Title of Project: Making Africa's power sector sustainable

Geographical Scope: Regional

Implementation Partners: United Nations Environment Programme-DPDL/ROA and Economic Commission for Africa (UNECA)-SDD

Supporting Institutions Regional Institutions, UN-Energy/Africa, UNDESA

Project Coordinators:

Background:

There is increasing evidence that electricity is strongly correlated with wealth. Access to reliable and adequate electricity services has been linked to industrialization and growth. The lack of such electricity services precludes industrial activities and job creation and hence exacerbates poverty across the continent. Yet the average access levels for electricity in most of sub-Saharan Africa is barely 20% and hence threatens to compromise achievement of the Millennium Development Goals.

Mismanagement, poor operational performance, and distorted tariff structures resulting in poor economic efficiency and low returns on investment have provided a rationale for power sector reforms (PSRs). PSRs have been manifested in the form of commercialization, corporatisation, privatization initiatives and introduction of competition- are being implemented in an increasing number of African countries. However preliminary results of such reforms indicate low interest in the private sector to improve electricity access levels as well as unwillingness to commit the levels of investment needed to increase generation capacity and improve transmission. In some cases the private sector has entered the market, but left soon afterwards. This is largely because the profit margins are unattractive.

African Governments are faced with a dilemma: they have made commitments to their development partners and financiers to reform the power sector, but the reform models do not aid economic development. At the same time the Governments lack financial resources to invest in the necessary infrastructure and the International Financing Institutions (IFIs) are unwilling to extend loans to the Government. Though public-private partnerships have been conferred as the solution to Africa's electricity poverty, there are very few examples of success cases. Differences in perceptions across the different stakeholders indicate need for collaborated solutions designed through concerted consultative efforts. Policy dialogue forums among the key stakeholders offer an opportunity for developing such solutions. The policies identified through the forums need to be integrated into national policy to ensure sustainable electrification and development. Implementing these dialogues and integrating sustainable electrification policies facilitates meeting the objectives outlined in the JPOI.

The Sustainable Development Division of ECA, in partnership with UNEP/DPDL/ROA has thus decided to carry out an in-depth analysis of the economic, social and environmental impacts of power sector reforms and organize a multi-stakeholders policy dialogue forum with the overall objective to facilitate integration of social-economic and environmental concerns into the power sector reforms (PSR) in Sub Saharan Africa for poverty alleviation.

Proposal:

The main ideas of the suggested project are:

• Power sector reforms have made access to capital for improving electricity access for poverty alleviation by African governments rather difficult, and the private sector players find these activities largely unattractive. It is, therefore proposed to use policy dialogue forums among all stakeholders to design feasible solutions.
• The findings of previous works show that the sequence of power sector reform measures appears to have been detrimental to electrification of the poor and overall increase in access to electricity. The non-poor are absorbing most of the subsidies. Current institutional and legal framework does not provide any special incentives for subsidies and the electrification of the poor. Yet Power sector reforms are portrayed as important poverty reduction tools in the Poverty Reduction Strategy Papers (PRSP). Reforms appear to have failed to link rural electrification to the overall strategy of improving the power sector performance. For example, the issue of licenses and concessions are not closely linked to the ability of the licensee/concessionaire to increase electricity access among the poor. In addition, the newly unbundled (and privatized) distribution utilities do not appear to have rural electrification targets that are linked to future tariff adjustments. Findings also indicate that reforms have resulted in increasing tariffs, and a reduction in cross-subsidies, in order to attract private investors.
• This project would provide alternative power sector frameworks that take into account the issues of increasing access to the poor, facilitating rational subsidies and establishing institutional and legal frameworks that support socially and environmentally friendly reforms.
• Developing enabling policy frameworks has been identified in various donor recommendations as a key approach for achieving sustainable energy, including as an outcome of the International Conference on Renewable Energies held in June 2004.

Objective:

• to facilitate integration of social-economic and environmental concerns into the power sector reforms (PSR) in Sub Saharan Africa for poverty alleviation.

Specific objectives:

1. Assess past and current initiatives on social-economic and environmental impacts on PSR

2. Undertake field work analysis to update existing work relating to social-economic and environmental impacts on PSR

3. Analyze social-economic and environmental impacts on non-reformers

4. Develop scenarios on how to integrate environmental and social-economic concerns into PSR

5. Assist in raising awareness of policy makers on strategies to improve the power sector's sustainability.

Results:

• reform process and structure modified to incorporate environmental and social-economical concerns
• mechanism for forging partnership among the Governments and strategic partners (private sector and IFIs) developed

Outputs:

• publication based on papers on key issues related to reform prepared
• a workshop report

Activities and specific outputs:

The activities are presented on the basis of the proposed specific objectives.

