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Wednesday, April 24, 2024

Liberia: Unity Party Is reaping What It Sowed

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By: Samuel P. Jackson MSc. Cities

London School of Economics and Political Science

Graduate Consultancy Project: Limited Access to Electricity in Monrovia. Can Private Sector Investments Increase Electricity Access to Residents of Monrovia?

Good morning. The Unity Party is reaping what it sowed in regard to electricity. Small light today.

Big light tomorrow. A massive failure. Political sloganeering without a strategic plan to make Liberia energy independent. No plan to diversify energy production.

No significant private sector involvement in the production, transmission, distribution, marketing and provision of customer service. A hodgepodge halfhearted approach lacking sustainability.

Blaming the current management for the faux pas is wrong. It is blame shifting and grandstanding on a large scale. The current management can only deliver the amount of electricity produced with the limited transmission and distribution capacity at its disposal.

How did this start? Liberia’s electricity Infrastructure was almost completely destroyed by the war. The Mount Coffee Hydro was destroyed during the Octopus raid on Monrovia in 1992 but the turbines were in workable condition.

In 2006 when the UP government took over it made no attempt to determine the working condition of the turbines but instead officials at the Ministry of Lands, Mines and Energy participated in the cannibalization of the hydro plant by scrapping the turbines and exporting the metal. First big mistake.

The Unity Party Government sought to use the ignorance of Liberians as a strategy and re-election effort for 2011. So every singular act of governance including infrastructure development was seen with political lenses.

The highly touted 38 megawatts Henry Luke HFO Plant at Bushrod was strategically engineered to fit into the public deception. Small light today. Big light tomorrow. A political mantra void of any long term strategic planning.

In 2013 the Government wrote an analysis to determine binding constraints to Liberia’s economic growth to fulfill a requirement for the Millennium Challenge Corporation Compact.

The Constraints Analysis found to no surprise that electricity and roads were binding constraints to Liberia’s economic development and thus a decision was made to fund electricity and roads, but electricity would receive most of the compact money.

The Compact was signed in 2015 and the Government received 257 million dollars.

Instead of investing in a long term plan for energy production, the Unity Party Government made another conscious political decision. Refurbish the Mount Coffee Dam and put in some eye catching but ineffective distribution and transmission systems.

Thus another 100 plus million was dumped into the project, with the Japanese and EU providing significant sums bringing the amount invested into LEC more than 1 billion dollars (Mathematica Report 2021).

With all this massive spending on electricity, in January of 2022 in interviews with LEC officials, we gathered that total installed capacity was only 126 megawatts (88 from Mount Coffee and 38 from the HFO Plant) with a peak load of 42 megawatts.

LEC had 130,000 customers, with 80 percent being residential and 20 percent commercial.

Astonishingly more than 70 percent of the supplied electricity was being stolen and that was due to inefficiencies in the transmission and distribution system and the public’s desire to decrease the inequality in electricity access.

Power thefts in Liberia are connected to delays in administrative processes to get electricity (Wesee and Parley, 2020), and research have shown that power theft cannot be eliminated in countries with poor infrastructure (Depuru et al, 2010).

LEC officials confirmed that generation capacity falls to around 20 megawatt at the Mt. Coffee Hydro Power Plant (MCHPP) during the Dry Season when water levels decrease on the St.

Paul River, thus requiring power shedding and according to the Master Plan, additional output will be achieved by installation of thermal units or a solar power plant with a capacity of 25 megawatt (LEC Master Plan, 2018). But in order to achieve optimum output at all times, the management made it clear that efforts should be first placed on reducing the technical losses from transmission and distribution.

 

LEC has been operating under Management Service Contracts (MSC) a form of privatization of management. The first management contract was with Manitoba Hydro International (MHI) of Canada between 2010-2016 (World Bank, PID, June 2020).

During that period electricity generating capacity increased to 126 megawatt with a significant portion of the transmission and distribution built (World Bank, PID, June 2020).

From 2018 till present, an Irish company ESB International (ESBI) has been operating the MSC. During the 2016-2018 period, the Board of Directors of LEC appointed an interim Local management team with Tetra Tech, a global consulting company.

