Energy crisis: Affecting development and investment in Rwanda and Africa

The energy crisis in Africa is affecting more than half of the continent. It is slowing down growth and hindering the achievement of the Millennium Development Goals (MDGs). Surveys show a negative impact of uneven power distribution on business competitiveness. The crisis has many causes, including inadequate tariff levels, drought, destruction of systems due conflicts and poor utility management. This has resulted into inappropriate investment choices and excessive technical and commercial losses. This week, S. Vijay Iyer, the World Bank Sector Manager, Energy Group, Sustainable Development Africa Region met Rwandan officials and discussed possible solutions for solving power problems. The Insight Staff Magnus Mazimpaka had a discussion with Vijay Iyer on various issues regarding the matter. Insight: Can you highlight reasons for your official visit to Rwanda? Iyer: I am visiting Rwanda to strengthen further my relationship with the government. Essentially, we want to strengthen ties and see where we can make a more wide support and deepen the understanding of Rwanda’s energy, sector plans and how it contributes to development. Insight: What are the specific areas where your support is focusing? Iyer: It is important to understand the energy context in which Rwanda is placed. There are some obvious issues that are short-term in regard to the shortage of power and generation which have been the problem in the last three years. And this is where we focus. But it is a question of how to develop a sector which has got poor utility challenges. Rwanda has a low rate of electrification and this is our concern. Insight: Is Rwanda the worst? Iyer: No. Sub-Saharan Africa is close to 25 per cent on average. There are countries that are less than 10 per cent like Uganda, Tanzania and also Burundi. It is important to understand that electrification in Africa has not been a development priority for many years. It is only now that energy has come in the development priority because there are more things to invest in energy. Insight: What causes increased demand for energy in Africa? Iyer: Many African countries are facing power crises because of the sharp increase in demand and yet they are growing form 5 to 10 per cent. Whenever there is economic growth, there is increased demand for electrification and power. Where countries that have been in conflicts, the investment in energy has been low with existing assets having not been maintained and new ones have not been created. High oil prices for the last two years has affected a lot of countries and most of the African countries have come out of conflicts which caused the situation you see today and Rwanda is not exceptional to many countries that are facing pressure on tremendous energy resource and blackouts. Insight: The biggest catalyst in some parts now is drought. How about this? Iyer: There has been cyclical drought; there have been periods of high rainfall and low rainfall. Climate changes are going to go on, but irrespective of the reason for the drought the issue is how do you get security knowing that at some point in the next ten twenty years there is again going to be a drought? Even if climate changes are affecting or not, you have to have enough security by diversifying your natural resources. You don’t just depend on one source of power; you don’t depend just on hydro. We have other resources, whether it is coal, whether it is a neighbouring country so that you can depend on them for generation and line that can bring you power. So diversification is the key to security. And I think in that sense, Rwanda is looking at this source for the expansion of the Rusizi facility going to Rusizi three, looking at the Nile basin project like Rusumo falls, these will be the projects that will provide long time security because these are two different hydro power projects in two different projects in two different river basins. Insight: African governments have a problem of managing their utilities and their resources, what is your advice to Rwanda and others? Iyer: When it comes to utility management a lot of people in the country think of revenue. I think it is very important to gauge the road instead of stakeholders and others to stick to conservative approach of; where do we take this national company forward, what are the advantages of various types of change and what are the disadvantages. . . utility management can be broken down to four areas. One, you have the issue of how you’re managing the industry, for the utilities to expand and supply more and more customers with good quality power. The second alignment is your own human resource capacity. What are the kinds of people that you have? Engineers, and the good accountants, so human resource alignment is very important. The third part is how do you price your product? Price is a very complicated thing, many governments actually struggle with it. It requires a certain level of mature political management to get a price right. The forth area is how do you manage the operation? What is your efficiency in terms of if you generate a hundred units, and you are only able to supply sixty units to the customers and you are losing forty units in the system, this is a big loss, you cannot have a utility that loses much power and therefore we want to improve the efficiency of the operation?. Rwanda has a very good thing with this cash power system, power management. When you know that you pay in advance, and get your power, it is very efficient for billing and collection . . . It is these kinds of business processes that need to come in to make the utility more efficient. Africa is a little bit behind for various reasons. And it’s not obviously the issue of human resources, it is brain drain. But in this case Rwandan utility is not at the bottom of the pipe. It has got a tremendous strength and as you can see from the start other initiatives they have done. Insight: What is your observation about privatisation of the state energy utilities? Iyer: Most African state power utilities are rarely privatized. There are different models. There is a range of privatization. One is to sell the whole asset [utility] to the private sector so that they can put the money and then it belongs to them and make profit out of it. There is another arrangement and this is the concession contact where the asset remains to the government but there is investment obligation on the side of the private sector. The other one is where the government owns the asset but wants the private sector to manage the asset. Take an example of the Lamayer contract with Rwanda to manage electrogaz. In Africa, most of them are concession and others have gone to management contacts. There are very few privatizations of the power utilities. Insight: What are the consequences of using foreign contactors [experts] to handle state utilities? Every country has a different starting point and different demand for expertise. For example, Nigeria has a lot oil and gas and its expertise required is in gas generation. So they need experts to help design and build convention of gas into power. That expertise is not required in Rwanda because there is no gas and the plants are very small meaning that you need different kind of expertise. And possibly given the kind of gas plants and size that electrogaz has been managing for many yeas, they may be the expertise and no need for other experts. But you certainly need other expertise in different new areas which you are trying to grow into, for which it needs expertise from different countries to come and work, train local staff and local recourses as they move out gradually and another local capacity takes over. Lake Kivu is a good example. There is no where else in the world with a lake that has methane of that depth for extraction. This is new technology that needs people who have been handling that to come set up that pilot and see whether that technology can work for you. Insight: How will Africa handle power crisis alongside the problem of rapid population increase? Iyer: If Africa left business go as usual, it will get 1, 2 to 3% increase in access in twenty years and yet in many countries the population growth is more than 2%. If your access is 2%, then you are connecting less and less households. At least there is a need to double that rate of access. This implies sector planning and better implementation by the government of various electrification programs. Insight: What are the challenges as World Bank in regard to Africa’s power crisis? Iyer: If you have a clinic in the village far away where there is no power or there is no refrigerator to keep the medicine, then the clinic cannot do good service for people coming the this clinic. And it is very expensive for particularly the poor people to pay the highest price of not having sufficient energy to cook, lighting and et cetera. This is a big challenge in Africa and that is why my table is full because we are dealing with more and more countries which are demanding action on energy. Insight: Are there hopes for an increase in the funding? Iyer: I wish I had more or doubling our scaling. We may have $400 million for the entire of the Sub-Saharan Africa for energy. My problem is how to level it. But my sense is that, donors are putting in about $2 billion in Sub-Saharan Africa in energy every year and I think that it should double than that up to 4 or 5 billion dollars every year. And I think that should be our goal. But also African governments have a problem of how they prioritize the money. If there is donation, it does not only come for energy but to other necessities. There are so many demands on that money and it is only where the prioritization comes in. For example, Rwanda has the methane gas project and now we are proposing that the deal has to be public-private sector partnership. We cannot provide a loan for the project because we can only provide so much money. We are going to provide a guarantee because the World Bank stands behind the obligations of the government of Rwanda to the commercial lenders to the project. If there is a political risk where the government fails to do what is was supposed to do, we then provide cover for the commercial financiers.
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