energy for africa draft study PIDA Study: Phase I Volumes

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energy for africa draft study PIDA Study: Phase I Volumes

  1. 1. NEPAD African Union AfDB C1354 - March 2011 Ref: ONRI.1/PIDA/2010/04 in consortium with Study on Programme for Infrastructure Development in Africa (PIDA) Phase I Report DRAFT  PHASE I ENERGY SECTOR
  2. 2. Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA PIDA Study: Phase I Volumes Energy Sector Introduction to PIDA Phase 1 Overview Transport Sector TWRM Sector ICT Sector Annexes
  3. 3. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA FOREWORD The PHASE I work was carried out by Jean François BAUER (Program Leader), Ananda COVINDASSAMY (Energy Leader), Bernard CHATELIN (Transport Leader), Olivier COGELS (Transboundary Water Resources Leader), Claude de JACQUELOT (ICT Leader) with the support of their respective teams and coordinated by Hichame SELMAOUI (Project Director). It has taken place in good conditions with the constant support form the PIDA stakeholders: African Union Commission (AUC), NEPAD Planning and Coordinating Agency (NPCA), African Development Bank (AfDB), the Regional Economic Communities (RECs) and the Technical Institutions (Lake and River Basins Organisations –L/RBOs- and Power Pools). The Consultant would like to express their most sincere thanks to all those who have provided their precious time and advice during this part of the work. This report is the DRAFT report on Phase 1 of the PIDA Study. The interaction with the stakeholders during the forthcoming meetings will be the opportunity to validate the diagnosis and the assumptions used in modelling. The PIDA Study is a long term planning exercise. It has been carried on the basis of assumptions, namely that in the coming years the major policy weaknesses in the sectors will be resolved. In the Transport sector, it is assumed that all the corridors would have reach full efficiency through major changes, including:  The well documented and generally accepted trade facilitation measures are successfully implemented;  The credit worthiness of the railways is restored;  The Yamoussoukro decision is implemented continent wide. In the Energy sector, the primary assumption concerns the restoration of the credit worthiness of the utilities by the return of the payment discipline in the private and the public sector. In the Transboundary Water sector, it is assumed that the African countries who share international rivers, lakes and aquifers will have the required political will to mandate and support their basin organizations for the preparation, implementation and operation of optimal joint investments in a shared benefit approach. In the ICT sector, the main assumptions are the end of monopoly situation on terrestrial infrastructure and on international gateways, with “right of way” provisions for landlocked countries to reach landing stations. If these policy changes are effective, it is the considerate opinion of the Consultant that the projections presented in this report paint a plausible future for Africa and its regional infrastructure.
  4. 4. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 1 PART I: POLICIES
  5. 5. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 2 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Table of Contents 1. OBJECTIVE AND APPROACH..............................................................................3 1.1 Objectives ...................................................................................................................................................................................... 3 1.2 Approach........................................................................................................................................................................................ 3 2. SCOPE OF EXISTING CONTINENTAL AND REGIONAL POLICIES ..............5 2.1 Africa’s Energy Policy-Making Organizations..........................................................................................................5 2.2 Continental Policies................................................................................................................................................................. 6 2.2.1 AUC’s Policy Coordination Role......................................................................................................................7 2.2.2 Large Scale Hydro Development.................................................................................................................11 2.2.3 New and Renewable Energy Sources......................................................................................................12 2.3 Regional Policies......................................................................................................................................................................13 2.3.1 Objectives ...................................................................................................................................................................13 2.3.2 Regional Power Pools.........................................................................................................................................13 2.3.3 Regional Gas Integration.................................................................................................................................23 2.3.4 Regional Cooperation in Petroleum Product Supplies................................................................25 2.4 Policy coherence table .......................................................................................................................................................25 2.4.1 Coverage of Regional Electricity Policies.............................................................................................25 2.4.2 Areas not addressed by Regional Energy Policies........................................................................28 3. STATEMENT CONCERNING THE LEVEL OF ACHIEVEMENT OF POLICY OBJECTIVES .........................................................................................................29 3.1 Methodology of evaluation...............................................................................................................................................29 3.1.1 Specific Policy Indicators ................................................................................................................................29 3.1.2 Policy Impact Indicators.................................................................................................................................. 30 3.2 Level of achievement by policy.................................................................................................................................... 30 3.2.1 Level of Achievement of Continental Policy Objectives ..............................................................31 3.2.2 Level of Achievement of Regional Policy Objectives ...................................................................32 3.2.3 Level of Achievement of Regional Gas Integration Objectives .............................................35 3.3 Policy Achievement Table.................................................................................................................................................36 4. CAUSAL ANALYSIS.............................................................................................38 4.1 Analysis of Legal and Regulatory Policies.............................................................................................................38 4.2 Analysis of Planning, Operational and Commercial Policies.................................................................... 40 4.3 Regional Electricity Integration: Causal Analysis Synthesis........................................................................41 4.3.1 Energy Security Concerns ...............................................................................................................................41 4.3.2 Regional Autonomy versus National Autonomy ...............................................................................42 4.3.3 Staffing and Funding Weaknesses in Regional and Continental Institutions ..............42 4.3.4 Constraints to Mobilizing Financial Resources.................................................................................42 4.4 Regional Gas Integration: Causal Analysis............................................................................................................43
  6. 6. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 3 1. OBJECTIVE AND APPROACH 1.1 Objectives The basic objective of the review is to assess the effectiveness of continental and regional energy policies in supporting the integration of energy infrastructure across the African continent. The review will focus on the effectiveness of different policy initiatives in supporting the integration of Africa’s electricity infrastructure It will also include an assessment of policies aimed at bringing about the integration of the continent’s natural gas infrastructure. 1 . 1.2 Approach The proposed analytical approach was described in Section 3 of the Inception Report of July 2010. It envisaged a number of steps in assessing the adequacy of existing continental and regional policies against the primary goal of promoting regional energy trade. The first step involved a review of the scope of existing continental and regional energy policies-as of December 2010- in each of the five regions of Africa. This information was to be obtained from three main sources:  Visiting the websites of the main continental (AUC) and regional (RECs and Power Pools) institutions responsible for formulating energy policies;  Reviewing the main presentations and/or protocols on regional energy policies agreed by the Conference of African Energy Ministers or between key donors such as the ADB or EU,  Field visits to the Infrastructure and Energy Department of the AUC as well as to a selective number of Regional Economic Communities (RECs) and Power Pools. The second step involved a review of the extent to which the policy objectives in each region have been achieved, in particular their effectiveness in increasing regional energy trade. This review involved a comparative analysis of existing regional electricity legislation in each of the five regions in Africa against benchmarks generally agreed as essential for establishing successfully operating power pools in other regions of the world. The analysis focused in particular on policy gaps in the existing legislation of different regions and whether such policy gaps were deterring regional electricity trade. The third, and final, step of the approach focused on the limiting factors that are impeding achievement of regional energy integration. This review focused on several different factors- including, inter alia, legislative, regulatory, grid code harmonization, financial solvency of 1 Objective listed in the Maputo Declaration of 2010
  7. 7. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 4 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA national utilities, and energy security concerns in individual countries- that were judged to be impeding further regional energy integration in specific regions.
