on the Breakout Sessions 6:30 P.M. Gala Dinner Sponsored by Eskom 218
Wednesday, December 6, 1995
Plenary Session John Maree Auditorium
DESIGN OF POWER SECTOR REFORM PROGRAMS
Session Chairperson: Prof. Edward Ayensu, Ghana
9:00 - 9:45 A.M. Strategies for Power Sector Reform Mr. Angel Zannier Claros, Ex-Minister of Energy, Bolivia
9:45 - 10:30 A.M. Legal Requirements for Power Sector Reform Mr. Martin Stewart-Smith, Ashcroft, Morris, and Crisp, London
10:30 - 1 1:00 A.M. Refreshment Break
11:00 - 12 Noon CASE STUDY: C6te d'Ivoire's Strategy for Power Sector Reform Mr. Etienne N'Guessan, Director, EECI
12:00 - 1:30P.M. Lunch
Luncheon Keynote Speech Restructuringthe ElectricityIndustry Mr. Claude Destival, Electricite de France SYMPOSIUM AGEANDA 219
Concurrent Session I John Maree Auditorium
CASE STUDIES IN POWER SECTOR REFORMS
1:30 - 2:30 P.M. CASE STUDY: Power Sector Reform in Portugal Mr. Navarro Machado, Electricidade de Portugal
2:30 - 3:30 P.M. CASE STUDY: Experience with Private Power Investments in Developing Countries Mr. Tim J. Soutar, Clifford Chance, Hong Kong
3:30 - 4:00 P.M. Refreshment Break
4:00 - 4:30 P.M. CASE STUDY: Moving Towards Reform - Zimbabwe Mr. Simberashe Mangwengwende, Chief Executive, ZESA
4:30 - 5:00 P.M. CASE STUDY: Moving Towards Reform - Ghana Mr. Emmanuel Appiah Korang, Chairman, Power Sector Reform Committee
5:00 - 6:00 P.M. Discussion and Questions and Answers on Case Studies
6.30 P.M. Dinner Hosted by ABB 220
Concurrent Session II Ian Macrae Auditorium
PERFORMANCE IMPROVEMENT OF ELECTRIC POWER UTILITIES
Session Chairperson: Gunter Schramm EPUES Project Director
1:30 - 2:00 P.M. Issue of Autonomy of Power Utilities Mr. Gunter Schramm, Project Director of the Electric Power Utility Efficiency Study (EPUES) 2:00 - 2:30 P.M. Staffing, Career and Training Issues Mr. Greg Fazzari, EPUES 2:30 - 3:00 P.M. Performance Indicators and Incentive Programs Mr. Hugh Ashby, Corporate Consultant, Eskom 3:00 - 3:30 P.M. Applying the EPUESGuidelines to Utility Assessments in Yemen Mr. Richard Jones, ODA 3:30 - 4:00 P.M. Applying the EPUES Guidelines to Utility Assessments in Indonesia Mr. Reuter, Lahmeyer International 4:00 - 4:30 P.M. Refreshment Break 4:30 - 5:00 P.M. Experiences with Private OwnlLease/OperateVentures of Isolated Utility Powerplants Around the World Bruce Levy, President, New Village Power Corporation 5:00 - 6:00 P.M. PANEL DISCUSSION OF CASE STUDIES Mr. Gunter Schramm, EPUES Mr. Richard Jones, ODA Mr. Uwe Ohls, KFW Mr. Peter Engelmann, GTZ Mr. Reuter, Lahmeyer International Mr. Bruce Levy, New Village Power Corporation 6:30 P.M. Dinner Hosted by ABB SYMPOSIUM AGEANDA 221
Thursday, December 7, 1995 Plenary Session John Maree Auditorium
MOBILIZING FINANCE FOR POWER SECTOR DEVELOPMENT
Session Chairperson Stephen Denning Director, Africa Regional Office The World Bank
9:00 - 9:45 A.M. Power Sector Financing Requirements: Impact on Public Finance Mr. Michel Wormser, The World Bank 9:45 - 10:30 A.M. Sub-Saharan Africa's Power Sector Market Outlook of Financing Sources Mr. Simon Morgan, Standard Bank London 10:30 - 11:00 A.M. Refreshment Break 11:00 - 1:00 P.M. PANEL DISCUSSION: What steps should Africa take to raise the needed capital investment for power?
