A survey undertaken by the World Bank has shown that less than half of the utilities in sub-Saharan Africa are able to cover their operating expenditures and that several countries lose in excess of $0.25 for every kilowatt-hour that gets sold.
The sobering assessment of the financial health of electricity utilities, including a warning to utilities such as Eskom, was presented at the African Utility Week, in Cape Town, this week.
The survey looked at financial statements and power tariffs from utilities in more than 40 countries, as well as spending data in household surveys for 22 countries.
World Bank senior energy specialist Chris Trimble told energy experts that power utilities that increase their borrowings to cover costs could put institutions on “a very dangerous slippery slope”.
In response to a question on Eskom’s borrowing, Trimble said it was always better for power utilities to be self-sufficient instead of relying on government subsidies if they wanted to avoid being trapped in a vicious spiral if debt spun out of control.
Trimble’s speech follows after concerns were raised over Eskom’s interim results published last November, which showed rising costs and declining profits. The recent credit downgrades by rating agencies have also raised concerns for Eskom’s borrowing ability.
Eskom chairperson Ben Ngubane told journalists on the sidelines of African Utility Week that Eskom’s objective was to lower the costs of electricity in South Africa by paying back government guarantees and generating savings through efficiencies.
The World Bank report has highlighted low tariff levels as a major issue for South Africa, particularly with the imperative to move away from ageing coal plants and modernise its generation fleet.
The report points out that South Africa has the most developed and complex electricity sector in sub-Saharan Africa and that its installed capacity alone is equivalent to that of the rest of the continent.
The report also indicated excessive operating costs in some countries, for instance Liberia.
While electricity provision is expensive and challenging, the report has suggested several ways of recovering the cost of supply and making electricity more affordable.
It said the utilities of a third of countries could become financially viable through improving operational efficiency. The report said the remaining two-thirds of the countries would need to increase their tariffs.
The World Bank has suggested that installing more prepaid meters would benefit both utilities and customers. It says individual meters in poor households could help utilities to better target cross-subsidies.
The report recommends that the regulatory framework needs to be clear and predictable, while privatisation and unbundling could work where conditions are right for this.
While the report focused mainly on grid electricity, it said minigrid and offgrid electricity, especially from sources like solar, offered growing potential to electrify homes in many rural areas of sub-Saharan Africa.