  8. 8. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 5 2. SCOPE OF EXISTING CONTINENTAL AND REGIONAL POLICIES 2.1 Africa’s Energy Policy-Making Organizations The African Union Commission (AUC) is the Secretariat of the African Union (AU) and the principal organization for the promotion of socioeconomic integration across the continent. Within the AUC organization, the Infrastructure and Energy (IE) department is the entity responsible for carrying out the AUC’s objectives in energy. The specialized institutions in energy under the AUC i.e. AFREC, AFUR and AFSEC, are intended to be the main instruments for facilitating the energy objectives of the AUC while the United Nations Economic Commission (ECA) and the African Development Bank (ADB) and the NEPAD Secretariats provide advice and support, respectively, to the AUC in its policy coordination activities. In the area of policy-making, the AUC has responsibility for defining continental-wide polices and strategies on infrastructure development2 . The role of the Regional Economic Communities (RECs) in the energy sector is to promote cooperation between member states in order to develop integrated and cost effective energy infrastructure in support of regional economic development, and particularly regional trade. The RECs have a primary responsibility for developing a policy and planning framework to achieve the goal of regional cooperation in energy. A key component of the RECs’ strategy is establishing regional power pools to help reduce the cost of energy supply while improving its reliability and security.. The regional power pools have primary responsibility for coordinating, harmonizing, and enforcing the operational rules and standards needed to achieve this goal. The organizational relationship between these different entities is shown in Figure 1.1 below.  AFUR, African Forum for Utility Regulators  AFREC, African Energy Commission (AFREC)  AFSEC, African Standards Electro-Technical Commission  ECA, Economic Commission for Africa  NEPAD, New Partnership for Africa’s Development 2 Coordination Mechanism for the Development of Infrastructure in Africa, Department of Infrastructure and Energy, African Union, October 2007
  9. 9. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 6 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA 2.2 Continental Policies The main Continental Policy Objectives have been articulated in different conferences and assemblies of the African Union (AU) since 2000 and reaffirmed recently by Africa’s Ministers in charge of energy in the Maputo Declaration of November 5, 2010. These objectives are to develop efficient, reliable, cost effective, and environmentally friendly infrastructure for the physical integration of the continent and to enhance access to modern energy services for the majority of the African population. These objectives would be achieved by  Developing major regional and continental hydroelectric projects;  Implementing high capacity oil refineries and oil pipeline projects; and  Developing renewable energy resources. The main objectives and policy initiatives are summarized below:
  10. 10. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 7 OBJECTIVES STRATEGIC POLICY INITIATIVES Ensure energy security for economic and social development  Through developing fully Africa’s energy resource potential – in hydropower, petroleum, geothermal, coal, and renewable energy Achieve energy integration by increasing regional and continental energy trade  Through fostering regional and continental cooperation and by highlighting the importance of regional projects, especially electricity interconnections Lower the cost of energy to improve access to basic energy services for Africa’s population  Through diversifying the energy mix and by pooling national energy resources so as to deliver energy production at affordable costs Create a conducive climate for direct investment  Through harmonizing legal and regulatory frameworks for energy trade Reduce Greenhouse Gas (GHG) emissions and address climate change issues  Through promoting the development of renewable energy, in particular solar energy 2.2.1 AUC’s Policy Coordination Role The Constitutive Act of the African Union of July 2000 stipulates in Article 13 that the AUC should ‘coordinate policies and take decisions in the fields of energy, industry and mineral resources in view of their importance for Africa’s development’. AUC sees its role, therefore, as a coordinator and facilitator of regional energy integration whose main responsibilities are to harmonize regional energy policies across the African continent, point out discrepancies, and identify policy bottlenecks. The importance of AUC’s coordination role needs to be seen in the context of the report by UNECA3 , which identifies the lack of coordination between the RECs as an impediment to continental integration since they confine their activities to their own regions, without interaction with other regional areas. Two guiding principles govern the modus operandi of the AUC in its policy coordination role 4 . The first guiding principle is derived from the Constitutive Act of the African Union which is based on solidarity i.e. to “achieve greater unity and solidarity between African countries and the peoples of Africa”, which implies a sharing of resources. The second guiding principle is that of subsidiarity between the African Union Commission and other regional and continental institutions in working towards the continent’s development and integration, particularly in regard to the Regional Economic Communities, which remain the pillars of this integration process. Within the framework of these guiding principles, the African Union Commission has taken the following policy initiatives: Continental Policy on Electrical Energy for Africa  Regional economic integration and the development of integration infrastructure were identified as two priority areas for action and provision was made for the elaboration of a continental policy on electrical energy5; 3 Report of the Expert Group Meeting on the Ten Year Capacity Building Programme for the African Union, November 2-3, 2010, Addis Ababa 4 Coordination Mechanism for the Development of Infrastructure in Africa, Department of Infrastructure and Energy, African Union, October 2007 5 AUC Strategic Plan, 2004-2007, (Strategic Plan of the Commission, Volume 2);
  11. 11. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 8 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA  Preparation of a report entitled “Common Vision and Strategic Guidelines for a Continental policy relating to the Electrical Energy Sector”, with the following recommendations: (i) to work together to develop Africa’s resources, especially hydropower; (ii) to establish a Coordination Commission for the development of major, integrative, hydroelectric projects6 ; Guideline Document for Continental Policy in the Field of Oil and Gas7 The main objective was to develop an African Policy of Cooperation and Solidarity in terms of Hydrocarbons while the main decision taken was to establish an African Petroleum Fund (APF)to assist African oil importing countries. The issues that would be addressed in developing this policy included:  Proposing strategies for cooperation between African producing and importing nations;  Defining strategies to develop the exchange of oil products between African countries;  Making recommendations on major infrastructure projects for the storage, transport and distribution of oil products; and  Defining the role to be played by major oil companies operating on the African continent as well as by IFIs and donors. Policy Objectives on New and Renewable Sources of Energy8 The main action agreed was to establish a high level, ministerial policy advocacy group to lead the implementation of the Plan of Action that was outlined in the earlier Dakar Conference, April 16-18, 2008, “Making Renewable Energy Markets Work for Africa”. 6 1st African Union Conference of Ministers responsible for Electrical Energy, March 20-24, 2006, Addis Ababa, Ethiopia; 7 First African Union Conference, Ministers responsible for Hydrocarbons, December 11-15, 2006, Cairo, Egypt 8 African Union Assembly, 12th Ordinary Session, February 1-3, 2009, Addis Ababa, Ethiopia, ‘Infrastructure Development in Africa
  12. 12. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 9 Continental Policy Log Frame OBJECTIVES Socio-economic STRATEGIC POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES OF VERIFICATION A. Sustain economic growth of 6% p.a. B. Reduce poverty 50% and facilitate Africa’s integration into global economy Sector Specific 1. Ensure energy security  Develop fully Africa’s resource potential – esp. large-scale and integrating regional and continental  hydro schemes  Development of hydroelectric hubs  A.West Africa-Niger/Senegal rivers  B.Central Africa- Inga/Congo river C.Southern Africa - Mozambique/Zambezi  D.East Africa-Ethiopia/Nile  Coordination Commission for major hydro is established  ncreased electric. production from Inga or reg.hub  Inter regional power purchase agreements signed  Interconnection of reg. power pools  HIGH Risk. Project management weak and no political consensus to strengthen it. Also, first new production increment from Inga may not be for export to SADC. Key Assumption:  SNEL management team in place 2012  Annual progress reports on Inga production and other large hydro schemes as provided by donors (ADB, IDA) 2. Achieve regional integration in energy  Foster sub- regional, regional and continental cooperation in energy through pooling of resources  Increased regional electricity trade;  West Africa Gas Pipeline is operational  Number of new regional interconnections in power and gas  Share of power traded in each REC SUBSTANTIAL Risk. Key Assumptions  In SADC, national agencies willing to cede planning decisions to regions;  In ECOWAS, political stability in key member nations  Regional power pool annual reports
  13. 13. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 10 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA OBJECTIVES Socio-economic STRATEGIC POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES OF VERIFICATION 3. Lower the cost of energy in order to improve access for the majority of the African people  Promote efficient use of energy infrastructure by diversifying the continent’s energy supply  Development of Africa’s large hydro resources to displace higher cost oil imports  umber of new hydro sites developed;  Share of hydro in Africa’s power generation SUBSTANTIAL Risk Key Assumptions:  Adequate project management and financing mobilization capacity  Regional power pools and donor reports 4. Promote good governance and harmonize regulations  Strengthen and harmonize legal and regulatory frameworks  Direct private investment in regional electricity  Total PSI investment in regional electricity trade SUBSTANTIAL Risk  Uneven regional progress to date Key Assumptions:  SADC and ECOWAS regions successful in attracting PSI for regional projects and sector creditworthiness established in most countries  SAPP and WAPP annual reports 5. Reduce GHG emissions  Promote renewable energy potential, especially hydro, geothermal and Sahara solar energy  Finalize studies on development solar potential of Sahara;  Extend studies to other areas of African continent;(iii) Launch geothermal risk mitigation fund  Establish ministerial advocacy group;  annual investment in renewable energy as % of investment derived from fossil fuel sources HIGH Risk.  Progress in Africa in developing renewable energy slow Key Assumptions:  Private investors can be mobilized for large hydro schemes and solar energy plants  AU/COMELEC renewable energy monitoring data
