Analysis of Governance Issues in the Energy Market in Sierra Leone

Wood Profits Banner

Context of Sierra Leone’s Energy Policy

In December 2004, a UNECA sponsored study conducted by CEMMATS Group Ltd., a local consulting firm, involved various stakeholders in the sector to formulate an energy policy. The CEMMAT’s energy agenda for Sierra Leone in terms of policy and management represents an important set of tools that basically encapsulates a multi-disciplinary structure bringing together sectors of the energy community – the Ministry of Energy and Power (MEP), the Ministry of Trade and Industry, the Ministry of Finance, the Ministry of Agriculture and Food Security (MAFS), Presidential Petroleum Commission, and the Ministry of Mineral Resources (MMR). These line Ministries of relevance to the energy agenda, where their various roles are being specified, have dominated the development of the country’s energy policy. The basic premise of this multi-disciplinary structure is that it is crucial for the effective and efficient coordination of the management of the country’s indigenous energy resources.  Nonetheless, it sounds as though it would be impossible to coordinate these so many organizations in a country with a history of corruption and mismanagement. But it is not unusual to have various Ministries working in coordination to achieve national development objectives. Besides, the specific tasks and methods of operation that influence the ability of these Ministries to create the enabling environment for private interests to ably conduct value added commercial activities with the country’s energy resources are defined.

This structure, for instance, places the Ministry of Energy Power in a central position as the governmental authority responsible for the electricity and water sectors and its mandates includes sector policy formulation, sector planning and coordination. The Ministry is supported by the Office of the Permanent Secretary, the Water Supply Division (WSD), the Radiation Protection Unit, and the National Energy & Water Policy, Planning, and Coordination Unit (NEWPPCU). Under the Ministry’s purview as well is handling matters related to electrical power supply, including that from hydroelectric schemes and, nominally renewable energy matters related to solar and wind energy through the utilities companies – the National Power Authority (NPA)/Bo-Kenema Power Services (BKPS); the Guma Valley Water Company (GVWC); the Sierra Leone Water Company (SALWACO); and the Bumbuna Hydroelectric Project (BHP).

The roles of other Ministries are limited to handling petroleum marketing sales under the purview of the Ministry of Trade and Industry and the Ministry of Finance; biomass issues (plant and animal-derived matter) especially fuel wood handled by the Ministry of Agriculture and Food Security (MAFS); and the extraction of minerals, including energy related minerals like coal and ore dealt with by the Ministry of Mineral Resources (MMR).

The energy sector maintains this organizational structure to develop and implement inter-disciplinary energy-related policies. The functions of these various Ministries and other authorities as they relate to their responsibilities for various energy resources are outlined in the relevant Acts of Parliament (accessible via government gazettes) and pertinent regulations. Some of the relevant Acts include the NPA Act, 1982; the NPA (Amendment) Act, 2005; Forestry Act, 1998; and the Petroleum Act, 2002. There is also the draft energy policy document prepared by CEMMATS which is yet to be adopted. The policy document has been formulated in the context of standard economic, social and environmental policies; mindful as well of the nature and linkages of the energy sector with other sectors; and the international and regional linkages of the sector.

Furthermore, finding efficiency and economic value, from an international investor’s perspective, within a system of such complicated oversight is made less complicated with “the Sierra Leone Export Development and Investment Corporation (SLEDIC), a statutory body established by section 2 of the SLEDIC Act, 1993, with the primary objective of facilitating the registration of business enterprises; assisting investors in obtaining permits, licenses, certificates or clearances, as the case may be, needed for the commencement of business; providing information to potential investors on matters relating to investment; and assisting potential investors in identifying joint venture partners in Sierra Leone”. The priority investment areas SLEDIC is promoting thus include:

·         Energy and power sector (independent power providers)

·         Agriculture and Agro-Processing

·         Mining Sector (Kimberlite Mining)

·         Petroleum Exploration and Exploitation

·         Privatization of state-owned enterprises

·         Establishment and development of Export Processing Zone (EPZ)

·         Infrastructure (Railway, Roads, Telecommunication, Water Supply) etc.

