power sector challenges, reforms and opportunities in...
TRANSCRIPT
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Prof Anton Eberhard Management Program in Infrastructure Reform and Regulation
University of Cape Town
Power Sector Challenges, Reforms
and Opportunities in East Africa
Presentation to DFID, London 23 June 2014
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@AntonEberhard
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Outline
1. Africa’s power challenges
2. The response: power sector reform
1. Ongoing need to improve performance of state-
owned electricity utilities
2. Need to accelerate investment in power
generation and networks
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Power infrastructure in Africa is underdeveloped
• Installed capacity in SSA is around 80,000 MW – Spain has more
– South Africa accounts for more than half
– Kenya 1500, Tanzania 1200, Uganda 680, Rwanda 85
• Installed capacity per capita 10% of LA
• Consumption per capita barely 1% of high-income
countries and declining
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A global outlier
Generation capacity (MW per million population)
Electrification rate (Percentage of households)
Electricity consumption (kWh per capita per year)
Power prices (US$ per kilowatt-hour)
Source: Africa Infrastructure Country Diagnostic
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Supply is often unreliable
• Insufficient investment in maintenance and refurbishment
• WB Enterprise surveys reveal average of 56 days per annum with power interruptions – losses in forgone sales and damaged equipment
• More than half of large
firms have back-up
generators
• Own-generation now a
significant proportion of
installed capacity
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Days in year with power interruptions
Source: World Bank Enterprise Surveys
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Very low access to power
Source: Earthlights, 2000
Overall Rural
% %
Tanzania 15 4
Kenya 19 7
Uganda 15 7
Rwanda 16 2
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Access to energy by income quintile unequal
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5
Electricity for lighting
Wood/Charcoal for cooking
Gas/LPG for Cooking
Kerosene/Paraffin for Cooking
Source: Africa Infrastructure Country Diagnostic
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Hidden or quasi-fiscal costs of poor electricity service
Source: Africa Infrastructure Country Diagnostic
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Extent of crisis revealed in prevalence
of emergency short-term power leases
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Emergence of the “standard model” of reform
Vertically-integrated, publicly-owned monopoly
Commercialisation and corporatisation
Independent regulation
Unbundling to separate potentially competitive elements from non-competitive elements
Private sector participation
Introduction of competition IPPs for the market
or wholesale competition in the market
eventually customer choice and retail competition
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MODEL 1:NATURAL MONOPOLY
MODEL 4:RETAIL COMPETITION
MODEL 3:WHOLESALE COMPETITION
MODEL 2:SINGLE BUYER
Utilities are vertically integrated
Generation, transmission and distribution are not subject to competition
No-one has choice of supplier
Single buyer chooses from various generators (IPPs)
Access to transmission xxx not permitted for sales to final customers
Single buyer has monopoly over transmission networks and over sales to final customer
Distribution companies buy direct from generator (IPPs)
Distribution companies have monopoly over final customers
Open access to transmission wires
Generators compete to supply power
Power pool established to
facilitate x
All customers have choice of supplier
Open access to T & D wires
Distribution is separate from retail activity
Retail industry is competitive
Generation (G)
Transmission (T)
Distribution (D)
Customer (C)
IPP IPP
Single buyer G & T
D D
C
G GG
TPower poolexchange
Franchisecustomers
(FC)
Largecustomers
(LC)
D
C
D
LC
D
C
G GG
TPower poolexchange
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Power market structures in E. Africa
Uganda
G IPPs
T
D
Kenya Tanzania / Rwanda
Private State-owned
KenGen
KPLC
G IPPs
T
D Tanesco
D
T
G IPPs
UEDCL
UETCL
UEGCL
Umeme
Eskom
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Nowhere in Africa has “standard reform model” been implemented in full
• Initial power sector reform plans often stalled or reversed – Nowhere do we have full wholesale or retail electricity competition
– Many countries have not unbundled • e.g. Tanzania, Rwanda
– Private sector participation is still often constrained
• Instead, hybrid power markets have developed – Incumbent state-owned utilities have retained dominant market
positions
– Independent Power Producers (IPPs) are being introduced on the margin
– i.e. both State Owned Enterprise (SOEs) and IPPs are involved in new generation investments
[Exceptions are private concessions in countries such as Uganda, West Africa and privatisation in Nigeria]
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Hybrid power markets are challenging
Performance of state-owned utilities
– Still responsible for electricity provision
– Often unable to finance new investment
– And poor financial and technical efficiencies
New investment Responsibilities for planning, procurement and
contracting “fall between the cracks” – unclear,
neglected, sub-optimal => inadequate investment
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State-owned utilities require ongoing reform
1. Clarification of roles and responsibilities • Public entity management legislation
• Corporatisation
• Codes of corporate governance
• Performance / management contracts
• Effective supervisory / monitoring agencies
• Transparent transfers for social programmes
2. Changing the political-economy of the uitlity • Improved transparency and information
• Structural reform and direct competition
• Mixed-capital enterprises
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Need to clarify and allocate responsibilities for
generation investments
• Allocate responsibility and build capacity for generation
expansion planning
• Develop clear criteria for allocating new build opportunities between the incumbent SOE and IPPs?