  14. 14. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 11 2.2.2 Large Scale Hydro Development Exploiting the large, untapped hydropower potential of the African continent is the cornerstone of the AU’s strategy to provide low cost electricity to the large numbers of the continent’s population still without access to basic energy services as well as to enhance energy security. The strategy envisages the development of four main hydroelectric hubs (see MAP):  West Africa on the Niger (and Senegal) rivers;  Central Africa on the Congo river, in particular the Grand Inga scheme;  Eastern Africa, the Nile river basin development; and  Southern Africa, the Zambezi river basin development. A program of integrated development of hydro resources and electricity connections is envisaged to minimize transaction costs, attract investment, and promote energy security9. In support of this concept, as noted in Section 2.2, the first Conference of African Ministers responsible for Electrical Energy10committed itself to support the integrated development of the continent’s power potential through the following actions:  Expedite establishment of a ‘Coordination Commission’ for the development of major integrating hydro power projects;  Expedite the integrated development of the major hydropower potential located at four poles of the continent: Niger, Congo, Nile and Zambezi river basins;  Expedite the interconnection of regional power pools into a continental network. MAP: Africa’s Four Main Hydropower Hubs Source: African Union. Infrastructure Consortium for Africa Annual Meeting 2009, Rome, Italy 9 Infrastructure Development in Africa, African Union Assembly, 12th Ordinary Session, 1-3 February 2009, Addis Ababa, Ethiopia 10 Addis Ababa, Ethiopia, March 20-24, 2006
  15. 15. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 12 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA 2.2.3 New and Renewable Energy Sources Africa’s potential for developing new and renewable energy resources, in particular the solar energy of the Saharan desert and other semi-arid areas of Africa, has been recognized at successive African Union Conferences. The main plan of action for developing the continent’s renewable energy potential emerged from the high level Dakar Conference in April 2008 and was reaffirmed in the Maputo Declaration of November 2010. The April 2008 Dakar Conference on ‘Renewable Energy in Africa’ adopted a declaration with the goal of raising US$ 10 billion for renewable development during the period 2009-2014. It also drew up a plan of action to create the enabling environment for this investment and to help mobilize the needed financial resources for the program. The AUC, in partnership with UNIDO, was entrusted with responsibility for follow up and monitoring. The following specific actions were proposed:  Establish a high level policy advocacy group at the ministerial level to lead the implementation of the Dakar Plan of Action;  Promote the establishment of New and Renewable Sources of Energy technologies at the regional level in order to make these technologies more affordable; The harnessing of Africa’s solar energy potential for electricity generation has been given increased attention since the Dakar conference. In February 2010, a resolution on solar energy in the Sahara was adopted at the Assembly of the AU heads of state11 while in November 2010 the Conference of Africa’s Energy Ministers issued a resolution on a solar energy study, which called for ‘close cooperation for the development of solar energy in general and the technologies for utility scale electricity generation in particular’12 . In January 2011, an AFREC workshop in Algeria sponsored by the AUC provided an overview of the study plan and layout for harnessing the solar potential of the Sahara desert and the Sahel region13 . Solar The main project concept for developing the solar energy potential of the Sahara is the Desertec project. The objective of the Desertec project is to develop clean, sustainable and climate friendly energy sources from the deserts in North Africa using concentrating solar power (CSP) technology. The solar-based electricity would be supplied to regional markets in Africa and exported to Europe. The project concept is on a massive scale and envisages up to $400 billion investment over the period 2020-2050. Though the concept has been under development for a number of years, it has received further impetus since 2007, with strong European support. Geothermal Africa’s geothermal potential is concentrated in the Rift Valley countries and is estimated as high as 14,000 MW14 . However, less than 200MW of this potential has been developed for electricity generation, mainly in Kenya which had an installed capacity of 167 MW in 2010. While geothermal development has been exclusively for national electricity markets, the geothermal potential, if fully exploited, could also benefit regional markets, in particular in Eastern Africa. With this objective in mind, the Maputo Conference of Energy Ministers committed itself to support the regional cooperation program for geothermal energy development in Eastern Africa15 and requested the AUC ‘launch operationalization’ of the Geothermal Risk Mitigation Fund in Eastern Africa16 , the purpose of which is to support the exploration drilling needed to establish the geothermal reserve potential of this region. 11 Resolution N° Assembly/AU/Res.2 (XIV) adopted by the AU Heads of State and Government held in Addis Ababa in February 2010 on the Solar Energy in the Sahara. 12 Resolution on Solar Energy Study, Conference of African Ministers in charge of Energy, 1-5 November 2010, Maputo, Mozambique; 13 AFREC Workshop on the Study of Harnessing Solar Energy Potential of the Sahara Desert for Electricity Generation, Algiers, Algeria, January 4-6, 2011 14 Infrastructure Development in Africa, African Union Assembly, Addis Ababa, 1-3 February, 2009 15 Article 25, paragraph e, Maputo Declaration, Maputo, Mozambique, 5 November 2010 16 Article 27, paragraph d, Maputo Declaration, Maputo, Mozambique, 5 November 2010
  16. 16. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 13 2.3 Regional Policies 2.3.1 Objectives Regional energy policies are aimed at strengthening regional cooperation in the development and utilization of Africa’s energy resources to encourage energy trade. Key socio-economic objectives of the regional economic communities in fostering energy trade have been to support strong economic growth as well as increase access to basic energy, which is fundamental to attaining the longer-term goal of eradicating poverty. The main focus of such cooperation to date has been on increasing electricity exchanges between neighbouring African countries in order to provide a reliable supply of electricity at a lower and more affordable cost for consumers17 . The longer-term goal is to develop regional electricity markets, which would be eventually linked throughout the African continent. Regional cooperation in developing the continent’s growing natural gas potential has also been receiving attention- though more recently. 2.3.2 Regional Power Pools The strategy adopted by most regional areas of Africa for cooperation in the energy sector has been to create regional power pools. Experience in developing regional power pools in Europe and North America, and more recently in Central America, has recognized the importance of having an adequate policy framework to help achieve the goals of regional integration – namely, lower cost electricity, improved reliability and quality of supply, and enhanced security of supply. An adequate policy framework, comprising a number of steps or building blocks as shown in Figure 1-2, is important for regional electricity integration and, eventually, for establishing successful operating power pools18 . Figure 1-2: Policy and Institutional Framework for Regional Electricity Integration In addition, building adequate institutional capacity, addressing energy security concerns, enforcing financial discipline and securing a clear mandate from member countries to plan for and implement regional investments are also essential inputs. Conversely, the absence of 17 The first energy interconnections in Africa date from the 1950s with (i) 220 kV transmission line between Zambia and the copper producing state of Katanga, DRC; (ii) Kariba South hydroelectric plant (666 MW) and transmission line (330 kV) to Zambia and Zimbabwe. In West Africa, there have been several decades of cross-border electricity trading through bilateral and trilateral agreements even prior to the establishment of the Economic Community of West African States (ECOWAS) in 1979. In North Africa, gas pipeline connections, integrating Algeria with Europe via Tunisia and Morocco, date from the 1960s 18 USAID Sub-Saharan Africa’s Power Pools: A Development Framework. White Paper, 2008
  17. 17. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 14 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA these building blocks limits electricity trade and poses obstacles to the expansion of a regional market. These building blocks provide useful reference points against which to measure progress in putting in place the needed policy and institutional framework to foster electricity trade and develop competitive regional electricity markets. Regional Energy Policies in the Southern Africa Development Community (SADC) The overall goal of the energy sector in the SADC region is to ensure the availability of sufficient, reliable, least-cost energy services that will assist in the attainment of economic efficiency and the eradication of poverty whilst ensuring the environmentally sustainable use of energy resources19 . The SADC region has a long history of regional electricity integration between its member states. Since 1995, the main policy steps taken and agreements reached by the SADC member states to promote regional cooperation in the energy sector have been the following:  Regional Power Pool Created 1995 (SADC Summit, Johannesburg, South Africa, August 28 1995)  Energy Protocol 1996 (SADC Energy Protocol, August 1996), which provided the legal and policy framework for cooperation in energy. The Energy Protocol aimed at harmonization of national and regional energy policies; cooperation in energy development energy pooling; ensuring the provision of reliable and sustainable energy services; promoting joint development of human resources and organizational capacity building; and cooperation in research, development, dissemination and transfer of low- cost energy technologies.  SADC Energy Cooperation Policy and Strategy/SADC Energy Sector Action Plan (SADC Council of Ministers in 1996 and 1997 respectively), which made the SADC Energy protocol operational. The sub-sectors for cooperation were petroleum, natural gas, electricity, coal, renewable sources, wood fuel, and energy efficiency and conservation.  Regulatory Policy (2002) SADC Energy Ministers established the Regional Electricity Regulators Association of Southern Africa (RERA) as a formal association of electricity regulators in July 2002 and it was officially launched in Windhoek, Namibia in September 2002. RERA's broad mission is to facilitate the harmonization of regulatory policies, legislation, standards and practices as well as to be a platform for effective cooperation among energy regulators within the SADC region with following strategic objectives: - Capacity Building & Information Sharing; - Facilitation of Electricity Supply Industry Policy, Legislation, and Regulations; and - Regional Regulatory Cooperation.  SADC Regional Indicative Strategic Development Plan (2004) emphasized co- operation in infrastructure development. The strategies for achieving this goal in energy were: - In the Electricity Sub-sector, promoting power pooling through the extension of grid interconnections; and consolidating the transformation of the Southern African Power Pool (SAPP) from a ‘co-operative’ pool, involving bilateral power purchase agreements and coordinated dispatch between countries, to a ‘competitive’ power pool, where dispatch is based on the least- cost merit order; 19 SADC, RISP, Chapter 3, Energy
  18. 18. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 15 - (ii) In the Petroleum and Gas Sub-sector, promoting joint exploration and development of resources; and cooperation in the joint procurement of petroleum products. Improving energy access is a major goal of energy policy in all SADC Member States. However, within SADC, improving energy access is fundamentally a national rather than a regional responsibility. Efforts made at the regional level are largely supportive of endeavours at the level of Member States. The log frames below (in Figure 1-3) provides a summary of the main regional policy initiatives of SADC and of SAPP aimed at strengthening regional energy integration. These are shown together with the results expected from these policies, as indicated in the different policy and planning documents of SADC and SAPP.