Moderator: Mr. Roy Anderson, Executive President, Johannesburg Stock Exchange Panelists: Representatives: African Development Bank Mr. David Ferreira, The World Bank Mr. Vivek Talwadkar, International Finance Corporation Mr. Theuns Kotze, Eskom Mr. John Postmus, Exchange Control, South African Reserve Bank Mr. George Maher, Destec Energy Mr. Simon Morgan, Standard Bank London Mr. Jean Jaujay, Electricite de France Mr. Jim Romanos, Commonwealth Development Corporation Mr. Georges Serre, CDF / PROPARCO 222
1:00 - 2:00 P.M. Lunch Lunch Keynote Speech Financing Africa's Power Sector - Issues and Options Mr. David Parish, Chief Executive, Coopers and Lybrand, London
2:00 - 3:30 P.M. THREE CONCURRENT BREAKOUT SESSIONS
PROPOSALS FOR IMPLEMENTING REFORMS AND EFFICIENCY IMPROVEMENTS TO POWER SECTORS IN SUB-SAHARAN AFRICA
Group Group 1: EastAfrica Group II: Southern Africa Group III: WestAfrica Chairperson Mr. Sam Gichuru Eskom Representative Mr. Marcel Niat Kenya Power & Lighting South Africa Director General, SONEL Co., Kenya Cameroon
Moderator Mr. Desai Mr. Abdourahmane N'dir Chairman, CEB General Manager, Mauritius SENELEC, Senegal
Rapporteur Mr. Patrick Rutabanzibwa Mr. Agbeviade Galley Ministry of Water, Director General, CEET Energy & Minerals, Togo Tanzania
3:30 - 4:00 P.M. Refreshment Break 4:00 - 4:30 P.M. Delegates Reconvene in the John Maree Auditorium for Presentations on the Breakout Sessions BEYOND THE SECTOR REFORM DEBATE: ISSUES AND CHALLENGES
Session Chairperson: The Honorable Soumaila Cisse Minister of Finance and Commerce Republic of Mali 4:30 - 5:30 P.M. Beyond the Reform Debate: Where do we go from here? Mr. Ketane Sithole, CEO, Botswana Power Corporation
5:30 - 6:00 P.M. Closing Remarks Mr. Piet Faling, Executive Director, Eskom Mr. Richard Stem, Director, Industry & Energy Department, IBRD Mr.Vivek Talwadkar, Manager, Infrastructure Division, IFC 6.30 P.M. Dinner hosted by DESTEC ENERGY Annex 2: List of Participants
Mr. Claudio Hernandez S. E. Monsieur Ernest Kabushemeye SADC Ministre de l'Energie et des Mines P. 0. Box 2876 Ministere de l'Energie et des Mines Luanda, Angola B. P. 745 Bujumbura, Burundi Mr. Jose Salgueiro SADC Monsieur Jean Pacifique Nsengiyumva P. 0. Box2876 Directeur General Luanda, Angola Regie de Production et Distribution d'Eau et d'Ele Mr. Godefroy Chekete B. P. 660 Directeur General Bujumbura, Burundi Societe Beninoise d'Electricite et d'Eau (SBEE) B.P. 123 Monsieur Idi-Buhanga Pressadi Cotonou, Benin Directeur General de l'Energie Ministere de l'Energie et des Mines Son ExcellencePaul Dossou B. P. 745 Ministre des Finances Bujumbura, Burundi Ministere des Finances Cotonou, Benin Monsieur Ngovi-Ngulu Simanga Directeur General Ing. Angel Zannier Electrificationde la Region des Grands Lacs Vice Presidente (EGL) Comser Consultores, S. A. B. P. 1912 Avenida 20 de Octubre, #2651 Bujumbura, Burundi Zona Sopocachi La Paz, Bolivia S. E. Monsieur Salvator Toyi Ministre des Finances Mr. Ketane Sithole Inmeuble des Finances Chief Executive 26 Etage, Bureau No. 204 Botswana Power Corporation Bujumbura, Burundi P. 0. Box 48 Gaborone, Botswana Monsieur Jean Daird Bile Directeur des Etudes de la Planification Mr. H. Pierre Wirgha SocieteNationale d'Electricite du Cameroun Ministere de l'Energie et des Mines (SONEL) c/o Banque Mondiale B. P. 4077 Boite Postale 622 Douala, Cameroon Ouagadougou, Burkina Faso
PARTICIPANTS 223 224 PARTICIPANTS
S. E. Monsieur Andre Bello Mbele Monsieur Paul N. M'Bainodoum Ministre des Mines, de l'Eau et de l'Energie Ministere des Mines, de l'Energie et du Petrole Ministere des Mines, de l'Eau et l'Energie B. P. 816 Yaounde, Cameroon N'Djamena, Chad
Mr. Robert Moukoury Moulema Monsieur Ngaoulam Eugene Tabe Soci6t6 Nationale d'Electricite du Cameroun Ministere des Mines, de l'Energie et du Petrole (SONEL) B. P. 816 B. P. 4077 N'Djamena, Chad Douala, Cameroon Mr. Mohamed Ali Hadji Ms. Pauline Nguene Electricite, Eau des Comores (EEDC) Ministere des Mines, de l'Eau et l'Energie B. P. 121 Yaound6, Cameroon Moroni, Comoros
Monsieur Marcel Niat S. E. Monsieur Jean Itadi Directeur G6neral Ministre du Developpement Industriel Societe Nationale d'Electricit6 du Cameroun et de l'Energie (SONEL) Brazzaville, Congo B. P. 4077 Douala, Cameroon S. E. Monsieur Nguila M. Nkombo Ministre de l'Economie et des Finances Ms. Beyinda Nyiassa Brazzaville, Congo Ministere des Mines, de l'Eau et 'Energie Yaounde, Cameroon Monsieur Emile Ousso President Monsieur Emanuel Miranda Societe Nationale d'Energie (SNE) Directeur General B. P. 95 C. P. 137 Brazzaville, Congo Minedelo, Cape Verde Monsieur Maurice Tsoboga Monsieur Gaston Lekoua Ministry of Energy and Water Resources Directeur General Brazzaville, Congo Societe d'Energie Centrafricaine (ENERCA) B. P. 880 Mr. A. Madougou Bangui, Central African Republic Secr6taire General UPDEA S. E. Monsieur Charles Massi 01 BP 1345 Ministre des Ressources Energetiques et Abidjan 1, C6te d'Ivoire Minerales S/C ENERCA Monsieur Zadi Kessy Marcel B. P. 880 Pr6sident Directeur General Bangui, Central African Republic Compagnie Ivoirienne d'Electricite (CIE) Imm. CIE Treichville 01 Monsieur Mahamat Ali Abdel-Hamid B. P. 6923 Ministere des Mines, de l'Energie et du Petrole Abidjan 1, Cote d'Ivoire B. P. 816 N'Djamena, Chad Mr. Tidjane Thiam Directeur General Monsieur Hassan Awada DCGTx Directeur G6neral 04 BP 945 STEE Abidjan, C6te d'Ivoire B.P.44 N'Djamena, Chad Mr. Aniceto Ebiaca Moete Ministry of Mines and Energy Malabo, Equatorial Guinea PARTICIPANTS 225
