KEY ISSUES IN THE ENERGY SECTOR KEY ISSUES IN THE ENERGY SECTOR IN AFRICA AND PLANNED ACTIONS TO IN AFRICA AND PLANNED ACTIONS TO

IMPROVE ENERGY SECURITYIMPROVE ENERGY SECURITY

PRESENTED BY HON. DAUDI MIGEREKO, MPPRESENTED BY HON. DAUDI MIGEREKO, MP MINISTER OF ENERGY & MINERAL DEVELOPMENTMINISTER OF ENERGY & MINERAL DEVELOPMENT

THE REPUBLIC OF UGANDA THE REPUBLIC OF UGANDA & &

CHAIRPERSON FORUM OF ENERGY MINISTERS OF AFRICACHAIRPERSON FORUM OF ENERGY MINISTERS OF AFRICA

MEETING OF INFRASTRUCTURE CONSORTIUM FOR AFRICA MEETING OF INFRASTRUCTURE CONSORTIUM FOR AFRICA AND ENERGY MINISTERS OF AFRICAAND ENERGY MINISTERS OF AFRICA

ADDIS ABABA, ETHIOPIA ADDIS ABABA, ETHIOPIA June 20, 2006 June 20, 2006

CONTENTCONTENT IntroductionIntroduction

Key Issues Behind the Current Key Issues Behind the Current Electricity Shortage in AfricaElectricity Shortage in Africa

Way ForwardWay Forward• Short Term Measures Short Term Measures • Medium to Long Term MeasuresMedium to Long Term Measures• Suggested Actions by FEMASuggested Actions by FEMA

INTRODUCTIONINTRODUCTION

The Energy Ministers of Africa The Energy Ministers of Africa welcome the formation of the welcome the formation of the Infrastructure Consortium for Africa Infrastructure Consortium for Africa and are glad to note that the and are glad to note that the Consortium found it fitting to Consortium found it fitting to organise this side event to discuss organise this side event to discuss this important subject of Energy this important subject of Energy Security in Africa.Security in Africa.

Energy Ministers from Africa, confronted Energy Ministers from Africa, confronted with the challenges of insecurity of with the challenges of insecurity of energy supply and the need to scale up energy supply and the need to scale up energy access so that the Millennium energy access so that the Millennium Development Goals (MDGs) can be Development Goals (MDGs) can be met, decided to form a Ministers’ forum met, decided to form a Ministers’ forum called the Forum of Energy Ministers of called the Forum of Energy Ministers of Africa (FEMA). Africa (FEMA).

The Forum provides a platform for political The Forum provides a platform for political leadership and policy direction in the leadership and policy direction in the energy sector; for collaboration and the energy sector; for collaboration and the exchange of experiences; and for exchange of experiences; and for advocacy in the provision, access, use advocacy in the provision, access, use and management of energy resources for and management of energy resources for sustainable social and economic sustainable social and economic development.development.

KEY ISSUES BEHIND THE CURRENT KEY ISSUES BEHIND THE CURRENT ELECTRICITY SHORTAGE IN AFRICAELECTRICITY SHORTAGE IN AFRICA

The African Continent is currently facing The African Continent is currently facing a critical shortage of electricity supply. a critical shortage of electricity supply. This has been brought about by a This has been brought about by a number factors which include the number factors which include the following:following:

Decline in investment in Energy Decline in investment in Energy InfrastructureInfrastructure

There has been a decline or lack of There has been a decline or lack of investment in electric power generation, investment in electric power generation, transmission and distribution infrastructure in transmission and distribution infrastructure in the region. the region.

Energy investments from ODA to Africa have Energy investments from ODA to Africa have been on the decline in the last 10 – 15 years been on the decline in the last 10 – 15 years from US$1.4 billion per annum to as low as from US$1.4 billion per annum to as low as US$ 100 million per annum.US$ 100 million per annum.

The low and declining public expenditure in The low and declining public expenditure in infrastructure for selected African countries is infrastructure for selected African countries is shown on next slide. shown on next slide.

While public expenditure in other sectors was increasing for While public expenditure in other sectors was increasing for infrastructure it has been decreasing see belowinfrastructure it has been decreasing see below

Public expenditure in AFR (11 country sample) % of GDP

1.6%

4.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

80-85 86-90 91-95 96-01

Infrastructure

Health

Education

Sum

Direct foreign investments (DFIs), which Direct foreign investments (DFIs), which had been anticipated to flow into the had been anticipated to flow into the reformed power sectors did not reformed power sectors did not materialize to anticipated levels. materialize to anticipated levels.

Although several African countries Although several African countries reformed their power sectors, it has been reformed their power sectors, it has been established that foreign investment (both established that foreign investment (both debt and equity) in the power sector is debt and equity) in the power sector is strongly influenced by external factors like strongly influenced by external factors like appetite of offshore capital markets, appetite of offshore capital markets, environmental lobby groups and world environmental lobby groups and world politics.politics.

Electricity supply situation has been Electricity supply situation has been exacerbated by climatic conditionsexacerbated by climatic conditions

Taking the East African region as an example, the Taking the East African region as an example, the prolonged drought which has persisted since prolonged drought which has persisted since 2003 has had a heavy toll on the electricity 2003 has had a heavy toll on the electricity supply in Uganda, Tanzania, Kenya and Rwanda. supply in Uganda, Tanzania, Kenya and Rwanda.

To mitigate the problem, these countries have To mitigate the problem, these countries have resorted to installing expensive thermal resorted to installing expensive thermal generation capacity to replace the lost generation capacity to replace the lost hydropower supply. hydropower supply.

