The African Utility Week and POWERGEN Africa CEO Forum session took place on Thursday 14 May 2020 and explored the financial recovery strategies utilities can employ in the post-COVID world.
We have summarised the highlights from our top-level speakers below.
Abel Tella, Director General at Association of Power Utilities of Africa
Tella explained that the financial impact of COVID-19 has been a true test of resilience. He listed the main threats to utilities which include; falling revenue, expected increase in costs, the risk of default payments, staff issues, operational complaints and supply chain constraints.
In order to overcome these challenges, Tella suggested that governments must prioritise the energy sector and negotiate fiscal support with utilities, payment schemes with IPPs must be revised and private sector funds must be mobilised.
Batchi Baldeh, Director, Power Systems Development Department at African Development Bank
Baldeh spoke about the previous, current and planned reforms within the power sector, with a focus on mitigating the impact of COVID-19. He mentioned how utilities must learn from past lessons, emphasising the need for inclusive consultation with the private sector, civil society and government, the importance of good governance, and the necessity for simplified pathways for investment and innovation.
Baldeh placed great emphasis on the vital role of Africa’s second wave of sector reform. He believes these reforms will help utilities recover from COVID-19 by providing a structured approach to debt management, more private sector partnerships, as well as improved policy dialogue, allowing cost reflectiveness and sector equilibrium through SMART subsidies.
Gadi Taj Ndahumba, Head of Power Sector at African Legal Support Facility
Taj explained that one of the most important aspects of achieving financial sustainability is ensuring a cost-reflective tariff (CRT) – a difficult task as the factors that influence this are outside a utility’s control.
He explored how utilities can overcome the tension created by balancing, electricity access, political interests, regulator influence, currency depreciation and the need for cost reflective tariffs.
“Best practice lies in the understanding of and adjustment to these financial risks. It’s vital to anticipate depreciation, map it and host discussions with government in advance, before revenue is lost,” says Taj.
Taj further highlighted the need for amended financing models to accommodate currency fluctuations, thereby minimising the impact on a utility’s cost base.
Johan Greyling, Partner – EY (Transaction Advisory Services) Energy & Natural at Ernst & Young
Greyling differentiated between what utilities need to do now, next, and then beyond. He encourages utilities to continue with current infrastructure spend, and also focus on taking small recovery steps such as deferred maintenance, ultimately ensuring small, immediate wins.
Greyling further encouraged listeners to consider this unique opportunity to prioritise future projects and take stock of current and future plans. He believes utilities can now refocus and redefine their roles, amend tariff methodologies, restructure debt financing, and dollarize tariff regimes.
Yadviga Semikolenova, Senior Energy Economist at World Bank
According to Semikolenova, before the pandemic, many utilities had insufficient cash to service existing debt and maintain existing operations, relying on government subsidies to ease the liquidity crunch.
“This situation has been worsened due to the pandemic, due to drops in demand and billing, COVID related force majeure claims and interruptions to normal operations due to new policies to mitigate COVID-related threats”, says Semikolenova.
Semikolenova emphasised that utilities and governments must ensure a combined response to optimise functioning and energy investment must form part of the economic stimulus strategy.