Mr. Mauricio-Mba Ebozogo Ayang Honorable Bala Garba-Jahumpa SEGESA Minister of Finance and Economic Affairs Avenida de la Independencia Ministry of Finance and Economic Affairs Apartado 139 The Quadrangle Malabo, Equatorial Guinea Banjul, Gambia
Mr. Abraham Woldemichael Mr. Peter Engelmann General Manager Senior Technical Advisor, Energy Division Eritrea Electric Authority (EEA) Deutsche Gesellschaft fur Technische Victory Avenue No. 87 Zusammenarbeit (GTZ) Asmara, Eritrea Dag-Hammarskold-Weg 1-2 Postfach 5180 His Excellency Mr. Haile Woldensae 65760 Frankfurt am Main, Germany Minister Ministry of Finance and Development Mr. Uwe Ohls P. O. Box 895 KfW Asmara, Eritrea Kreditanstalt fiir Wiederaufbau Palmengartenstrage 5-9 Honorable Izaddin Ali 60325 Frankfurt am Main, Germany Minister Ministry of Mines and Energy Mr. E. A. Kalitsi Government of Ethiopia Chief Executive P. O. Box 486 Volta River Authority Addis Ababa, Ethiopia P. O. Box M77 Accra, Ghana Dr. Peter Mwanza Head of Energy Unit Mr. Emmanuel Appiah Korang Economic Commission for Africa Chairman P. O. Box 3005 WBLC Building, TUDU Addis Ababa, Ethiopia P. O. Box CCC 450 Globe Cinema Area Monsieur Claude Destival Accra, Ghana Electricite de France 30, rue Jacques Ibert Monsieur Abdoulaye Barry 75858 Paris Cedex 17, France Entreprise Nationale d'lectricite de Guin6e B. P. 322 Monsieur Jean Jaujay Conakry, Guinea Electricite de France 30, rue Jacques Ibert Monsieur Mody Oury Barry 75858 Paris Cedex 17, France Directeur National Des Energies et des Hydrocarbures S. E. Monsieur Paul Toungui Ministre de l'Energie et de l'Environment Ministre des Mines, de l'Energie et du Petrole B. P. 1217 B. P. 874 Conakry, Guinea Libreville, Gabon Monsieur Bokary Sylla Mr. W. Batche Baldeh Directeur General ENELGUI Managing Director Entreprise Nationale d'Electricite de Guin6e Utilities Holding Corporation B. P. 322 Independence Drive Conakry, Guinea P. 0. Box 609 Banjul, Gambia 226 PARTICIPANTS
Monsieur Joao Cardoso Mr. Reynold Duncan Ministre de l'Energie, de l'Industrie et des General Manager Ressources Naturelles Electricity Supply Commission of Malawi Caixa Postal 311 P. O. Box 2047 Bissau, Guinea Bissau Haile Selassie Road Blantyre, Malawi Mr. S. K. Gichuru Managing Director Reverend Dumbo Lemani Kenya Power and Lighting Company Minister of Energy and Mining P. O. Box 30099 Ministry of Energy and Mining Nairobi, Kenya Private Bag 309 Lilongwe 3, Malawi Mr. B. Kipkulei Permanent Secretary Son Excellence Soumaila Cisse Ministry of Finance Ministre des Finances et du Commerce Treasury Building Ministere des Finances et du Commnerce P. 0. Box 30007 Bamako, Mali Nairobi, Kenya Monsieur Oumar Sall Mr. C. N. Mutitu President Permanent Secretary Energie du Mali (EDM) Ministry of Energy Square Patrice Lumumbia Nyayo House B. P. 69 P. 0. Box 30582 Bamako, Mali Nairobi, Kenya Monsieur Mamadou Lam Professor M. N. Nyasani Societe Nationale d'Electricite et d'Eau de Chairman Mauritanie (SONELEC) Kenya Power and Lighting Company B. P. 355 P. O. Box 30099 Nouakchott, Mauritania Nairobi, Kenya Mr. Ould Eyih Ainina Mr. Shalane Shale Directeur General Managing Director Societe Nationale d'Electricit6 et d'Eau de Lesotho Electricity Corporation Mauritanie (SONELEC) P. O. Box 423 B. P. 355 Maseru 100, Lesotho Nouakchott, Mauritanie
Monsieur Gervais Rasamoelina Mr. M. Shashi Desai Directeur General Cemtral Electricity Board JIRAMA Royal Road 149 rue Rainandriamampandry Curepipe, Mauritius B. P. 200 Antananarivo, Madagascar Mr. Swaley Kasenally Ministry of Energy, Water Resources & Power Honorable Aleke Banda Government Center, 5th Floor Minister of Finance Port Louis, Mauritius Ministry of Finance P. 0. Box 30049 Mr. Manuelda Costa Braz Lilongwe 3, Malawi President Hidroelectrica de Cahora Brassa C. P. 263 Congo, Mozambique PARTICIPANTS 227
