IDRC-MR192e ENERGY DECISIONS IN DEVELOPING COUNTRIES IN AFRICA A Case Study of Sierra Leone Ogunlade R. Davidson Director, University Research and Development Services Bureau, University of Sierra Leone, Freetown, Sierra Leone Material contained in this report is produced as submitted and has not been subjected to peer review or rigorous editing by IORC Communications Division staff. Unless otherwise stated, copyright for material in this report is held by the author. Mention of proprietary names does not constitute endorsement of the product and is given only for information. DECLARATION This report is prepared under contract with the International Development Research Centre (IDRC), Ottawa, Canada and should not be quoted or duplicated with the permission of the Centre. The views expressed in the report are those of the author and not of IDRC. Ogunlade R. Davidson July 1986 ACKNOWLEDGEMENTS This study was commissioned by the Energy, Science and Technology Policy Studies Unit of the Social Sciences Division of IDRC. The consultant is greatly appreciative of the opportunity given to him to carry out this study and to continue to serve IDRC. He wishes to extend his gratitude to several people who have contributed to this project. Firstly to the staff of the University Research and Services Bureau who has helped in information gathering and typing the draft of this report especially Mr. Adeshino Taylor, Miss Eleanor Hanciles, Mrs. Sarian Aiydeke and Miss M. Neville for the computational work. Lastly I must express my thanks to all the respondents that helped in making our information searching exercise possible. TABLE OF CONTENTS LIST OF TABLES EXECUTIVE SUMMARY CHAPTER 1 GENERAL INTRODUCTION 1 1. 1 INTRODUCTION 1 1. 2 SOCIO-ECONOMIC FEATURES 4 1 • 3 THE PROJECT 5 1. 4 SOURCES OF DATE 7 CHAPTER 2 THE ENERGY SCENE 8 2. 1 ENERGY AND THE ECONOMY 8 2.2 ENERGY SOURCES 11 2.3 INSTITUTIONAL FRAMEWORK 14 2.4 ENERGY PRODUCTION 16 2.5 ENERGY CONSUMPTION 20 CHAPTER 3 POLICIES AND DECISIONS IN THE ENERGY SECTOR 22 3. 1 POLICY-MAKING MACHINERY 22 3.2 NATIONAL DEVELOPMENT PLANS 23 3.3 MAJOR DECISIONS IN THE ENERGY SECTOR 28 CHAPTER 4 FACTORS UNDERLYING POLICIES AND DECISIONS IN THE PETROLEUM SUB-SECTOR 37 4.1 CRUDE OIL EXPLORATION 37 4.2 CRUDE OIL PROCUREMENT 42 4.3 PRODUCTION OF PETROLEUM DERIVATIVES 44 4.4 DISTRIBUTION OF PETROLEUM PRODUCTS 46 4.5 PRICING OF PETROLEUM PRODUCTS 48 4.6 ENERGY CONSERVATION MEASURES 50 CHAPTER 5 FACTORS UNDERLYING POLICIES AND DECISIONS IN THE HYDRO SUB-SECTOR 53 5.1 NATIONAL POWER AUTHORITY 54 5.2 BUMBUNA HYDRO PROJECT 57 5.3 GOMA HYDRO PROJECT 64 5.4 MANO RIVER UNION PROJECT 65 CHAPTER 6 IMPACT OF DECISIONS IN THE ENERGY SECTOR ON THE SUB-SECTORS 67 6.1 RESEARCH AND DEVELOPMENT 67 6.2 OVERALL ENERGY SITUATION 70 6.3 NATIONAL ENERGY PLANNING 71 TABLE OF CONTENTS CHAPTER 7 MAJOR FINDINGS AND CONCLUSIONS 73 7. 1 MAJOR FINDINGS 73 7.2 SUGGESTED AREAS FOR ACTION 77 7.3 PROSPECTS IN THE ENERGY SECTOR 79 REFERENCES 82 TABLES 88 LIST OF TABLES 2.1 CERTAIN GENERAL PARAMETERS OF THE ECONOMY 2.2 CRUDE OIL IMPORTS AND ITS RELATION TO TRADE STATISTICS 2.3 PRODUCTS FROM THE REFINERY IN SIERRA LEONE (1971-1974) 2.4 ENERGY CONSUMPTION IN SIERRA LEONA BY SECTORS, 1982 (TJ) 4.1 PROFIT AND LOSS ACCOUNT OF THE REFINERY 4.2 PRICE OF CRUDE OIL TO THE GOVERNMENT COMPARED TO WORLD PRICE 4.3 PRICE STRUCTURE OF PETROLUEM PRODUCTS (1971-86) 5.1 DATA OF POWER SECTOR IN SIERRA LEONE (1971-85) 5.2 SUMMARY OF FINANCIAL STATEMENTS OF NPA (1979-82) 5.3 HYDRO-ELECTRIC SOURCES IN SIERRA LEONE 5.4 SOURCES OF FINANCING OF BUMBUNA PROJECT (1970-84) EXECUTIVE SUMMARY This project attempts to look at the various decisions that were made by the Sierra Leone government as a response to the two oil shock prices experienced in 1973 and 1979 respectively. Due to the impact these shocks had on the economy, the two most affected sub-sectors are the areas the project concentrated on which are the hydro and the petroleum sub-sectors. After a brief review of the country's energy situation in which the various energy sources, institutional framework and consumption patterns were considered, the decisions by the government in the energy sector were presented. The underlying factors that may have caused these decisions in the petroleum and the hydro sub-sectors were analysed. The impact of these decisions on the other areas of the sector were then looked into. The areas considered are research and development, the energy situation as a whole, and energy planning and policy in general. This was concluded by outlining the major findings of the study and commenting on the prospects in the energy sector as whole. The decisions made by the government in the energy sector for the period under review fall into three main categories: the petroleum, the power and