The economic, social and health benefits of electricity are well documented. However, less than 25% of people in sub-Saharan Africa have access to electricity.
Electricity demand is particularly strong in developing countries, where it is expected to increase by 4% per year on average. Unless concerted efforts are made to meet this demand, the number of people without access to electricity will increase to more than 500 million in the region.
Electrification is generally the responsibility of government-owned utilities that lack the capital resources to provide generating capacity and to extend networks. Tariffs are generally below long-range marginal costs and technical and non-technical losses are high. This translates to a highrisk business for private investors. So how can the requirement of 5 million connections per year in sub- Saharan Africa be achieved, at an estimated cost of around half a billion dollars? And further, how can these connections be viably sustained?
Let’s first summarise the issues: Lack of finance, inadequate skills and outdated systems, poor maintenance, and high losses. These problems are universal across developing nations in the world. On a small scale, the above problems can be overcome by providing donor capital in the form of grants and soft loans, but this is not sustainable in the long term and the capital requirements are too large.
Principles to increase access and maintain sustainability
Innovative solutions to increase access to electricity should be based on the following principles:
- Stabilisation and ‘return to profit’ for existing operation: Losses in Africa have been estimated at above 30%. Reducing these to around 5% should save about $200 million per year.
- Public-private partnerships: It is clear that partnerships between utilities, the donor community and private enterprise will be required to overcome electrification backlogs. Political support for private participation is essential.
- Fair and equitable tariffs: To make utilities sustainable it is imperative that tariffs are cost-reflective and fair.
- Leveraging integrated technologies: Technology alone will not provide all the solutions, but applying complementary technologies supported by tried and tested procedures and processes will go a long way to turning around an ailing utility.
- Political support for loss reduction techniques: Reducing losses, minimising costs and increasing revenues will enable utilities to accelerate electrification to the benefit of customers, the utility and ultimately the politicians.
An alternative way forward
One way of achieving accelerated electrification is to engage private companies to manage existing distribution areas in partnership with utilities. The scope of work would typically encompass network rehabilitation, introduction of customer management systems and refurbishment or replacement of outdated technology.
Contracts based on medium term management, operation and maintenance of distribution networks and customers can be structured such that a portion of the capital cost and remuneration could be obtained from sharing the increased cash flow due to reduction of losses between the private company and the utility.
The term should be long enough to enable the private company to recover investment of assets, establish best practice operating procedures and practices, and to provide skills transfer to the utility so that the utility has the option of taking over the operation rather than extending the contract after a few years.