Energy Outlook

Sierra Leone is far down the under-exploited curve in terms of its energy endowment. The fact is, there are untapped energy resources, that the nation needs these resources, and that the energy industry can coordinate the exploitation of these resources with less environmental impact. Sierra Leone’s indigenous energy resources of a renewable nature which include biomass, solar, wind and hydropower has the potential to provide opportunities for Sierra Leonean households at all levels. The country’s biomass volume is about 656,000 tons of crop wastes. It has an annual energy potential of 2,700 GWh that can be exploited for cooking, lighting and some power applications. A commercially viable biomass supply therefore exists but discussion about biomass facilities has not attracted much discussion and promotion by the government. The Government of Sierra Leone has not seriously addressed energy, fuel and water efficiency in all sectors of economic activity, and has not industrialized capacities for optimal use of natural resources for sustainable biomass (unicellular-energy crops-residues-waste). But notwithstanding its lack of interest in bio-prospecting, the government is not going to stand in the way if traditional biomass firms in Europe and the United States are interested in developing this potential in Sierra Leone.

The country also has a solar radiation potential of between 1460 kWh/m2/yr and 1800 kWh/m2/yr annually. This can be exploited for lighting and water pumping, among other applications. These resources provide an intriguing glimpse of a nation that might have had a sustainable supply of power and profitable exploitation of its promising energy resources, had energy efficiency remained a core value of the country after independence. The goal for sustained economic growth and development should be seen in terms of managing the full utilization of these resources.

The hydro potential in the country has also been an epic story. The network of rivers in the country provides an opportunity for hydroelectricity with over 21 sites already identified as capable of producing potential hydro power. The conservatively estimated output at 1,200MW, recorded in the 1996 Power Sector Master Plan by Lahmeyer International, is necessitated by the country’s extensive network of rivers and tributaries. The completion of the current Bumbuna project (Phase I capacity 50 MW, total capacity 275 MW) and the envisaged Bekongor project (Bekongor III capacity 85 MW, total capacity 200 MW) – two of the many large projects that are economically exploitable – is good for the development of the country and for Sierra Leone jobs. But the political will has to be there to get the Bumbuna project to 100% completion. There is also the need to create the supporting environment for private companies to invest in mini-hydro, or “run-of-the-river” hydro power stations. The Bumbuna project, which “can eventually become the backbone of a national grid, has the potential to make a substantial positive impact on the national electricity supply” (CEMMAT Policy Document, 2004).

In terms of power infrastructure, the national power stations in the major cities and towns, which are really a collection of regional power stations, needs both new infrastructure and new ideas. “Most of the provincial stations and networks are in a state of total disrepair.  The cost required to get them back to their pre-1994 levels is estimated at Euro 13 million” (CEMMAT Policy Document, 2004). The Bo-Kenema Power Services (BKPS) which has a mixed hydro-thermal operation capacities of 5MW and 4MW at Bo and Dodo (Kenema) respectively faces the same management problems with its commercial operations as NPA. Rural electricity supply is non-existent. A new electricity policy is overdue, though the specifics matter, the CEMMATS draft on energy policy is instructive in this respect.

There are fairly quantified fossil fuels (hydrocarbons) with commercial value in Sierra Leone. These include significant ignite deposits and crude oil which have not been exploited.  These fossil resources have not been properly assessed to determine their potential value for practical and profitable exploration.  Though previous administrations had offered to sell concessions for prospecting for oil and other valuable mineral resources in the country, there had always been institutional secrecy surrounding the potential existence of oil as a source of wealth creation for Sierra Leone. “The location, extent, and quality of the find have remained a subject of uninformed speculation, intense curiosity, and often-wild conjecture.  It is a state of affairs to which both official secrecy and the lack of transparency in the conduct of public affairs in Sierra Leone have largely contributed” (Focus Sierra Leone). The Petroleum Resources Unit, under the authority of the current President and headed by a Director–General continues to oversee the possibilities of exploration of these petroleum resources especially with European and/or American investment companies. It is the position of the government of President Koroma that whatever economic benefits that are attached to the exploration of fossil fuels should be in the interest of national development.

Good governance groups and the masses roundly criticized previous administrations for inadequate measures on energy supplies in the country. Previous administrations failed to put real dollars in the energy sector where they would have had a direct impact on advancing adequate and sustainable supply of electricity in the country. More opportunities could also have been created to effectively support other forms of renewable energy.  All in all, the energy potential is undoubtedly great. But more emphasis has to be placed on a more investment-friendly energy policy, particularly on opening the energy market to huge capital investments and broadening incentives for investment.  The reality is, there is the need (the market) for more domestic energy and more imported energy.

The best talents in the energy industry have to be accessed and retained to coordinate and efficiently manage an A+ energy program for Sierra Leone. The country needs a balance of vision in the form of a grand strategy to curtail the difficulties the country faces with commercial energy supplies, particularly electricity supply. Attainable short-, medium-, and long-term steps to get the country there have to be practically laid out. And while the grand strategy is being put in place, the government should not fail to connect energy to climate change. Global warming has proved to be as horrendous a global challenge as the War on Terror.