The contract with ESBI expired in January of 2021 but was renewed. According to the World Bank, future MSCs should be based upon performance evaluation to include:

1) “Specific obligations to update and implement a pre-defined Action Plan to improve performance with bonuses for achieving the targets and liquidated damages for non-performance; and

2) specific requirement for a plan to train a local management team to take over at the end of the contract”

Enter the West African Power Pool (WAPP) and CLSG. A total fiasco of an energy policy. Gross dependency on electricity import mainly from Cote d’Ivoire. Uneconomic and not sustainable.

WAPP was not meant to provide a sustainable source of energy for only one country. It was designed as a power sharing arrangement to shift electricity access to countries during peak demand periods.

Unfortunately the Unity Party Government and the CDC (the government I supported) sought to use CLSG as part of their long term energy plan. Buying power from Cote d’Ivoire over long periods is insane.

It increases our current account deficit and puts money into the hands of Ivoirian private electricity producers who can then reinvest in their country.

Thus the mismatch and lack of strategic planning in the energy sector that began more than 18 years ago has come home to roost.

And it is roasting Liberians in the millions. Sleepless nights in oven like conditions in the city of Monrovia. Clearly the current management at LEC is not fully culpable for the limited electricity access in Liberia and the frustrations being expressed by wannabe reformers, especially those who were in charge of developing a long term energy policy for Liberia and failed to do so.

What needs to happen now is to put into action those recommendations I made as part of my studies at LSE.

Sources and availability of funding projects into the energy sector are also important factors in attracting investments.

Currently, Liberia is limited to concessional borrowing according to conditionality from its international partners (IMF African Department, 1/8/21) and thus is prevented from accessing financing from most commercial sources for energy projects.

As a result, Liberia would need to look for innovative and creative means of funding its energy objectives. Options available to Liberia include the following:

1) Improved domestic resource mobilization through efficient tax administration and expansion of the tax base to increase fiscal space

2) Continued grants and loans from its international partners;

3) Angola Mode of financing, i.e., minerals for infrastructure;

4) Secure and maintain a sovereign credit rating to improve access to international finance capital;

5) Floating of green bonds when sovereign credit rating is achieved;

6) Public private partnerships that include models such as buy operate and transfer; design, build and operate, or a combination

Public-Private Partnership Models for Investments in the Electricity Sector

Liberia can adopt and implement public-private partnership models that spread risk, provides financing for its electricity project and have the technical capacity to create efficiencies in electricity production, transmission and distribution. The World Bank (Public-Private Partnership, Legal Resource Center, December 2, 2020) encourages different models including the following:

Concessions

Build Operate and Transfer (BOT)

Design, Build and Operate

Off-take Power Purchase agreements

Concessions grant concessionaires the right to operate public assets on behalf of the government with ownership of the assets retained by the authority. In the case of LEC, the GOL could grant concession rights to assets of LEC, including the production, transmission and distribution facilities for a set period usually 25-30 years.

As is usual with mineral concessions in Liberia, the government could grant tax incentives, including duty free privileges and tax waivers in order to allow the concessionaire to recoup investments made.

BOT models are effective since they transfer the cost of investment to the operator and spreads the risk between the government and the private investor (Jamil, Sattar 2008). The cost of capital, manpower and operational expenses are borne by the investor. The operator uses the project for its commercial benefit and at the end of the agreement ownership is turned over to the authorities.

The key to a successful BOT is the regulatory environment that protects the rights of the operator while taking into consideration the needs of consumers, with revenues ring fenced and a special purpose view is the optimum conduit (Public-Private Partnership, Legal Resource Center, December 2, 2020).

The investor conceives the project with a profit motive and the government grants a concession with terms and conditions covering the delivery of energy, water, etc. It combines design and build with long term obligation to operate.

A power purchase agreement (PPA) can be accomplished within BOTs, DBOs, and concessions where the off-taker, in this case the LEC buys power from the operator and resells to consumers at a profit, taking into consideration cost recovery.

The World Bank encourages PPAs for the energy sector in thermal plants, wind, solar and hydro, in sufficiently deregulated energy markets.

This article was written and published all by my little self. LEC did not induce me with financial consideration now or in the future. I spoke to no one at LEC while writing this piece. It is my patriotic and scholarly duty to provide information that contributes to public discourse. And so it goes.

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