If you paid some of the highest electricity tariffs in the world, you would expect some of the most reliable electricity services. Unfortunately, this logic does not hold in West Africa, where tariffs are double those of East Africa, but service quality is poor and access is limited. This is the legacy of individual countries relying on their mainly small, inefficient power systems fueled by expensive imported oil. These high tariffs do not even cover the costs, and the gap leads to poorly funded utilities and subsidy requirements that are typically 1% of GDP and, on occasion, higher.
Change is happening as West African countries work together to ‘pool’ their power systems for better use and sharing of cheaper, greener energy resources available right in the neighborhood. The region has significant natural energy resources, namely, hydropower, gas, and wind mostly along the coast and solar power – especially in the Sahel region. The West African Power Pool (WAPP), established in 1999, expects to interconnect the 14 mainland countries of the Economic Community of West African States (ECOWAS) by the middle of the decade and bring to fruition a self-reliant regional power market that delivers abundant affordable electricity to all.
Across the region, the economic benefits of the regional power market are evaluated at up to US$665 million per year, with the average cost of electricity generation expected to fall by between a quarter and a third. Over the past 10 years, the World Bank has financed close to US$2.3 billion of investments in transmission infrastructure, and institutional capacity in support of the WAPP.
But hardware and institutions alone do not make a market. For actual trade to happen, neighbors must have confidence in each other and in the flow of commodities and payments. Despite progress, market confidence remains shaky as some countries balk at the lumpy capital investments and long lead times needed to develop new WAPP-dependent infrastructure. Others suffer from financially distressed national utilities whose creditworthiness and ability to trade may be called into question. These and other factors have caused some would-be importer countries to continue to rely on their own expensive small-scale electricity generation instead of shifting their sights and investment priorities toward least-cost options from neighboring exporter countries.
The World Bank and other partners are helping countries overcome the financial barriers but changing mindsets and instilling trust in the market have required a new focus on regional cooperation in domestic policies.
An important step forward was the adoption of the ECOWAS Directive on the Securitization of Cross-Border Power Trade in December 2018. This regional reform program aims to increase confidence in the enforcement of commercial agreements, to encourage least-cost investment decisions that promote regional options and competition, and to promote transparency on the creditworthiness of national power utilities and on key investment decisions that may impact demand and supply across the market. It calls for national policies and reforms that, if implemented collectively across the region, will lead to sustained trade and thus investment decisions that lower costs.
Funding from the World Bank’s Energy Sector Management Assistance Program (ESMAP) supported the directive’s preparation, and the Bank is now helping to operationalize it through the $300 million West Africa Regional Energy Trade Development Policy Financing (DPF) in Burkina Faso, Côte d’Ivoire, Guinea, Liberia, Mali, and Sierra Leone. Like other DPFs issued by the Bank, this one provides governments with fast general budget support in exchange for a pre-agreed program of institutional and policy reforms referred to as “prior actions.” Unlike other DPFs, this one marks the Bank’s first multi-country DPF operation using the Regional IDA window –[IDA is the International Development Association, the branch of the World Bank Group that supports poor countries]– and a joint matrix of policy and institutional actions. Not surprisingly, there has been a learning curve. Three important lessons have emerged so far:
- Start with joint agreements among high-level decision makers. Early in the process (and pre-pandemic), we were able to get all the Ministers of Finance and Ministers of Energy from all six countries in one room to mutually agree on the prior actions needed to build trust in trade. This has meant that sector ministries have found it hard to back out of difficult, but necessary, prior actions required of them.
- Design prior actions in a manner that is resilient to events. The structural measures put in place to regularize payments from Mali to Côte d’Ivoire were simple transparent mechanisms designed to limit opportunities for interference, and were unaffected by the August 2020 coup d’état in Mali, even while the West Africa Economic and Monetary Union (WAEMU) closed normal flow of funds with Mali.
- Remain flexible to keep on track. The COVID-19 pandemic and continuing political instabilities in Mali delayed the DPF’s effectiveness, but we did not let these forces blow us off course. We continued to work with countries bilaterally (and virtually), and the DPF was able to launch in February 2021 with all countries fully on board.
We are encouraged by this initial progress, but deep complexities remain in knitting together the region’s power systems. Most recently, unforeseen supply shortages curtailed exports from Côte d’Ivoire to Mali and Burkina Faso. Several interconnectors under construction will eventually alleviate such shortages, as countries will be able to import from different sources in the region. Regulatory reforms backed by the DPF will further increase trade connections and confidence. Transformation at this scale takes time, but as it happens, the West Africa region will be more self-reliant, greener, and more able to cope with shocks. Together, we remain committed to achieving affordable and reliable electricity for all.
Mustafa Zakir Hussain advises senior levels of government on policies to advance major infrastructure service delivery while controlling fiscal deficits and advancing national and global de-carbonization objectives. During 2018-21, he led dialogue in a number of countries in West Africa to reduce the fiscal burden of the energy sectors – including leading the Bank’s landmark 6-country Regional Energy Trade Development Policy Financing operation to advance affordability, resilience and de-carbonization in the region’s energy use.
His over 15-year career at the Bank has also covered Eastern and Southern Africa, South Asia, East Asia Pacific, the Balkans and North Africa. He has worked on many aspects of infrastructure service delivery – including economic regulation, output-based financing, project finance and guarantees – and polices to increase competition and improve governance around key investment decisions. A major sector focus has been on energy transition. Beyond infrastructure, he has led national multi-sector budget support operations and worked on the Bank’s operational policies and corporate agenda.
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