  19. 19. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 16 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Fig 1-3 SADC Region: Regional Policy Log Frame SAPP OBJECTIVES SAPP POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES of VERIFICATION Develop world class, robust, safe, efficient, reliable and stable interconnected electrical system in SADC region. Operational and market rules for regional market;  Competitive electricity market linking all member states by 2012  Spot trading market for electricity exists  Private sector investment (PSI) in regional grid SUBSTANTIAL Risk Key Assumptions:  .All member states commit to regional integration  Regional investment climate conducive to PSI  Spot market risk accepted by PSI  SAPP Annual Market Reports Co-ordinate and enforce common regional standards of Quality of Supply; measurement and monitoring of systems performance Common technical and operational standards for interconnecte d grids  Technical standards agreed on for grid harmonization; .System operator coordinates electricity exchanges/trade  Similar technical standards for trading countries; MODEST Risk Key Assumptions:  SAPP given enforcement powers to exact common standards  SAPP Annual Reports Harmonize relationships between member utilities Capacity building programs  All member states have planning and regulatory capacity  Bi-annual national investment plans ; 2 National regulatory agencies MODEST Risk Key Assumptions:  SAPP has resources for training programs  SAPP Annual Reports Increase power availability in rural communities Regional planning framework  70% access for rural households by 2018  Rural access connections HIGH Risk Key Assumptions:  Member states have financial resources and management capacity for rural connections  SAPP and SADC regional energy data Implement strategies in support of sustainable development Environmental policy guidelines  Environmental assessments undertaken for all regional investments  Environment al impact assessment (EIA) reports MODEST Risk Key Assumptions:  SAPP given authority to enforce guidelines  SAPP Reports on Environment
  20. 20. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 17 Regional Energy Policies in Western Africa Region (ECOWAS) The first step towards regional coordination of energy activities in the ECOWAS region was taken in November 1981 at the symposium, ‘Energy for Survival’, in Freetown, Sierra Leone, which addressed the severe energy issues affecting the 16 member states at that time. Since 2000, regional energy policies in the ECOWAS region have been focused on providing a vision of energy cooperation to 2015, which is shared by member states, and aimed at improving the condition of the ECOWAS rural and peri-urban populations. The policy steps towards this goal have been the following:  West Africa Power Pool (WAPP) was created in 1999 as a regional power pooling mechanism for integrating national power system operations into a unified regional electricity market. In July 2006, WAPP was formally inaugurated as a regional organization comprising both public and private electric power utilities of the ECOWAS region. 20  ECOWAS Energy Protocol, January 2003, provides the legal framework for cross- border power trading in West Africa. This Protocol aims at promoting long-term co- operation in the energy field, with a view to achieving increased investment in energy and increased energy trade in the West Africa region. Key provisions of this legislation include (i) Protection of foreign investments, (ii) Non-discriminatory conditions for trade in energy, and (iii) Dispute resolution procedures.  Regional Regulator, January 2008. The ECOWAS Regional Electricity Regulatory Authority (ERERA) was established in Accra, Ghana, with the following objectives: - Develop technical regulations for the management of electricity exchanges between interconnected systems in the ECOWAS region and monitor their application; - Monitor wholesale electricity sales between various buyers from member States and analyze their efficiency with a view toward avoiding antitrust problems; - Develop dispute resolution procedures; and - Establish effective communication between governments, regulators, and electricity companies of member States. ERERA has two roles:  Regional regulator for cross-border exchanges;  Agency providing assistance to national regulatory entities to ensure regional and national regulations is complementary.  A White Paper Regional Energy Policy was published in October 2005, and subsequently adopted in January 2006, outlining a strategy for increasing access to energy services in rural and peri-urban populations to help achieve the MDG goals. The White paper reflects the commitment of 15 West African member states to a shared energy policy aimed at bringing about a fourfold increase in access to energy over a 10-year period i.e. by 2015. Since 2008, ECOWAS has been putting in place the core building blocks for successful regional electricity integration21 - namely, a transparent and harmonized policy framework of legal, regulatory and technical standards; a clear institutional framework for regional planning; 20 The Southern African Power Pool (SAPP), with more than 15 years of operational involvement in regional electricity trade, has helped shape the policy and institutional development of Africa’s more recent regional power pools – in West Africa (1999), in East Africa (2005) and in Central Africa (2003) 21 World Bank Document, Report Number 48877-AFR: Additional Financing for the Felou Hydroelectric Project of the West African Power Pool (APL) Program. July 30, 2009
  21. 21. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 18 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA and the elaboration of a priority regional investment program. This policy framework is summarized in the log frame below (Figure 1-5) together with the expected results and related indicators. Fig. 1-5 ECOWAS REGIONAL ENERGY POLICY LOG FRAME WAPP OBJECTIVES WAPP POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES of VERIFICATION 1. Develop power generation and transmission facilities through regional collaboration with emphasis on cross border projects  Regional planning framework agreed by member states  Regional investment plan prepared, financed and implemented  Four-fold increase in access by 2015  Annual investment plans  Consumer connections SUBSTANTIAL Risk Key Assumptions:  All member states commit to regional investment plan  Capacity/finan cing to implement plan  WAPP Regional plans and ECOWAS Member State National Plans 2.. Improve the reliability of power system and quality of power supply in the region  Regional planning framework for grid strengthenin g  Reduction in power outages for interconnected systems  Improved frequency stability for interconnected links  Annual power outages for interconnecte d system;  Frequency stability data on interconnecte d links SUBSTANTIAL Risk Key Assumptions:  Priority given to investment for power system improvements  WAPP is able to enforce technical and operating standards  WAPP annual Electricity data 3. Create attractive environment for investment  Regional legal and regulatory policy  Private investment in regional generation projects  Level of private investment in regional projects SUBSTANTIAL Risk Key Assumption:  Regional investment climate and utilities’ creditworthines s conducive to private investment  ECOWAS data on private investment 4. Create common operating standards and rules  Grid code policy for interconnect ed grids  Trading countries adopt common standards  Key operating rules and equipment used for interconnecti ons SUBSTANTIAL Risk Key Assumption.  Funding available to enable adoption of common standards  National technical data of trading countries 5. Create transparent and reliable mechanism for dispute resolution  Regulatory Guidelines  Regulatory agency set up with requisite authority to resolve disputes  Disputes are satisfactorily resolved SUBSTANTIAL Risk Key Assumption ERERA has needed expertise and independence  ERERA documents
  22. 22. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 19 Regional Energy Policies in Eastern and Southern Africa (COMESA) The main objective of regional energy policies is to ‘make available for the Eastern African region affordable and reliable electricity by pooling together all available electrical energy resources in the region in an optimized and coordinated manner in order to increase the access rate to electricity and thereby promote regional integration’. Article 3 of the MOU gives emphasis to ‘increased power trading’ and to ‘development of an electricity market in the East Africa region’. Since 2005, the main policy steps in the COMESA region- Common Market for Eastern and Southern Africa- towards establishing a framework for regional energy cooperation have been:  East Africa Power Pool (EAPP) 2005. It was set up as a specialized institution under COMESA. The initial membership of EAPP comprised the seven countries – Burundi, Egypt, Ethiopia, DRC, Kenya, Rwanda and Sudan- that were signatories to the original intergovernmental MOU22 . Ten utilities from these countries subsequently signed inter- utility MOUs. EAPP’s main responsibilities are: - Planning- elaborating an investment plan for generation, transmission and distribution of electricity; - Regulatory-facilitating the introduction of a regulatory framework for cross border electricity trade in Eastern Africa; and - Capacity Building- coordinating technical assistance and capacity building initiatives to support integration of electricity markets in Eastern Africa.  The East African Community (EAC), comprising Kenya, Uganda and Tanzania, announced its intention in 2007 to establish a sub-regional power pool by constructing interconnections between these countries.  COMESA Energy Programme, December 2005. The main purpose was to promote regional cooperation in energy development, trade and capacity building. The focus of the COMESA Energy Program was on: - Energy policy and regulatory harmonization; - Development of regional energy infrastructure; - Facilitation of trade in energy; and - Capacity building and co-operation with regional and international organizations as well as with technical institutions.  COMESA Model Energy Policy Framework, April 2008. Its main purpose was to provide COMESA member States with guidelines that would facilitate energy policy harmonization in the region to improve efficiency and increase investment. This document emphasized close cooperation in the development of the region’s energy resources in the following areas: - Joint exploration/exploitation of hydro and fossil fuels; - Development of a mechanism for facilitating trade in energy fuels, such as coal, natural gas, petroleum and electricity; and - Interconnecting national electricity grids.  Regulatory Policy. A regulatory framework is under preparation and expected to be completed in 2011. 22 Potential member countries of the EAPP are Uganda, Djibouti, Eritrea and Libya, with Libya due to become a member on November 27, 2010.
