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Restructuring and Privatization of the Power Sector in Africa
S. KAREKEZI, L. MAJORO
Stephen Karekezi & Donella Mutiso
sector institutions in Africa are characterised by inability to provide adequate
levels of electricity services to the majority of the region’s population
especially to the rural poor. In
Uganda and Tanzania, only about 6.6% and 7% respectively of the total population
has access to electricity. In the
Democratic Republic of Congo (formerly Zaire), only 5% of the population
benefits from electricity supply. Provision
of electricity is largely confined to the privileged urban middle and upper
income groups. For instance, in
Botswana 20% of the urban population has access to electricity, compared to 3%
in the rural areas. Most African
utilities routinely record unsatisfactory technical and financial performance
which compares poorly with their counterparts in other developing countries in
Latin America and South East Asia. Poor technical and financial performance is a common
characteristic in almost all African utilities irrespective of the management
team that is in charge. This is an
indication of institutional deficiencies rather than only the more conventional
problems of inadequate technical expertise and poor management.
public power utilities in Africa are monopolies.
There is a debate about how far this can account for the deniable
under-performance in the delivery of energy services, compounded by the
substantial financial losses notched up by public power utilities.
It also appears that the highly centralised electricity industry
constitutes an important barrier to the growth of more successful, cost
effective and sustainable decentralised power sector institutions.
structural nature of the problems facing the power sector in Africa is now a
priority issue for Governments, bilateral donor agencies and multilateral
development banks and efforts to either implement or contemplate fundamental and
far-reaching reforms of the power sector are now underway in most SSA countries
through the now ubiquitous Structural Adjustment Programs (SAPs).
The process of structural adjustments involves among others, economic
liberization that calls for freeing the market from state control and
divestiture pf public ownership in areas where the private sector is said to
have a comparative advantage. This
is expected to lead to restructuring and privatization of the power sector which
will require substantial inflows of private capital, professional and skilled
manpower as well as technology (a perquisite for the success of this process).
The private sector is expected to mobilize those resources from domestic
and foreign sources.
Africa’s energy sector has performed well below the standards of other less
developed continents such as Asia and Latin America, the continent posses
enormous untapped energy potential. For
instance, Africa has substantial hydropower potential but it is estimated that
less than 4% has been harnessed. Africa has an estimated proven geothermal potential of 9,000
MW and only approximately 45 MW has been exploited. Africa has a great deal of untapped energy which if
adequately tapped or exploited could help meet the growing energy demand as well
as improve Africa’s economic growth rate.
study is an initial effort to undertake an institutional assessment of the power
sector focussing on Africa, with country examples drawn from the entire
continent. In discussing the reform options, the study examines the two most
popular options, namely: structural change and privatization.
The two terms are often used interchangeably but this study defines
structural changes as distinctively different from privatization.
Structural change is used to refer to the process of unpackaging
vertically integrated utilities into separate generation, transmission and
distribution companies or conversely unpackaging national utilities into smaller
district or provincial utilities. Privatization,
on the other hand, involves the transfer of ownership or control from the public
to the private sector. In many
cases, structural change and privatization options are undertaken concurrently
but for reasons of conceptual clarity, this report keeps the discussion on the
two reform paths distinctly separate.
of unlimited experience with power sector reform in Africa, this study uses case
examples of countries outside the African region that have gone through
structural changes and privatization of the electricity sector.
The report discusses the various ongoing or proposed power sector
restructuring and privatization options, such as commercialisation, contract
management, vertical and horizontal separation of the key activities in the
power sector of countries from various parts of the world.
For new investments in the electricity sector, the study discusses the
institutional implications of various schemes for private sector participation
namely; Build-Own-Operate (BOO), Build-Operate-Transfer (BOT) and
help in organizing the report and address the challenge of drawing continent
wide trends amidst the wide diversity of found in the African continent,
countries in Africa have been classified into the following five categories
related to their energy resource endowment; and, socio-economic stability:
energy resource-rich economies (ERS) together generate about four fifths of the
region’s electricity. These
countries rely heavily on petroleum or coal based thermal electricity as the
most economically viable option. This is partly because their geographic location does not
favour them with significant hydropower resources.
