Power Sector Reform and Investment Comparing Uganda with Kenya and Tanzania

Transcription

1 Power Sector Reform and Investment Comparing Uganda with Kenya and Tanzania Prof Anton Eberhard Management Program in Infrastructure Reform and Regulation University of Cape Town

2 Drivers for utility reform in developing countries Inefficiencies in investment and operations soft budgets, poor governance, regulatory failure, no competition, few incentives for cost reduction deterioration or collapse of services Financing for capacity expansion public resources insufficient -> private Part of overall economic restructuring macro-economic constraints or crises state re-defines relationship to SOE s Technological innovation Changing economies of scale and scope New possibilities for competition Sector reform as a fad? international role models

3 Emergence of the standard model of reform Vertically-integrated, publicly-owned monopoly Commercialisation and corporatisation Independent regulation Unbundling to separate potentially competitive elements from non-competitive elements Private sector participation Introduction of competition IPPs for the market or wholesale competition in the market eventually customer choice and retail competition

4 MODEL 1: NATURAL MONOPOLY Utilities are vertically integrated Generation, transmission and distribution are not subject to competition No-one has choice of supplier MODEL 2: SINGLE BUYER Single buyer chooses from various generators (IPPs) Access to transmission xxx not permitted for sales to final customers Single buyer has monopoly over transmission networks and over sales to final customer MODEL 3: WHOLESALE COMPETITION Distribution companies buy direct from generator (IPPs) Distribution companies have monopoly over final customers Open access to transmission wires Generators compete to supply power Power pool established to facilitate x MODEL 4: RETAIL COMPETITION All customers have choice of supplier Open access to T & D wires Distribution is separate from retail activity Retail industry is competitive Generation (G) IPP IPP G G G G G G Transmission (T) Single buyer G & T Power pool exchange T Power pool exchange T Distribution (D) D D D D D Customer (C) C Large customers (LC) Franchise customers (FC) LC C C

5 Progress in power reform in Africa About 30 African counties have established independent electricity regulators Some countries have unbundled their state-owned utilities e.g. Kenya (KenGEn & KPLC) e.g. Nigeria (Gencos, TCN, Discos) e.g. Ghana (VRA, GRIDco, ECG) e.g. Uganda (UEGCL, UETCL, UEDCL) Most countries have enacted laws permitting private sector participation, but progress is mixed Private concessions and management contracts e.g. Uganda, Cameroon, Cote d Ivoire, Mali, Gabon concessions E.g. Namibia, Lesotho, Rwanda, Tanzania, Kenya, Nigeria management contracts Frameworks for small RE IPPs e.g. Tanzania, REFITs, etc About 50 IPPs across Africa e.g. Kenya (5 + 3 more), Uganda (first large IPP hydro + a number of smaller IPPs), Tanzania, Ghana, Cote d Ivoire, Senegal, Nigeria, Togo, South Africa (renewables), etc

6 Progress in Africa s two largest economies South Africa After slow start, a successful renewable energy IPP programme Rounds 1 & 2 = 47 projects totaling 2450 MW Wind prices drop 20% and solar PV 40% Round 3 in progress plus more Procurement of gas, coal & hydro IPPs planned Nigeria Sale of 5 out of 6 Gencos; sale of NIPPs planned Concessioning of 10 out of 11 Discos 25 % payment made; 75% expected by September 2013 TCN management contract Bulk trader Transitional electricity market being designed

7 Power market structures in E. Africa Eskom UEGCL G IPPs G IPPs G IPPs UETCL UEDCL T D KenGen KPLC T D Tanesco T D Umeme Uganda Kenya Tanzania Private State-owned

8 IPP performance differs Kenya has best record in attracting IPPs Dynamic planning system Timely initiation of international competitive tenders Capacity to effectively procure and contract built in KPLC Tanzania has worst record Poor planning Unsolicited bids rater than ICBs Series of corruptions scandals in new power deals Kenya s IPPs much cheaper and reliable than Tanzania

9 Uganda IPPs MW Bujagali 250 Jacobsen, Namanve 50 Electro-Maxx, Tororo 20 Mpanga Hydro 18 TronderPower, Bugoye 13 Kasese Cobalt, Mubuku III 9.5 Kilembe Mines 5 EcoPower, Ishasha 6.5 Kakira Sugar 12 Kinyara Sugar (captive) 5 Kabalega 9

10 Uganda GETFit Aims to fast-track portfolio of <20MW grid connected renewable energy projects by offering a premium to feed-in tariff Feed-in Tariff GETFiT Premium Small hydro >10MW Bagasse Payments front-loaded in 1 st 5 years Standardised PPA and IAs Possible WB PRGs Facilitated Tx interconnection Number of RfP windows 8 projects approved to date totaling Euros 48m & 73MW

11 Improving generation expansion planning, procurement & contracting Allocate responsibility and build capacity for generation expansion planning Develop clear criteria for allocating new build opportunities between the incumbent SOE and IPPs? Allocate responsibility & initiate timely competitive bids for IPPs Develop procedures for evaluating unsolicited bids Develop capacity for contract negotiations with new IPPs Avoid potential conflicts of interest when SOEs are the Single-Buyer

