ENDA Energy, Environment, Development Energy Security in West Africa The Case of Senegal - Final report- By Touria Dafrallah Enda Energy, Environment and Development Program With the contribution of Mr Alioune Niang Ministry of Energy, Senegal December 2009 1 Executive Summary The analysis of the Senegalese energy security situation presented in this report highlights the vulnerability of the country and the many challenges that it has to address. These challenges have to do with the need to reach development and economic growth targets, respond to the need of a young and growing population and mitigate the impacts of negative externalities (foreign dependence for conventional energy, vulnerability to climate change of biomass and hydro energy resources, etc) on the country energy supply. This study looked at the socio-economic and energy profiles of Senegal, analyzed the energy security both at the national and household levels. The main findings of this study and key recommendations towards policy makers are summarized as follow: Main findings: Socio-economic and Energy profile of Senegal Like the majority of Sub Saharan African countries (SSA), the socio-economic situation of Senegal is characterised by a widening gap between demographic trends and economic growth. Although the GDP growth rate went from 5, 6% in 2004 to 6, 1% in 2005 (ADB, 2004), the Senegalese economy remains confronted to many difficulties. In terms of poverty, the country is ranked 157th out of 177 countries on the IDH (Index of Human development) scale.The country heavily relies on oil and oil derived products imports. Indeed, fossil fuels are the main type of energy used in Senegal. In addition the electricity produced is predominantly from thermal generation (90%) and the only source of hydropower is the Manantali dam with only 10% of the total production. This strong dependence on thermal generation is combined with a weak level of production efficiency (30% on average). There is also a strong dependence on biomass (firewood and charcoal) that heavily weights on household budgets. The transition to more modern (conventional) energy sources is a must in the current energy crisis especially in the context of a non-sustainable and inefficient management of forest resources combined to climate threats such as droughts and desertification. Shortages in the supply of electricity, LPG and other fuels during the current energy crisis (sharp increase in oil prices) confirm the vulnerability of the Senegalese energy system. Energy security threats, measures and their impacts at National level The Senegalese energy supply is in a state of acute vulnerability. The vulnerability of the energy system at the national level is due primarily to the high dependency on foreign energy especially oil and petroleum products and the low diversification of energy sources as reflected by high values of the Herfindhal-Hirshman Index (HHI). A Net Energy Import Ratio (NEIR) above 50% shows that national resources cover less than half of the country’s energy needs. In addition, a significant part of the national energy supply comes from biomass. The NEIR ratio calculations excluding biomass give figures well above 90% and reflect the high foreign dependence of the country for conventional energy. This unsustainable dependency makes the country vulnerable to the Sharp fluctuations of oil prices in the international market and contributes to large increases in the countries energy bill. The recent energy crisis is a perfect illustration of the vulnerability of the country’s energy supply to unpredictable externalities. Prior to the 2005-2006 energy crisis, the vulnerability index 1 which measures the share of the energy bill on the country’s GDP ranged between 5 and 6 %. However, with the oil crisis there was a significant increase in the value of index 1 (9%) which describes the extent to which the energy bill drains the economic wealth of the country. 2 The level of vulnerability can also be measured through the share of the energy bill in the total export earnings: Vulnerability (Index 2). During the crisis period the Index 2 has reached over 55 % compared to around 30 % prior to the crisis. The increase in the energy bill was somewhat attenuated by the fact that it was paid in foreign currency (USD) instead of FCFA. The high energy bill in 2006 (460, 8 billion FCFA) was somewhat attenuated by the decrease of the dollar value during the same period. If the USD-FCFA exchange rate had stayed at the 2000 level (711.976) the energy bill would have reached 627, 5 billion FCFA. This means an attenuation of the energy bill of around 167 billion CFA which represents around five times the total LPG subsidy. The vulnerability of the overall energy system in Senegal is heightened by technical and infrastructural weaknesses such as insufficient storage and refining capacities, outdated production infrastructure and also by the lack of a security stock that meets international standards. The weakness of the energy infrastructure is mainly due to investment