The 17th African Utility Week taking place in May will see electricity powerhouses on the continent battling to become profitable pay attention to the World Bank’s insights on how to achieve this while making services affordable for the poor.
The World Bank indicated that according to a study they undertook which looked at the financial statements and power tariffs of electricity utilities in more than 40 Sub-Saharan African countries, cost reductions rather than tariff increases could be the best step towards financial viability. The study also looked at spending data in 22 countries through household surveys.
World Bank Energy and Extractive Global Practice director, Lucio Monari, said in a press statement that the results from their raw data collection showed that it was important to look at the financial health of electricity utilities to ensure universal access to the electricity grid.
Monari would address delegates at the Utility CEO Forum during African Utility Week and present results of the World Bank’s study, “Making Power Affordable for Africa and Viable for Its Utilities”.
He said the data showed that less than half of these utilities covered operating expenditures and some countries lost over US$0.25 per kWh that was sold.
Monari added: “It remains surprisingly difficult to get basic bread-and-butter data such as tariff schedules, operational performance data, and financial statements.”
South Africa, he pointed out, “has the most developed and complex electricity sector in Sub-Saharan Africa and that its installed capacity alone is equivalent to the rest of the continent.”
He pointed out that the country’s main power utility, Eskom, “seemed to be one of the best performing utilities in the region with regards to technical and non-technical losses. However, the report identified low tariff levels as a major issue”.
Monari said that as Eskom started to move away from its ageing coal plants to modernised plants, it would most likely increase its prices so as to cover the investment costs for its capacity rehabilitation and expansion. This would be important in preventing the utility from becoming a fiscal burden to the government.
He said: “To make the power sector more viable, sector governance and utility management need to be strengthened. The regulatory framework should be clear and predictable, providing incentives for the utility to improve their performance. Privatization and unbundling can work where the conditions are right. Unbundling does have transaction costs that need to be considered and weighed carefully against the benefits of creating new institutions.”
Monari said what electricity utilities could do to reduce costs were to look at becoming more financial viable through improved operational efficiency; make the initial electricity connection affordable to increase access to electricity; increase tariffs in countries where they were needed; install individual meters in poor households which would help utilities to better target cross-subsidies and install prepaid meters.
He said that implementing some or all of these recommendations could “help to make Africa’s power sector financially sustainable and advance the goal of universal access to electricity.”
The African Utility Week, the leading conference for African power, energy and water professionals will take place in Cape Town from May 16 – 18 at the Cape Town International Convention Centre.
– African News Agency