  23. 23. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 20 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Fig. 1-6 COMESA REGIONAL ENERGY POLICY LOG FRAME EAPP OBJECTIVES EAPP POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES of VERIFICATION 1. Increase power supply for the COMESA member countries in order to increase access rate of population to electricity  Put in place regional planning framework  Increased investment in regional electricity projects;  Installed capacity matches demand  Ratio regional investment to total national investment  Available regional power capacity (MW) SUBSTANTIAL Risk Key Assumptions:  Adequate capacity and financing for increased investment program  EAPP planning documents and COMESA Member State National Plans 2. Facilitate long term development of regional electricity market  Put in place a legal, regulatory and commercial framework for electricity exchanges with well-defined market rules  Increased number of electricity inter- connections;  Market developed in short term energy trade  Number of new regional electricity interconnecti ons  Share of regional power trade in total generation SUBSTANTIAL Risk Key Assumptions:  Member states commit to regional integration  Investment climate conducive to PSI  EAPP and COMESA data on regional electricity trade 3. Optimize usage of the region’s energy resources  Regional investment planning gives priority to hydro development  Region’s main hydro potential is developed, especially Gibe  New regional hydro capacity(MW) SUBSTANTIAL Risk Key Assumption:  Project management/ financing found for large hydro schemes  EAPP planning documents and donor reports 4. Reduce electricity cost in the Region by using power system interconnection and increasing power trade  Harmonize operating and technical standards  Reduced outages and increased stability of electricity supply  Key operating rules and equipment used for interconnecti ons SUBSTANTIAL Risk Key Assumption.  Funding available to improve quality of electricity supply  EAPP and country utility reports on regional networks 5. Create conducive investment environment for investment  Regulatory and commercial policies  (PSI)Private sector investment in regional generation projects  Volume of PSI in regional integration investments SUBSTANTIAL Risk Key Assumption:  Regional investment climate conducive  COMESA and EAPP investment data Regional Energy Policies in the Central Africa Region (ECCAS) The Economic Community for Central African States (ECCAS) was created in late 1983 with 11 member states. Within the ECCAS region, there is significant potential for developing abundant, low cost, hydroelectric resources, especially in the DRC, where development of the massive hydro-potential of Inga is underway. The region’s enormous hydro potential provides a strong economic rationale for regional electricity integration, not only within the ECCAS region
  24. 24. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 21 but also with adjoining regional economic communities and power pool networks. As noted above, DRC is a member of both the ECCAS and COMESA regional economic communities, which facilitates the development of regional electricity integration strategies between regions, especially in regard to the development of the hydro potential of Inga. The basic policy objective in the ECCAS region is to develop a regional electricity market in order to provide more reliable and lower cost electricity to consumers. Since 2003, the following agreements have been reached with ECCAS member countries towards this objective:  Regional Power Pool, January 2003 The Central African Power Pool (CAPP) was established as a specialized institution of ECCAS. Currently, CAPP has 10 members since Burundi joined the East African Power Pool. A key objective of CAPP is to develop a regional electricity market to provide more reliable and lower cost electricity supply to consumers in ECCAS states.  Legal Agreements, April 2003 Two legal agreements have been signed by member States: - Inter-Government Framework Agreement; - Inter-Utility Agreement. The Inter-government Framework Agreement defines the members of CAPP as ‘any public, private, or semi-public enterprise engaged in electric energy generation, transmission or distribution of electricity in Central African states’. These agreements also established the current institutional framework for CAPP with its Permanent Secretariat based in Brazzaville, Congo. A five year Action Plan (2006-2010) for CAPP has been prepared with two main activities: (i) identification of priority interconnection investments in ECCAS; (ii) technical assistance aimed at (a) putting in place a legal framework for the regional electricity sector; (b) addressing different technical issues such as harmonization of operating rules; (c) establishing a regulatory framework; and (d) drawing up a capacity building program for technical and regulatory staff.
  25. 25. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 22 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Fig. 1-6 ECCAS REGIONAL ENERGY POLICY LOG FRAME CAPP OBJECTIVES CAPP POLICY INITIATIVES EXPECTED RESULTS INDICATORS RISKS and ASSUMPTIONS SOURCES of VERIFICATION 1. Develop the enormous hydroelectric potential of Central Africa to meet demand for electricity both within and outside region  Regional planning framework gives high priority to Inga hydro development  Significant electricity generated from Inga is transmitted for regional trade  Available capacity from Inga for regional electricity exchanges HIGH Risk Key Assumptions:  1.Political stability in DRC ;  2. Management capacity and finance mobilized  3. Creditworthines s of utilities and governments  ECCAS, SNEL and donor reports Develop a regional electricity market to provide more reliable and lower cost electricity supply to consumers in ECCAS  Legal, regulatory, and commercial framework  5 yr action plan to identify priority interconnecti ons  Increased regional interconnection s 2.Electricity exchanges within ECCAS region as well to SADC region  Share of electricity trade in ECCAS region SUBSTANTIAL Risk Key Assumptions:  Institutional capacity and finance available  ECCAS and CAPP documents Increase access rate of the population in the ECCAS region  Regional plans give priority to increased consumer access  Consumer access rate improved over 5yr period  Consumer access in key ECCAS countries HIGH Risk Key Assumptions:  Sustained investment priority given to access  ECCAS , CAPP and national utility data Improve the reliability and the quality of electricity supply in the ECCAS region  Common technical and operating standards  Reduced outages and improved frequency control on regional transmission links  Annual outages and frequency fluctuations in key transmission links HIGH Risk Key Assumptions:  Institutional capacity and finance available  to enforce compliance  ECCAS technical reports and national utility data
  26. 26. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 23 Regional Energy Policies in North Africa Region, COMELEC Regional energy trade in North Africa involves primarily trade in natural gas- from Algeria to Europe via transit countries, Tunisia and Morocco. Presently, trans-border trade in electricity between the North African countries and Europe is negligible. Algeria is about to resume exports by trading on the Spanish short-term market, while Morocco purchases electricity by trading in the same market. Bilateral electricity trade between the Maghreb countries is very small and has not grown significantly since 2005.23 The three Maghreb countries are substantively self sufficient in electricity generation with the exception of Morocco, which imports around 10% of its requirements. There is also an important subsea electricity link between Morocco and Spain, built with an initial capacity of 700 MW that has since been expanded to 1400 MW. The subsea link is a vital component of the larger Mediterranean Electricity Ring (Med Ring) concept, which aims at linking Mediterranean countries. In addition, there is an electricity transmission link between Tunisia and Libya but negligible trade between these countries. Finally, Egypt is a large generator and consumer of electricity, though electricity and natural gas exports are small. In contrast to Sub-Saharan Africa, a regional power pool organization has not been formed in the North Africa region; nor have policy steps been taken to put in place a legal, regulatory, or planning framework for regional trade. Instead, electricity links have first been constructed, followed by bilateral exchange agreements between adjoining countries. With key infrastructure links now in place, the potential for growth in electricity trade in the Maghreb region. However, any future trade growth is likely to be determined more by (i) further availability of Algeria’s large gas reserves for the Maghreb region (and for Moroccan power market, in particular) and (ii) decisions to upgrade the capacity of the transmission network through Morocco to Spain than by putting in place a regional policy or planning framework to encourage electricity trade in North Africa. 2.3.3 Regional Gas Integration Recent meetings of the African Union have recognized the scope for increasing inter-African trade in natural gas and have emphasized the need for regional cooperation to help develop the continent’s rapidly growing gas potential.24 In contrast to the North African region that already has a well developed gas transmission and distribution network, the AU meetings noted the high proportion of flared gas in sub-Saharan Africa i.e. 25% of worldwide gas flaring, which could be captured and used to generate low cost electricity, thereby reducing global environmental damage from the flaring of gas. The growing awareness of Africa’s undeveloped gas potential has led to a series of agreed objectives and related actions to exploit this potential:  Establishing a framework to capture and distribute the flared gas to African countries as well as for export;  Expediting the West African Gas Pipeline;  Expediting development of the Trans Saharan Gas Pipeline that would export Nigerian gas to Europe and eventually serve as backbone to expand gas supply to surrounding African countries. The African continent’s natural gas resource base can be grouped into three main regional areas:  North Africa, comprising the main producing country, Algeria, but also Libya and Egypt; 23 ‘Regional Energy Trade in the Maghreb Region’. Economic Consultants Associates, September 2007 24 Infrastructure Development in Africa, African Union Assembly, 12th Ordinary Session, 1-3 February 2009
