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ENERGY POVERTY IN AFRICA

Proceedings of a Workshop

held by OFID in Abuja, Nigeria

June 810, 2008


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The OPEC Fund for International Development (OFID)

Parkring 8, A-1010 Vienna, AustriaP.O. Box 995, A-1011 Vienna, Austria

Telephone: (+43-1) 515 64-0, Fax: (+43-1) 513-92-38

Internet: www.of id.org

Email: info@of id.org

Cover photo: Doug James/Shutterstock

Design: etage.cc, Vienna, Austria

Printing: Druckerei Odysseus, Himberg, Austria

The OFID Pamphlet Series was begun in 1977, a year after the establishment

of OFID. The series is meant to promote a better understanding of the aspira-

tions and problems of developing countries, including OPEC Member States.

OFID is the multilateral development finance institution established by

the Member States of OPEC in 1976 to promote South-South solidarity andstrengthen cooperation between countries of the developing world.

The opinions expressed in this pamphlet are those of the authors and should

not be construed as necessarily representing either the view of OFID or its mem-

ber countries.


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ENERGY POVERTY

IN AFRICA

Proceedings of a Workshopheld by OFID in Abuja, Nigeria

June 8 10, 2008

O F I D P A M P H L E T S E R I E S 3 9

Vienna, Austria

October 2010

O F I D P A M P H L E T S E R I E S


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4 OFID PAMPHLET SERIES 39

Unless otherwise stated dollars ($) refers to United States dollars.

Billion means a thousand million.

Maps are for illustration purposes only and are not to be taken

as accurate representations of borders.

This publication is also available in PDF formaton the OFID website at www.ofid.org


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OFID PAMPHLET SERIES 39 5

Contents

Foreword of the Director-General of OFID 13

I. Introduction and Overview 17

Akin Iwayemi

II. Energy Poverty in Africa 39

Suleiman J. Al-Herbish

III. Regional Integration of Power Systems: 49

A Tool for Reducing Energy Poverty

and Accelerating Economic Growth

Roger M. Gaillard

IV. Powering Industrial Growth: 57The Challenge of Energy Security for Africa

Pradeep Monga

V. Energy Access in Rural Areas 105

Phil U. Chineyemba

VI. Expanding Energy Access through 121

Sustainable Energy Enterprises in Africa:

Financing, Capacity-building and Policy Aspects

Lawrence Agbemabiese

VII. Africas Power Supply Crisis: Unraveling the Paradoxes 139

Waqar Haider

VIII. Why Africa Lags Behind in the Energy Sector 169

Steve Olumuyiwa

IX. Promotion of Public-Private Partnership 185

to Improve Energy Access for Poverty Reduction

and Growth in Sub-Saharan Africa

Adeola Adenikinju

X. Energy and Poverty in Sub-Saharan African Economies: 209

Supply-side Issues

Akin Iwayemi

List of Tables, Figures and Boxes 6

Acronyms and Abbreviations 238

About the authors 240


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II. Energy Poverty in Africa

Tables:

1 World energy production 42

2 Energy use per capita 42

3 Electricity production 46

4 Sectoral distribution of OFID's financing 47

Boxes:

1 OFID and the energy sector 41

2 Trade revenue and energy budgets 45

III. Regional Integration of Power Systems: A Tool for Reducing Energy

Poverty and Accelerating Economic Growth

Figures

1 Electricity consumption / population (kWh per capita) 51

2 Activities and operations of AfDB diversified across all regions

and critical sectors (in percent) 53

IV. Powering Industrial Growth: The Challenge of Energy Security for Africa

Tables:

1 World primary energy demand, 2005, 2015 and 2030 61

2 Basic energy indicators for country groups 63

3 African oil and gas reserves as of end 2005 67

4 Industrial energy intensity by country groups, 1990 and 2002 70

5 Heat shares in industrial energy use 74

6 Temperature ranges for industrial processes 75

7 African electrification rates, 2005 77

8 Electricity outages of firms in Africa 78

9 Basic patterns of energy consumption in East African

Community (EAC) Countries 78

10 Energy access targets agreed by African ministers for 2015 82

List of Tables, Figures and Boxes



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11 Investment requirements for increasing access

to modern energy services in sub-Saharan Africa 83

12 Size of African power sector 91

13 Selected African countries restructuring profile 92

Figures:

1 Relationships between energy and achievement of the MDGs 59

2 Regional energy production in Africa, 2005 65

3 African energy consumption fuel shares, 1971 and 2005 66

4 Sustainable development impacts of increased energy efficiency 69

5 African electricity intensity, energy intensity and energy production intensity 70

6 Self-generation shares in African enterprises 89

Boxes:

1 Biofuels activities in Africa 76

2 Jatropha for biodiesel production in Africa 77

3 Access to thermal energy and mechanical power for productive uses in Africa 79

4 Integrating energy access into national strategies: Mali, Rwanda, Senegal 80

5 ECOWAS/UEMOA White Paper on Energy Access 816 CEMAC Action Plan 82

7 Hydro-power construction in Africa 96

8 India-Brazil-South Africa Declaration on Clean Energy 96

V. Energy Access in Rural Areas

Figures:

1 Energy consumption in Africa in percent in 2001 106

2 The vicious circle of energy poverty 109

3 A virtuous circle to break out of energy poverty 110

4 Implementational flow of market-based models 115

5 Concession and rental approach of market-based models 115

6 Government-led model in China financial flow 116



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VI. Expanding Energy Access through Sustainable Energy

Enterprises in Africa: Financing, Capacity-building

and Policy Aspects

Boxes:

1 Vent et Eau pour la Vie (VEV) in Senegal 124

2 SODIGAZ: Butane gas distribution in Mali 124

3 Biomass Energy Tanzania Limited (BETL) 124

4 AREED Investments 200006 125

5 Amount financed by AREED and annual repayments 126

6 AREED loans and repayments in Ghana 129

7 AREED loans and repayments in Tanzania 130

8 Terms of AREED loans in Ghana 132

VII. Africas Power Supply Crisis: Unraveling the Paradoxes

Tables:

2.1 Emergency power generation in SSA 145

2.2 Private participation power-sector transactions in SSA (review basic information) 1532.3 Power-sector expenditure 157

2.4 Annualized power-sector expenditure requirements to 2015 159

Figures:

1.1 Evolution of power infrastructure in SSA relative to other regions 140

1.2 Electricity prices and consumption in Africa relative to other regions 141

2.1 Countries affected by acute power-sector crises in recent years 143

2.2 Drivers of operating costs for SSA power systems 147

2.3 Electricity costs and revenues by type of power system 149

2.4 Average power-sector revenue and various cost benchmarks 149

2.5 Electricity service coverage in SSA 150

2.6 Electricity service expenditure in SSA 151

2.7 Evaluation of power-sector reform 152

2.8 SOE governance characteristics 154

2.9 Frequency distribution of power-sector efficiency indicators 155




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2.10 Hidden costs of power-sector inefficiency 156

2.11 Long-term trends in external finance for the SSA power sector 158

Boxes:

1 Introducing the Africa Infrastructure Country Diagnostic 141

2 Regional and economic effects of South Africas power-supply crisis 144

VIII. Why Africa Lags Behind in the Energy Sector

Tables:

1 World demographic and total energy consumption indicators:

selected indicators for 2005 173

2 Selected world electrical power production statistics 174

3 Selected world energy and environment indicators 175

Figures:

1 Total primary energy supply

The world in 1973 and 2005: regional shares of total primary energy supply 170

2 1973 and 2005 regional shares of electricity generation 172

3 Location of the Inga Hydro Power Project 181

IX. Promotion of Public-Private Partnership to Improve Energy Access

for Poverty Reduction and Growth in Sub-Saharan Africa

Tables:

1 Electrification rates by region 188

2 Electrification trend in selected countries in SSA 190

3A

International initiatives to get energy to the poor 1943B African regional initiatives to get energy to the poor 196

