Addis Fortune (Addis Ababa)

Ethiopia: Creating a Reliable Energy Regime Requires More Than a Change of Hands

Last week, the policy circle was gripped by confusion as it was made clear that the veteran mind of the Ethiopian energy sector, Mihret Debebe, the chief executive officer (CEO) of the former power monopoly - the Ethiopian Electric Power Corporation (EEPCo) - is to join the club of advisors to Prime Minister Hailemariam Desalegn. To be stationed at the Premier's office, located off Lorenzo Lizaz Street, it is said that Mihret will advise Hailemariam on the construction of energy projects designed to uplift the total power generation capacity of the nation to 10,000Mw by 2015.

An equivalent magnitude of confusion was felt with the announcement of the separation of the power monopoly into two entities - the Ethiopian Electric Power (EEP) and the Ethiopian Electric Services (EES). This was in addition to the appointment of Azeb Asnake, the former Gibe-III project manager, and V.K.Khane, an Indian from the company PowerGrid, which has beem delegated with the task of reforming the utility sector, to the heights of power. As much as Khane's appearance was predicted, along with the long overdue study for reforming the utility service provision of the monopoly, Azeb's ascendance was less expected, even for those who closely observe the sector.

None of it seemed unforeseen for the core leadership of the EPRDF, however. Through Debretsion G. Michael, deputy prime minister for the economic cluster, they send out a strong message that their judgment - both on the splitting up of the Corporation and the appointment of Azeb and Khane - is right.

They went back to the famous line of the late Meles Zenawi, stating that anyone that receives the nod from the ruling EPRDF could be assigned as an official, in defending their choice of Azeb, a hydrologist by training, over any other professional. It seems that the time has arrived for the power sector to witness the instability that has been the hallmark of other sectors for many years now.

Mihret's more than 30 years at the former EEPCo has seen many changes. The total power generation capacity of the nation has increased from about 350Mw to almost 2,000Mw. It is not only the capacity that has grown, however. The portfolio of the generation has now expanded to include wind, geothermal, solar and biomass, in addition to hydropower.

The total length of distribution lines are now over 126,000km, excluding the period of the Growth & Transformation Plan (GTP), and the total length of the power transmission lines have reached in excess of 12,000km. Mihret's leadership also contributed a lot to the execution of megaprojects, including the Great Ethiopian Renaissance Dam (GERD), which is projected to generate 6,000Mw, not to mention the attraction of private investment, including a four billion dollar geothermal project by aUScompany.

The introduction of post-paid power meters, the integration of the utility bill collection system under Lehulu and the implementation of power factors in industries were all undertaken under the watchful eye of Mihret. Certainly, his leadership was successful in terms of infrastructure development.

However, an equivalent recognition could not be said about it when it comes to corporate responsiveness and service provision. Even years after the EPRDFites declared that candles will soon be history, power outages continue to be a daily strain on urbanites. Industries operate below their average capacity, as a result of a shortage of power. The gap between the supply and demand of power continues to expand, so much so that residential areas, even in the expanding urban centres, are not being connected to the grid system even after years of waiting.

Responsiveness to customer concerns has been even worse. The miscalculation of utility bills, leading to customers paying more than what they need to, and the frequent failure of the bill collection system have all been commonplace. Mihret's leadership was renowned for sending statements of obligation to industries, dictating how much and when to use power, even if the decision would affect their performance and hence the performance of the economy.

Where there seems to be confusion is on whether the latest move of the EPRDFites could change the state of the nation's power sector, sustainably. There is huge doubt that it could.

Of course, it is not the first time for the EPRDFites to act against the tide. Ever since they adopted the free-market economy, or at least a version of it, as their ambition for the nation, they have undertaken many unpopular reforms that continue to bear fruit to their largely agrarian political base. Their insistence in keeping basic utility companies under a state monopoly, restricting the foreign direct investment regime in the finance sector, implementing a managed currency system, and intentionally biasing the total investment regime of the nation in favour of public investment are some of the policies they executed, even though critics were suggesting otherwise.

If there was any sector they remained reluctant to initiate reforms, it was the power sector. They were doing nothing progressive in the sector, other than bringing foreign consultants to study the patterns of the demand and supply sides. Whatever reforms they undertook, such as Business Process Reengineering (BPR), were not in line with the essentiality of the sector, its importance within the economy and the advancement that its management has seen globally.

Their latest effort could, therefore, be seen as a way to infuse the spirit of reform within a sector that is increasingly becoming an essential determinant in the growth of the economy. But it seems that their effort is trying to address the symptom, rather than the root cause of the problem.

Ethiopian power generation has been reliant on state investment only. Private investment in the sector is very low, as power transmission is the duty of the state monopoly only. The liberalisation of the power generation aspect is indirectly restricted by a feed-in-tariff system, which provides power purchase to the state monopoly at a fixed price.

The whole equation ignores the very fact that investment in the power sector is capital intensive and risky. Private investors want to see an attractive incentive structure that could either increase their returns or reduce their costs by reducing their risk margin.

Both remain absent. Hence, private investment remains very low in the sector. This was despite the fact that international financial institutions and sector specialists were recommending the EPRDFites to unbundle their provisions and make them attractive to the private investment.

Had a proper incentive system been put into place, the various aspects of the power sector, including transmission, sales, utility bill collection and maintenance, would have been economically attractive to private investors. Due to the policy preference of the ruling EPRDFites, however, ineptness continues to be the trademark of the power sector.

Surely, bringing a sustainable change to the power sector of the nation requires more than corporate reshuffling. Rather, it needs a change in policy lines.

Unless the EPRDFites are able to liberalise each aspect of the power sector and embrace a flexible incentive system, little could Azeb and Khane do to narrow the gap between the increasing demand and the lagging supply. Of course, this might not mean that these officials have no leverage to change things. They can bring incremental changes within the very aspect they are delegated on.

But a fundamental change in the nation's power sector demands the involvement of the private sector, in forms as varied as restricted competition and public private partnership (PPPs). It ought to be exactly there that the EPRDFites put their money and attention towards.

It is only after they have corrected their policy in line with the national and global reality that they could hope to see a difference made with a simple change of hands.

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