Capital Investment and the Energy Market

Certainly, one major factor for successful energy policy and management is financial resources. But the energy sector in Sierra Leone struggles with limited budgets and inadequate legislation that has not allowed for the growth of the energy sector, let alone provide a sustainable supply of electricity to the urban and rural consumers. Clearly, over the years, previous administrations were not in a position where they could afford to wisely invest or even create an enabling environment for foreign investments in the energy sector simply because of widespread corruption in public administration. The National Power Authority, for instance, has unpaid debts of Le23.4 billion and unpaid customer bills of Le16.2 billion as well as fuel bills to petroleum companies of Le8 billion. The utility authority also has a defective transmission and distribution system with 35% technical losses; and an electricity drop from 28MW from five diesel engines to 6MW from one diesel engine among other problems.

Other logistical challenges include the procurement, storage and transportation of petroleum products. “Sierra Leone is almost entirely dependent on imports for all its petroleum needs and machinery as well as spare parts” (CEMMAT Policy Document, 2004). Petroleum products are transported by road using tankers. The poor state of the roads exacerbates several problems with transportation.

In addition, increasing funds devoted to energy supply has only helped relatively little, given the impoverished state of the country. Sierra Leone does have a smaller Gross National Product (GNP) with amounts allocated to the sector way considerably less than investments made by countries with larger GNPs. However, it is not only the total amount of money from the GNP that counts, but also how that GNP allocation is supplemented by foreign direct investments and how such investments in the sector are spent.

Besides, it is possible for the government to find funds to support its energy sector. In 2001, for instance, the World Bank Group funds estimated at US$7.5 million were made available to the government of Sierra Leone under former President Ahmed Tejan Kabbah to buy a new engine to increase electricity capacity. But a used and poorly rebuilt 7.5 megawatts diesel engine was acquired.

And quite recently, “coinciding with the visit of the President of Sierra Leone to the UK, Douglas Alexander, the Secretary of State for International Development announced two programs of assistance to Sierra Leone totaling £36 million [– with] £20 million to support the building up of energy sector in Sierra Leone [that] should provide a sustainable electricity supply to the one million residents of Freetown and provide lighting and power for health centers, water pumping stations, colleges and police stations” (Press Release).

In view of all these possibilities, a perennial issue that must be addressed in order to build a sustainable capacity in the energy sector is a change of mentality in society and among decision-makers. “No capacity-building initiatives will succeed if governments and the public are not determined to change the situation” (Embo Reports).  Now there is hope with the new democratic dispensation. On assumption of office, President Koroma made a pronouncement that energy is his topmost priority. To a large extent, Koroma’s Government is therefore supportive of capital investment in the energy sector.  May be, what the Koroma administration also needs to do is to support a clear energy sector initiative in capacity building by addressing the problem of proper allocation of funds and managing a sustainable energy supply mechanism.

The strategy already being pursued by the Koroma administration which is the actualization of an “energy stimulus plan” for Freetown and the entire country is commendable. A Presidential Emergency Task Force has been created to oversee the increase of electricity capacity in the country. Measures have also been taken to involve private interests in the energy sector. Two 48MW independent power producer (IPP) contracts with the Nigerian investment company Income Electrix and the US investment company DELAMORE have recently been signed by the Sierra Leone Government to add to the capacity of electricity supply. Income Electrix has already shipped equipment and mobilizing to commission a 10MW generator at Black Hall Road to supply electricity to the east part of Freetown. A Sierra Leone Government partnership with the Nigerian company Income Electrix is a good investment strategy for both countries.  Even though Nigeria’s focus on being a leading economy via its oil industry has its challenges, Nigeria’s share of global oil reserves is quite impressive. The challenge for Nigeria’s oil exploitation is not a scarcity of world-scale oil reservoirs, rather it is connecting those oil reserves to long-term customer commitments and the capital required to build oil refineries or multi-thousand mile pipelines. Nigeria’s oil reserves create a terrific opportunity to align and integrate with Africa, rather than holding Africa hostage to scarcity. A large part of any diplomacy with Nigeria should focus on helping Nigeria to see the benefits of such a relationship.