4 Sources of resources and allocation of risks under various PPP options 200

5 Types of government guarantees 201

6 Examples of off-grid power plant technologies 203

7 Possible IPP outcomes 204



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Figures:

1 Energy access and poverty links 185

2 Electrification rate in various regions (2002) 187

3 Regional comparison of rural population access to electricity 189

4 Access to electricity for upper income households

among selected countries in SSA 189

5 Income distribution of access to electricity in selected countries in SSA 190

6 Dependence on biomass fuels 191

7 Impact of reforms on the pace of electrification of the poor 192

8 Private investment in power generation in developing countries 198

X. Energy and Poverty in Sub-Saharan African Economies:

Supply-side Issues

Tables:

1 Key socio-economic development indicators in Africa 214

2 Per capita energy and income for selected developed and African countries 216

3 Electric power consumption (kWh per capita) in African countries 1970 2001 219

4 Electric power transmission and distribution losses (percent of output)

in African countries 19702001 220

5 Energy imports (percentage of commercial energy use) in African countries

19702001 223

6 Share of fuel in merchandise imports 200004 224

7 Biomass energy consumption (percent of total energy) in African countries

for selected years 19702001 225

8 Energy resources in Africa 227

Figures:1 Africas share in world oil production 19652005 217

2 Africas share in world oil consumption 19652005 217

3 Access to electricity in selected countries in Africa 222

4 Interlocking issues in sustainable energy supply in SSA 226




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Foreword

In November 2007, in Riyadh, Kingdom of Saudi Arabia, the Heads of State

and Government of OPEC Member Countries, meeting in a Third OPEC Sum-

mit, issued aRiyadh Declaration, which, among other issues, recognized that

energy was essential for poverty eradication and sustainable development.

The Declaration pledged that Member Countries would continue to align

the programs of [their] aid institutions, including those of OFID, with the

objective of achieving sustainable development and the eradication of energy

poverty in the developing countries, and study ways and means of enhancing

this endeavor, in association with the energy industry and other financial

institutions.

This was a charge to all aid institutions of Member Countries, includ-

ing OFID, to pay greater attention to energy as a vital element in the develop-

ment process. OFID was quick to take up the assignment, moving to accord

renewed attention to energy projects and programs. In early June 2008, inkeeping with the spirit of the Riyadh Declaration, OFID organized an Energy

Workshop in Nigerias capital city of Abuja.

The Abuja Workshop certainly met our expectations. Almost all the

countries and institutions invited were able to attend. And the quality of the

papers presented was very high. Among the invited were such leading insti-

tutions and corporations as the World Bank, the African Development Bank,

the Arab Bank for Economic Development in Africa, the Chevron Corpora-

tion, ExxonMobil, International Energy Forum and the United Nations

Industrial Development Organization.

Yet others included the Islamic Development Bank, the Organization of

Arab Petroleum Exporting Countries, the Power Holding Company of Nigeria

Plc., the Saudi Fund for Development, Schlumberger Ltd., the United Nations

Environment Program, the West African Power Pool, the World Energy Coun-

cil, the OPEC Secretariat, the UK Department for International Development

and Japans International Cooperation Agency.


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Energy poverty in Africa calls for priority attention from the international

community. Indeed, the regions energy needs are huge, particularly in sub-

Saharan Africa, which has the lowest rate of electrification in the world less

than 30 percent, according to the UNDP Human Development Report

2007/2008. This rate is all the more unacceptable, when one realizes that the

estimated population of sub-Saharan Africa is 16 percent of the world total.The sub-region depends largely on inefficient traditional biomass, used

mainly for cooking and water-heating in households. Traditional biomass

accounts for over 80 percent of primary energy demand. These sources of

energy (firewood, charcoal and animal dung, for instance) burn inefficiently

and give off noxious fumes, which can cause serious respiratory disease and

even death. The surrounding environment is also degraded, through the

depletion of forest resources.

Clearly, energy poverty has diminished Africas productive capacity.

And as a continent, Africa itself has been discussing the issue. Thus, the con-

tributions of OFIDs Abuja Workshop were only additional to what Africa

itself had been undertaking and what Africas friends amongst whom OFID

counts itself need to be doing. Indeed, the primary purpose of the Abuja

Workshop was to draw government and industry and international organiza-

tions together to consider ways of adding value to what Africa, as a continent,

has itself been doing to address this problem. The workshop sought to unite

strengths and resources among participating agencies and corporations

behind Africas own committed search for energy sufficiency.Two years on (June 2010), the issue of energy poverty has moved right

up the international development agenda. Its eradication is now being widely

referred to as the Ninth Millennium Development Goal. Indeed, it was also in

June 2008 the month of the Abuja Workshop that a global Energy for the

Poor Initiative was announced at the Jeddah Energy Summit, the objective

being to help developing countries access modern energy services. A call was

made by King Abdullah of Saudi Arabia on the World Bank to organize a

donors and development institutions meeting to develop a framework for

the Initiative. In addition, the King called for OFIDs Ministerial Council to

consider a parallel program with an allocation of $1 billion. This Initiative has

grown and has drawn support from many other international institutions and

governments. OFID is participating strongly in the Initiative, which will form

the central pillar of its lending program over the period 20112013.

Abuja was a seminal event in the annals of OFID. We managed to gather

together a number of leading scientists, economists and ranking state officials


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to examine the energy equation. The following papers recall much of the

atmosphere and discussions at the Workshop. The papers are here assembled

for historical record and education. I should, one more time, express OFIDs

gratitude to the writers, the editors and all who were involved in the Work-

shop. A special note of appreciation also goes to the Federal Nigerian govern-

ment and, indeed, the nation of Nigeria, for years of unbroken support to thisinstitution. At Abuja, I conveyed OFIDs gratitude to Nigeria for Nigerias con-

tinuing contributions to the institution. Nigeria was there at the very begin-

ning, and has remained a Member State in good standing. We certainly look

forward to many more years of Nigeria playing a key role in OFID.

Suleiman J. Al-Herbish

Director-General


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IIntroduction and OverviewAkin Iwayemi

Africa is well endowed with renewable and non-renewable energy resources

that far exceed its energy demand requirements for the next century. But para-

doxically, most African countries are characterized by energy poverty and poor

energy access, a reflection of their low income and general state of economic

underdevelopment. Identification of the challenges of the paradox of energy

poverty amidst plenty in most African countries, and their effective and effi-

cient solution, have been a subject of recent debate. The dearth of analysis of

Africas energy problems reflects the minimal attention given to the issue by

energy experts despite the central role of energy in economic growth, rising

employment opportunities, improved living standards, poverty alleviation, and

the overall development process.

Historically, expanded energy access, propelled by relatively inexpensive

energy supply, played a major role in the large gains in productivity and rapid

economic growth and significant reduction in poverty witnessed in the worldeconomy in the last century. It is conventional wisdom that increased use of

modern energy services per capita is an integral part of higher and sustained

economic growth and significant improvement in living standards in low

income developing countries. Arguably, expanded access to adequate, reliable,

efficient, secure, environmentally responsive and affordable energy is a key

element in Africas quest to achieve sustained economic growth. Other vital

elements are significant poverty reduction, substantial improvement in living

standards and achievement of the Millennium Development Goals (MDGs).

The context for realizing the central goal of achieving expanded energy

access and minimizing energy poverty, which will translate to substantially

higher and more efficient per capita energy consumption in the shortest time

possible, is defined by the following stylized facts:

Africa is well endowed with energy resources, including oil and

gas, yet most African countries are energy-poor and have low

energy access;


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Significant energy demand-supply gaps exist, the most acute

being in electric power;

Domestic energy prices are high compared to most other devel-

oping countries;

Contrasting demand and supply paths in the region reflect

diverse initial economic and social conditions and energy

resource endowment;

Supply-demand balances reveal significant differences at sub-

regional and country levels;

Capacity utilization is low, resulting in significant dependence

on expensive imports of petroleum products and unreliable and

poor quality of electricity supply;

Poor regional and intra-regional energy infrastructure linkageshave exacerbated the cost of domestic supplies especially in

landlocked countries;

The problem of access is more pronounced in rural areas of Africa

where the majority of the population lives. The problem of

energy and income poverty is also more acute in the rural areas;

The relatively weak state of economic and social conditions in

most economies in the region, which is the worlds poorest, fol-

lows almost two decades of poor economic performance and

deepening poverty.

