Africa Renewal (United Nations)
Mary Kimani
4 November 2008
(Page 2 of 3)
The massive scale of required investment has prompted governments to ask for assistance. At a meeting with officials of the World Bank's International Finance Corporation (IFC) in February, Kenneth Konga, Zambia's water and development minister, asked donor agencies to help the region meet the gap in financing power generation. "Zambia and the region are going through a challenging period," Mr. Konga said. The deficit can only be resolved "if all the stakeholders come together and pull in the same direction."
Zambia is estimated to need $2 bn to raise power output to meet its expanding demand. The country has sometimes been obliged to ration power to households and smaller industries to maintain supply to the copper and cobalt mines, the economy's mainstay.
Africa's paradox
According to David Donaldson, the IFC's infrastructure manager for Africa, the problem is not that investors and donors are not willing to put money into the sector. On the contrary, the power sector "is an interesting sector for investors, banks, the private sector and even institutions such as the IFC."
But some problems make investors hesitate, Mr. Donaldson told Africa Renewal. "The high figures that an investor would have to put in, the poor financial state of the utilities, their continued ownership or management by governments, the heavily controlled tariffs and lack of guarantees that the law would protect investments - all these make the risk of investing very high."
Although the lack of funds limits the ability of utilities to expand supply, poor management is an even bigger issue, Eddy Njoroge, managing director of one of Kenya's power companies, KenGen, said at a June meeting in Nairobi of African power utilities. Nearly three-quarters of African countries have experimented with privatizing management of their power infrastructure, and about two-thirds have formed independent corporations. Over half have appointed regulators to monitor how the sector works.
But few such reforms have been properly implemented, Mr. Njoroge argues. African governments continue to award contracts and to appoint people to head utilities not on the basis of merit, but because of political and personal connections. "Leadership and good governance have come short of expectations." African governments, he added, have "refused to let go the management of these firms and continue to appoint people they can control and manipulate to give contracts and reward cronies."
Nor are these the only challenges to attracting investors. Grand Inga, the huge hydropower dam first proposed in the Democratic Republic of the Congo (DRC) in the late 1980s, would have a projected capacity of 39,000 megawatts. But getting the project off the ground has been difficult. Beyond the vast sums of money needed - an estimated $80 bn - investors are hesitant because of the DRC's political instability.
According to the IMF, it is one of Africa's paradoxes that while endowed with huge resources for power generation, the continent is often unable to benefit. So while the DRC accounts for about 40 per cent of sub-Saharan Africa's hydroelectric potential and Ethiopia another 20 per cent, both countries lack the needed investments to make that capacity a reality.
Sharing power
"This is why we are thinking in terms of regional integration," says Mr. Babu of the African Development Bank. "In the spirit of NEPAD, regional integration helps to open up resources and markets."
In the energy sector, he adds, "regional integration is best expressed in electricity power pooling." Under such systems, governments commit themselves to regional projects based in countries with the highest potential for producing power. The power is then exported to the rest of the pool members at affordable costs.
Regional pooling would also help countries that lack hydropower generation or coal resources. These countries have suffered particular hardships in recent years because they rely on expensive thermal production methods - burning diesel or heavy fuel - to produce electricity. It currently costs Uganda $0.25 per unit to buy emergency power from British Aggreko, a private company operating one of Uganda's older plants. A new plant, fuelled with cheaper heavy oil, is to start operations in September 2008, at $0.14 per unit.
But with rising world fuel prices, such national solutions may only be of temporary relief. Niger, Senegal and Nigeria have all seen their electricity production costs triple. However, "Pooling power at the regional level is economically rational, permitting savings estimated at $3-5 bn over 20 years," states a joint report by the UN Industrial Development Organization and the UN Economic Commission for Africa.
The West African Power Pool (WAPP) is made up of 14 countries. WAPP is hoping to build a power sharing and trading network at an estimated cost of $4.6 bn. Towards that goal, the ADB signed an agreement in June 2008 for a $28.2 mn loan to finance some of the first pool projects, a power connection between Togo and Ghana and a transmission line from Benin via Togo to the Volta substation in Ghana. WAPP has also contracted the Korea Electric Power Corp (KEPCO) to build and operate for 20 years a power station in Benin. The project will likewise expand existing national infrastructure and increase power transmission capacity between Nigeria, Benin, Togo and Ghana.
Such a system will enable countries to trade electricity, making power supply more reliable and reducing costs, says Mandla Gantsho, the ADB's vice-president for infrastructure and private sector development. The West African pool, he explains, will "allow for the movement of power from countries with the potential to produce cheap hydropower to other countries, which currently depend on thermal power stations running on expensive imported petroleum for their electricity supply."