Honorable Andinba Taivo Ya Taivo Monsieur Abdourrahmane N'dir Minister of Mines and Energy Directeur General Ministry of Mines and Energy SENELEC Private Bag 13297 28 rue Vincens Windhoek 9000, Namibia B. P. 93 Dakar, Senegal Monsieur Abdoulaye Alhassane Societe Nigerienne d'Electricite Son Excellence Papa Ousmane Sakho B. P. 11202 Ministre de l'Economie, des Mines, des Finances Niamey, Niger et du Plan Ministere de l'Economie, des Mines, des Mr. A. Babatunde Finances et du Plan Director of Power Avenue Carde Ministry of Power and Steel Dakar, Senegal 1 Ozumba Mbadiwe Street Victory Island Mr. Selwyn Gendron Lagos, Nigeria General Manager Public Utilities Corporation, Electricity Division Senhor Navarro Machado Box 174 Electricidade de Portugal Unity House Avenida Jose Malhoa, Lote A, 13 Victoria Mahe, Seychelles 1000 Lisboa, Portugal Mr. Mustapha KargboDeputy General Manager Monsieur Isaq Branganca Gomes Cravid National Power Authority Ministere de l'Energie Electric House Sao Tome, Sao Tome et Principe 16 CIKA Stevenson Street Freetown, Sierra Leone Monsieur Tome Soares Vera Cruz Ministere de l'Eau et de l'Electricite Mr. James McNally Seio Tome, Sao Tome et Principe General Manager National Power Authority Son Excellence Magued Diouf Electric House Ministre de l'Energie, des Mines et de l'Industrie 16 CIKA Stevenson Street Ministere de l'Energie, des Mines et de Freetown, Sierra Leone l'Industrie 122 bis Avenue Peytavin Mr. S. E. A. Taylor-Lewis Dakar, Senegal Secretary of State Department of Energy and Power Monsieur Latsoucabe Fall Electricity House SENELEC Siaka Stevens Street 28 rue Vincens Freetown, Sierra Leone B. P. 93 Dakar, Senegal Mr. Roy C. Andersen Executive President Monsieur Alioune Fall Johannesburg Stock Exchange Director 17 Diagonal Street Ministry of Energy Johannesburg, South Africa 122 bis Avenue Peytavin Dakar, Senegal Honorable R. F. Botha Minister of Minerals and Energy Affairs Ministry of Minerals and Energy Affairs Private Bag X9111 Cape Town 8000, South Africa 228 PARTICIPANTS
Mr. Mike Brown Mr. John Postmus Economist General Manager Frankel Pollak Vinderine, Inc. Exchange Control Stock Exchange, 2nd. Floor Southern African Reserve Bank Diagonal Street 370 Church Street Johannesburg, South Africa Pretoria, South Africa
Mr. Piet Faling Mr. Georges Serre ESKOM Director Megawatt Park, Maxwell Drive, Sandton CFD PROPARCO P. 0. Box 1091 P. 0. Box 786.555 Johannesburg 2000, South Africa Sandton 2146, South Africa
Mr. Theuns Kotze Hon. Stella Sigcau Megawatt Park, Maxwell Drive, Sandton Minister of Public Enterprises P. 0. Box 1091 Private Bag X9079 Johannesburg 2000, South Africa Cape Town 8000, South Africa Mr. C. F. Liebenberg Minister of Finance Mr. Brian Statham Ministry of Finance ESKOM Private Bag X115 Megawatt Park, Maxwell Drive, Sandton Pretoria 1, South Africa P. 0. Box 1091 Johannesburg 2000, South Africa Mrs. Dawn Makobo Executive Director, Growth & Development Honorable Reverend Munth Dlamini ESKOM Minister of Natural Resources, Land Utilization Megawatt Park, Maxwell Drive, Sandton and Energy P. O. Box 1091 Ministry of Natural Resources, Land Utilization Johannesburg 2000, South Africa and Energy P. O. Box 57 Mr. John Maree Mbabane, Swaziland Chairman of the Board of Directors ESKOM Mr. H. V. Veelen Megawatt Park Maxwell Drive Sandton, Chief Executive Sunninghill Ext. 3 Swaziland Electricity Board P. 0. Box 1091 P. 0. Box 258 Johannesburg 2000, South Africa Mbabane, Swaziland
Mr. lain McRae Honorable Dr. Derick von Wissell President Minister of Finance National Electrification Forum (NELF) Ministry of Finance Halfway House P. O. Box 443 P. O. Box 5719 Mbabane, Swaziland Johannesburg 1685, South Africa Ms. Esther Masunzu Mr. Phurnlani Moholi Assistant Comnnissioner for Energy and ESKOM Petroleum Megawatt Park, Maxwell Drive, Sandton Ministry of Water, Energy and Minerals P. 0. Box 1091 Maji Building Corner: Sokoine Drive/Mkwepu Johannesburg 2000, South Africa Street P. 0. Box 2000 Mr. Allan Morgan Dar es Salaam, Tanzania Chief Executive ESKOM P. 0. Box 1091 Johannesburg 2000, South Africa PARTICIPANTS 229
Mr. Jim McCardle Mr. A. R. Rutta TransCanada PipeLines Managing Director P. 0. Box 6342 Uganda Electric Board Dar es Salaam, Tanzania P. 0. Box 7059 Kampala, Uganda Mr. Simon Mhaville Managing Director Mr. Peter Davies Tanzania Electric Supply Company (TANESCO) Senior Power Engineering Advisor P. O. Box 9024 Overseas Development Administration Dar es Salaam, Tanzania 94 Victoria Street London SWlE 5JL, United Kingdom Mr. Raphael 0. S. MoUlel Principal Secretary Mr. Richard P. Jones Ministry of Water, Energy and Minerals Senior Power Engineering Advisor Maji Building Comer: Sokoine Drive/Mkwepu Overseas Development Administration Street 94 Victoria Street P. O. Box 2000 London SWlE 5JL, United Kingdom Dar es Salaam, Tanzania Mr. Simon Morgan Mr. Boukari Alidou Standard Bank London, Ltd. Directeur General Cannon Bridge House Communaut6 Electrique du Benin (CEB) 25 Dow Gate Hill B. P. 1368 London EC4 R2SB, United Kingdom Lom6, Togo Mr. Jim Romanos Mr. Agbeviade Galley Business Development Directeur Gen6ral Commonwealth Development