Furthermore, global energy market developments and the countervail-

ing policies of major energy importing and exporting countries have brought

the era of inexpensive energy to an end. These external developments have

made the challenges facing expanded energy access and the elimination of

energy poverty in Africa more overwhelming. Arguably, the sharp increase in

world energy market prices since 1999 has made Africas drive to achieve

affordable and expanded access to energy and sustainable development, asembodied in the MDGs more challenging. For example, higher prices have

pushed access to refined petroleum products beyond the reach of hundreds of

millions of low-income households, especially in rural areas. This and other

developments associated with structural adjustment and related economic

reform measures have reversed the meager improvement in living standards

and economic well-being in the post-adjustment period. With low income and

higher fuel prices, the result has been increased recourse to biomass fuels with


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Itheir obvious environmental consequences. There is general agreement thatthe adverse effects of higher world energy prices on domestic energy supply,

access, economic growth and sustainable development, have been more severe

in Africa than elsewhere. Poor access to modern energy services constitutes a

major constraint on the exploitation of economic opportunities, sustained eco-

nomic growth and the achievement of higher living standards in the continent.Against the foregoing factors, several questions demand inquiry in the

search for a solution to the problem of achieving expanded access to affordable

energy and the elimination of energy poverty. Among the questions are: What

do we know and what have we learnt about the trends and characteristics of

energy supply and demand in African countries? What are the main character-

istics of energy poverty? What are the causal factors in Africas energy poverty?

What are the conditions and requirements for achieving the much-desired

objectives of expanded energy supply and access, as well as the elimination of

energy poverty? How can supply capacity be increased in the context of sustain-

able energy and human development future? What are the economic, political,

social, legal, technical, human resource and environmental challenges to a reli-

able, adequate and affordable energy supply to meet the continents energy

needs for economic growth and sustainable development? What are the energy

security issues in the region and how should they be addressed? What are the

cost implications of the required wide energy access and the elimination of

energy poverty and insecurity? What are the policy and institutional require-

ments for overcoming the regions protracted energy and income poverty and

for the establishment of an efficient, reliable and sustainable energy supply?

In sum, can Africa achieve the vast expansion in supply of modern energy

services, the expanded energy access of the population in both urban and

rural areas and the elimination of energy poverty that could drive its sustain-

able energy future plan given the multi-dimensional challenges described

above? At the regional level, the energy demand-supply balance situation pro-

vides some room for optimism given that substantially higher energy con-

sumption can be met through regional supplies with ample surplus for

export, considering the regions total energy resource endowment. Despitethis seemingly optimistic outlook, the country and sub-regional realities

reveal multi-dimensional issues and challenges confronting expanded energy

access and the elimination of energy poverty. These challenges, which have

both short and long-term dimensions, encompass economic, political, social,

technological, institutional, legal and organizational facets. The consensus

is that much will depend on the design and implementation of appropriate

policy strategies. These will involve among others: the deepening of current


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economic, social and political reforms; the alignment of economic and energy

development policies at the country and sub-regional and regional levels;

intensified integration efforts to create dynamic inter and intra-regional mar-

kets for goods, including energy, underpinned by openness that minimizes

transaction costs in domestic, sub-regional and regional energy markets;

defined roles for key actors in the region such as: the African Union (AU); theUnited Nations Development Program (UNDP); the African Development

Bank (AfDB) and other Development Financial Institutions (DFIs), such as the

the OPEC Fund for International Development (OFID); the World Bank; the

European Union (EU) and other development stakeholders. Perhaps the most

important factor is long-term credible regional and sub-regional political com-

mitment to a sustainable energy vision anchored on the emergence of efficient

energy markets. Finally, what is required is a paradigm shift in energy sector

development and management from rigid public ownership and control, to a

more market responsive private enterprise-led sector guided by an appropriateinstitutional and legal framework.

The prime challenge of the first half of the 21st century for Africa is the

development and efficient management of the continents energy wealth.

This would serve as a strong anchor for achieving sustainable economic free-

dom and livelihoods in an environment currently defined by energy poverty,

energy-induced environmental degradation, low living standards, large-scale

unemployment and social conflicts, albeit diminishing in number and scale.

However, the alternatives are few, considering the current development

divide that Africa has to bridge. The nature and content of the responses to

the policy challenges will largely shape the energy and economic future of

sub-Saharan Africa (SSA).

This book of proceedings, which is based on the papers presented at the

workshop organized by OFID in Abuja in June 2008, is an important contribu-

tion to the much-neglected issue of energy poverty in Africa. The workshop

provided a unique forum for diverse stakeholders involved in energy sector

activities and the development process to illuminate several of the issues and

questions raised above. The participants, who came from a broad range ofbackgrounds including policy making, academic, professional, and energy and

development practitioners from domestic and international organizations,

offered important perspectives on the subject. These include energy poverty,

energy access and the design and implementation of policies that will ensure

a sustained and wider access of the population to modern energy services.

In illuminating the contours of the complex issues associated with Africas

multi-dimensional energy crises, this book of proceedings will not only help to


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Ideepen our understanding of Africas energy issues and challenges, but also pro-vide useful policy insights and a framework for achieving sustainable energy

development that will facilitate the achievement of the MDGs.

The common theme that runs through this book and the workshop is

the identification of, and solutions to, the twin problems of energy poverty

and expanded access to modern energy services in Africa. The book consistsof 10 chapters that follow the structure of the workshop sessions, namely:

Introduction and Overview (Chapter 1); Energy Poverty in Africa (Chapter 2);

Regional Integration of Power Systems: A Tool for Reducing Energy Poverty

and Accelerating Economic Growth (Chapter 3); Powering Industrial Growth:

The Challenge of Energy Security for Africa (Chapter 4); Energy Access in

Rural Areas (Chapter 5); Expanding Energy Access through Sustainable

Energy Enterprises in Africa: Financing, Capacity-building and Policy Aspects

(Chapter 6); Africas Power Supply Crisis: Unraveling the Paradoxes (Chapter

7); Why Africa Lags Behind in the Energy Sector (Chapter 8); Promotion of

Public-Private Partnership to Improve Energy Access for Poverty Reduction

and Growth in Sub-Saharan Africa (Chapter 9); Energy and Poverty in Sub-

Saharan African Economies: Supply-Side Issues (Chapter 10). They reflect

the variety of issues and insights that emerged from the workshop. The dis-

cussions cover key issues, challenges and constraints to the elimination of

energy poverty and expanded energy access in both urban and rural areas.

Also covered are solutions based on the sustainable exploitation and utiliza-

tion of the regions abundant, though unequally distributed, renewable and

non-renewable energy resources.

The conclusions that emerge from this book can be summarized as

follows: First, energy development must be integrated into sustainable devel-

opment in which a sustained improvement in the general well-being of the

people and the enlargement of their economic and social choices are key ele-

ments. Second, sustainable energy and economic future in Africa must be

based on the design and implementation of appropriate and harmonized

regional and national energy and economic policies. These should be backed

up by adequate financial, technical and other support from the InternationalFinancial Institutions (IFIs) and the development community. Third is the

strengthening of energy institutional infrastructure, governance and account-

ability to support the development and management of a robust energy sec-

tor. Fourth is the creation and sustenance of an incentive-based competitive

market system underpinned by market-responsive energy pricing that guaran-

tees an adequate risk-adjusted rate of return for investors, but that also mini-

mizes deadweight loss associated with market monopoly power. Fifth is the


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establishment of a well-targeted support system (of which smart subsidies

would be an element) to help the energy poor in both urban and rural areas.

