The power sector has come under the spotlight lately and is an issue of major concern for sub-Saharan countries, reports Meshack Mabogoane
ATTEMPTS to restructure parastatals in the sub-continent have been the focus of fundamental discussions recently. Two conferences, addressing this issue and setting scenarios for market-related developments and economic changes, have been held in South
Two weeks ago a bosberaad, headed by Minister of Public Enterprises Stella Sicgau, was held in Warmbaths to review deliberations and efforts to restructure the whole gamut of parastatals in South Africa.
This week an international indaba, also opened by Sicgau, was held at the Eskom Conference Centre in Midrand on “power sector reform and efficiency improvement in sub-Saharan Africa.”
The conference was largely a sequel to the bank’s Roundtable Conference held in 1993, stirred by concern about the sector’s poor performance in the Third World. Work began in 1988 when the bank initiated a review of policies and programmes related to this sector.
The main themes and spirit of the bank’s studies and recommendations, as well as developments already under way in Africa and other developing countries to effect sector reforms, set the agenda for the Midrand conference.
As the major provider of funds and facilitator of development in the Third World, the bank’s position on this issue is crucial. It is part of its overall economic structural adjustment programme to redirect and prime the economies of the developing countries.
The power sector in the Third World is, according to the bank, quite dismal. Between 1979 to 1988 it has been adversely marked by:
l a decline in average real power tariffs;
l a deterioration of the quality of service;
l poor maintenance of plants;
l inadequate metering, billing and collection;
l poor management;
l and government interference in daily affairs.
Financial statistics have been as depressing. On average, rates of return have fallen from nine percent before the mid-1970’s to five percent in 1991; self-financing ratios were 12 percent in 1991 against required targets of 20 to 60 percent.
“The deteriorating macro-economic situation and the debt overhang of the 1980’s exacerbated these financial problems and worsened debt service coverage” in developing countries, according to the bank.
This militates against developing countries footing the maintenance and development bills. So to bail them out, other methods are needed.
Robinson Mwanza, chief executive officer of the “commercialised” Zambian Electricity Supply Company (Zesco), told the Midrand conference that “Zambia had to reform as a matter of survival. There was no alternative to reform since the infrastructure had
Case studies in Africa and elsewhere were cited, indicating the changes that have been wrought to counter the downward slide. These ranged from outright selling off of state assets to hiving off non-core activities to the private sector. Or letting Independent Power Producers (IPPs) come on the scene.
The bank estimates that US$100-billion is required yearly to meet “modest rates of growth” of the power sector in developing countries. The bank and other official lenders — multilateral banks, bilateral donors and export credit agencies — “cannot realistically provide more than 10 percent” of this amount. Only US$1,7-billion is available for sub-Saharan Africa.
It is against this background that the bank recommends that the private sector should step in. But there should be the necessary domestic commitment (to democratisation) and a good measure of flexibility and pragmatism on the part of outside partners — perhaps to take cognisance of the very imperfect economic and political conditions.
While the bank warns against imposing general measures and makes a point of treating each national economy distinctly, its guidelines
l The need for governments to rethink their roles in power supplies. Policy making, regulatory and ownership functions should be considered separately “provided their links are clarified.” Public ownership of utilities is not, however, ruled out as “public or private ownership alone is an insufficient basis for predicting the success or failure of power sector reforms.”
l Commercialisation, viewed as a “series of measures that lead a State-owned enterprise to conform to corporate standards of management and operations, including efficiency in pricing”, is a goal for sector reforms.
Other economic indicators — like inflation — should be considered as “tariff reform and inflation are of special concern in devising realistic procedures and schedules” in restructuring. General affordability, including subsidies, are crucial policy
l Introducing competition in the sector is a more complex phenomenon. “It could range from bidding for ancillary to core services”. However, “any efficiency gains from introducing competitive supply will have to be measured against new transaction costs, more complex regulation and possible inefficiency in investment.”
The bank recommends that where feasible there should be encouragement of bidding for “financing and construction of additional capacity” (IPPs).
The bank is hopeful that there is greater “co- operation among public , private and international participants in power sector development than is often expected.”
Policies should be based on general understanding and consent; efforts should be made to open the policy-making process and to the understanding of the public; and for the parties involved to tailor reforms while being sensitive to an understanding of local economic and political conditions.
Deliberations on power sector reforms seem to have eschewed the wholesale market approach that marked much of the thinking on restructuring the economies of the Third World. Certainly the realities of the power sector and distinct national economies have been as much of a concern.