institutional. In the petroleum sub-sector, the decisions were concentrated on oil exploration agreements and pricing of petroleum products. Those on power were on the Bumbuna project development and the strenthen of the power supply authority. Various new institutions were set up during the vii period reviewed, these include the Ministry of Energy and Power, the national oil company and government taken over the procurement of crude oil. During the period under review, 3 sets of agreements were signed with a total of over 9 different companies all foreign to carry out crude oil exploration activities in the country in 1979, 1982 and 1984 respectively. Though two wells were drilled at different periods by two different companies, they were both abandoned because found dry as reported. The decision by the government to procure crude oil directly and the lack of foreign currency has caused acute shortages that resulted in serious problems for the population, despite efforts by government and the oil distribution companies to allievate the situation. The change in government's pricing policies of petroleum products is causing problems for users especially the poor. The inability of the national authority to satisfy the nation's need has seriously undermined their credibility and as the study shows the number of private generation has increased substantially, almost 70% of that of NPA. The effect of this on the economy of the country is disastrous. During the period reviewed, a total of 9 feasibility studies were carried out on the Bumbuna hydro project. These studies which end up mostly as duplicity in the project has caused delay that will affect the future of the project. It is not easy to identify why the project did not start in the mid 70's when capital for such projects were more readily available. The future of the MRU hydro project is not promising because both Liberia and Sierra Leone that should benefit from the project are occupied with national projects. viii The various energy decisions taken only illustrates the gap between research and government interest in the sector. Energy research have been focussed on new and renewable resources, while government's interest are on more commercial energy sources, however there are now signs that the gap is reducing. The lack of adequate planning and absence of proper policy in this sector show that the decisions taken were done mostly on a ad-hoc basis with hardly any baseline study, hence the problems they were meant to solve still persists. The major findings of the study can be summarised as follows: The government entered into oil exploration agreements ill-prepared and ill-equiped and so has limited access to the exploration results. Procurement of crude oil by the government through an agent have prove to create scarcity that have resulted in serious shortages in the sector. Since 1980, the government has been paying over 5 dollars per barrel above the official price and over 6 dollars over spot price. The technical and financial problems of NPA have made unable to supply power reliably and at affordable price. ix The delay in getting the Bumbuna project started has narrowed the chances of it being implemented. The role of the multiple studies on this project is seriously questioned. From these findings, certain areas were suggested for action to be taken by the government, these are: i) Contract research should be made to local personnel to study the following: a) the oil exploration activities so far carried out in order to ascertain the true picture, b) existing oil procurement system with the hope of suggesting a more appropriate one, c) a more suitable pricing policy for petroleum products, and d) a detailed study of NPA activities to include areas previous studies did not cover. ii) Adequate policies should be instituted to set up a) an advisory committee on energy to the government, b) an infrastructure for power supply that involves the government, the suppliers and the consumers, and c) an hydro development plan that should contain the reduced Bumbuna and two smaller plants in Kono and Bo. The study shows that the economy of the country will dominates the future development in the sector and since that is not good at the moment the prospects are not very bright though some positive signs by the government to change the oil procurement, and committed role to Bumbuna project. x CHAPTER 1 GENERAL INTRODUCTION 1.1 INTRODUCTION The unprecedented escalation of the world price of crude petroleum in 1973 and 1979 led most countries worldwide to embark on stringent measures aimed at restructuring their economies, particularly in the energy sector. These moves were necessary because these price hikes showed clearly the dependence of the world energy market on crude petroleum.