  27. 27. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 24 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA  West Africa, comprising the largest producing country, Nigeria, as well as other producing countries such as Equatorial Guinea in the Gulf of Guinea and recently offshore Ghana;  East Africa, where current production is small in comparison with other regional producing areas but where a string of recent offshore gas discoveries in Tanzania, and particularly Mozambique, hold promise for converting this region into an important gas hub, with potential for LNG export to Asian and Middle Eastern markets25 . The differing gas integration challenges of each of these three regional areas are briefly discussed below. A. North Africa Despite its long production history, Algeria remains one of the main growth areas in gas production in the African continent, though with a primary focus on expanding gas exports to Europe through new pipelines to Italy and Spain that are either already completed, or close to completion; new LNG export facilities are also under construction. In 2009, Algeria accounted for 40% of Africa’s gas production. 26 Smaller volumes of Algerian gas are supplied to Maghreb transit countries (Tunisia and Morocco) via existing gas infrastructure. For example, gas is supplied via a short spur line from the main gas trunk line from Algeria to Spain to a newly constructed 384 MW Tahaddart combined cycle power plant in Morocco. In Libya, gas production in 2009 represented 7.5% of Africa’s total gas production. The main markets for Libyan gas are export markets via pipeline to Italy and LNG export. Finally, Egypt has become an increasingly important gas producer, with its share in Africa’s total gas production having doubled-from 15% to 30% over the past 10 years. However, Egypt is facing greater challenges than other North African countries in balancing surging domestic gas demand with gas for export, even though new export outlets have been recently opened- to Israel, Jordan and into Syria. B. West Africa This region is emerging as an important natural gas provider in the world market with proven gas reserves having increased by 50% since 199927 . Nigeria is the main gas producer, which has been mainly for LNG export28 though domestic gas demand in new power generation is growing rapidly. Equatorial Guinea completed construction of its first LNG production facility in 2007 while the first LNG facility in Angola is expected to come on stream in 2012. The export of natural gas from Nigeria to adjoining West African countries of Benin, Togo and Ghana via gas pipeline has been under consideration for more than 20 years but was only recently completed in early 2010. In general, local and regional gas markets and infrastructure is underdeveloped in the West Africa region though the potential for expanding these markets is considerable, assuming sustained economic growth in the region. Nigeria, which accounts for more than a third of Africa’s proven gas reserves and about 15% of the continent’s current production, has been in discussion with Algeria and Niger about the construction of a 4,200 km Trans-Saharan gas pipeline that would be connected to European markets. Approximately 400 bcm, or 8%, of proven reserves have been put aside for this project. The project is still at the early planning stage with a tentative start-up date of 2015. In Ghana, recent oil and gas discoveries in the offshore Jubilee and other fields have opened up the prospect of additional gas resources, not only for the expanding domestic gas market in Ghana but also for adjoining regional markets in Cote D’Ivoire and other West African countries. C. East Africa Until recently, gas production in this region has been small, mainly in Tanzania, where it has been used for domestic power generation. However, since 2008, increased exploration activity not only in Tanzania but also offshore in Mozambique and onshore in Uganda has led to significant gas discoveries, which could open the possibility of these gas discoveries being developed and transported to regional markets in the Eastern and Southern 25 Africa Energy February 18, 2011 26 BP Statistical Review of World Energy, June 2010 27 BP Statistical Review of World Energy, June 2010 28 Nigeria accounted for 10% of world LNG trade in 2007. IEA, Natural Gas Market Review 2008
  28. 28. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 25 Africa regions as well as for LNG export. In the short term, the main task will be to firm up more precisely the gas potential of these recent discoveries. The longer term challenge will be to put in place a gas utilization strategy that includes the necessary gas infrastructure to supply domestic, regional and export markets. 2.3.4 Regional Cooperation in Petroleum Product Supplies Recent global energy crises have had severe repercussions on the economies of Africa’s oil importing countries. Several recent analyses have shown that those countries most vulnerable to oil price shocks are low income oil importing countries, which are disproportionately concentrated in Sub-Saharan Africa.29 Africa’s vulnerability to oil price hikes has been recognized for many years. Together with long recognized inefficiencies in the downstream oil sector, it has prompted a keen interest in setting up regional storage and distribution facilities to reduce inefficiencies in the procurement and distribution of petroleum products.30 All productive sectors of an economy can benefit from an efficiently managed downstream petroleum sector, none more so than Africa’s transport networks and power sectors, where costs are already high for a variety of other reasons. At the same time, the small market size of many African economies makes it difficult to achieve efficiency in the downstream petroleum sector, a reality which provides a strong incentive for regional cooperation in the refining, procurement, and distribution of petroleum products. With this objective in mind, the following actions were proposed at the AU Conference of Ministers in Cairo in 200631 , and reaffirmed at the Maputo Conference of Energy ministers in November 201032 , to help promote more regional cooperation in Africa’s downstream oil sector.  Establish a strategic framework for cooperation in regional oil procurement, utilization of refineries, storage and distribution facilities;  Expedite the operationalization of the African Petroleum Fund (APF), which is intended to mitigate the effects of the increase in oil prices on African oil importing countries by establishing a high level Task Force Group that ‘will advocate on APF’; Past studies on Sub-Saharan African economies have provided an indication of the substantial savings that could be realized from more efficient procurement practices in the acquisition of petroleum products, if all sub-Saharan African countries were to adopt such procurement practices.33 The same rationale can be applied to the potential benefits from regional cooperation in oil procurement, particularly for small, oil-importing economies, for which the cost of vital petroleum products remains very high. 2.4 Policy coherence table 2.4.1 Coverage of Regional Electricity Policies The policy framework being put in place to govern the operation of Africa’s regional power pools follows closely worldwide experience in developing successful regional power pools, especially in Europe and in North America. 29 Petroleum Markets in Sub-Saharan Africa. Masami Kojima et al. ESMAP, World Bank, March 2010 30 First AU Conference of Ministers Responsible for Hydrocarbons, Cairo, Egypt, December 11-14, 2006 31 First AU Conference of Ministers Responsible for Hydrocarbons, Cairo, Egypt, December 11-14, 2006 32 Article 25, paragraph d, Maputo Declaration, November 1-5, 2010 33 First World Bank Workshop on the Petroleum Products Sector in Sub-Saharan Africa, ESMAP, September 2001
  29. 29. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 26 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA For the most part, these power pools are at a relatively mature stage in terms of operating experience, the size of electricity market, consumer income levels, and the volume of electricity traded. In contrast, with the exception of the Southern African Power Pool (SAPP), Africa’s experience with power pools is much more limited while the volume of electricity traded is still very small In 2005, the share of regional electricity trade in each of the regional power pools was as follows: SAPP (9.7%); WAPP (5.1%); EAPP (0.9%); and CAPP (0.1%). Since 2005, the shares have declined further, most notably in SAPP where electricity imports fell to below 4% in 2008/200934 . It is important, therefore, to keep in mind the current context of Africa’s power pools in assessing the adequacy and completeness of the policy frameworks. A consensus has emerged in regard to the main policy and institutional building blocks needed to develop a competitive, regional electricity market, including the sequence in which they should be put in place. The main policy frameworks that have been implemented, or are in the process of being implemented, by Africa’s regional power pools are shown in the Table below. In addition to each particular policy area, the Table also highlights key sub-components that have been incorporated into the policy frameworks of successful regional power pools and that are considered important provisions in realizing the objective of each policy area. 34 www.sapp.co.zw/docs/annualreports
  30. 30. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 27 REGIONAL ECONOMIC COMMUNITY (POWER POOL)ENERGY POLICIES AUC SADC (SAPP) ECOWAS (WAPP) COMESA (EAPP) ECCAS (CAPP) COMELEC LEGAL Inter Government MoU     Inter Utility MoU     Regional Law or Energy Protocol    X Private party access/direct purchase X  ? X X REGULATION Regulatory Institution   X X X Regulatory Guidelines   X X X Regulatory Independence X  X X X PLANNING Organizational Structure    X X Regional Integration Plan    X X Plan Implementation Mandate X   X X OPERATIONAL Grid Code    X ? Systems Operation   X X X Regional Dispatch  X X X X COMMERCIAL Market Rules    X X  Yes X No
  31. 31. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 28 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA The general conclusion from a review of the above table is that each of the broad policy areas - legal, regulatory, planning, operational, and commercial- are important steps towards establishing a basic framework for regional electricity trade for the following reasons:  First, there is a need for legal agreements between member governments of the power pool to enable the utilities of each country to negotiate contracts for power exchanges and provide guarantees on issues of payment obligations, currency convertibility, and arbitration. A regional legal framework is also important to create a favourable investment climate, protect against monopoly abuse, clarify conditions of access to the grid, and provide mechanisms to resolve disputes.  Second, a separate regulatory framework for regional trade is also needed. In contrast to national regulation, which has a priority focus on protecting the consumer, regional regulation focuses on measures needed to create and protect electricity trade.  Third, regional investment plans that address future generation capacity requirements of the region as well as strategic cross border interconnections need to be prepared and an institution designated- normally the regional power pool- to prepare such plans.  Fourth, harmonization of grid codes and the operating rules of interconnected networks are fundamental to realizing the full benefits of electricity exchanges.  Finally, basic commercial rules governing electricity exchanges need to be defined, irrespective of whether these involve bilateral cooperative contracts or electricity trade in a competitive market. 2.4.2 Areas not addressed by Regional Energy Policies Notwithstanding the importance of the areas covered in the policy frameworks shown in the Policy Coherence Table, the effectiveness of these policies in fostering regional electricity trade is being constrained by a number of issues. These issues relate to the balance of responsibilities between regional and national agencies in expanding regional electricity trade as well as the adequacy of the incentives for private sector investment in regional electricity networks. More specifically, the main issues that need to be clarified include:  Decision making authority for regional investment plans between regional planning agencies and national utilities or planning authorities;  Responsibilities for mobilizing finance, implementation, and monitoring of priority regional generation and transmission investments;  Regulatory authority and the independence of regional regulatory agencies  Incentives to encourage an increased presence of private providers- and purchasers- of electricity in regionally integrated networks. Underlying these policy concerns in the planning and regulatory frameworks is a more fundamental concern- namely, reluctance on the part of national agencies to cede authority to regional agencies for planning, regulation, and enforcement of regional grids. While there are more serious, non-policy, constraints impeding the growth of regional electricity trade as discussed in Section 4, the unwillingness to delegate clear planning, regulatory, and operational authority to regional agencies highlights some of the difficulties that still need to be overcome in promoting regional electricity integration.
