IMF berates power sector in Nigeria, others

1 Comment » July 19th, 2008 posted by // Categories: Energy Development Project




Friday, July 18, 2008              

IMF berates power sector in Nigeria, others
By Bukky Olajide

THE International Monetary Fund (IMF) has berated the power sector in Nigeria and other sub-Saharan African countries, describing the situation as highly disappointing.

The IMF said that the traditional model that predominates in the sub-Saharan African power sector vertically integrated, state owned monopolist utilities, has yielded disappointing results.

The entire generation capacity of the 48 countries of sub-Saharan Africa, at 63 gigawatts is comparable to that of Spain. If South Africa is excluded, sub-Saharan African generation capacity falls to 28 gigawatts, about the same as Argentina’s,” said the IMF.

According to IMF, normalising for population and subtracting South Africa, the installed capacity of sub-Saharan is only one -third of South Asia’s and about a tenth of that of other developing regions.

The Fund stated that Sub-Saharan Africa faces major infrastructure challenges, the most severe of which are arguably those in the power sector.

“That is why many firms operate their own diesel generators, while in the informed sector, firms rarely have the capacity for backstop generation,” it said.

The IMF observed that deficient power infrastructure dampens economic growth and weakens competitiveness through detrimental effect on productivity. It is estimated that the impact of infrastructure on firm productivity relative to other variables also decomposes the contribution of various components of infrastructure.

“In most Sub-Saharan African countries, infrastructure accounts for 60 per cent of the adverse impact on firm productivity, well ahead of factors like red tape and corruption,” said the IMF.

Whereas, it said, if the quantity and quality of power infrastructure in a Sub-Saharan African countries were improved to that of a better performer like say, Mauritius, long term per capital growth rates would be two percentages points higher.

The IMF stated further that the scarcity of power in Sub-Saharan Africa also affects both the delivery of social services and the quality of life.

“Without electricity, clinics cannot even refrigerate essential vaccines while lack of illumination restricts the ability of children to study at night and fosters crime in peril-urban areas,” it said.

The IMF observed further that Africa’s overstretched electricity systems have become exceedingly vulnerable to supply stocks, resulting in widespread outages and load shedding.

“With economic growth in the past decade raising demand for electricity, the lack-luster expansion of generation and transmission facilities has stripped away any cushion from excess capacity that may have existed previously,’ it said.

The IMF, however, hinged on four paradoxes that would shed light on the complex challenges that need to be faced namely; abundant energy but little power, high prices but even higher costs, widespread but ineffective reform and high expenditure yet inadequate financing.

Ironically, said the IMF, sub- Saharan Africa is richly endowed with both renewable and exhaustible energy resources. “At present, for instance, it exploits only eight per cent of its gross hydropower potential of 3.3 million gigawatt hours (gwt) annually,” it said.

It observed that with relatively little cross-border trade, many sub- Saharan African countries use technically inefficient forms of generations, saying that in eastern and western Africa, about one-third of installed capacity is diesel-based generators.

“These countries have few domestic energy resources of their own, even though there are sufficient hydro and gas resources in neighbouring countries to support much lower-cost forms of generations,” it said.

The IMF observed further that poor governance is reflected in deficient performance, which means that the inefficiency of sub- Saharan African utilities generates substantial hidden costs.

The IMF therefore said that given the large scale, long lead times and extensive preparation required building power infrastructure, careful planning is crucial.

However, it said, many sub- Saharan African countries lack ministerial capability for long term power sector planning.

“The current power shortages were to a large extent foreseeable, but action was not taken for enough ahead to avert them,” it said.

Talking about the way forward, the IMF said that the power sector in Africa needs to move to a “mixed economy” characterised by a range of structures, regulation and technologies adapted to each country’s context.

According to it, successful inventions would tackle several problems simultaneously to put the sector and on a positive trajectory of improved sector and utility management, financial viability, new investment and better customer service.

Its words: “But interventions also need to be innovative and ambitious, recognising that meeting customer needs means multiple providers, financial viability, and new forms of external financial assistance.

“Where certain precondition are in place-including appropriate regulatory frame works for public- private partnerships, reform tariff frameworks, and sufficient security of investment for investors sector reforms can do much to facilitate the entry of strategic private partners,” it said.

According to the Fund, the first strategic priority is to tackle the generation capacity deficit head-on because Africa’s considerable hydro gas and coal resources remain under exploited.

“The best way to scale up generation at the lowest unit cost is to develop a new generation of large scale generation projects,” it said.

The IMF noted that the lack of strategic policy and planning for the electricity sector at the central government level is a critical weakness.

Its words; “past efforts at improving utility management focused too heavily on technical issues to the exclusion of governance and accountability. Good governance practices in Sub-Saharan Africa utilities are often observed in the breach.

“Since universal household electrification is still decades away in many countries, it is equally important that sector-wide programme approaches ensure that the benefits of electrification touch the poorest household, particularly deep in the rural areas.

“It is, therefore, critical that longer term efforts to redress the underlying structural causes of sub- Saharan Africa’s current power supply crisis be complemented by short-term measures to soften the economic and social impact of power scarcity,” said the IMF.

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One Response to “IMF berates power sector in Nigeria, others”

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