By Presley K. Wesseh, Jr.
About a week ago, the African Development Bank (ADB) published an appraisal report in relations to Côte d’Ivoire, Liberia, Sierra Leone and Guinea (CLSG) Electricity Network Interconnection. According to the report, the CLSG interconnection project will be implemented over the period 2014 – 2017 and would entail construction of a 1,357-km-long double circuit high voltage (225 kV) line to connect the national networks of all four Mano RiverUnion (MRU) countries at a total estimated cost of .about USD 497 million (constant April 2013 Dollars), net of taxes.
Financing of the project will be done by: (a) the Bank Group (African Development Fund, Fragile States Facility and Nigeria Trust Fund); (b) the World Bank and KfW in Liberia; (c) the EIB and the EU/Africa Trust Fund in Sierra Leone; and (d) the governments of Côte d’Ivoire, Liberia, Sierra Leone and Guinea. The first phase of the project will allow Liberia, Sierra Leone and Guinea to import electricity from Côte d’Ivoire – which enjoys a more favorable situation in terms of electrification rate (34% in 2012 compared with 10% for Guinea and 2% for Liberia and Sierra Leone) and cost of production capacity. The commissioning of new plants and development of the huge hydroelectric potential in the MRU (including Yiben, Bikongor in Sierra Leone, Kassa B in Guinea and Mano in Liberia) provided for in a second phase would enable the network to reach its full capacity of 290 megawatts (MW), thus delivering great possibility for trade in electric power and consequently raising the average electrification rate in the MRU from 28% in 2012 to 33% by 2017.
As a set goal, the CLSG electricity network project aims at facilitating sustainable energy trade in the MRU through the provision of reliable electric power at competitive cost for residents of the project impact area (i.e. 24 million inhabitants including communities, schools, health centers, commercial & industrial business, etc.). The necessity and timeliness of such a project cannot be overemphasized at least given the severe constraints faced by the electricity sector in the MRU. In particular, the region suffers serious electricity supply gap to the extent that electric power supply is only enough to satisfy at most 30% of demand which grows at 7% on average annually (Ref. Project Appraisal Report). Moreover, the financial and institutional capacities of national electricity corporations in the region are limited. The situation is especially critical for Liberia and Sierra Leone that experience socio-political crises in which the electricity infrastructures were completely damaged leading to low investment in the sector as well as high cost of electric power production. All of these factors combined have made the MRU one of the poorest regions in Africa. Hence, implementation of the CLSG project could present tremendous opportunities.
There is no doubt that increased electricity cooperation and trade between countries can enhance energy security, facilitate financing, bring economies-of-scale in investments, enable larger renewable energy penetration as well as allow synergistic sharing of complementary resources. At the same time, integrating electricity markets brings numerous challenges that could slow progress and even erode the full benefits of greater integration. One must not forget that among other things, most of the individual countries within the MRU are characterized by low level of technical & managerial efficiency, inadequate generating capacity, poor grid network, vertically integrated & state-owned electricity sector, etc. It becomes obvious therefore that the interconnection goal does not reflect current possibilities within the MRU. If individual countries have problems coordinating and regulating their own power sector, what is the likelihood that they will be able to jointly coordinate and regulate their common power sector? Can this integrated sector be able to survive the resulting challenges?
At this junction, one might hasten to render the above assertion pointless given that the interconnection initiative allows for distribution networks rehabilitation & expansion projects, electricity sector reforms as well as the establishment of a ‘Specific Purpose Company’ (SPC) to construct and operate the project. Indeed, the appraisal report documents numerous risks that could hamper implementation of the project and presents ways in which such uncertainties could be mitigated (see appraisal report). The important questions to ask then are: (i) Are the stipulated risks mitigation initiatives extensive enough to properly address and manage the project risks? (ii) Will this integrated sector be more functional in terms of solving the identified electricity sector problems and achieving the goal of facilitating sustainable energy trade? In what follows, an attempt is made to advance opinion on these questions by presenting what could be considered problematic issues associated with the prescribed integration approach.
For the most part, while the risks mitigation initiatives are apt to comprehensively address a wide range or uncertainties, there remain few issues of concern.
First, the risks management measures focus on addressing supply security issues but leave no provision for the possibilities of low demand. This should not be taken for granted since supply security cannot be guaranteed without the balance of supply and demand. For instance, if the electricity tariff is held constant, it becomes obvious that electricity suppliers might not be willing to offer more of the services in the face of low demand for fear of running into losses. It would be reasonable to confuse low demand with demand efficiency and argue that less demand ensures more supply. Furthermore, why should low demand be an issue in a region with serious electricity supply shortfalls and high demand growth rate? However, where the goal is to increase the size of the power system and liberalize the market, care should be taken that the ‘less is more’ assertion and ‘supply shortfall’ issues do not unjustifiably dictate to long-term possibilities. As the supply gap closes and the market becomes more integrated and liberalized, chances are that low demand could weaken the security of supply. Hence, the risks management measures should also include mechanisms that would ensure sufficient demand.
Second, as documented in the appraisal report, commercial risks related to the inability of national power corporations to pay their SPC bills would be mitigated by the setting up of reimbursement accounts for the SPC. In this way, some major and reliable customers of national power corporations will pay their bills directly to the SPC. Indeed, when reasons for the inability to pay relate to managerial inefficiencies or corruption issues, this mitigation approach might seem reasonable. However, there are doubts that such approach could be effective when the inability to pay is due to non-cost reflective tariffs or high system losses. This should be of concern especially when the integration goal is to provide sustainable electricity at competitive costs, but fall well short of presenting clarity on tariffs methodologies and setting. Clearly, the extent to which repayment accounts for the SPC will be successful in mitigating commercial risks will for the most part depend on the underlying factors behind national power corporations’ inability to pay. Therefore, in order to ensure supply security, the commercial risks management measures must as well consider issues related to tariffs and system losses.
In light of the above discussion, one can see that the integration outcomes are jeopardized by a number of risks, of which some mitigation measures are subject to debate. Potential electricity sector problems like demand and tariffs issues have not been fully addressed. Hence, the answer to the question ‘could the CLSG electricity network interconnection spell solution for sustainable electric power supply in the MRU’ cannot be an obvious ‘yes’ or ‘no’. While the interconnection project has great prospects of creating sustainable trade in electric power in the MRU, the extent to which such potential will be realized depends largely on how well the associated risks are managed.
Given the low demand possibility, tariffs issues, managerial inefficiencies and high system losses which could cripple sustainability of the integration initiative, there would be a need to readjust integration efforts towards a more consistent approach. Thus, the following recommendations present four suggestions to address the identified issues: First, since security is about the balance between supply and demand, the risks mitigation measures should also include demand-side mechanisms. Second, there should be clearer objectives not only on tariffs methodologies but how they relate to privatization and competition reforms. Third, instead of exclusively dedicating financial resources to the physical project like power plants and transmission lines rehabilitation, considerable share of resources should be invested in institutional and managerial capacities. Finally, a system for accurate energy accounting must be set into place in order to reduce technical and commercial losses.
Remember, the MRU cannot hope to create a sustainable culture with any but sustainable electricity access.
The author is a PhD candidate in Energy Economics & Policy at Xiamen University