Corporation Compagnie Electrique du Togo (CEET) 1 Bessborough Gardens B. P. 42 London SWlV2JQ United Kingdom Lome, Togo Mr. Martin Stewart-Smith Monsieur Adjevi Mensah Ashurst Morris Crisp Ministere de l'Economie et des Finances Broadwalk House Lome, Togo 5 Appold Street London EC2A 2HA, United Kingdom Mr. Ben Dramadri Permanent Secretary Mrs. Fiona Woolf Ministry of Natural Resources Partner Amber House McKenna & Company P. 0. Box 7270 Mitre House Kampala, Uganda 160 Aldersgate Street London EClA 4D, United Kingdom Honorable Henry Kajura Minister of Natural Resources Ms. Jone Lin Wang Ministry of Natural Resources Senior Economnist Amber House Business Management Group P. O. Box 7270/7096 EPRI Kampala, Uganda 2000 L Street, N.W., Suite 805 Washington, D.C., USA 20036 Mr. Dison B. Okamu Deputy Chief Corporate Planner Monsieur Leopold Migabo Bisonganyi Uganda Electric Board Minist&e des Finances P. 0. Box 7059 Kinshasa, Zaire Kampala, Uganda 230 PARTiCIPANTS
S. E. Monsieur Wa-Syakassigni Pay-Pay Honorable Edith Nawakwi Ministre des Finances Minister of Energy and Water Development Ministere des Finances Ministry of Energy and Water Development Kinshasa, Zaire Box 36079 Lusaka, Zambia Mr. Titi Itimelongo Ministry of Finance Eng. Simbarashe E. Mangwengwende Box 50062 Chief Executive Lusaka, Zambia Zimbabwe ElectricitySupply Authority 25 Samora Machel Avenue Mr. Robinson Mwansa P. O. Box377 Managing Director Harare, Zimbabwe Zambia Electricity Supply Corporation Great East Road Honorable Mr. Simon Moyo P. 0. Box33304 Minister of Transport and Energy Lusaka 10101,Zambia Ministry of Transport and Energy P. O. Box8109 Harare, Zimbabwe
World Bank Staff
Carlos Algandona Iain Christie Senior Power Engineer Division Chief Industry and Energy Operations Division Industry and Energy Division Central Western Africa Department Africa Department, Central and Indian Ocean
Mahmood Ayub Peter Cordukes Senior Operations Adviser Principal Financial Analyst Africa Regional Office Power Development, Efficiency and Household Fuels Division Angel Baide Industry and Energy Department Power Engineer Industry and Energy Division Stephen Denning Africa Department, Central and Indian Ocean Director Africa Regional Office Christopher Bam Vice President Philippe Durand Personnel, Administration Energy Specialist and Corporate Business Development Industry and Energy Operations Division International Finance Corporation Western Africa Department
Henri Bretaudeau David Ferreira Senior Public and Donor Relations Officer Senior Financial Sector Specialist Industry and Energy Department Financial Sector Development Department
Jean-Pierre Charpentier Luis E. Gutierrez Senior Energy Specialist Principal Energy Economist Power Development, Efficiency Power Development, Efficiency and Household Fuels Division and Household Fuels Division Industry and Energy Department Industry and Energy Department PARTICIPANTS 231
Mangesh Hoskote Mr. Gunter Schramm Power Restructuring Specialist Energy and Environmental Economist Power Development, Efficiency International Finance Corporation and Household Fuels Division Industry and Energy Department Richard Senou Senior Financial Analyst Karl Jechoutek Industry and Energy Division Division Chief Africa Department, Central and Indian Ocean Power Development, Efficiency and Household Fuels Division Mary Oakes Smith Industry and Energy Department Division Chief Industry and Energy Operations Division John Besant-Jones Central Western Africa Department Principal Energy Economist Power Development, Efficiency Richard Stern and Household Fuels Division Director Industry and Energy Department Industry and Energy Department
Michel Layec Vivek Talvadkar Senior Energy Economist Division II Manager Industry and Energy Division Corporate Finance Services Department Africa Department, Central and Indian Ocean International Finance Corporation
Joel Maweni Bocar Thiam Senior Financial Analyst Energy Adviser Energy and Infrastructure Operations Division Private Sector Development Eastern Africa Department and Economics Division Africa Technical Department Said Mikhail Senior Power Engineer Stephen Weissman Industry and Energy Operations Division Division Chief Central Western Africa Department Energy and Infrastructure Operations Division Eastern Africa Department Jeffrey Racki Divison Chief Emmanuel Wope Energy and Infrastructure Division Summer Intern Southern Africa Department Power Development, Efficiency and Household Fuels Division Silvia Sagari Industry and Energy Department Division Chief Industry and Energy Operations Division Michel Wormser Western Africa Department Division Chief Private Sector Development and Economics Division Africa Technical Department ESMAP List of Reports on CompletedActivities