Sixth, there must be due cognizance of the need for technical and capacity

building requirement to support the drive for expanded supply and access to

cleaner energy. Finally, there is a need to foster a strategic Public-Private Part-

nership (PPP) to drive a new energy paradigm that encompasses the efficientuse of both renewable and non-renewable energy sources that will minimize

carbon emissions and climate change. What emerges forcefully from the work-

shop and this book is the need for a paradigm shift in the development and

management of Africas energy sector backed up by policy continuity and cred-

ibility in the sectors reform process. In conclusion, most fundamental to the

effectiveness of a solution to the energy poverty and expanded access problems

is translating the ideas in this book to practice propelled by good governance

and political accountability.

In Chapter 1, Introduction and Overview, Iwayemi provides a concise sum-

mary of each of the chapters, with focus on the key issues, challenges, oppor-

tunities and policy matters concerning the two fundamental problems of

expanded energy access and energy poverty at the continental, sub-regional

and country level in SSA. In this overview, the author highlights the key recom-

mendations of the different chapters concerning how to overcome the twin

problems of rural and urban energy access and poverty reduction.

Chapter 2, Energy Poverty in Africa, is authored by OFID Director-General,

Suleiman J. Al-Herbish. He sets the tone of the debate by taking an overview of

Africas energy dilemma. He provides evidence to support the point that Africa

is the most energy poor and has poor energy access compared to other regions

of the world. The effect of low energy use and access is the regions diminished

productive capacity and lackluster economic performance. In addition, he

points out the overdependence of the region on inefficient traditional biomass

to meet its primary energy needs, which are mainly for domestic cooking and

water heating. He argues that the great challenge facing SSA economies is how

to achieve the first objective of the MDGs, namely, to reduce by half the pro-

portion of people living on less than a dollar a day and also to slash by half the

proportion of people who suffer from hunger.

Al-Herbish further notes that the present crises in the energy sector

have hindered SSA countries from achieving higher economic growth and liv-

ing standards. He discusses OFIDs intervention in the energy sector, which

comes in four forms, namely, direct project funding; technical assistance in

support of international and national institutions; funding the activities of


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Imultinational agencies; and research grants for specific studies and investiga-tions and the operation of an energy account.

Al-Herbish argues for a re-ordering of priorities that would give energy

poverty and expanded energy access higher priority if Africa is to achieve robust

economic growth and sustainable development. He considers the challenges of

financing energy schemes given the quantum of investment required to find

long-term solutions to energy poverty and limited energy access, against the

background of inadequate domestic and regional investment constraints. The

author proposes greater reliance on private investments, micro-financing, other

innovative financing schemes and Foreign Direct Investment (FDI), in light of

the poor funding of public energy sector projects. He also discusses the role gov-

ernments should play in supporting sustainable energy poverty solutions by

providing the enabling environment for efficient market development. Al-Herbish

further notes that the recent experience of countries that pursued credible

reform of the energy sector shows that market incentives and business innova-

tion can provide new pathways for solving the seemingly intractable energy

problems in the region. Other measures include: the need to maximize entre-

preneurship, transfer skills and build human capacity as well as encourage PPPs.

The challenge here is to make clear policies and other measures that would

increase the funding of energy sector projects. He also acknowledges the need

to integrate energy policies into broader development strategies in African

countries, while at the same time encouraging regional integration.

Al-Herbish goes on to discuss the important issue of supply and end-useefficiency. The challenges of meeting energy requirements of rural areas are also

discussed. He then proposes further studies and investigation that would

address the great challenge of how to supply electricity to the rural areas of

Africa, given their peculiar characteristics such as low population density,

remoteness from urban centers, limited income and the low ability of the

majority of rural dwellers to pay economic prices, at least in the short term. The

author suggests that to guarantee the sustainability of rural energy projects,

these should be packaged as viable enterprises capable of attracting private-

sector intervention. Al-Herbish said OFID expects the workshop to assist in theformulation of a research and investigation agenda related to the various issues

that were identified. Finally, he suggests that energy poverty issues should be

incorporated into national planning processes.

In Chapter 3, Regional Integration of Power Systems, Gaillard argues for

a regional approach to solving Africas protracted electricity crisis, based on

the evidence that despite the continents abundant energy resources, many


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countries are energy poor. This is because the energy markets, due to their small

size, would not be sufficiently profitable to support the electrification of these

countries. He therefore emphasizes the need for the energy-poor African coun-

tries to pursue a regionally-based, rather than an individual country-based

approach. He says, individually, the countries are unable to attract adequate

investment for the development of their energy sectors. The author notes thatelectric interconnections are well established in most of the industrialized

countries, adding that such interconnections have produced more competitive,

affordable and reliable energy services to end users. He observes that Africa is

the least interconnected region in the world in terms of electricity. Therefore,

he continues, such electric interconnections are a sine qua non for better balanc-

ing of energy supply and demand among countries with different energy

resource endowment. Gaillard posits that regional and sub-regional energy

integration would facilitate the establishment of more efficient and reliable

energy supply to meet demand. He also advocates sub-regional and regionally-based interventions to eliminate the regions electricity crisis integration

through construction of power generation plants and transmission lines. He

says this would allow for the development of a transnational electricity market

with the aim of reducing energy poverty and facilitating the conditions for

better availability, accessibility and affordability of modern energy. Against this

background, he notes the numerous efforts of Regional Economic Communi-

ties (RECs) and IFIs to support and encourage the establishment and operation

of sub-regional and regional electric power pools. Other supported areas are the

joint development of hydro-power projects as well as cross-border transmission

lines and gas pipelines. He then describes the AfDBs interventions, which focus

on exporting electricity to neighboring countries. The aim, he says, is to exploit

energy resources where they are in abundance and make the electricity gener-

ated from such resources available to energy-deficient countries through

energy trade. He argues that such an approach would ensure much-desired suf-

ficiency and greater reliability of electricity supply. These, he adds, are essential

to achieving the objectives of greater country, sub-regional and regional eco-

nomic competitiveness, higher economic growth and the alleviation of energy

and income poverty.

Although the authors focus is the electricity sector, he recognizes that

the regions energy problem goes beyond that area. Rather, it encompasses

the best energy source for all needs biomass, kerosene and other renewable

energy sources. He also discusses AfDBs involvement in related activities such

as rural electrification, and the promotion of renewable and clean energy.

Others are development of small power plants and off-grid power systems, and


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Iin the energy sector at large, participation in projects in the oil and gas indus-try and in cogeneration schemes from biomass. Gaillard concludes that, with-

out addressing the issue of energy poverty, sub-Saharan economies will find it

difficult to achieve the MDGs in 2015. Also, they will find it hard to improve the

quality of life of the majority of their population, which is projected to double

by 2030. He emphasizes the role of regional and IFIs in providing significantresources. This is in addition to being a catalyst in regional energy integration

projects to change the energy map of the continent. The author points out the

importance of statistics and information in dealing with the challenges of

Africas energy sector.

In Chapter 4, entitled Powering Industrial Growth: the Challenge of

Energy Security for Africa, Monga examines the problems of energy poverty

and lack of access to modern energy services from the perspective of industrial

development and energy security. Energy poverty is viewed as a dimension ofenergy insecurity and a serious constraint to economic and human develop-

ment. The author begins his analysis by looking at Africas energy deprivation

and lack of energy access in comparative global, regional and sub-regional

terms. The evidence shows significant gaps between Africa and the rest of the

world, as well as sharp contrasts between rural and urban areas and at sub-

regional levels. He argues that energy security, which has supply and demand

dimensions, must be viewed from both the quantity and price perspectives.