Specific Objective 1: assess past and current initiatives on social-economic and environmental impacts on PSR

The activities envisaged include:

1.1 design a research analytical framework

this would entail developing a matrix which would be used in analyzing the past initiatives in a uniform manner for comparative purposes but also to enable understanding of the extent to which relevant indicators have been taken into account. As such the work would inform the need for further analysis.(see Appendix B for draft matrix).

1.2 list sources of information on past initiatives

A comprehensive list of various initiatives to assess PSR in Africa would be provided as a way for ensuring that as many as possible of the past initiatives have been incorporated. The list would thus be reviewed by the PCT prior to commencement of the analysis. Towards this a preliminary matrix encompassing some initiatives has been prepared and is presented in Appendix A.

1.3 undertake desk study to evaluate and update the past initiatives

It is expected that some changes might have occurred since the past impact analysis initiatives were undertaken. Thus there would be value added through contacting relevant stakeholders including previous initiative implementers, utilities, and ministries to find out the latest developments.

1.4 evaluate dams and development project (D&D) to identify its relevance to current project

The UNEP D&D project aims at implementing the recommendations of the World Commission on Dams with respect to dams. It is expected that its approaches and contacts might be relevant for implementation of PSR.

Specific Output:

Report on the assessment study findings

Specific Objective 2: undertake in country analysis to update existing work relating to social-economic and environmental impacts on PSR

The following activities would be undertaken:

2.1 Analyze gaps (on relevant indicators) in the assessment report

Preliminary work indicates that the issue of environmental impacts and legal and institutional framework has not always been sufficiently addressed in some of the past initiatives.

2.2 Develop criteria to select countries where further analysis would be undertaken

Based on the type and extent of gaps, and the level of reform, a criterion for selecting countries where the field analysis would be undertaken to fill the gaps would be developed. About five countries can be considered, depending on resource availability.

2.3 Refine research analytical methodology to integrate gaps

Indicators on key issues might not have been included in the methodologies used in past initiatives. On the other hand it is important to acknowledge past efforts and build on these. As such these past methodologies will be refined.

2.4 Develop institutional analytical methodology

The institutional links and operations have significant impacts on the realization of PSR as well as its formulation. It is hence imperative that the underpinning roles, responsibilities and relationships across stakeholders be well understood to determine barriers as well as map strategic liaisons for socially and environmentally sound PSR.

2.5 Conduct in-depth in-country reviews to gather relevant info in updating existing work

Specific outputs:

• Updated assessment report
• Updated research analytical methodology (institutional, social and environmental impacts)

Specific Objective 3: develop scenarios on how to integrate environmental and social-economic concerns into PSR

4.1 Analyze barriers to integration of social-economic and environmental concerns into PSR

4.2 Develop strategies to address the barriers

Preliminary analysis indicates that some of the barriers include financial limitation and institutional relationships. Tools for addressing the barriers are likely to be policies, policy forums, financing mechanisms, targeted capacity development, and establishment of targeted institutions e.g. consumer watchdogs.

Specific outputs:

• Report on scenarios

Specific Objective 4: Assist in raising awareness of policy makers on strategies to improve the power sector's sustainability through a policy dialogue forum.

It is evident that policy dialogues are instrumental in not only raising awareness but also providing forum for articulating approaches for way forward. One dialogue forum will be organized to raise awareness among the various stakeholders on the environmental and social implications of reform, propose and negotiate new frameworks mitigating negative impacts. (Emphasis will be on sub-Saharan Africa as it is the most adversely affected sub-region by the reforms). The participants will be high-level decisions makers from Government (i.e. energy ministers), representatives from donor community, IFIs and civil society. Select energy experts will also participate to provide technical support to the ministers. The forum will last 2.5 days with the first day being used by the technical experts consolidate positions. In the remaining time the experts will meet with ministers to inform them of their deliberations and the ministers will then negotiate favorable reform frameworks with the other stakeholders. The forum will discuss the scenarios and make recommendations for activities to implement relevant scenarios.

Specific outputs:

• Report on scenarios
• Workshop recommendations on way forward with respect to implementation of scenarios

Additional specific outputs

In addition to the specific outputs identified under the specific objectives, the following outputs would also be generated:

a) Summary for policy makers on social and environmental impacts of PSR

b) Summary for policy makers on strategic approaches to improving PSR along social and environmental aspects

Follow-Up Activities

The implementation of the scenarios generated in this project will not be fully done due to the limitation of resources and the fact that it is rather difficult to define the roles of various stakeholders at this stage. It is thus relevant that the outcomes of this project be used in defining the specific activities.

Notably though given the current situation it can be anticipated that some of the issues arising would be addressed through policies, policy dialogues, capacity development, institutional development and streamlining. It is anticipated that the activities would include a holistic review of the energy policy environment, consultations on institutional collaborative and coordination mechanisms, re-drafting of electrification policies and acts, and establishment of financing mechanism and other relevant organizations.