  32. 32. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 29 3. STATEMENT CONCERNING THE LEVEL OF ACHIEVEMENT OF POLICY OBJECTIVES 3.1 Methodology of evaluation The main energy policies required for developing a competitive regional electricity market are summarized above in Section 2.4 (Figure 1.8 Policy Coherence Table). Collectively, they provide a framework against which to measure progress being made towards the objective of increased electricity trade in Africa’s regional economic communities (RECs). For this purpose, specific indicators of evaluation have been selected for each policy dimension. 3.1.1 Specific Policy Indicators Legal and Regulatory  Regional Legal Framework Inter-government and inter-utility MOUs signed by all member countries/utilities. Regional legislation approved by all member countries addressing access to grid, dispute resolution etc.  Regional Regulatory Framework-regulatory agency formally established and minimum staff in place; guidelines drafted and approved by member countries; independent relationship with national regulators; Systems Planning and Operation  Regional Organizational Structure-an organizational structure, with adequate staff and budget, is in place with responsibility for planning, developing, and operating regional electricity interconnections;  Regional Planning Framework- an agreed framework is in place for preparing regional investment plans, which are reviewed/approved by member countries; the implementation of national investment programs is based on the least cost regional investment plan;  Regional Systems Operation-a framework in place, with agreed set of operational rules, to harmonize technical standards between interconnected networks; a systems operator is in place and responsible for day to day electricity trade;  System Operator with Minimum Capabilities- e.g. a database to measure/monitor basic information associated with bilateral electricity trade;
  33. 33. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 30 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Commercial Framework  Regional Market Rules- key principles governing commercial electricity exchanges between two or more countries are defined and agreed; power purchase contracts are concluded between trading countries;  Dispute Resolution Mechanisms-legal framework provides a clearly defined mechanism for dispute resolution of electricity trade transactions; satisfactory resolution in practice of disputed electricity transactions;  Utility and Country Creditworthiness- national utilities are financially solvent and can enter into power purchase contracts and Government can provide political risk guarantee;  Regional Investment Climate-conducive to encourage private investment in regional generation and transmission facilities; Environmental Policy  Develop Guidelines for Thermal Plant and Transmission Line Investments- status of preparation of environmental guidelines;  Assess Staff Capacity in RECs or Power Pools –minimum staff in RECs or power pools to manage preparation of environmental guidelines for regional investments in power; 3.1.2 Policy Impact Indicators  Number of Regional Electricity Interconnections, 2000-2010-this indicator would measure the number of new transmission interconnections constructed over this 10 years period  Growth in Share of Regional Electricity Trade, 2000-2010 –this indicator would measure the growth of electricity trade over a 10 years period in each regional area. 3.2 Level of achievement by policy In analyzing the level of achievement of the different continental and regional energy policies, it is important to keep in mind the main objectives and expected outcome of these policies as stated recently by Africa’s Ministers in charge of energy in the Maputo Declaration of November 5, 2010. These objectives are to:  Promote regional and continental cooperation in the development of Africa’s energy resources;  Increase energy trade within, and between, regional areas of the continent; and,  Lower the cost of energy in order to improve access to basic energy services. Improving access to basic energy services for an increasing proportion of Africa’s 880 million people is a policy objective shared by all the RECs and has been reiterated in declarations by the AUC, NEPAD Secretariat, and the Commission of Energy Ministers for Africa (CEMA).
  34. 34. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 31 3.2.1 Level of Achievement of Continental Policy Objectives As discussed in Section 2.1, AUC’s role is to coordinate and harmonize regional energy policies across the African continent, point out discrepancies, and identify policy bottlenecks- all with a view to advancing the physical integration of the African continent in energy infrastructure. The effectiveness of the AUC’s policy coordination role is best measured by the following activities and indicators derived from the continental policy log frame in section 2:  Follow up on specific actions agreed at high level meetings of Energy Ministers on regional integration issues, especially actions related to the development of large hydro schemes that fall outside the responsibility of regional agencies;  Progress made in advancing the physical integration of Africa’s main regional areas- specifically, the increase in the number electricity and natural gas interconnections between regional areas to enable energy exchanges to take place;  Growth of electricity trade over a 10 year period (a) within specific regions; and (b) between different regions;  Progress made in developing renewable energy resources with specific emphasis on (a) large hydro schemes; (b) geothermal resources; and (c) solar-based energy. The continental policy achievement table below summarizes progress made towards three of the main policy objectives aimed at increasing the number of regional energy infrastructure links and increasing trade between countries in both electricity and natural gas. Progress made is as follows:  Large Scale Hydro Potential: Very little progress has been made since 2005 in developing the potential of Africa’s large scale hydro schemes, in particular the Inga hydro scheme. A decision was taken at the 2006 AUC meeting in Addis Ababa to establish a Coordination Commission for the development of major, integrative, hydroelectric projects. A Continental Coordination Structure was subsequently established in 2008.  Inter-Regional Electricity Infrastructure: No major inter-regional electricity connections have been constructed and, as a result, there is no inter-regional electricity trade ;  Natural Gas Infrastructure: The West Africa Gas Pipeline was commissioned in late 2009-10. The pipeline is currently transporting associated gas from Nigeria to Ghana and the gas throughput is close to capacity. Gas spur links to Benin and Togo are currently under construction. The pipeline was completed nearly 3 years behind the original schedule.  Geothermal: The development of the geothermal potential of the African Rift Valley countries (Kenya, Ethiopia, Djibouti as well as Uganda, Tanzania and Rwanda) has been constrained by (i) limited geo-scientific data and poorly organized data bases ; (ii) absence of a legal framework to help promote private sector interest in geothermal development ; and (iii) a lack of funding for exploration investment. Since 2000, only modest progress has been made in developing the geothermal potential of this region as shown in Kenya : Installed capacity: 2000- 57 MW ; 2010-167 MW Geothermal potential: 3000 MW;  Renewable resources: Solar and wind energy resources make a negligible contribution to commercial energy requirements. However, important wind and solar energy developments are underway in South Africa while major investments in concentrating solar thermal power (CSP) plants are being considered in North Africa.
