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Restructuring The National Electricity Corporation and The Lessons to be Learned From The Experience of Other Countries By : Abdelmoneim Elawad (*)
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Oct 7, 2010 - 8:44:29 AM

Restructuring The National Electricity Corporation and The Lessons to be Learned From The Experience of Other Countries

By  :  Abdelmoneim Elawad (*)

 

Based on a decision taken by the Council of Ministers in July 2010 , the National Electricity Corporation (NEC) was dissolved and replaced by five new companies for generation , transmission and distribution of electricity in Sudan. Three of these companies are generators (two hydro and one thermal) and the other two are transmission and distribution companies.

The stated intention of the restructuring decision is to allow the new companies to operate on commercial and competitive basis in order to reduce costs, improve overall efficiency and help create an attractive environment for investors.

 

This decision raises many questions with regard to the timing and the possibility of achieving its declared goals under the present economic and political situation. As creating an attractive environment for investors require , among other things, opening the power generation market to the private sector for building new power plants and/or acquiring existing ones if it is economical to do so.

 

The nature of electric power systems require significant investments in major facilities such as power plants and associated grid installations which cost tens of millions of dollars i.e the financial scope of these projects is beyond the limited resources of local investors.

 

For foreign investors , although the government is doing its best to attract them by offering tax and land concessions , streamlining administrative procedures , etc … , it is unlikely that the present economic and political situation will encourage foreign investors to divert their resources to the electricity sector in Sudan. Independent Power Producers (IPPs) normally require , among other things , guarantees that their output is purchased under steady rates and amounts and that their profits can be transferred outside the country without restrictions. It will be extremely difficult , if not impossible , for the government to fulfill these requirements in the face of the continuous fluctuation in foreign currency rates and the expected decline in oil revenues.

 

Experience in many parts of the world showed that electricity market liberalization and deregulation is a failed concept. It created many problems in the developed countries  e.g U.S.A ,  EU , Japan , etc… Least among these problems are the high consumer prices , consumer dissatisfaction and degraded supply reliability resulting from companies paying more attention to maximizing profits at the expense of crucial infrastructure development.

 

The situation in developing countries is even worst.  Recent surveys indicated that many of the large developing countries have considered and rejected or reversed liberalization and restructuring of their electricity sectors.

 

In Brazil the privatization and liberalization programme was suspended after serious power shortages  which occurred in 2001 and followed by the withdrawal of multi-national companies.

 

A 2007 review of the various privatization and liberalization processes in India , Bangladesh and Sri Lanka concluded that these processes have so far failed to produce better service and cost reductions. The review concludes that public interest would better be served by abandoning the policies of privatization and liberalization and instead work on the improvement of public systems.

 

In Mexico proposals to restructure and liberalize the system were rejected as unconstitutional by the Supreme Court in 2002. Mexico actually increased the integration of the electricity system under a single state – owned utility in 2009 when it transformed responsibility for electricity distribution within Mexico city to the public sector.

China restructured its power sector in 2002 to separate generation , transmission and distribution. However , over 90% of the generation facilities and all transmission and distribution facilities remain under state control.

 In South Korea the government , after a powerful opposition to privatization from Korean unions , formed a commission to carry out detailed investigation of the results of re-organization elsewhere in the world. On the basis of its investigation  the commission recommend that privatization be abandoned , a recommendation accepted by the government in 2005.

  Argentina privatized its electrical system in the 1990s , as part of a restructuring programme agreed with the IMF and the World Bank. The country  experienced a major economic crises in 2001 which forced the government to freeze power prices to protect domestic consumers  leading to disputes with the companies over the impact on profits. There has been no further privatization or liberalization since the crisis.

In 2004 South Africa abandoned its earlier plans for restructuring and privatization of the electricity industry and retained the existing integrated state-owned electricity company. The government also decided against introducing private companies into electricity generation.

 

Apart from the above listed failed experiences of other countries and the expected negative impact of lack of foreign investments on any attempt to liberalize the electricity sector in Sudan , there are other important local factors which would make liberalization an unattainable goal. One of these factors is the lack of access to electricity for the vast majority of the population (over 75% of the population have no access to electricity). Providing access to these people is the government responsibility and can not be delegated to private distribution companies as these companies will have no incentive to provide electricity to rural areas , for instance , where it is uneconomical and unprofitable to do so.

Another factor is the consumer overstretched purchase power , due the current difficult economic situation , which will make it extremely difficult for the average consumer to afford the KWH price hikes that normally follow liberalization.

 

Based on the above it can be concluded that public interest would better be served by avoiding liberalization of the electricity sector , improving the efficiency of the newly formed companies and maintaining steady public funding for the development of the electricity supply systems to meet existing and future demand requirements.

 

 

Abdelmoneim Elawad is an Engineering consultant.

He can be reached at : [email protected]

 

 

 

 

 

 



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