Using less energy to provide energy services and having access to energy and

technologies that provide these energy services are two principles that under-pin energy security. He stresses that these principles should be of interest to

Africa. Monga acknowledges that energy security, which has both internal

and external dimensions, is a complex topic with linkages to numerous other

sustainable development objectives. He said there is a strong nexus between

energy production/use and human development, despite the lack of energy-

specific MDGs. Therefore, energy security issues must be integrated into energy

policies alongside other development and environmental goals.

In the context of Africa, the issues of access and the affordability of energyservices assume special significance in addressing the challenges of climate

change and facilitating achievement of the MDGs. Also, aspects of African energy

security include the diversification of energy supply and demand; the develop-

ment of energy infrastructure, with attention to its resilience; and the promo-

tion of clean and affordable energy sources and technologies. Other factors are

decentralization of energy production through development of local energy

resources and systems; energy trade and regional integration; and energy/power


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sector reform and price volatility. In addition, (carbon) financing and technol-

ogy transfer also play an important role in improving African energy security.

The author observes that energy efficiency is a notable constraint to

African industrial development. A substantial improvement in the efficient

consumption of energy, especially electricity, by the manufacturing and serv-

ice sectors, is necessary to improve the productivity and competitiveness of

African industry. Therefore, any overall strategy to improve their competitive-

ness must have as a primary objective, an improved economic development, for

which a reliable and cost-effective energy supply is a prerequisite. Africas high

energy-intensity, even at low levels of industrialization, points to an inefficient

energy use. An important element of any energy security policy in Africa is,

therefore, tapping the potential of cost-effective energy efficiency improve-

ments in the continents industrial sector. He points out that numerous stud-

ies have shown the potential for improving energy efficiency along the indus-

trial conversion value chain.

The author also discusses the role that biofuels can play in the provision

of reliable and adequate energy supply in Africa. Since biofuels can, under cer-

tain conditions, reduce dependence on imported fossil fuels and increase

energy security as well as mitigate climate change, he notes that many coun-

tries in the region are working towards attracting investment for large-scale

biofuel production. Biofuel production results in job creation in the rural

areas. Thus, he suggests that production and trade in biofuels can meet Africas

objectives of energy security, employment generation and poverty reduction.Though he recognizes the potential of second and third generation biofuels to

increase fuel availability, he also admits to their potential to adversely impact

food production or sustainability. The author cites the example of the United

Nations Industrial Development Organization (UNIDO) in promoting indus-

trial conversion technologies of biofuels, with specific focus on bio-residues

and non-edible crops likeJatropha, as evidence of viable biofuels as an energy

source in Africa.

Monga also notes the emerging use of renewable energy sources, for ruralelectrification and industrial applications in energy-intensive small and

medium-scale enterprises, as an increasingly attractive option in many parts

of Africa. He suggests that linking rural energy with productive uses can cre-

ate employment opportunities, raise income levels and improve quality of life

in rural areas. At the same time, the linkage can contribute to the protection

of the environment and the improvement of energy security. The author notes

a number of renewable energy initiatives that are taking place in Africa. These


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Iare aimed at the integration of renewable energy generation into national gridservices and the creation of mini-grids. He argues that much would depend on

the ability and absorptive capacity of each country or sub-region to harness

the true potential of renewable sources of energy. The development and trans-

fer of modern energy technologies are linked to local capacity building in the

areas of design, manufacture, assembly, and the operation and maintenanceof energy equipment and structures. He further notes that financing is the key

issue in overcoming barriers relating to the scaling up of renewable energy to

improve access and markets for energy-efficient technologies. In addition,

regional energy cooperation is important to rationalize the geographical dis-

tribution of energy resources. Regional integration of energy supply systems

will boost energy access and security. Also, power pools and energy trading will

increase the security of supply by allowing neighboring systems to provide

backup facilities.

In conclusion, Monga argues that, since energy poverty is a serious

impediment to economic development, a transition to modern fuels and effi-

cient technologies can help break the vicious circle of energy deprivation and

under-development. The transition to sustainable energy economies at

national and regional level in Africa needs to be supported by conducive and

effective public policies. These should promote regionally efficient practices,

energy efficiency and renewable energy-based interventions for enhancing

intra/inter-regional cooperation in Africa. Strengthening common energy

markets and harmonizing policies so as to power industrial growth and meet

energy security challenges are essential to sustainable industrial development

in Africa.

In Chapter 5, Energy Access in Rural Areas, Chineyemba discusses the chal-

lenges of providing adequate and modern energy services to rural communities,

where efforts are aimed at improving the standard of living through increased

potential for income and employment generation. He reasons that relatively

low income level in rural areas makes the provision of modern energy services

unaffordable to most communities. The resulting heavy reliance on traditional

energy sources means a low level of energy efficiency; heavy deforestation and

a loss of biodiversity; greater health hazards due to indoor air pollution; and

reduced capacity to mitigate climate change.

The author notes the vicious circle of energy and income poverty,

adding that the income poor are also energy poor. He stresses the ability and

willingness of rural people to make the transition from traditional to modern

energy sources. However, he points out, this may be contingent upon their


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financial resources, as their prospects of achieving higher income levels are, in

turn, often constrained by the extent to which such a transition is achieved.

Furthermore, pricing for rural energy services poses a dilemma, because high

prices for energy services may not be affordable for the majority of rural

dwellers. On the one hand, the energy poor may not have the means to buy

improved but higher priced energy services, even if they have access to them.On the other, pricing below cost of service may make it difficult to elicit the

necessary investment from private investors. Also, even when the improved

energy supplies are affordable, the energy poor may not be able to afford the

conversion technology which makes that energy useful (for example, a

stove, radio, light bulb or motor). Chineyemba argues that increased access to

cash income becomes crucial. This is because improved energy services at the

household level frequently require switching to an energy technology that

involves higher initial fixed capital cost. Even where improvement in lighting

results in cash savings, because the new source replaces more costly but less

effective supplies (such as batteries and candles), there is frequently a net

increase in money expenditures because people make more use of the

improved energy services. He recommends that the immediate priority in deal-

ing with rural energy poverty is to provide a minimum amount of energy to

meet peoples basic needs, irrespective of their ability to bear the costs of sup-

ply and delivery. He emphasizes that the cycle of energy and income poverty

will be broken only by combining improved energy services with end uses that

generate cash incomes. This will result in a virtuous circle of higher energyaccess and increasing productivity, extending the range of outputs or improv-

ing output quality.

The author notes that, when planning pro-poor energy interventions,

it is important to consider the strategy of using the energy to secure cash

incomes at an early stage of the development process. Subsequently, it would

be necessary to see how the impact of improved energy services can be

extended to other aspects of sustainable livelihoods. He considers approaches

for increasing energy services in rural areas to include government and market-

based, private sector-led. He points out the limited evidence on increasing

energy services in a sustainable fashion to rural areas using a market-based

model, due to the distributed service and limited profit on investment in this

area. He then suggests the use of the concession approach. The concession to

provide the energy services as a regulated monopoly in certain areas and over

a certain number of years is given to the most qualified bidder who will oper-

ate in a controlled free-market environment. In developing countries, the


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Itask of ensuring adequate energy supplies is increasingly being left to theprivate sector. Therefore, private investments will be crucial in sustainable

energy supply to rural inhabitants. Accordingly, the role of appropriate insti-

tutional infrastructure development to support effective private sector partic-

ipation cannot be overemphasized. In conclusion, Chineyemba states that

rural development, specifically rural energy, needs to be given much higherpriority by policy makers. Furthermore, rural energy development must be

decentralized to put rural dwellers themselves at the heart of planning and

implementation. Also, rural energy development must be integrated with

other aspects of rural development. Meeting Africas energy challenges will

require a radical scaling-up of access. However, this will be contingent on an

improved enabling environment, an effective policy and regulatory frame-

work, enhanced management capacity and financially healthy energy utilities.