delays in production and storage infrastructure as well as refinery capacity. In addition, low energy efficiency in production, distribution and consumption sectors result in tremendous economic losses for the country. Another characteristic of the Senegalese energy sector is the high dependency on biomass fuel and insufficient biomass resources which creates a situation of environmental vulnerability. The promotion of LPG as an alternative to biomass is threatened by the planned removal of the existing subsidy on cooking gas and the lack of control over the subsidies and their proper allocation or channeling to vulnerable groups. Other factors that worsen the energy insecurity in Senegal are related to the inadequacy of energy policy measures. The Non sustainability of long term strategic energy options and the slow pace in implementing institutional reforms exacerbate the vulnerability of the Senegalese energy system. In addition we note the lack of sub-regional integration of energy policies. The Department of energy in Senegal has recently elaborated a new Policy Paper with major measures to cope with the energy crisis and attenuate the energy vulnerability. Some key measures have been taken so far to strengthen the energy security of Senegal. For the hydrocarbon sector, the creation of a fund to secure petroleum products import is intended to insure a sustainable supply of petroleum products for the country. The increase in the government stake in refinery (SAR) is intended to help increase the output of the facility. Finally the expansion and the modernization of the refinery combined with support for the construction of storage facilities will help secure the supply in petroleum products for the country. In the Power generation sector, the hiring of power station from IPPs since May 2005 has secured an additional 48 MW capacity. The allocation of a grant (10 billion FCFA) along with a guarantee fund (12 billion FCFA) for fuel purchase should allow SENELEC to produce electricity consistently. A three month revolving credit from the Islamic Development Bank (17 billion FCFA) will also help the electricity utility (SENELEC) face its substantial fuel expenditures. An important investment program (175 Billion FCFA) will help in the gradual replacement of old power stations with low energy diesel generators. Other options are the use of renewable or alternative sources for electricity production and the development of sub-regional interconnection through OMVS and OMVG. For the biomass sector, with a dual context dominated by biomass and LPG, strategic measures will be aimed at securing the supply and demand for these two products. The continuation of the domestic energy program (PROGEDE) will strengthen both the supply and demand of biomass energy for households. The implementation in July 2009 of a program aimed at LPG supply and consisting in the application of true market prices is expected to support LPG imports and eliminate supplier’s speculations. 3 Threats to energy security, measures for energy security and their Impacts at Household level A number of threats to the energy security of Senegalese households has been identified. Overall, the lack of a reliable and sustainable supply of energy -especially electricity and LPG- impacts the quality of energy services provided to households. Frequent power outages leading to significant appliance damage and LPG shortages have been direct outcomes of the recent oil crisis. Furthermore, household supply-demand gap is accentuated by the sustained urbanization rate and demographic expansion (growing demand for energy and limited supply). Securing biomass energy supply at a sustainable price for households remains a quite challenging issue in the context of Senegal. Even though the government has set a Quota system, based on controlled permits for good management of charcoal production from forest resources, this could not prevent speculations of permits holders and intermediary agents in the supply chain of charcoal. This situation doesn’t not only contribute to the price rise of charcoal but also does it exclude grassroots communities from the profits generated in the biomass energy sub-sector. The LPG program implemented since the early 70s has been successful in forcing a transition of most urban households from biomass fuels to LPG. This program has, in a way, fostered access to a clean cooking fuel, but, in another way, accentuated the dependence on imported LPG and worsened the energy vulnerability of the country. After boosting a significant development of the LPG market, the government has decided to withdraw the subsidy and let the market approach take it over. This subsidy removal is expected to lessen speculations around the LPG prices over the periods of LPG imports shortages, but leads to a brutal increase in LPG prices during energy crisis. Poor households are the most vulnerable group to tackle this transition due to the lack of financing mechanisms to facilitate access to a LPG ruled by international market fluctuations.