Less than half of households in Djibouti are connected to the electricity grid. Power supplies are frequently interrupted and the sector is badly run and corrupt. Power is used as a political tool, with targeted individuals and businesses having electricity cut off. The electricity sector in Djibouti is a 1970s style vertically integrated monopoly. There is one on-grid thermal (oil-fired) generating plant and a run down transmission and distribution network.
The unreliability and shortage of supply means that businesses have to invest in high cost private generation. The free zone has invested in its own diesel generator plant with associated separate infrastructure, which adds to costs. For Djibouti industry this is a major problem and it is one reason why other ports and freezones are often preferred.
For the public and for anti-poverty aims this is disastrous. Households and informal business suffers. Children cannot study after dark. Health clinics cannot reliably use equipment.
On the other hand Djibouti has one of highest electricity tariffs in the world – and the second highest after Chad. Despite this the finances are in a parlous state – due both to mismanagement and non-payment of arrears by government. Income barely covers operational costs and no funds exist for investment within the state system.
However, reforms have been resisted. Major businesses and the freeport have not been allowed to sell excess power into the grid, and no purchasing power agreements (PPAs) have been agreed. Conditions placed on investors, and fears of state impunity have driven potential investors away. Work has begun on connecting into the neighbouring Ethiopian grid, but problems remain and delays have dogged the programme.
Both new dedicated power generation and general grid-based power generation will be sought.
Above all the sector needs financial transparency. To achieve this the sector needs to be separated into generating sector companies and the transmission & distribution sector businesses. Liberalisation should permit the sale of excess private power into the grid, and direct transactions between new generators and major end-users – with distribution fees. The state needs to focus on regulation, planning, safety and ensuring that international agreements are arrived at and maintained equitably.
Poor families currently pay high energy prices and suffer health effects from charcoal and kerosene. There are important environmental and health considerations in the widespread use of these resources. Therefore connection charges should be nominal and recouped in electricity prices – which in any case will be very much lower than current energy prices paid by the poor. Therefore no subsidy is required, but financing costs are substantial for the expansion of connections and for new generation and transmission costs.
Reform of the electricity sector will be predicated upon the Djibouti government paying its outstanding electricity bills – currently the state represents 40% of electricity consumption in Djibouti.
Getting things done
The structural sector reforms must precede privatisation, but not by much. No state borrowing will be required, though involvement of the World Bank will be sought.