In Chapter 6, Expanding Energy Access through Sustainable EnergyEnterprises in Africa: Financing, Capacity-building and Policy Aspects,

Agbemabiese looks at energy poverty and access from the perspective of sus-

tainable energy enterprises. The case study for his analysis is the innovative

energy enterprise program, the African Rural Energy Enterprise Development

(AREED) program. The main goal of AREED is the promotion of energy-effi-

cient and renewable energy sources including solar, biomass, wind, hydro and

biofuels in peri-urban and rural communities through Small and Medium-

sized Enterprises (SMEs). The author examines the achievements, constraints

and challenges of AREED as a prototype for the development of viable energy

SMEs in Africa. According to Agbemabiese, the achievements of AREED

include an ingenious plan of loan provision, capacity building in bankable

business plan development, analysis of market conditions and identification

of efficient energy systems for SMEs. He cites wind pumping in Senegal,

Liquefied Petroleum Gas (LPG) distribution in Mali and biomass energy in

Tanzania, as examples of AREEDs successful project interventions. The pro-

gram is said to have yielded significant environmental benefits in terms of

annual savings of tons of carbon dioxide emissions and avoidable use ofbiomass. The author notes that despite these achievements and prospects,

energy SMEs in Africa face several constraints and challenges including: the

lack of relevant policies and an institutional framework to provide sufficient

leverage for SMEs to tap into new energy business; the absence of capacity

building in energy system development and commercialization; a limited rural

energy market; the inherently high initial cost of renewables and energy

efficient products; and poor access to clean energy financing.


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The author concludes that AREED has great potential to contribute to overall

national development priorities, by facilitating wider access to energy

services for under-served communities. He identifies the critical success

factors to support the development of energy SMEs geared to clean energy

systems in Africa. First is for national governments to establish the relevant

policies and institutional framework for energy SMEs and translate them intoimplementation strategies and budgetary support. In this regard, the govern-

ments should also improve the policy environment of the private sector to

foster stronger links with public-sector decision-makers and make conscious

political commitment to widen national energy access, particularly for peri-

urban and rural communities. Second is building human and institutional

capacity in energy systems management. The author suggests that govern-

ments should create a positive business environment for SMEs to function as

the engine of growth for job and wealth creation in Africa, noting that vari-

ous institutions have been created for this purpose. Governments shouldrestructure SME-support institutions by recruiting appropriate experts to

their boards. Governments should also provide logistical support to enable

the institutions to build the capacities of SMEs and offer the needed techni-

cal and expert support. Third is the development of functional clean energy

markets, particularly in rural areas. This can be done through explicit policy

incentives and procedures to guide and stimulate clean energy equipment

development.

Agbemabiese notes that packaging energy service delivery projects with

income-generating possibilities is essential in improving the financial viabil-

ity of energy SMEs. Furthermore, he points out that government agencies and

organizations mandated to manage various energy-related funds should

explore innovative interventions. The aim here is to reduce the costs of renew-

able and energy-efficient technologies through more investment in product

and market development. To address the lack of understanding of the finan-

cial systems and processes by potential investors, he suggests that energy min-

istries, departments and agencies should work closely with private-sector

actors to furnish potential investors with evidence-based data. These willhighlight the costs and benefits of investments in clean energy technologies,

as well as raise awareness, increase acceptance and reduce the perception of

risks in this segment of the energy sector. To reduce high capital cost and

investor risk, national governments should also institute investment incen-

tives. These can be capital grants or third-party finance arrangements, where

the governments assume the risks or provide low-interest loans.


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IIn Chapter 7, Africas Power Supply Crisis: Unraveling the Paradoxes,Haider notes that SSA faces major energy infrastructure challenges, with the

most severe being the electric power sector. Presenting the preliminary findings

from a World Bank Africa Infrastructure Country Diagnostic Study, the author

provides an incisive analysis of the paradoxes of the SSA electric power sector.

He identifies the four paradoxes as: abundant energy but little power; highprices but even higher costs; widespread but ineffective reform; and high expen-

diture, yet inadequate financing. He begins his discussion by highlighting the

poor electric energy statistics in Africa in comparative terms, as evident in the

lowest global electrification rates, access and consumption per capita. Haider

notes that the grossly inadequate generating capacity, illustrated by about one-

fourth of generating capacity not being in operational condition, has exacer-

bated the crisis in the electricity sub-sector. Furthermore, he states that electric-

ity tariffs in some SSA countries have been kept low administratively so that

prices fail to cover costs. Yet, he emphasizes, the average tariff in SSA is about

double those in other parts of the developing world and almost as high as in

countries of the Organization for Economic Co-operation and Development

(OECD). He points out that inadequate and unreliable supply largely explains

the comparatively high cost of supply to end users in SSA.

The author says African manufacturing enterprises report regular and

significant power outages and low-quality electricity supply, adding that this

reduces revenues by 5-6 percent. He notes that in the informal sector, where

firms rarely have the capital for backstop generation, lost revenues from poweroutages can be as high as 20 percent. Deficient power infrastructure dampens

economic growth and weakens competitiveness by having a detrimental effect

on productivity. The author refers to another study, which shows that in most

SSA countries, infrastructure accounts for 30-60 percent of the adverse impact

on a firms productivity. This is well ahead of factors like red tape and corrup-

tion. Moreover, in half the countries analyzed, power accounted for 40-80 per-

cent of the infrastructure effect. He also cites yet another study which demon-

strates that if the quantity and quality of power infrastructure in all SSA coun-

tries were improved to that of a better performer (Mauritius), long-term per

capita growth rates would be higher by as much as 2 percent. Thus, the ineffi-

ciency of SSA utilities generates substantial hidden costs. He suggests that in

many SSA countries, hidden costs can be as high as 2 percent of Gross Domes-

tic Product (GDP).

Haider further points out that Africas overstretched electricity systems

have become exceedingly vulnerable to supply shocks, resulting in widespread


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outages and load-shedding. Economic growth in the past decade has raised

demand for electricity. However, the stagnation in generation, transmission

and drought-induced reduction in power supply in hydro-dependent countries,

has made prolonged blackouts commonplace. Countries whose power infra-

structure has been damaged by conflict have also suffered severe shortages.

Also, high petroleum prices have created enormous cost pressures in countriesthat depend on imported oil products for electricity generation.

The author identifies and discusses how the four electric power paradoxes

can be eliminated. First, and most important, is the need for significant

improvement in the governance of national power utility. This is because of the

widespread nature of poor governance practices in most energy utilities in

African countries. Furthermore, it is evident in two-thirds of SSA utilities report-

ing losses of more than double and revenue collection less than half of what is

obtained in well-run utilities globally.

However, he said the policy choices that best address electric power para-

doxes are not clear-cut. The traditional model that predominates in the SSA

power sector vertically-integrated, state-owned monopolist utilities has

yielded disappointing results. Yet, reforms to increase efficiency and boost com-

petition through private participation have in many cases failed to deliver the

expected results. For example, unbundling is limited, the failure of transactions

and projects is frequent, and additional investment has been minimal.

The author notes that the lesson that emerges from study is that success

in tackling the challenges is not a simple function of the model adopted. The

power sector in Africa needs to move to a mixed economy, characterized by a

range of structures, regulations, and technologies adapted to the country con-

text. Successful interventions will tackle several problems simultaneously to put

the sector on a positive trajectory of improved sector and utility management,

financial viability, new investment, and better customer service. It means rec-

ognizing that the power sector has quasi-monopolistic characteristics. This is

particularly so in grid-based distribution and to a lesser extent in transmission.

Also, incumbent utilities will continue to be the largest players in the sector forthe foreseeable future. But interventions need to be innovative and ambitious.

They have to recognize that meeting customer needs means multiple providers,

financial viability and new forms of external financial assistance. There may be

certain preconditions like appropriate regulatory frameworks for PPPs,

reformed tariff frameworks and sufficient security of investment for investors.

In that case, sector reforms can do much to facilitate the entry of strategic pri-

vate partners.