  35. 35. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 32 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Table 1-9: Achievement Table of Main Continental Energy Policies 3.2.2 Level of Achievement of Regional Policy Objectives Progress made towards the stated policy objectives for each of these policies is summarized below. Legal Framework for Regional Electricity Integration In the different regions of Africa, steps have been taken, starting in the mid-1990s, to put in place a regional legal framework to govern electricity trade between adjoining countries, help in fostering an investment climate to support the expansion of regional electricity exchanges, and attract private investment. Progress made in taking these legal steps in each of Africa’s regions is as follows: 35 Powering Industrial Growth: The Challenge of Energy Security for Africa, AU Conference of Industry Ministers, September 24-27, 2007 OBJECTIVES AUC Continental Objectives STRATEGIC POLICY INITIATIVES EXPECTED RESULTS INDICATORS PROGRESS 2000-2010 1. Ensure energy security35  Develop fully Africa’s resource potential – esp. large- scale and integrating regional and continental  hydro schemes Development of hydroelectric hubs  West Africa-Niger river  Central Africa- Inga/Congo river  Southern Africa - Mozambique/Zambez i  East Africa- Ethiopia/Nile Coordination Commission for major hydro is established  Inter regional power purchase agreements signed$  Interconnection of reg. power pools 1(a) Established 2008 None None 2. Promote intra- African trade in energy  Foster regional and continental cooperation in electricity exchanges and natural gas use  Increased regional electricity and gas inter-connections in near term followed by regional inter- connections  Number of new regional interconnections in power and gas  Share of power traded in each REC Power-?; Gas-1 Varies from 0.5% to 5% in SADC in 2008 3.Promote global exports in energy  Develop Africa’s hydrocarbon resource potential, especially natural gas  Capture and distribute flared gas for export; (ii) Make WAGP Operational ;  Expedite trans- Sahara gas pipeline  Investment plan for flared gas capture;  Volume gas exported to Ghana  Feasibility study for trans-Sahara pipeline Completed Gas flowing to Ghana since mid-2010 Feasibility study completed; no further progress
  36. 36. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 33  SADC The main legislative steps were put in place in the period 1995-97: a regional power pool (SAPP) was created in 1995 and signed by member countries (IGMoU) while a framework for energy cooperation (Energy Protocol) was agreed in 1996 by member countries. In 2007, the SAPP Inter-Utility Memorandum of Understanding (IUMoU) was revised to allow membership by independent participants.  ECOWAS The main legislative steps have been put in place. The West African Power Pool (WAPP) was created in December 1999. In January 2003, the ECOWAS Energy Protocol established a unified legal (and regulatory) framework for cross-border power trading in West Africa. In July 2006, WAPP was formally inaugurated as a regional organization of public and private electric utilities.  ECCAS The basic steps towards establishing a legal framework have been taken. The Central African Power Pool (CAPP) was established in January 2003. Two legal agreements were signed by the member States in April 2003: (i) Inter-Government Framework Agreement; (ii) Inter-Utility Agreement. However, virtually no interconnections have as yet taken place in the ECCAS region.  COMESA The basic legal steps towards establishing a regional electricity market in East Africa were taken in February 2005 with the creation of the East Africa Power Pool (EAPP). Seven member countries were signatories to the original intergovernmental MOU36 while ten utilities from these countries have subsequently signed an inter-utility MOU. A more complete legal and regulatory framework is currently under preparation. Regulatory Framework for Regional Electricity Integration A regional regulatory framework is recommended for regional electricity trade. The main purpose of regional regulation is distinct from that of national regulation, where the primary emphasis is on safeguarding the consumer. In contrast, a regional regulator’s goal is to harmonize national regulatory standards between trading countries and, to the extent possible, facilitate the further development of an electricity trading market. For this reason, it is recommended that the regional regulator be independent of national regulatory agencies37 . Progress being made to put in place a regional regulatory framework in the different regions of Africa is as follows:  SADC The Regional Electricity Regulators Association of Southern Africa (RERA) was established as a formal association of member country electricity regulators in July 2002. However, it does not yet function as an independent regional regulatory body. RERA's main role is to facilitate the harmonization of regulatory policies, legislation, and practices and act as platform for effective cooperation among energy regulators within the SADC region.  ECOWAS In January 2008, ECOWAS established a regional regulator, the ECOWAS Regional Electricity Regulatory Authority (ERERA). Some countries in ECOWAS do not have national regulators while others are weak or lack the authority and capacity to regulate cross-border exchanges effectively. Consequently, ERERA has two functions: - as a regional regulator for cross-border exchanges; and - as an agency providing assistance to national regulatory entities.  ECCAS No regional regulatory framework exists.  COMESA No regional regulatory framework exists. It is currently under preparation and expected to be completed in 2011.  COMELEC No regional regulatory framework exists. 36 Potential member countries of the EAPP are Uganda, Djibouti, Eritrea and Libya, with Libya due to become a member on November 27, 2010. 37 USAID Sub-Saharan Africa’s Power Pools: A Development Framework. White Paper, May 2008
  37. 37. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies 34 SOFRECO Led Consortium : SOFRECO –MWH –NATHAN –SOFRECOM –SYSTRA –ASCON -CABIRA Planning and Operational Regional investment planning in electricity depends on (a) a regional institution- normally a regional power pool- with the institutional capacity to prepare such a plan; (b) a clear mandate from member nations for regional plans to be the main framework for national investment decisions; and (c) the authority to enforce and implement the regional investment plan. In general, the more established the regional power pool, the greater the institutional capacity to undertake regional planning. Systems operations capacity depends also on the stage of development of a regional electricity market. Progress made in each African sub-region in building up planning and operational capacity is as follows:  ADC A sound organizational framework for regional planning and operation of the interconnected system has been in place for 15 years. SADC has overall responsibility for approving regional plans. SAPP has responsibility for preparing regional investment plans as well as for operation of the interconnected system. This includes power pool operations based on short and long-term bilateral contracts between member nations as well as a smaller proportion of trading operations involving short term, ‘day-ahead’ contracts in a competitive market (which has been as high as 10% of power exchanges in this regional pool). The main weakness in regional planning is the lack of decision making authority entrusted to the regional planning entities by national power planning agencies- in practice, the national power utilities.  ECOWAS A sound organizational framework for regional electricity planning has been in place for a number of years to guide the development of the West Africa Power Pool (WAPP). WAPP has responsibility for preparing priority generation and transmission projects and securing financing for them. An initial ECOWAS Master Plan was prepared in 1999. A ‘Revised’ Master Plan for the Generation and Transmission of Electrical Power’ was approved in 2005 and has provided the foundation for regional investment programs in electric power in the ECOWAS region. Subsequently, an Emergency Power Supply Security Plan was prepared in 2008; progress reports on the status of priority investments are being prepared regularly. At present, limited electricity exchanges take place between countries since there are few interconnected national systems. The eventual goal is to integrate national power system operations into a unified regional electricity market and to develop a regional transmission system owned and operated at the regional level.  ECCAS The Central African Power Pool (CAPP) has responsibility for implementing regional energy policies and developing regional energy trade in the ECCAS region. In 2006, the first regional electricity market plan for the development of electricity infrastructure was prepared, identifying priority investments and outlining an action plan to build up the needed institutions. No system operational capacity is in place.  COMESA The East African Power Pool (EAPP) is the newest of the regional power pools and was created in 2005. It is a specialized technical institution under COMESA with responsibility for planning and developing a regional electricity market. The preparation of a regional master plan started in December 2009 and expected to be completed in 2011. The region has only limited interconnections and no system operation capacity.  COMELEC A regional power pool organization has not been formed in the North Africa region; nor have policy steps been taken to put in place a legal, regulatory, or planning framework to promote regional trade. At the same time, electricity links have been constructed across all North African countries and provide a direct link, via Morocco and Spain, for electricity exchanges with the European network. Bilateral exchange agreements also exist between adjoining North African countries though the volume of electricity trade between these countries is very small.
  38. 38. D raft Study on Programme for Infrastructure Development in Africa (PIDA) Phase 1 ENERGY Sector - Report I : Policies SOFRECO Led Consortium : SOFRECO –MWH – NATHAN – SOFRECOM – SYSTRA – ASCON - CABIRA 35 Commercial There are several commercial issues that need to be addressed to enable electricity exchanges to proceed, depending on the stage of development of the electricity market. The two most basic steps are: (a) to define the ‘market rules’ of the electricity exchange i.e. ensuring an equitable and transparent contractual framework for the different parties involved in electricity trade; agreement also needs to be reached on pricing principles, standards for metering, and mechanisms for resolving disputes. The second step is (b) ensure financial solvency, or ‘creditworthiness’, of the two trading parties, normally national electric utilities and governments for political risk guarantees.  Market Rules In the SADC region, where there is extensive experience with electricity interconnections, the ‘market rules’ governing different bilateral contracts for electricity exchange are well established. In the ECOWAS region too, the commercial framework for electricity exchanges have been defined and agreed to in different bilateral contractual agreements for electricity exchange. In the ECCAS and COMESA regions, there is very limited trade between countries and a commercial framework has yet to be defined. However, in COMESA/EAPP, high priority is being given to defining the market rules for commercial trade transactions and consultants are currently elaborating a commercial framework suitable for electricity exchanges in this region.  Utility Creditworthiness The ‘creditworthiness’ of most national electric utilities in Africa is weak, which restricts their capacity to be ‘creditworthy’ counterparts under regional investment projects. Electricity tariffs are used in most countries as a social policy instrument with dubious efficiency, as it does not ultimately benefit the poor, who do not have access to electricity. Still, it results in tariff levels below the cost of electricity supply. The negative impact of low nominal tariffs is compounded by a culture of non- payment in most countries in conjunction with large public sector accounts receivables. The low level of effective (collected) tariff is the main reasons for the weak financial position of most utilities. Issues of utility creditworthiness constrain the development of a regional electricity networks and regional power plants in all regions since governments have then to provide the power payment guarantee; these governments are, in turn, non-creditworthy or have little capacity to provide suitable guarantees. As a result, financing for regional energy projects has been limited to (a) grant financing from development and international institutions, and (b) concessional financing granted to Governments and pooled for regional projects. So far, there is no example of direct financing of regional energy projects, either in the transmission or generation sectors. Only capacity building projects have benefitted from direct grant financing at the regional level. 3.2.3 Level of Achievement of Regional Gas Integration Objectives In regard to the three main actions for gas trade development outlined in the African Union Report, “Infrastructure Development for Africa’, prepared during the 12th Ordinary Session in February 2009, progress has been as follows. Establish a Framework to capture and distribute flared gas to African countries With the support of the World Bank, EU and a number of bilateral donors, good progress has been made since 2000 in reducing the volume of flared gas in the West Africa region since 2000. The focus of the gas flaring reduction plan has been on Nigerian associated gas, which was being flared offshore. Most of the flared gas is now being captured for (a) domestic power generation in Nigeria and (b) West African Gas Pipeline.

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