Are Private Markets Effective for Rural Electrification?
- Posted on January 13, 2015
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Schemes to galvanize private investment in rural electrification in the world’s poorest countries were launched with much fanfare but have delivered disappointing results. Research by Imperial College London investigates the reasons for the gap between expectation and reality.
Co-authored with Dr. Rob Gross, Director of the Imperial College Centre for Energy Policy and Technology
Almost 600 million people in Sub-Saharan Africa do not have access to electricity. According to the IEA universal energy access could be achieved across the region by 2030, but rural electrification would require investment of around $20 billion per year – almost double current levels of spending across the entire Sub-Saharan electricity sector. Where is this money going to come from?
For the last two decades many have argued that the private sector must hold the solution. Projects led by the private sector are often considered to be inherently more efficient than those managed by governments, and agencies such as the World Bank and the IMF frequently condition their donor support on reforms to encourage private participation. Moreover, political appetite to increase public spending on international development has been limited since the financial crisis.
Yet just 22% of global investments in energy access projects come from private funds at present. And whilst the rich donor nations are prescribing private funding for the poorest, this was not the model they followed themselves; electricity supplies in rich countries were largely developed decades ago, in an era where high levels of state intervention were the norm. Rapidly industrialising nations such as China have broadly followed suit, with extensive state investment in energy infrastructure. Some advanced countries, notably the UK, are now questioning the ability of liberalised markets to deliver secure electricity supplies whilst meeting environmental goals. Britain’s Electricity Market Reform does not renationalise the power industry, but it does recreate conditions where the government has a much larger role in directing investment. Does this mean that the privately-led model we are imposing on poorer nations is one that we no longer consider fit for ourselves?
Senegal is one of the many countries that rely on international assistance to improve its public services. It has partially privatised rural electrification in order to access funds from international donors. On paper at least this appeared to be a big success, with Senegal’s ‘Rural Electrification Priority Programme’ being much lauded in early evaluations. This cleverly-designed flagship scheme encourages private bidders to seek additional third-party funding in order to maximise the number of new rural electricity connections they can offer. Electricity majors including EDF and Morocco’s ONE have won contracts, bringing with them unprecedented promises of private finance – 49% on average. Yet our research reveals that in reality the Programme’s impacts on rural communities have been very limited. It did not connect any new households to electricity supplies during the first decade of operation (2002-2012).
Imperial College researchers investigated the reasons for this gap between expectation and reality. In-depth interviews with government agencies, donors, businesses and independent consultants revealed a widespread frustration with the lack of progress. The research points to three clear areas in which serious political and institutional barriers have held the Priority Programme back:
Political support for the Programme has fluctuated considerably, with some officials thought to oppose the premise of privatisation. Two of the Programme’s directors have been accused of embezzlement and it is alleged that some staff appointments have been decided on political rather than professional merit. The limited capacity of rural populations to push for change means politicians can get away with making ambitious promises without delivering results.
2. Tensions with the incumbent national electricity company
Senegal’s national electricity company, Senelec, is funded and managed by the state. Two failed attempts to privatise Senelec appear to have left a legacy of distrust amongst some of its employees, who perceive the privatisation of rural electricity as a threat. Senelec seems to have actively blocked the Priority Programme’s progression on several counts, refusing to transfer payments or sign contacts. Government intervention to resolve these issues has been slow, possibly due to the political power wielded by Senelec’s strong staff union.
3. Policy inertia
The government has continued to implement major state-funded and state-controlled electrification schemes alongside the Priority Programme, despite its outward support for the private model. It is alleged that these schemes have been implemented as short-termist vote-winning vehicles in the run-up to elections. They are seen as regressive and thought to have diverted significant resources from the Priority Programme. In addition the Programme’s development has been stalled by apparent limitations in local technical expertise, prolonging negotiations.
These difficulties mirror the experiences of privatisation-based rural electrification schemes across Sub-Saharan Africa. Parallels can be found in countries as diverse as Burkina Faso, Uganda, Tanzania, Mozambique and Zimbabwe. Disappointing results are so widespread that CLUB-ER, a consortium of African rural electrification agencies, advocates a return to greater state control. Although Senegal’s successes in garnering external support are noteworthy, the Priority Programme has not resolved common institutional barriers to delivery.
What does this mean for privately-led rural electrification? Inevitably such experiences cast doubt on the wisdom of imposing radical market reforms in countries with limited resources and immature electricity sectors. However alternative options to finance rural electrification are not obvious. If reform-based approaches are to be successful they should not be regarded as a policy ‘quick fix’, but a long-term approach that will require significant and ongoing transitional support.
This blog draws on the report ‘Institutional barriers to a ‘perfect’ policy: A case study of the Senegalese Rural Electrification Plan’ published in Energy Policy (2014, volume 73).
Photo Credit: Rural Energy Access and Markets/shutterstock