The Electricity Market

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LEC has no money of its own, very limited know how and is very thin on the ground when it comes to technical and managerial capacity. No business can succeed with that combination of shortcomings. There is a tendency for people working in state-owned enterprises to think of their businesses as government ministries and of themselves as civil servants. They are not. They are supposed to be businesses selling services to the public.

The public needs and wants reliable electricity at a price that it can afford. LEC is selling a small amount of electricity (6MW in a city that needs 120MW) for 54 US cents per kilowatt hour. That is the highest price in the world. The second highest price is half of the LEC price. And even though the price of diesel (what we call "fuel oil") which LEC uses in its generators has dropped by 50%, LEC's tariff has not been reduced one cent. That is what happens when you have a monopoly.  Poor service at high prices. So, what is the solution?

We can take a leaf out of our telecommunications playbook for starters and open the electricity market to competition, as we did with telephony back in 2004. The Coalition to Bring Plenty Cheap Reliable Stable Electricity to Liberia (Brescelco) is proposing exactly that. It has written a law, the "2015 Liberian Electricity Act" that will open the Liberian electricity market to private companies. This law will be formally introduced to the Liberian Legislature shortly. The proposal is not to eliminate LEC, or even to privatize. The proposal is simply to allow private companies to enter the Liberian market and compete with LEC.

Opening our market will have an added side benefit. Liberia is one of six countries selected to pilot the US$27 billion Obama Power Africa Initiative.  Its goal is to bring additional power to 30 million African businesses and households. But there is a caveat. Power Africa is not an aid programme. It is an investment programme. So, one of the preconditions for qualification to benefit from Power Africa is that a country has to be willing to open its market to American companies desirous of investing in power. If you want to keep your market closed, that is your prerogative. But you will not be able to benefit from Power Africa. It's that simple.

Just opening the market is not enough. If it is done without the proper regulatory mechanisms being put in place, we will have an unruly Hobbesian free for all. It's like putting 22 football players on the field to play. If you don't have a referee to regulate the game, to enforce the rules and penalize people who break the rules, you will have absolute chaos.

Electricity service can be broken down into 3 parts: generation, transmission and distribution. Some private companies will only want to produce electricity (generation), and they will do so from a multiplicity of sources: heavy fuel oil generators, generators using gas, solar power, biomass, wind, etc.

Once the electricity is produced, it has to be transported (transmission), on light poles and high tension towers. The investment for transmission is substantial and typically requires a long payback period, sometimes as much as 30 years. There will be very few of these players.

The last service is distribution, that is, taking the current from the pole and connecting it to the house or business premise. Here there may be a lot of opportunities for Liberian entrepreneurs. You don't have to invest in generation or transmission. Your business is simply hooking customers up to the grid and collecting your money.

Back to the referee. Just as there is a referee for telephone service—the Liberia Telecommunications Authority (LTA)—-so the Brescelco law envisages a referee for the electricity industry. The Electricity Regulatory Commission of Liberia (ERCL) will have functions similar to LTA. It will issue licences to all service providers, including LEC. It will vet applications and determine whether an applicant has the capacity to provide the service it is applying for and respond accordingly.

Electricity regulation is new to Liberia. But it is not new to the world. In order to avoid the mistakes made with LTA, whereby we had regulators learning on the job by trial and error, in the case of electricity the law requires that the people heading the commission—the board of commissioners—have prior knowledge and experience as electricity regulators. We have a precedent. When the Liberian military was revamped, we didn't appoint just anybody to the position of Chief of Staff purely because he was a Liberian national. We appointed a Nigerian general as the first Chief of Staff of the new army, with a mandate to identify, recruit and mentor a Liberian to replace him at the end of his tour of duty. The same is envisaged for the ERCL should we find that suitable Liberian candidates are not ready, willing and able to serve.  

The writer is a businessman. He can be reached at <[email protected]>.

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