Market Influence on the Energy Sector

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Although power sector reforms in Africa have been prevalent, the original intent for the policy reforms and restructuring were not achieved. Evidently, state-owned electricity utility companies have encouraged investment inputs from foreign investors through Independent Power Production, but the standard reform results of a fully unbundled power division with privatized companies competing in the electricity distribution business. What the ‘pragma’ shows in most case, is a dominant state owned enterprise with other Independent Power Producers (IPPs) have been introduced into the market on edge. (Gartwick and Eberhard, 2008). The challenge of attracting new investors to such hybrids markets poses a new problem for the government.

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A Diagnostic Country (AIDC) has indicated that the capacity of power generation is insufficient to meet electricity demand in most Sub-Saharan African countries. The total installed Power generation capacity of the entire continent is about equal to that of a single European Country, Spain (Eberhard and Foster et al. , 2009). Previously, the local state-owned utility company assumed the full task of generation, transmission and distribution, as well as expansion planning. They tended to build more conservatively in order to mitigate against un-foreseen circumstances as a form of redundancy check because they were run by engineers. Costs of operations quickly ran high as financial difficulties came, and electricity bills insufficient to provide for new required investments. In recent times, most electricity utility companies are facing the issue of under-investment as they don’t have the financial capital required to free themselves. Pressures have increased for reforms to encourage integration of IPPs in new private investments to complement the efforts of already existing utilities in power generation, distribution and grid network expansion. It remains uncertain in these markets who’s jurisdiction it falls under to respond to demand for more power, expansion plans (if still important).

There occurs confusion between the utility and government on what roles to assume in the electrical network system. With the integration of IPPs into the system, we need to take into consideration a number of other legal and financial issues. The connections between planning and private investments would be of priority to the operations of the utilities as well as the government. This is sufficient proof that unsettled testing with IPPs will not lead to continuous investment from the private sector. It can be noted though that all countries who have unbundled generation, transmission and distribution have established independent regulators. Taking Kenya as a typical case, it’s regulator in conjunction with the acceptance of ICB practice has been able to reduce its PPA charges. There was a similar situation in Senegal who’s prime (GTi Dakar) IPP was not overseen by an Independent regulator in contrast to its subsequent (Kounoune I) which was supervised with a more experienced Senelac which saw benefits combined with the latter project.

The Energy Regulation Commission of Kenya has also been helpfully involved in setting the price of energy billing and linking itself between both the public and private sector in the industry. Transparency of process which was instrumental in reducing bureaucracy from inception of the project could be observed by the sponsors in Uganda. Staff of the Uganda Electricity Regulatory Authority (ERA) affirmed that the presence of ERA assisted in converging minds on the conditions for setting up power supply projects so that investors coming in are clear of what is expected of them from inception and hence orientate themselves and bids to those conditions. In retrospect, more private investors were seen bidding to set up IPP projects. (ERA, per com, 2010).

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