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IHaider concludes by proposing as a starting point, sustained and concertedaction on three strategic priorities: (i) regional scaling-up of generation capac-

ity, (ii) improving the effectiveness and governance of utilities, and (iii)

expanding access through sector-wide engagement. He says the three are

interdependent and must be tackled together. These actions should be com-

plemented by important short-term measures, including demand-side man-agement. Examples include the introduction of energy efficient light bulbs

and loss reduction programs such as enhanced bill collection and initiatives

to tackle electricity theft.

In Chapter 8, Why Africa Lags Behind in the Energy Sector, Olumuyiwa

discusses the reasons why the continent lags behind in the energy sector and

the difficulties faced by its governments in this regard. He also identifies the

adverse consequences of allowing this situation to continue and the corrective

efforts required to deal with the problem. He identifies the factors that explainwhy Africa falls behind in electrical energy production. These are: the poor

economic status of African States, especially SSA; poor governance or unstable

governments and wars; and regional and domestic, social and ethnic conflicts.

He makes a number of proposals to improve upon the poor electricity supply

conditions in the region. These include safety and stability issues. He empha-

sizes that without regional peace and stability, there can be no meaningful

development. He points out that peace and political stability are prerequisites

for the creation of an enabling environment for infrastructural development

in the region. He points out that physical security is of even greater importancefor integration projects, adding that power lines and pipelines are vulnerable

to damage. The author cites an example where ethnic militias disrupted gas

flow meant for the West Africa Gas Pipeline (WAGP). He says the success of

interconnected power lines across the continent is totally dependent on the

safety of the transmission systems. He notes that peace is not simply the

absence of war and that signing peace treaties does not necessarily end wars.

This is because years of civil re-adjustment may be required before sustainable

peace can prevail.

Olumuyiwa discusses the potentials of the Inga Dam hydroelectric

scheme in the Democratic Republic of the Congo with its continent-wise elec-

tricity supply. Conflict resolution initiatives should be prioritized by African

heads of government in cooperation with the AU. Such collaboration should be

strengthened towards ending the many wars and conflicts on the African con-

tinent. He observes that Africa suffers too much from abandoned projects syn-

drome, where regime changes almost always result in the reversal or delay of


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programs and projects of previous governments. The consequences, he argues,

are unreasonable delays, with a costly escalation of project costs, or outright

abandonment. Connected to this is the institutionalized corruption that trails

government projects in African countries. Therefore, the fight against corrup-

tion has to be taken seriously if Africa is to experience the needed growth in

energy infrastructural development and production. Africa needs visionary andresponsible leadership to drive these needed paradigm shifts in the way we run

nation states in the continent. Although many governments have embraced

privatization of the power sector in principle, the author points out that they

show some foot-dragging and lack of the political resolve to fully embrace the

program. The reality, however, is that most African governments cannot come

up with the required massive capital investment, both local and foreign. How-

ever, private capital and involvement, foreign governmental and institutional

donors and lending agencies need to be appropriately coordinated. This is to

insure that the eventual electrical power will be reasonably priced to make the

project profitable and power affordable for the customer.

In Chapter 9, Promotion of Public-Private Partnership to Improve

Energy Access for Poverty Reduction and Growth in Sub-Saharan Africa,

Adenikinju touches on various aspects of the subject. He says between now

and 2015 and beyond, substantial investment will be required to make mod-

ern energy services accessible to the vast majority of people in the poorest and

most isolated communities in the rural and peri-urban areas of SSA. The sub-

region receives only a small share of global private investment in infrastruc-

ture due to its low credit worthiness. He defines most African countries by

their shallow domestic financial markets, the high-risk profiles of energy

infrastructure, limited resource availability due to weak domestic economic

conditions and volatile commodity markets. The author suggests greater use

of PPP to bring about the inflow of investment capital essential for the elim-

ination of the prevailing weak energy access and energy poverty. He consid-

ers PPP as one of the most innovative options for mobilizing the domestic and

foreign capital required for energy infrastructure development to support

widespread and expanding energy access. He says expanded energy access

should be seen holistically, beyond electricity provision to the poor. He also

makes the point that electricity is not always the most appropriate form of

energy, nor is it the quickest or the most cost-effective way of providing

energy services to the poor. Providing clean, modern energy services to poor

communities will require expanding the choice of energy options, including

conventional and non-conventional sources.


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IAdenikinju discusses five PPP options available to African countries, namely:technical assistance, management contracts, lease contracts, concession con-

tracts and outright sale of public infrastructure assets to the private sector

while retaining regulatory control. He observes that the option or combina-

tion of options adopted by a country would depend on local economic, social,

legal and political factors. The author argues that the determination of anappropriate framework for the allocation of risk between the government and

the private sector is one of the key issues in PPP. Usually, the government

assumes non-commercial risk, while the private sector bears the commercial

risk. He shows the different ways resources and the allocation of risk are char-

acterized under the various PPP options.

Adenikinju discusses the benefits of PPP as a viable approach to

addressing the energy infrastructure shortages in African countries. These

include: opportunity for the private sector to complement and even replaceavailable public energy infrastructure capital, which, by its nature is not an

attractive option to the private sector, due to the large capital requirements

and long gestation periods; and better allocation of risk between the govern-

ment and the private sector: efficient private provision of energy services

through the discipline that the market imposes on the private sector in the

provision of such services.

The author notes that the private sector under the PPP arrangement

often requires different types of guarantee from the government. This is to

enable them to commit resources to the provision of infrastructure services.

In the case of the electricity sector, this is sometimes contained in the Power

Purchase Agreement (PPA). He points out that governments need to develop

the capacity to evaluate proposals from the private sector and determine the

appropriate guarantee to extend to particular projects. He goes on to identify

barriers to the successful implementation of PPP, including appropriate pric-

ing for the services provided under the Partnership. He also recognizes the

critical success factors in PPP. These include the incentive structure under

which the Partnership will operate; the establishment of an appropriate legal

and regulatory framework; as well as a path of credible and sustained eco-

nomic and political reforms. These incentives are meant to reduce country

risk and other investment risks that constrain foreign capital inflow to the

energy sector. Generally, to successfully attract foreign investment for the

development of PPP on a sustainable basis, the outcome of Partnership proj-

ects must be positive for the investors and the country. Adenikinju further

contends that investors must enjoy a reasonable return on their investment.


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However, for the country, the cost that the government has to bear must not

be excessive. Experiences of PPP development in developing countries show

that not all projects result in this desirable win-win situation. In fact, he iden-

tifies the possibility of cases characterized by a lose-lose situation for both the

country and the investor. To guarantee the sustainability of the PPP model,

he concludes that political leaders must exercise the necessary political willto put in place legislative and regulatory policies that would insure the suc-

cess of the Partnership.

In Chapter 10, Energy and Poverty in Sub-Saharan African Economies:

Supply-side Issues, Iwayemi observes that despite the role of energy poverty

and poor energy access as causal factors in low income and energy consump-

tion per capita among other human development indicators observed in the

region Africas energy problems have not been given much thought. He fur-

ther states that SSA remains one of the regions whose energy problems havebeen grossly under-researched. In addressing this research gap, the author pro-

vides a brief review of the energy and economic context of the problem, fol-

lowed by discussion of some of the key issues, challenges and constraints to

expanded supply in the regions quest for sustainable exploitation and utiliza-

tion of its energy resources and economic development. The author then raises

the fundamental question of whether Africa can achieve the twin objectives of

expanded energy supply and access, as well as the elimination of energy

poverty. These are key elements in the continents sustainable energy and devel-

opment future. He answers in the affirmative and goes on to discuss the eco-

nomic, financial, technical and manpower challenges to a reliable and adequate

energy supply to meet Africas energy needs for economic growth and develop-

ment. Furthermore, he discusses the policy and institutional requirements for

overcoming persistent energy and income poverty and for the establishment of

efficient and sustainable energy supply. He highlights the key supply-side issues

in the design and implementation of coherent policy reforms and programs for

a viable energy industry. Iwayemi argues that situating Africas non-renewable

and renewable energy exploitation in the context of a sustainable energy future

and the MDG goals is particularly important. This should lead to a better and

more precise appreciation of the challenges that confront policy makers, sector

operators and other stakeholders. Finally, he discusses an action plan for achiev-

ing expanded energy supply. He notes that the degree of success of the strate-

gies adopted will determine the extent to which Africa will share in the gains

from increasing material prosperity associated with globalization, and more

importantly, achieve the MDGs.