By and large, Sierra Leone’s energy “industry shows the potential to contribute as much as Le 46 billion (approximately US$ 16 million) annually to government revenue in terms of Excise Tax and Road Users Tax” (CEMMAT Policy Document, 2004). The potential is remarkable even when the demand for energy in the industrial and commercial sectors is mainly met by self auto-generation which has negative economic consequences.  Michael Conteh, resident technical consultant who is playing a coordinating role in the Ministry of Energy and Power and its relations to the other Ministries and utility companies as well as monitoring the power system and providing technical advice to the ministry has spoken quite reassuringly about the under-exploited state of Sierra Leone’s vast energy potential. According to his expert knowledge of the energy sector, “currently, there are no programs in the country for alternative energies. Sierra Leone’s energy mix is very limited. Apart from cooking that is about 95% dependent on biomass, Sierra Leone is almost 100% dependent on imported petroleum products and electricity for all its energy needs.” Again, restoring the operations of the Sierra Leone Petroleum Refinery Corporation (SLPRC) which has a distillation potential capacity of 700,000 metric tons has the possibilities of generating more revenue for the government. The corporation requires healthy investment to sustain its distillation capacity. Bringing together the five petroleum major foreign oil and oil services companies operating in the country namely Mobil, National Petroleum Company (NP), Safecon, Unipetrol and Leonoil, and/or other investors within the SLPRC is critical to revamp the refinery’s operations and to invigorate the market’s future potential and stimulating the rise of alternatives.

Royalties Structure and the Costs of Corruption

The structure of energy royalties is spelt out in the Local Government Act, 2004 (Local Government Act, 2004). But Sierra Leone’s energy sector, with its multifaceted mix of public and private actors, has a bleak history of weak monitoring, low transparency, and inadequate civil service pay and benefits; and incentives for illicit gain are rife. The sector has the potential to generate significant cash transactions compared with other services and infrastructure sectors such as water and sanitation or use of roads. But the common forms of corruption plaguing the sector involves petty corruption which is prevalent at the interface with customers when bribes are paid to or demanded by meter readers or safety inspectors and illicit sale of fuel oils.  There are also many illegal connections by low-income as well as high-income households and commercial establishments. The aggregate impact of “petty corruption” may be far from petty because losses may amount to more than $10 million each year. Inadequate revenue collection and other corrupt practices lead to deteriorating service with frequent blackouts and supply interruptions.

The viability of the energy sector thus involves a strategic study of the complex systems of sustainable power supply and revenue collection. Governments can act decisively to deal with corruption in the energy sector—most involving privatization, competition, more transparent rules, and more disclosure. Reforms in the energy sector can be in the form of selling specific activities such as the energy distribution system using prepaid meters to strategic investors with a proven track record and a long-term interest in the business. The prepaid meter system currently piloted in Freetown has the potential to increase revenue collection and reduce corruption in the sector. About 2000 prepaid meters are currently in use. The government has contracted the Chinese investment company, the Sierra Leone Gouji Investment and Development, Ltd. for supply of 100,000 prepaid meters. “Chinese influence in the investment climate is growing steadily [superseding European and US investment] to the extent that a Chinese Chamber of Commerce and Industry was launched in 2005. The government has been supportive of Chinese investment initiatives, apparently because of many years of Chinese government assistance to Sierra Leone. The Bintumani Hotel, ravaged by invading rebels in 1999, is on lease for 25 years to Beijing Construction. The Chinese have transformed a former home for the displaced, the National Workshop, into a showpiece tractor-assembly plant [from which the Gouji prepaid meters being piloted in Freetown are also distributed]” (African Review of Business and Technology). Nevertheless, a new Sierra Leone under President Koroma is now open for business and the reforms in the energy sector the new administration is advancing include as well more transparent market rules and coordinating an independent regulatory body with more presidential oversight to oversee the efficient management of a more creative energy sector.

Opportunities

Efforts to address energy supply and coordination challenges should be placed in a large policy framework that addresses other social issues. More notably, such strategies should be part of policies designed to use modern and efficient energy services to achieve sustainable development goals.  Adequate resources ought to be made available for investment in oil exploration and development activities and there has to be investor-friendly legal and regulatory framework to attract oil exploration companies. There are issues of supply and storage limitations for various petroleum products and the necessity to re-launch refining operation in the country. And when clear and unified standards for operating retail outlets are also put in place, access to modern and efficient energy resources is ensured.

Guiding national research and development efforts to focus on these challenges will require extensive international cooperation, increases in energy sector funding and incentives for private enterprises. It will also take the creation of an atmosphere that is tolerant to the use of emerging technologies in implementing sustainable energy sector goals. Having a solid energy policy can be viewed as strategic to the country’s national interests.

Credit: Global Integrity Research Papers



Source by Kenday Samuel Kamara, Ph.D.

Share