Region/Country Activity/Report Title Date Number SUB-SAHARANAFRICA (AFR) Africa Regional Anglophone Africa: Household Energy Workshop 07/88 085/88 (English) Regional Power Seminar on Reducing Electric Power 08/88 087/88 System Losses in Africa (English) Institutional Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English) 05/89 - Francophone Household Energy Workshop (French) 08/89 103/89 Inter-African Electrical Engineering College: Proposals 03/90 112/90 for Short- and Long-Term Development (English) Biomass Assessment and Mapping (English) 03/90 - Symposium on Power Sector Reform and Efficiency 06/96 182/96 Improvement in Sub-Saharan Africa
Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91
Benin Energy Assessment (English and French) 06/85 5222-BEN
Botswana Energy Assessment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Issues Study (English) 02/88 - Urban Household Energy Strategy Study (English) 05/91 132/91
Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and 06/91 134/91 French)
Burundi Energy Assessment (English) 06/82 3778-BU Petroleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year 05/85 036/85 Plan (1983-1987) (English and French)
232 Region/Country Activity/Report Title Date Number
Improved Charcoal Cookstove Strategy (English and 09/85 042/85 French) Peat Utilization Project (English) 11/85 046/85 Energy Assessment (English and French) 01/92 9215-BU
Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90
Central African Energy Assessment (French) 08/92 9898-CAR Republic
Chad Elements of Strategy for Urban Household Energy: The 12/93 160/94 Case of N'djamena (French)
Comoros Energy Assessment (English and French) 01/88 7104-COM
Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90
C6te d'lvoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (English) 12/87 - Power Sector Efficiency Study (French) 02/92 140/91 Project of Energy Efficiency in Buildings 09/95 175/95
Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 - Energy Assessment 02/96 179/96
Gabon Energy Assessment (English) 07/88 6915-GA
The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02/85 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85
Ghana Energy Assessment (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Industrial Energy Efficiency (English) 11/92 148/92
233 Region/Country Activity/Report Title Date Number
Guinea Energy Assessment (English) 11/86 6137-GUI Household Energy Strategy (English and French) 01/94 163/94
Guinea-Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & 04/85 033/85 Portuguese) Management Options for the Electric Power and Water 02/90 100/90 Supply Subsectors (English) Power and Water Institutional Restructuring (French) 04/91 118/91
Kenya Energy Assessment (English) 05/82 3800-KE Power System Efficiency Study (English) 03/84 014/84 Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English) 02/87 - Solar Water Heating Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English) 11/87 -
Lesotho Energy Assessment (English) 01/84 4676-LSO
Liberia Energy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87
Madagascar Energy Assessment (English) 01/87 5700-MA G Power System Efficiency Study (English and French) 12/87 075/87 Environmental Impact of Woodfuels (French) 10/95 176195
Malawi Energy Assessment (English) 08/82 3903-MAL Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013184
Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92
Islamic Energy Assessment (English and French) 04/85 5224-MA Republic of U Mauritania Household Energy Strategy Study (English and French) 07/90 123/90
Mauritius Energy Assessment (English) 12/81 3510-MAS
234 Region/Country Activity/Report Title Date Number
Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Energy Sector Review (English) 12/94 3643-MAS
Morocco Energy Sector Institutional Development Study (Eng, and Fr.) 07/95 173/95
Mozambique Energy Assessment (English) 01/87 6128-MOZ Household Electricity Utilization Study (English) 03/90 113/90 Electricity Tariffs Study 06/96 181/96
Namibia Energy Assessment (English) 03/93 11320-NAM
Niger Energy Assessment (French) 05/84 4642-NIR Status Report (English and French) 02/86 051/86 Improved Stoves Project (English and French) 12/87 080/87 Household Energy Conservation and Substitution (Eng. & 01/88 082/88 Fr.)
Nigeria Energy Assessment (English) 08/83 4440-UNI Energy Assessment (English) 07/93 11672-UNI
Republic of Options for the Structure and Regulation of Natural Gas 05/95 172/95 South Africa Industry (English)
Rwanda Energy Assessment (English) 06/82 3779-RW Energy Assessment (English and French) 07/91 8017-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and 08/86 059/86 French) Improved Charcoal Production Techniques (Eng. and Fr.) 02/87 065/87 Commercialization of Improved Charcoal Stoves and 12/91 141/91 Carbonization Mid-Term Progress Report (Eng. and Fr.)