Instead most of them have considerable oil or coal reserves.
Gabon for instance is one of the wealthiest countries in sub-Saharan
Africa, due its rich oil reserves and its per capita consumption is one of the
highest in the region (Financial Times, Apr 1997: 16)
energy resource-rich and unstable economies (ERU) are well endowed with energy
resources, but have been unable to exploit their resources due to unstable
political conditions. In the case
of the Democratic Republic of Congo for example, the country has by far the
regions largest hydropower potential which stands at about 92,500 MW (SAD-Elec
report, 1996: 218).
modest energy resources & stable economies seem (EMS) category accounts for
the largest number of African countries. The electricity supply and demand profile of most countries
in this category is somewhat similar. These
countries have low but steady rates of economic growth and relatively well
established primary industries, as base for industrial growth.
In some cases, such as for Zambia and Zimbabwe, coal acts as a substitute
for electricity especially for heat generation applications.
In general, the power sectors of these countries have experienced slow
but steady growth since independence and in most case, possess sufficient
installed generating capacity to meet growing demand.
modest energy resources and rapidly reforming economies (EMR) include countries
such as Uganda, Ghana and Eritrea. They have in the past been in the brink of complete economic
collapse, but recently adopted far-reaching political and economic reforms that
have given them a new lease of life and consequently a more promising future.
Reform, high economic growth rates and recovery have paved the way for
rapid rehabilitation and growth of the power sector.
category of modest energy resources and unstable economies (EMU) include
countries such as Somalia, Rwanda, Burundi and Liberia.
The power sectors of these categories is characterised by general
disarray and almost complete collapse of the power sector.
Industry has all but died down and prospects for future power sector
development are dim. Mozambique,
classified in this category houses Africa’s largest hydropower station,
Caborra Bassa; but due to the country’s civil war, the station has not been in
operation for a long period. It was
recently rehabilitated but the transmission connection to South Africa, the main
customer to electricity from Caborra Bassa, has been under repair for sometime
and tariff questions continue to bedevil its viability.
The last two chapters of this report attempt to broaden the deviate on
policy implications of restructuring of the regions’ power industry by
examining the benefits and drawbacks of the wide range of reform and
privatization options as well as identifying potential winners and losers of the
power sector reform process. Concomitant
legal and regulatory changes needed for successful power sector reform are also
discussed with specific reference to the ubiquitous “Electricity Acts” found
in most African countries.
order to analyze further the various reform options the study uses empirical
ranking so as to recommend the best options for the different African countries.
Each reform option is analyzed on the basis of the following policy
to the analysis, commercialization and corporation ranked highest as the most
feasible options for most of the countries in Africa, mainly due to the fact
that they require minimal changes in the already preset legal and regulatory
frameworks, are more straightforward and less costly to implement.
The analysis also showed that contract management was the second best
options for most projects and unbundling of the power sector are much more
complicated and more caution is required to plan for their implementation.
These options require changes in the electricity Acts, adequate finances
and human resources in order to put in place and run any new institutions
arising from such changes implemented in the power sector.
One major aspect that comes out clearly from the study is that in most African countries, the need for power sector reform was not extensively discussed within or outside parliament. The case of power sector reform has yet to be made to the public and it is unclear whether there exists consensus even within key policy making bodies, such as parliament. The omission of public debate may create problems in the future. Privatization has been more accepted in Uganda where the Government initiated a very public and highly successful campaign to garner public support for privatization. The encouraging signs of success of Ghana’s power sector reform could be attributed to initial diagnostic studies and in-depth research on reform options initiated, well before any reform was implemented. Such initiatives are crucial if power sector reform is to be successful.
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