‘Africa’s power is too heavily subsidised’

One of the roots of Africa’s electricity supply problem was that its power was heavily subsidised and there was no significant investment in new power plants. This meant that the supply remained largely unchanged in 20 years, delegates to a power indaba in Cape Town heard yesterday.

It was estimated that it cost about 18 US cents (R1.23) to produce one kilowatt-hour of electricity. The tariffs, however, amounted to an average of $0.14, meaning there was a significant under-recovery. This amounted to about $2 billion a year.

Admassu Tadesse, the group executive of the international division of the Development Bank of Southern Africa (DBSA), said the continent had a supply side problem. The continent produced 73 gigawatts, about the capacity of Spain. Of that, South Africa produced about half, meaning that if it was excluded from the statistic, the total fell to 35GW to 40GW.

Another problem the continent faced was that there was a rump of rather small countries with small populations and they fell below the radar of making it viable to develop power generation facilities. Tadesse said that there was “a rule of thumb” that a utility did not have economies of scale if it could not generate 200 megawatts of power. Many countries in Africa, therefore, could not afford to go it alone in establishing a power plant.

This meant that some of the smaller countries needed to find synergies with neighbouring countries, but that opened up other problems of dependency.

These included Namibia, Botswana, Swaziland, Lesotho, Rwanda and Burundi but there were about 20 African countries that could be considered too small to go it alone. There was a tendency to favour domestic security of supply even if that meant higher pricing.

Low pricing also meant that the power utilities were unable to generate revenues to invest in new capacity. Even though electricity was heavily subsidised in Africa, it was still the most costly power in the world. Africa needed to spend about $40bn on electricity power generation capacity a year. About $10bn would come from African countries while $7bn would come from achieving operating efficiencies. This left an investment deficit of $23bn.

Africa was looking to long-term money from pension funds, sovereign wealth funds and investors “with long-term appetite”. Fund managers, however, needed to be convinced that their investments were wise and safe. - Donwald Pressly