SADC SADC Regional Power Interconnection Study,. I-IV 12/93 - (Eng.)
SADCC SADCC Regional Sector: Regional Capacity-Building 11/91 Program for Energy Surveys and Policy Analysis (English)
Sao Tome & Energy Assessment (English) 10/85 5803-STP Principe
Senegal Energy Assessment (English) 07/83 4182-SE
235 Region/Country Activity/Report Title Date Number
Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037/85 Preparatory Assistance for Donor Meeting (Eng. and Fr.) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Industrial Energy Conservation Program 05/94 165/94
Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84
Sierra Leone Energy Assessment (English) 10/87 6597-SL
Somalia Energy Assessment (English) 12/85 5796-SO
Sudan Management Assistance to the Ministry of Energy and 05/83 003/83 Mining Energy Assessment (English) 07/83 451 1-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English) 07/87 073/87
Swaziland Energy Assessment (English) 02/87 6262-SW
Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 - Industrial Energy Efficiency Technical Assistance 08/90 122/90 (English)
Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and 04/86 055/86 French) Power Efficiency Improvement (English and French) 12/87 078/87
Uganda Energy Assessment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (English) 01/85 029/85 Energy Efficiency in Tobacco Curing Industry (English) 02/86 049/86 Fuelwood/Forestry Feasibility Study (English) 03/86 053/86 Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Improvement in the Brick and Tile 02/89 097/89 Industry (English) Tobacco Curing Pilot Project (English) Terminal Report 03/89 UNDP
236 Region/Country Activity/Report Title Date Number
Zaire Energy Assessment (English) 05/86 5837-ZR
Zambia Energy Assessment (English) 01/83 4110-ZA Status Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90
Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Status Report (English) 08/84 019/84 Power Sector Management Assistance Project (English) 04/85 034/85 Petroleum Management Assistance (English) 12/89 109/89 Power Sector Management Institution Building (English) 09/89 - Charcoal Utilization Prefeasibility Study (English) 06/90 119/90 Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM Energy Efficiency Technical Assistance Project: Strategic 04/94 Framework for a National Energy Efficiency Improvement Program (English) Capacity Building for the National Energy Efficiency 12/94 Improvement Programme (NEEIP)
EASTASIA AND PACIFIC(EAP)
Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 -
China County-Level Rural Energy Assessments (English) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Strategic Options for Power Sector Reform in China 07/93 156/93 (English) Energy Efficiency and Pollution Control in Township and 11/94 168/94 Village Enterprises (TVE) Industry (English)
Fiji Energy Assessment (English) 06/83 4462-FU
Indonesia Energy Assessment (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries 04/87 067/87 (English) Diesel Generating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Strategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II 12/90 124/90 (English)
237 Region/Country Activity/Report Title Date Number
Prospects for Biomass Power Generation with Emphasis 11/94 167/94 on Palm Oil, Sugar, Rubberwood and Plywood Residues (English)
Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93
Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA
Myanmar Energy Assessment (English) 06/85 5416-BA
Papua New Guinea Energy Assessment (English) 06/82 3882-PNG Status Report (English) 07/83 006/83 Energy Strategy Paper (English) - - Institutional Review in the Energy Sector (English) 10/84 023/84 Power Tariff Study (English) 10/84 024/84
Philippines Commercial Potential for Power Production from 12/93 157/93 Agricultural Residues (English) Energy Conservation Study (English) 08/94 -
Solomon Energy Assessment (English) 06/83 4404-SOL Islands Energy Assessment (English) 01/92 979/SOL
South Pacific Petroleum Transport in the South Pacific (English) 05/86
Thailand Energy Assessment (English) 09/85 5793-TH Rural Energy Issues and Options (English) 09/85 044/85 Accelerated Dissemination of Improved Stoves and 09/87 079/87 Charcoal Kilns (English) Northeast Region Village Forestry and Woodfuels 02/88 083/88 Preinvestment Study (English) Impact of Lower Oil Prices (English) 08/88 - Coal Development and Utilization Study (English) 10/89
Tonga Energy Assessment (English) 06/85 5498-TON
Vanuatu Energy Assessment (English) 06/85 5577-VA
Viet Nam Rural and Household Energy-Issues and Options (English) 01/94 161/94 Power Sector Reform and Restructuring in Viet Nam: 09/95 174/95 Final Report to the Steering Committee (English and Vietnamese) Household Energy Technical Assistance: Improved Coal 01/96 178/96
238 Region/Counti'y Activity/Report Title Date Number
Briquetting and Commercialized Dissemination of Higher Efficiency Biomass and Coal Stoves (English)
Western Samoa Energy Assessment (English) 06/85 5497-WSO
SOUTHASIA (SAS)
Bangladesh Energy Assessment (English) 10/82 3873-BD Priority Investment Program (English) 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Prefeasibility Study (English) 12/88
India Opportunities for Commercialization of Nonconventional Energy Systems (English) 11/88 091/88 Maharashtra Bagasse Energy Efficiency Project (English) 07/90 120/90 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) 07/91 139/91 Windfarm Pre-Investment Study (English) 12/92 150/92 Power Sector Reform Seminar (English) 04/94 166/94
Nepal Energy Assessment (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Energy Efficiency & Fuel Substitution in Industries 06/93 158/93 (English)
Pakistan Household Energy Assessment (English) 05/88 - Assessment of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 National Household Energy Survey and Strategy 03/94 - Formulation Study: Project Terminal Report (English) Managing the Energy Transition (English) 10/94 Lighting Efficiency Improvement Program Phase 1: 10/94 Commercial Buildings Five Year Plan (English)
Sri Lanka Energy Assessment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Status Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86
EUROPEAND CENTRALASIA (ECA)
239 Region/Country Activity/Report Title Date Number
Eastern Europe The Future of Natural Gas in Eastern Europe (English) 08/92 149/92
Poland Energy Sector Restructuring Program Vols. I-V (English) 01/93 153/93
Portugal Energy Assessment (English) 04/84 4824-PO
Turkey Energy Assessment (English) 03/83 3877-TU
MIDDLE EASTAND NORTHAFRICA (MNA)
Morocco Energy Assessment (English and French) 03/84 4157-MOR Status Report (English and French) 01/86 048/86 Energy Sector Institutional Development Study (Eng. & 05/95 173/95 Fr.)