• Allocate responsibility & initiate timely competitive bids for IPPs
• Develop procedures for evaluating unsolicited bids
• Develop capacity for contract negotiations with new IPPs
• Avoid potential conflicts of interest when SOEs are the Single-Buyer
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IPP performance differs
• Kenya has better record in attracting IPPs
– Dynamic planning system
– Timely initiation of international competitive tenders
– Capacity to effectively procure and contract built in KPLC
• Tanzania has worst record
– Poor planning
– Unsolicited bids rater than ICBs
– Series of corruptions scandals in new power deals
Kenya’s IPPs much cheaper and more reliable than Tanzania
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Uganda is attracting many small IPP investments MW
• Bujagali 250
• Jacobsen, Namanve 50
• Electro-Maxx, Tororo 20
• Mpanga Hydro 18
• TronderPower, Bugoye 13
• Kasese Cobalt, Mubuku III 9.5
• Kilembe Mines 5
• EcoPower, Ishasha 6.5
• Kakira Sugar 12
• Kinyara Sugar (captive) 5
• Kabalega 9 etc
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Uganda GETFit
• Aims to fast-track portfolio of <20MW grid connected renewable energy projects by offering a premium to feed-in tariff
• Payments front-loaded in first 5 years, 50% on COD
• Lower transaction costs
• Standardised PPA and Implementation Agreements
• WB PRGs
• Facilitated DFI financing
• Facilitated Tx interconnection
• Number of RfP windows
• Evaluaton: legal, financial, economic, technical, IFC environmental and social standards
• 12 projects approved in rounds 1&2 totaling &60m & 103MW
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Power
Off-taker
Power Purchase
Agreement
IPP Project
Company
Fuel suppliers
FSA
Lenders
O&M Contractor
O&M Contract
EPC Contractor Shareholders
EPC Contract Loan Agreement
Environmental
Authorities
Permit
Shareholders
agreement
Regulator
License Government Concession
Modified from Clive Ferreira, Fieldstone
Source: Clive Ferreira - Fieldstone
Government
Understand IPP risks
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Contributing elements to IPP success
• Favourable investment climate
• Clear policy and legal framework
• Coherent power sector planning
• Transparent and credible regulatory oversight
• Competitive bidding practices
Country level
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Contributing elements to success
• Committed equity partners
• Favourable debt arrangements
• Secure and adequate revenue stream – Credit worthiness of off-taker
– PPA
– Appropriate security & credit enhancement measures
• Secure, competitive fuel contracts
• Positive technical performance
• Ongoing strategic and risk management
Project level
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In summary
• The scale of the challenge implies that ideological debates
around public versus private investment are irrelevant /
meaningless
• All sources of finance have to be mobilised
• Which means an integrated approach of
– fixing public utilities
– accelerating private sector participation
– welcoming also non-OECD sources of finance and
projects
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DfiD’s role in facilitating more investment in power
• Strengthen enabling environment for investment – Clear policy and legal framework
– Coherent power sector planning PPIAF
– Transparent and credible regulatory oversight TAF
– Competitive bidding practices
• Support to governments in structuring transactions (DevCo)
• Early stage project development (InfraCo Africa)
• Mobilisation of domestic capital markets (DevCo)
• Long-term debt & mezzanine finance (EAIF)
• Specific support for renewables (GETFiT, GAP)
• …………
• …………
www.gsb.uct.ac.za/mir @AntonEberhard
Prof Anton Eberhard Research, training courses, consultancy
University of Cape Town
The Management Programme in Infrastructure
Reform & Regulation (MIR) is an emerging centre
of excellence and expertise in Africa. It is
committed to enhancing knowledge and capacity to
manage the reform and regulation of the electricity,
gas, telecommunications, water and transport
industries in support of sustainable development.
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