This involves huge expenditure in foreign This involves huge expenditure in foreign exchange, wear and tear of the roads and exchange, wear and tear of the roads and increased environmental pollution.increased environmental pollution.

Rise of Oil Prices on International Rise of Oil Prices on International MarketMarket

The oil prices on the international The oil prices on the international market are steadily rising with market are steadily rising with serious consequences for land serious consequences for land locked countries. This has had a locked countries. This has had a negative impact on the economies negative impact on the economies of African countries, especially of African countries, especially those which import all their those which import all their petroleum products.petroleum products.

Lack of Regional Power supply Lack of Regional Power supply infrastructureinfrastructure

Until recently, most African Until recently, most African countries have been developing countries have been developing power supply for domestic power supply for domestic consumption only. This makes consumption only. This makes these projects unattractive for these projects unattractive for financing. Consequently, even the financing. Consequently, even the regional power supply regional power supply infrastructure remains largely infrastructure remains largely undeveloped.undeveloped.

WAY FORWARDWAY FORWARDIn order to address the above In order to address the above constraints, we need to take measures constraints, we need to take measures on the continent which are both short on the continent which are both short term as well as medium to Long term:term as well as medium to Long term:

Short Term MeasuresShort Term Measures

i)i) In the short term, efforts have to be In the short term, efforts have to be made to reduce the losses in the power made to reduce the losses in the power distribution networks and also to distribution networks and also to institute energy efficiency measures to institute energy efficiency measures to reduce power wastage. reduce power wastage.

• To overcome the barriers of disseminating To overcome the barriers of disseminating energy efficiency technologies, energy efficiency technologies, Governments have to put in place Governments have to put in place appropriate incentives which will make appropriate incentives which will make energy efficient technologies more energy efficient technologies more affordable and accessible.affordable and accessible.

ii)ii) The other short term measure is the The other short term measure is the development of locally available renewable development of locally available renewable energy resources which provide least cost energy resources which provide least cost solutions for meeting electricity supply needs.solutions for meeting electricity supply needs.

• These renewable energy resources could play a key These renewable energy resources could play a key role in meeting energy supply for rural communities. role in meeting energy supply for rural communities.

• As in the case of energy efficiency measures, As in the case of energy efficiency measures, appropriate incentives have to be put in place to appropriate incentives have to be put in place to facilitate the development of renewable energy facilitate the development of renewable energy resources. resources.

• These resources include among others, solar power, These resources include among others, solar power, modern biomass, wind and hydropower. modern biomass, wind and hydropower.

iii) National Governments should prioritise iii) National Governments should prioritise energy in their poverty eradication strategy energy in their poverty eradication strategy papers so as to attract financing. For many papers so as to attract financing. For many countries on the continent, energy has not countries on the continent, energy has not been among the top priorities yet it is a key been among the top priorities yet it is a key input to poverty eradication.input to poverty eradication.

iv) Domestic resource mobilization and iv) Domestic resource mobilization and development of financial instruments to development of financial instruments to facilitate investment in the energy sector facilitate investment in the energy sector should be mainstreamed by African should be mainstreamed by African Governments. This should make it easy for Governments. This should make it easy for the Consortium to come up with innovative the Consortium to come up with innovative products for the energy sector.products for the energy sector.

Medium to Long TermMedium to Long Termi)i) In the medium to long term, there is In the medium to long term, there is

need to develop the existing large need to develop the existing large hydropower potential and oil and gas hydropower potential and oil and gas projects on the continent as regional projects on the continent as regional projects to serve the continent.projects to serve the continent.

ii)ii) To facilitate power trade, there is need To facilitate power trade, there is need to fast track the interconnection of the to fast track the interconnection of the electricity grid system on the continent electricity grid system on the continent so that electricity can flow from regions so that electricity can flow from regions with a surplus to those with deficits. The with a surplus to those with deficits. The same goes for oil and gas pipelines.same goes for oil and gas pipelines.

Suggested Actions by FEMASuggested Actions by FEMA

FEMA supports Governments to take FEMA supports Governments to take leadership in accessing investment and leadership in accessing investment and financing for either public investment or financing for either public investment or through public/private partnerships. through public/private partnerships.

• To achieve this, FEMA will liaise with To achieve this, FEMA will liaise with relevant organisations to organise and relevant organisations to organise and actively participate in forums for dialogue actively participate in forums for dialogue with the private sector, multilateral with the private sector, multilateral financing agencies and donor community.financing agencies and donor community.

FEMA will also collaborate with national governments FEMA will also collaborate with national governments and sub-regional bodies to ensure that power sector and sub-regional bodies to ensure that power sector reforms improve efficiency, yield growth and reforms improve efficiency, yield growth and sustainable development. sustainable development.

We Propose that FEMA and the Infrastructure We Propose that FEMA and the Infrastructure

Consortium should undertake a comprehensive Consortium should undertake a comprehensive analysis of the African power shortage which will also analysis of the African power shortage which will also propose a menu of proven response options which will propose a menu of proven response options which will ensure energy security in Africa.ensure energy security in Africa.

Finally, FEMA recommends that the Consortium Finally, FEMA recommends that the Consortium should prioritise energy in its investment plans as it is should prioritise energy in its investment plans as it is the engine of growth and expansion for the other the engine of growth and expansion for the other infrastructure projects. infrastructure projects.

• This will necessitate establishment of an Energy Investment This will necessitate establishment of an Energy Investment Fund (EIF). Fund (EIF).

• The Fund, when established, will be instrumental in The Fund, when established, will be instrumental in addressing the current and future electricity supply shortage addressing the current and future electricity supply shortage on the continent. on the continent.

Thank you for your attention!Thank you for your attention!