12 Understand IPP risks Lenders EPC Contractor Shareholders EPC Contract Loan Agreement Shareholders agreement Fuel suppliers FSA IPP Project Company Power Off-taker Power Purchase Agreement O&M Contractor O&M Contract Environmental Authorities Regulator Government Permit License Government Concession Source: Clive Ferreira - Fieldstone Modified from Clive Ferreira, Fieldstone

13 Key IPP contracts Implementation Agreement ( IA ) (Typically granting land or rights); Power purchase agreement ( PPA ); Fuel supply agreement ( FSA ); Operation and maintenance agreement ( O&M ); Engineering Procurement Contract ( EPC ); License; Permits; Financing agreements; Inter-creditor agreements; and Insurance agreements Guarantees? A lawyers dream: a developers nightmare! Source: Clive Ferreira - Fieldstone Source: Clive Ferreira, Fieldstone

14 Traditional risk management (1 of 5) Tender and bid process Risk Non-competitive, nontransparent tender and award process Corruption Mitigation Open bidding to foster competition Transparent notification of procurement intention and tender process, including timetable Comprehensive information and documentation packages for bidding and negotiation, pre-bid conferences Information on avoided costs Pre-qualification, bid-securities set at appropriate level Objective evaluation criteria with independent scrutiny Source: Clive Ferreira, Fieldstone

15 Traditional risk management (2 of 5) Construction Risk Late completion Reduced output Inefficient (high heat rate) Environmental compliance Mitigation Turnkey, lump sum, date certain contract Liquidated damages for performance failure Operational Fuel Supply Low availability High operating cost Reliable fuel supply to specification Adequate resources for life of project (PPA) Fixed fee contract with performance bonuses Operational guidelines and penalties/termination for performance failure Proven reserves Alternative supply obligation Liquidated damages for delivery failure Cost pass through Source: based on Clive Ferreira Fieldstone. Source: Clive Ferreira, Fieldstone

16 Traditional risk management (3 of 5) Revenue Creditworthiness of Power Purchaser Poor billing and collection Demand for electricity Non-dispatch Currency convertibility and transferability Devaluation of local currency Inflation Risk Change in fuel prices Mitigation Accounting and financial information available on power purchaser Long term power purchase agreements Sovereign guarantees Front-loading of tariffs Escrow accounts Dollar denominated contracts Indexation of key costs Local currency financing (established financial markets) The odour of over-pricing can set back IPPs for years! Source: based partly on Clive Ferreira Fieldstone and Woodhouse, E Source: Clive Ferreira, Fieldstone

17 Traditional risk management (4 of 5) Regulatory Risk Arbitrary changes to rules, and/or addition of new rules Misapplication of rules Too much regulatory discretion in price reviews Additional cost risks (associated with performance and environmental standards, accounting rules, taxation) Mitigation Change of law exemption Clarity of regulatory framework and approval processes Regulatory discretion limited Regulatory capacity built Political risk insurance Partial risk guarantee Appeal process and dispute settlement facilities Political interference risk: government intervenes in regulatory process

18 Traditional risk management (5 of 5) Legal and political Risk Lack of clarity in investment, taxation and contract law Lack of clarity in energy policy and restructuring Movement to merchant market No recourse to courts Change of law Cancellation of contracts Mitigation Enforceable legislative framework for foreign investment / taxation / property rights / contract law Published energy policy backed by legislation and reform steps with clear IPP framework and level-playing field with incumbent Change of law exemption Multi-lateral partners / finance Equity turn-over / local partners Renegotiation or exit options, linked across issues Political risk insurance Partial risk guarantee Off-shore arbitration Force Majeure for unforeseen circumstances, usually insurable Strikes and labour disputes usually contentious issue Parties to receive payments from power purchaser under Force Majeure

19 Contributing elements to IPP success Country level Favourable investment climate Clear policy and legal framework Coherent power sector planning Transparent and credible regulatory oversight Competitive bidding practices

20 Contributing elements to success Project level Committed equity partners Favourable debt arrangements Secure and adequate revenue stream Credit worthiness of off-taker PPA Appropriate security & credit enhancement measures Secure, competitive fuel contracts Positive technical performance Ongoing strategic and risk management

21 Non-OECD investments are unlocking projects Some Chinese examples Uganda: Karuma & Isimba Hydros Zambia: Kariba North Bank Hydro Zambia: Kafue Gorge Lower Hydro Ghana: Bui Hydro Ghana: Sun Asogli gas-fired power plant Ethiopia: Genale Dawa & other hydro etc Need for a better understanding of how these deals are structured, risk assessed, procurement undertaken and finance arranged and how they might be replicated?

22 DfiD s role in facilitating more investment in power Strengthen enabling environment for investment Clear policy and legal framework Coherent power sector planning PPIAF Transparent and credible regulatory oversight TAF Competitive bidding practices Support to governments in structuring transactions (DevCo) Early stage project development (InfraCo Africa) Mobilisation of domestic capital markets (DevCo) Long-term debt & mezzanine finance (EAIF) Specific support for renewables (GETFiT, GAP)

23 The Management Programme in Infrastructure Reform & Regulation (MIR) is an emerging centre of excellence and expertise in Africa. It is committed to enhancing knowledge and capacity to manage the reform and regulation of the electricity, gas, telecommunications, water and transport industries in support of sustainable development. Prof Anton Eberhard Research, training courses, consultancy University of Cape Town