April 1, 2011 / 3:22 PM / 9 years ago

Africa urged to unbundle power utilities for growth

* Govt subsidies not reflection of power costs

* Unbundling critical to boost investment

By Ruona Agbroko

JOHANNESBURG, April 1 (Reuters) - African governments should unbundle — separate generation and distribution — their state power utilities and allow private producers into the sector to unlock growth, investors and regulators said on Friday.

Speakers at an African power conference said political interference and governments’ unrelenting grip on power utilities had left much of Africa in the dark and the electricity sector underdeveloped.

“African governments have refused to let go of their investments in electricity,” said Julius Riungu, chief executive officer of Tsavo Power Ltd Kenya.

He used Kenya’s example to show how the introduction of private players into the power sector had boosted generating capacity and helped Kenya bring back to service some 30 percent of installed plants which used to be idle.

“Governments keep on avoiding independent power producers (IPPs) because as soon as IPPs come in, they are going to reflect the actual cost of electricity and this scares the government,” he said.

IPPs across Africa have said they could supply thousands of much-needed megawatts to the utilities or directly to end users, but have been blocked by regulatory hurdles and the lack of power purchase agreements.

Riungu said the states could still have a stake in energy companies, but should not keep a monopoly on the industry.

CRITICAL

“(Utilities) need to be unbundled so they can provide a level playing ground for the (power) generators,” Riungu said.

He said a monopoly on the power sector means low tariffs are subsidised, inefficiently distributed, and not a true reflection of the actual costs and problems in the power sector.

Letting other producers in would also free up the government to invest in other sectors and needed social infrastructure.

Namibia imports about 50 percent of its electricity demand and may opt to follow Kenya’s example and split its state utility into generation, transmission and distribution units.

“Unbundling is critical; it’s not so easy to go that route using policy directives because all stakeholders involved are good at challenging unpopular decisions using legal instruments,” said Maxwell Muyambo, a manager for technical regulation at Namibia Electricity Board.

Another challenge is the slow pace of government approvals for projects in the power sector.

“The shorter the period in which a (project) can be negotiated is profits for everybody but most of all, it will bring more credibility to the IPP sector in Africa,” said Bernard Westerouen van Meeteren, an investment officer at FMO.

South Africa, the continent’s largest economy, plans to establish an independent power purchasing authority in an effort to encourage private investment in power generation in the world’s top producer of platinum and a major supplier of gold.

Both the government and the producers agree that the new operator should help give IPPs access to the country’s energy mix, but there is still a lack of clarity on how the model will work without creating yet another administrative entity. (Editing by Agnieszka Flak and James Jukwey)

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