Africa’s two biggest economies, Nigeria and South Africa, are having a tough ride keeping the lights on in homes and the machines running in factories despite huge sums of money sunk into the electricity supply value chain in these countries.
Citing shortage of capacity, South Africa’s utility company, Eskom Holdings SOC Ltd. on March 23 shifted gears to Stage two load shedding from 09h00 until 23h00, implemented to protect the system and to prevent a total collapse or a national blackout.
South Africa is preparing to bail out Eskom, which might involve the banks and asset sale alongside, to the tune of R69 billion ($4.9 billion), over the next three years. But there are no easy options given the state of South Africa’s uncertain public finances, stubborn unemployment and inequality.
The fact that Nigeria and South Africa’s residential and industrial sectors suffer electricity shortages means that both countries struggle to sustain gross domestic product growth. South Africa emerged from its first recession in almost a decade in the third quarter of 2018.
Lack of accountability, transparency and mismanagement has made returns on investment into these utility companies sub-optimal. In Nigeria, the electricity generation and distribution have been privatised (with 40 percent government equity holding) but transmission lines are still owned by the federal government. South Africa’s Eskom still awaits the legal separation of generation, transmission and distribution electricity through privatisation.
What these utility companies have in common is the fact that the homes are not lit up and factories gasp for power in both economies despite humongous interventions from government.
The Federal Government of Nigeria had as at June 2018 committed the sum of N1.023 trillion ($2.84 billion) in different kinds of bailout packages to Nigeria’s struggling power sector yet Nigerians remain in darkness with power generation at abysmal levels of less than 4,000MW daily. And electricity market still has shortfalls of about N1.3 trillion ($3.61 billion). This has been due to inefficient revenue collection and uncertain feedstock for power generating plants.
On 6 December 2018, at a briefing at Eskom’s Megawatt Park head office, interim results forecast a R11.20 billion ($800 million) loss for 2018, up from R2.30 billion ($164 million) in 2017.
Eskom suffers equally from poor revenue collection. Municipal debt to Eskom stood at R17 billion ($1 billion) as of November 2018, yet the power utility is asked by government not to pursue cut-offs or legal cases for debt collection.
A plan to resolve the power snarl-up at local level has been in the making since early 2018, but Cabinet has at least twice delayed decision on the integrated electricity reticulation plan.
To move ahead on development of the power sector, national governments need take the initiative in a number of areas. They could focus on ensuring the financial viability of the power sector.
Electricity tariffs should reflect the true cost of electricity, costs should be transparent, the country should make the most of what it already has in the sector, and officials should pursue least cost options in investments.
A second imperative involves creating an environment that will attract a broad range of funding mechanisms. Private-sector involvement is critical and central to effectively delivering new capacity. To attract the private sector, it is necessary to provide clear, consistent regulations; allocate risks to the parties best suited to carry them; ensure that a credible buyer (off-taker) exists; and seek support from external institutions to guarantee the risks.
Last, it is important for governments to demonstrate political will, keep an eye on the long term, and focus on the regulations and capabilities needed for the sector to thrive, not just on the plants and associated infrastructure.
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