East African countries are also integrating their transmission networks. Kenya is already connected to Uganda and the two countries have traded electricity for several years. Kenya and Ethiopia began building a similar connection in April 2008. Ethiopia has the capacity to produce 1,875 megawatts of electricity, far above its current demand for 400 megawatts, and is building three hydropower dams to add another 1,155 megawatts of capacity production by 2010.
In Southern Africa, Zambia and Malawi have created a joint project through which Zambia can connect to the Malawian grid. The link will supply power to the town of Chama, which is currently not electrified, but holds large deposits of untapped oil and copper. While none of these efforts to pool resources is yet fully operational, says Mr. Babu, they represent one of Africa's best options for resolving its power shortfall.
'Smart subsidies' can help the poor plug in
Shortages of electricity do not only affect economic productivity. They also reduce people's quality of life and hinder achievement of many Millennium Development Goals. Without power, "clinics cannot deliver babies safely at night, children cannot study longer, businesses close at sunset and vaccines cannot be reliably refrigerated," observes Vijay Modi, a researcher on alternative fuels for Africa at Columbia University in New York.
Despite decades in which African governments heavily subsidized power rates and promoted rural electrification campaigns, some 550 million people, or almost 75 per cent of the population of sub-Saharan Africa, still do not have access to electricity. In 2004 in East Africa, less than 3 per cent of rural people and 32 per cent of urban residents were connected to their national grids. According to the World Bank, only Côte d'Ivoire and Zimbabwe exceed 70 per cent coverage.
If connection rates are so dismal, what happened to all the pro-poor and rural electrification campaigns? The answer, says Mr. Ram Babu, a power specialist at the African Development Bank, is that governments' efforts to expand access have relied mostly on capping the amount of money the power utilities can charge. But that "doesn't help the people who need the power most," he points out. Rural people and other poor consumers whose homes are not yet linked to the power grid face very high connection costs. In cities where grids exist, the cost of connection may start at $200. Where there are none, construction and connection costs can exceed $1,500. As a result, "poor people in rural areas are simply not connected to the grid," Mr. Babu told Africa Renewal.
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The same problems of poor governance that bedevil African countries spill over into the power sector. The power development, management and operations are now all subject to political patronage so that the people who run these organizations do so not because of their technical or managerial skills and aptitude but because they have political connections.
All politicians are interested in is getting their village(s) connected to the national grid, which is run by their counsins regardless of whether the cousins are qualified.
In that kind of environment it is not only hard to attract invest it is also impossible to invest resources effectively and efficiently. The Congo River is one source of power that is still has remain a pontential that is only referred in terms of future and not in the terms of needs of today. The power sector needs the same openess in its development and management as in the political arena. As for the losses in power - even in the USA the power loses amount to 67 % percent - this is a technical problem that power industry has still to overcome in terms of designing smart power grid. Fortunately it is gaining some traction especially in the light of concerns of global warming.
It is even hard to formulate a much needed future agenda on energy namely: renewables (solar, wind, geothermal, and biomass) and yes nuclear. Africa has the unranium and plotonium.
The corrupt and tyrantic governments have rendered Africa strved of energy and powerless.
The line loses can be overcome by building smart power grids, which are becoming ever possible with telecommunications and computer technologies that are becoming ever cheaper, IF the governance improves concomitantly that is.
I wish to commend the author for this important topic - Powering Up the Continent's Economies.
For the past decade or so many African policy makers, NEPAD, UNIDO etc and their World Bank advisors have promoted the concept of the grand African interconnection grid as the ultimate answer to Africa's chronic energy problems. Unfortunately the this idea though well intended is largely a fallacy and goes against current research in energy economics. The idea was initially anchored by a model from Purdue university. Apart from the fact that the model was from a wrong Western context, even the West are now systematically abandoning it. The most important point is that transportation of electric energy is extremely expensive. Delivery economics for electricity is very different from gas or water. Yes, it is important to extend the grid network everywhere to serve high quality loads like health, education and communication services. These are moderately sized loads and require moderate size infrastructure. But large industrial loads must always be constructed close to generation source to be sustainable. With inter-regional common markets evolving this should be easy to understand. Take Tete province in Mozambique for example. It's complete madness generating power from Cahora Bassa dam and taking it 1500 km to South Africa through a very costly network and losing hundreds of megawatts on the way. The only sensible thing would be to build an industrial base in the Zambezi basin itself. It would be cheap and require no maintenance on the grid. The concept of Southern African Power Pool sounds great but when you understand that even South Africa straggles to deliver adequate power from Johannesburg to Cape Town then you would begin to understand my point. Africa is only plaaning its industry now. So they have a chance to plan and locate it inthe right places.