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IThe author suggests that a dramatic scaling-up of investment in energy infra-structure capacity is required in the next three decades. The financing require-

ment will be huge by regional standards. Besides, the capital requirement must

be situated within the context of global capital market competitiveness and

industry risk. He states that while the investment scale is daunting, it is not

insurmountable, provided the appropriate institutional framework, policy con-sistency, incentive structure and security of investment exist. He notes that a

public-private sector mix has become more attractive in recent years. This may

be particularly pertinent in the development of pro-poor and environmentally

clean, renewable energy resources, such as solar, wind, wave and other clean

energy forms. In conclusion, Iwayemi suggests that Africa can eliminate the

sub-standard state of modern energy services and ensure the supply of the large

investment required to support sustainable energy development. Such capital

underpins the objective for significant reduction in poverty, contingent on sev-

eral conditions. These include: a strengthening of the institutions and gover-nance in the energy sector; creation and sustenance of an incentive-based com-

petitive market system, strengthened by market responsive energy pricing that

guarantees an adequate risk-adjusted rate of return; establishment of a well-

targeted support system to reinforce the drive for an expanded supply of clean

energy, based on renewable energy resources; and a strategic PPP to drive a new

energy paradigm that is anchored on adequate, reliable and affordable energy

that will minimize carbon emission and climate change.


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Introduction

Recent macroeconomic data indicates that sub-Saharan Africa (SSA) economies

are undergoing rapid expansion, with a real Gross Domestic Product (GDP)

growth rate of 6.5 percent in 2007. The improving terms of trade, as exempli-

fied by the solid global demand for commodities, greater inflows of capital and

the debt relief schemes are some of the salient factors contributing to the high

growth rates.

However, the great challenge facing SSA economies is how to reduce

poverty by half, by the year 2015, in line with the first objective of the Millen-

nium Development Goals (MDGs). Specifically, the targets are to reduce by half

the proportion of people living on less than a dollar a day and also cut by one-half the percentage of people suffering from hunger.

These goals call for GDP growth rates that are even higher than the current

achievement. The implication is for higher levels of domestic investment and pro-

ductivity of the economy in order to attain this goal. Thus, real GDP growth rates

should be 7 percent or more per annum. Yet the productivity and overall perform-

ance of SSA economies is being hampered by the state of the energy sector. Lack

of energy services or poor access to this resource, are some of the factors militat-

ing against SSA economies ability to realize their higher potentials.

Measures to overcome this problem have engaged and are continually

attracting the attention of governments, the international lending agencies,

non-governmental organizations and the various stakeholders. The OPEC Fund

for International Development (OFID) organized this workshop to further

deepen the discussions. The main purposes are to elucidate the issues and find

appropriate answers that will keep SSA on a much more robust growth path

towards achieving the key targets of the MDGs.

IIEnergy Poverty in AfricaSuleiman J. Al-Herbish


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Energy resources

Africas landmass of 30.3 million km is endowed with rich natural resources

including fossil and renewable energy. Yet most of these resources are yet to be

exploited. It has been estimated that Africas energy resource endowments with

respect to the world totals are in the following order of magnitude:

Oil 9.5 percent

Coal 5.6 percent

Natural Gas 8.0 percent

The sustainable development of these energy assets will ensure that

national resources are managed to meet the needs of the present and succeed-

ing generations. However, large foreign investments are required to develop

these resources.

Current situation

Energy supply is given as a target indicator for achieving the seventh objective

of the MDGs, which is to ensure environmental sustainability. Africa is energy

poor, a situation that has diminished the continents productive capacity. SSA

in particular depends largely on inefficient traditional biomass used mainly for

cooking and heating water in households. Traditional biomass accounts for

over 80 percent of primary energy demands. These sources of energy for exam-

ple, firewood and charcoal burn inefficiently, thereby giving rise to energy

loss. The surrounding environment is also degraded, through the depletion of

forest resources. Pollutants (carbon monoxide, benzene, nitrogen oxides, etc.),

which are also health-damaging substances, are emitted when these forms of

energy sources are used indoors. Also, deaths from indoor air pollution, arising

from the burning of biomass fuels, are substantial.

Table 1 shows that SSA has the lowest measure of energy production,

accounting for only 6.4 percent of world energy output. Total SSA production

in metric tons of oil equivalent was 715.4 million, compared to 4,450 million

for high-income countires, 5,604 million for middle-income countries and

6,767.1 million for low and middleincome countries combined. This perform-

ance is all the more unacceptable, when it is realized that the estimated popu-

lation of SSA is 16 percent of the worlds total.

In Africa, energy use per capita is very low, compared to other regions of

the world. Table 2 indicates an energy usage per capita of about eight times for

high-income countries, compared to the usage level of SSA. The figures for

low/middle-income and middle-income countries are 2 and 1, respectively.


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Also, on average, per capita annual growth rate of energy use was static

during 19902004 for SSA, compared to about 1 percent for the high income

and 0.2 percent each for the other regions of the world. Energy supply, as atarget indicator, should be given a higher priority for Africa to achieve robust

economic growth and produce enough goods and services, all of which are

necessary for the attainment of sustainable development. Therefore, a re-

ordering of priorities addresses the energy poverty issue. There is the need for

further investigation, to enable African countries, characterized by energy

poverty, to overcome the problem of access to energy services, as a basis for

creating sustainable development.

OFID intervention in the energy sector takes four forms, namely: direct project funding;

technical assistance in support of international and national institutions; funding the activi-

ties of multinational agencies; and, research grants for specific studies and investigations and

the operation of an Energy Account. It is expected that these forms of assistance will con-

tinue in the near to longer-term.

As at December 31, 2006, over one-fifth of all OFID-approved funding was for energy

sector projects. Cumulative approvals, as at December 31, 2006, for the energy sector was

$1.1 billion, out of a total of $5.4 billion, for all sectors. Energy projects in Africa accounted

for 6.8 percent of the total. The bulk of OFID financing was in the Asia Region with

11.8 percent of the overall lending, while the Latin American and Caribbean countries

accounted for the balance of 1.5 percent of the total.

Over the years, OFID has approved funds by way of technical assistance, to co-finance

the activities of multilateral, bilateral and other international agencies. Notable examples

include the establishment of the Solar Energy Regional Centre in Mali under the auspicesof the West African Economic Community.

OFID has established the United Nations Development Program (UNDP) Energy

Account and has also funded activities under the United Nations Financing System for Sci-

ence and Technology (UNFSTD). Notable activities funded under the UNDP Account include

the Djibouti Geothermal Exploration Project, the Monitoring of Biomass Gasifier Project in

Africa and the funding of Energy Audit schemes in Ethiopia, Tanzania and Uganda. Under

UNFSTD, OFID has expended funds for the development of Solar Energy and Biogas Pro-

duction in the Kingdom of Lesotho.

The OFID approved grants for research and similar activities include funds for the World

Petroleum Congress, the Oxford Energy Seminar, the United Nations Conference on Trade

and Development and the Organization of the Petroleum Exporting Countries (OPEC) Sec-

retariat. Others are the First and Second Workshop on Energy and Development, as well as

the financing of a Seminar on New and Renewable Sources of Energy. OFID has also funded

the study on Energy Taxation and Economic Growth and the Vanishing Greenhouse Effect.

OFID and the energy sector Box 1


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Challeng

africa energy

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