The truth is out there…somewhere

Junior Isles

Managing Editor

It was like being at the opening ceremony of the Olympics, only security was probably tighter – Clinton was expected. He didn`t show up. No doubt he had other things on his mind.

Admittedly there were often other matters on my mind during the 75th World Energy Congress in Houston last month, especially during the opening ceremony. One often wondered if sitting through the introduction-come-parade of representatives from more than 100 countries was perhaps beyond the call of duty. The keynote addresses were slightly more attention grabbing, but were pitched so far into the future that the immediate importance of the statements is questionable. Let us test:

– the world will double its energy use by 2030 – true or false?

– energy demand will be 13.6 billion tons oil equivalent by 2020 – true or false?

– some $30 trillion will be needed to finance energy projects up to 2020 – true or false?

We all know that only time can deliver the answers. But more to the point, I would wager that few would be capable of calculating the figures from the past 22 years come the time, or even care to do so.

While long term forecasts have their use, it would have been more useful to address the needs, goals and impacts of current technology and trends in the short to medium term. To hear the world economic crisis described by WEC chairman John Baker, as just a “local dislocation” without further elaboration does not really help the `here and now`.

The overriding message was that ultimately the exchange rate turmoil is the least of our problems compared to the task of getting power to the two billion people who need it. By 2025 the world`s population would have risen from six to eight billion people, much of that growth being in Pakistan, India and China. Subsequently, these would be the areas in most need of power. But notably another region was mentioned: sub-Saharan Africa. Until recently this region has largely been ignored. However, some analysts believe that sub-Saharan Africa will be a hot spot fairly soon. “We are looking at projects in Kenya, Tanzania and Zimbabwe; and tracking opportunities in a number of other countries. The World Bank has put a new emphasis on doing more business in Africa and is even prepared to look at projects below its minimum threshold requirements,” said Saleem Karimjee, a senior investment officer, at the International Finance Corporation.

Malaysia has made maybe half a dozen proposals for projects and there has also been Islamic funding but very little interest has come from Europe. Perhaps historical reasons has given the likes of Malaysia greater empathy with these nations or maybe the Malaysians are just prepared to take more risks than their western counterparts.

Regardless, the delay by European and US developers in entering a market which is going through the necessary changes for outside investment maybe short-lived. “There are a lot of well conceived projects just waiting for the country terms to be right. The EU directive [which will accelerate domestic competition] will also soon push utilities to look elsewhere,” said Karimjee.

Nearly all African projects are looking at IPPs, but where the real money can be made is in distribution. IPP projects generate a steady revenue stream from fixed tariffs. With distribution, theoretically there is no upside. Large amounts of money can be made at the retail level through cutting costs and introducing additional customer services. This has certainly been true in Latin America where countries like Brazil have fetched high prices for their distribution companies. The IFC plans to do more in distribution in Africa. Improving distribution will also help the generation situation since if distribution operates properly, then IPPs become easier.

Some African countries are moving towards privatizing distribution in some form. For example, Gabon has gone for full privatization while Côte D`Ivoire has given a lease/concession for operation and management of its utility to a private company. Other African countries are also moving this way and it is only a matter of time before the macro-economics of the countries are right for investment.

What can be said for sure is that the need to electrify sub-Saharan Africa and indeed other developing countries is there now, and no amount of long term predictions will help. And that`s the truth.