By IPS Correspondents
BRUSSELS, May 29 2007 (IPS)

European investment in Africa’s electricity markets may soon get the boost it needs, from infrastructure to integration.

African electricity producers are in the midst of their own study into reform needs of their power sectors in hopes the results will convince potential investors of the opportunities the underdeveloped markets offer.

The study might even indicate new ways to stay clear of the social and environmental problems marring many current energy projects in Africa.

The ACP Business Climate Facility (BizClim), an institution financed by the European Development Fund, has approved a request of the Union of Producers, Transporters and Distributors of Electric Power in (UPDEA) to finance an assessment of reforms in the African power sector.

To the study itself, which will be tendered within a few days time, the EU will contribute 159,000 euros. A slightly larger amount will be used to present the results to stakeholders and potential investors.

“Studies have been made about reforms of the African energy sector, for instance by the World Bank,” says BiZClim director M’hamed Cherif. “But the Africans want to be able to show their own assessment to their investors.”

According to BizClim, the African power sector still has a long way to go. Many countries began reforms, but the process has slowed down or stopped altogether. There are no competitive electricity markets in Africa. The vision of UPDEA is that reforms should be encouraged, but that they should not necessarily end up in privatisation.

There is new international interest in the African energy sector. Africa has big deposits of oil, gas and coal and impressive hydropower, biomass and solar power potential. At the same time, the African energy market is extremely underdeveloped.

Most fossil fuel from Africa is exported. According to the EU, only 7 percent of Africa’s hydropower potential is converted into electricity. Other renewable sources are barely tapped. With the exception of South Africa, only 3 to 30 percent of households in rural areas in sub-Saharan Africa are connected to the power grid, says the UPDEA. The number of African people with no access to electricity is expected to rise sharply if no important investments are made. For African people who are connected, power rationing and cuts are part of the daily routine.

Investment in the African energy sector has traditionally been rather low, with the exception of investment in oil producing countries. Between 1967 and 2005, the African Development Bank only invested around 5 billion dollars in energy projects in all 53 African countries combined. That boils down to an average of only 2.5 million dollars per year and per country.

There is money waiting to be invested in the African energy sector. Both development aid to the energy sector and investment can be expected to increase.

“In 2005, the EU included energy explicitly in its development policy – before that, this was not the case,” an EU energy and development official told IPS.

In June 2005, the European Commission and 79 African, Caribbean and Pacific countries set up an ACP-EU Energy Facility which will enable co-financing local investment, for instance in rural energy access. The facility started with 220 million euros; the EU has still to decide about the facility will get from 2008 on.

Apart from this, the EU and its member states will be financing African energy projects on a national level, through country programs while the EU will make available substantial amounts of money for initiatives on a regional level.

In July 2006, Brussels approved a proposal for a partnership on infrastructure between the European Union and Africa. Between 2008 and 2013, up to 5.6 billion euros – the exact amount still has to be decided – will be devoted to financing infrastructure in Africa.

To this end, an infrastructure trust fund has been established with the European Investment Bank (EIB). It starts with 87 million euros and is expected to mobilise around 260 million euros from other investors. According to the official, these efforts of the EU are being prepared “in a close dialogue with African partners” and taking into account the results of assessments like the one UPDEA will be making.

The EIB is also playing an increasingly important role on its own. In December, the unofficial “European World Bank” approved 825 million euros worth of loans and investment for major energy projects in Africa. These investments included a 300 million euro loan for the construction of a transmission line from Johannesburg to Capetown, 250 million euros for the construction of two 750 MW gas-fired power plants in Egypt and 170 million euros for the expansion of Morocco’s power grid.

According to the Bank Information Centre, a non-governmental watchdog of international financial institutions, the “dubious EIB track record in supporting major infrastructure on the African continent” is a cause for concern. It considers the EIB safeguard policies to mitigate the negative social and environmental consequences that typically accompany large energy projects “inadequate”.

Bankwatch, a European network of EIB watchers, campaigned in May against a 100-million-euro loan from the EIB for the Bujagali Dam in Uganda. Local activists argue that the expensive 250 MW dam will damage the ecosystem of nearby Lake Victoria, affecting the livelihood of millions of people in Uganda, Kenya and Tanzania.

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