Syria Energy Assessment (English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector 04/89 099/89 (English) Energy Efficiency Improvement in the Fertilizer Sector 06/90 115/90 (English)
Tunisia Fuel Substitution (English and French) 03/90 - Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92
Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03/91 126/91
LATIN AMERICAAND THE CARIBBEAN(LAC)
LAC Regional Regional Seminar on Electric Power System Loss 07/89 - Reduction in the Caribbean (English)
Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 - National Energy Plan (Spanish) 08/91 131/91 La Paz Private Power Technical Assistance (English) 11/90 111/90 Natural Gas Distribution: Economics and Regulation (Eng.) 03/92 125/92 Prefeasibility Evaluation Rural Electrification and Demand 04/91 129/91 Assessment (English and Spanish)
240 Region/Country Activity/Report Title Date Number
Private Power Generation and Transmission (English) 01/92 137/91 Household Rural Energy Strategy (English and Spanish) 01/94 162/94 Natural Gas Sector Policies and Issues (English and 12/93 164/93 Spanish)
Brazil Energy Efficiency & Conservation: Strategic Partnership 01/95 170/95 for Energy Efficiency in Brazil (English)
Chile Energy Sector Review (English) 08/88 7129-CH
Colombia Energy Strategy Paper (English) 12/86 - Power Sector Restructuring (English) 11/94 169/94
Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR Recommended Technical Assistance Projects (English) 11/84 027/84 Forest Residues Utilization Study (English and Spanish) 02/90 108/90
Dominican Energy Assessment (English) 05/91 8234-DO Republic
Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 Energy Strategy (English) 04/91 Private Minihydropower Development Study (English) 11/92 Energy Pricing Subsidies and Interfuel Substitution 08/94 11798-EC (English) Energy Pricing, Poverty and Social Mitigation (English) 08/94 12831-EC
Guatemala Issues and Options in the Energy Sector (English) 09/93 12160-GU
Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and French) 12/91 143/91
Honduras Energy Assessment (English) 08/87 6476-HO Petroleum Supply Management (English) 03/91 128/91
Jamaica Energy Assessment (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study 11/86 061/86 (English) Energy Efficiency Building Code Phase I (English) 03/88 - Energy Efficiency Standards and Labels Phase I (English) 03/88 Management Information System Phase I (English) 03/88 - Charcoal Production Project (English) 09/88 090/88
241 Region/Country Activity/Report Title Date Number
FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 Energy Sector Strategy and Investment Planning Study 07/92 135/92 (Eng.)
Mexico Improved Charcoal Production Within Forest Management 08/91 138/91 for the State of Veracruz (English and Spanish) Energy Efficiency Management Technical Assistance to the 04/96 180/96 Comisi6n Nacional para el Ahorro de Energia (CONAE) (English)
Panama Power System Efficiency Study (English) 06/83 004/83
Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects (English) 09/85 - Status Report (English and Spanish) 09/85 043/85
Peru Energy Assessment (English) 01/84 4677-PE Status Report (English) 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra 02/87 064/87 (English and Spanish) Energy Strategy (English and Spanish) 12/90 - Study of Energy Taxation and Liberalization of the 120/93 159/93 Hydrocarbons Sector (English and Spanish)
Saint Lucia Energy Assessment (English) 09/84 511 1-SLU
St. Vincent and Energy Assessment (English) 09/84 5103-STV the Grenadines
Trinidad & Tobago Energy Assessment (English) 12/85 5930-TR
GLOBAL
Energy End Use Efficiency: Research and Strategy 11/89 - (English) Guidelines for Utility Customer Management and Metering 07/91 - (English and Spanish) Women and Energy: A Resource Guide The International Network: Policies and Experience 04/90 - (English) Assessment of Personal Computer Models for Energy 10/91 - Planning in Developing Countries (English) Long-Term Gas Contracts Principles and Applications 02/93 152/93 (English)
242 Region/Countyy Activity/Report Title Date Number
Comparative Behavior of Firms Under Public and Private 05/93 155/93 Ownership (English) Development of Regional Electric Power Networks 10/94 (English) Roundtable on Energy Efficiency (English) 02/95 171/95 Assessing Pollution Abatement Policies with a Case Study 11/95 177/95 of Ankara
06/25/96
243
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