November 2, 2006—Managing Director Juan José Daboub is visiting seven countries in Africa from October 26 to November 8 as part of his first visit to Africa since joining the Bank. His visit reinforces the World Bank Group’s commitment to supporting Africa and working closely with its governments and people to help to sustain growth and reduce poverty.
During his visit, Mr. Daboub had the opportunity to see first-hand the challenges confronting Africa’s power sector, following years of underinvestment.
In Senegal, the Minister of Economy and Finance, Abdoulaye Diop, told Mr. Daboub that the energy crisis was reducing Senegal’s expected GDP growth from 6 percent to 4 percent this year. The Minister attributed the crisis to the higher price of oil (which is used to generate 85 percent of Senegal’s power), inadequate and costly generation facilities, and a struggling state-owned power utility. Together, these factors have resulted in frequent load-shedding, idling industries and leaving clinics, schools, businesses and households without electricity for long stretches of the day.
IDA is helping to address these problems through projects supporting the extension of electrical services to the rural areas through private concessionaires as well as the development of new generation capacity, but Mr. Daboub noted that more needs to be done, particularly to implement long-overdue reforms. "Senegal needs to allow private power generators to enter the market, and to ensure sustainability it needs to reform the power utility, reduce budget transfers into the sector, and bring tariffs to cost-recovery levels," he said, noting that "the most expensive power is the power that you don’t have."
Power Crisis in Uganda
In Uganda, Mr. Daboub toured the country’s largest hydropower plant with the Minister for Energy and Mineral Development, Daudi Migereko. There he saw how one of Africa’s fastest growing economies is struggling with an acute power crisis, resulting in part from a drought-induced drop in the level of Lake Victoria’s waters, which are now so low that only one-third of Uganda’s hydropower generation capacity can be used.
Drawing on his experience as a Board member of El Salvador’s electric utility, Mr. Daboub urged the Government to work more closely with the private sector to identify lasting solutions to Uganda’s power problems. "We are helping Uganda to add 50MW, in addition to the recently installed 100MW of emergency thermal power to respond to the current crisis, and also to fast-track the construction of a 250MW hydropower plant at Bujagali falls to bring costs down," said Mr. Daboub. "But the best long-term solution will require significantly expanded private sector investment in building more capacity."
Senegal and Uganda are not isolated cases in Sub-Saharan Africa, where over 550 million people–– or three out of four households––do not have access to power. Sub Saharan Africa’s installed power generation capacity is only 20,000MW, excluding South Africa, roughly equivalent Poland’s, and it is using only around 5 percent of its hydropower potential, compared to 40 percent in Asia and 80 percent in Europe.
Critical Energy Needs in Africa
An energy crisis is now affecting almost half of the countries in Africa, slowing down growth and hindering achievement of the MDGs. Investment climate surveys in countries like Kenya, which Mr.Daboub is visiting today, are showing the impact of irregular power supply on business competitiveness. The crisis has many causes, including inadequate tariff levels, the drought in east Africa, destruction of systems in conflicts, poor utility management resulting in inappropriate investment choices and excessive technical and commercial losses, and finally serious under-investment in energy in the 1990s and early 2000s.
A factor in this decreased investment was the loss of donor support in the sector. Starting in the 1990s, assets deteriorated, very few new assets were added, and necessary sector reforms were repeatedly postponed. Private sector investment failed to fill the gap, as resources were concentrated in a few favored countries and initial enthusiasm subsided in an environment of global insecurity, corporate scandals, and poor investment returns.
Today, the pent-up investment needs are enormous. The Bank Group’s recently-completed Investment Framework for Clean Energy and Development predicts that Africa will need to invest $4 billion per annum to bring power access rates up from 24 percent today to 35 percent by 2015 and 47 percent by 2030. Private sector interest in power is reviving, and the Bank is working with IFC and MIGA to negotiate risk-sharing terms that will elicit private interest as well as to seek private sector participation in the sector, including leases, management contracts, or concessions when full privatization is not possible.
IDA Doubles Energy Financing
In this context, IDA has more than doubled financing for energy projects in the last five years, aiming to leverage private sector resources to the greatest extent possible, while also recognizing that hydropower projects bring special challenges, including long gestation periods, high development costs, and intense public scrutiny. The Bank Group is also helping to support regional energy interconnections and power pools, so that energy-poor countries can import electricity from energy-rich neighbors for much lower prices per kwh.
"Solving Africa’s energy problems is high on the list of Africa’s priorities, and the World Bank is working hard to be a part of the solution", said Mr. Daboub.