December 06 2004
Mozambique is one of the largest power producers in Southern Africa. The Cahora Bassa dam, built some 30 years ago in the Tete province, is Africa's second largest hydroelectric plant and supplies South Africa with what is considered to be the cheapest electricity in the world.
Despite the country's significant hydropower potential, however, only 7% of Mozambique households have access to electricity. To remedy this situation, major plans are underway to develop the country's electricity sector at all levels, the most important of which is the World Bank-sponsored Energy Reform and Access Programme (ERAP).
ERAP is a seven-year electrification programme which aims to facilitate the transition from a traditional fuel-based energy system to a system capable of providing modern energy services to a significant portion of the population. In developing countries such as Mozambique, it is crucial to improve the electricity capacity of public institutions in rural areas, with a view to improving the quality and effectiveness of their services. The final target is to guarantee the indirect benefits of electricity access to the poorer segments of the population.
ERAP seeks to engage both the public and the private sectors in the electrification effort. Private partners are expected to operate in rural areas, with the Mozambican stated-owned electricity company Electricidade de Moçambique (EDM) the key player in peri-urban electrification.
The Mozambican Electricity Law (21/97) was passed in 1997, after a long and somewhat complex discussion about the role of private partners in the electricity sector. The law de-monopolized EDM's position in the industry and opened the business to private participation. The statute also created the National Electricity Council, which acts as a regulatory agency and is vested with the powers and duty to supervise public tenders for the award of electricity supply licences.
ERAP places a new set of legislative challenges before the Mozambican government. To address them, the National Directorate for Energy is undertaking a review aimed at the adoption of measures for the legal unbundling of EDM's production, transmission and distribution activities, and for private sector participation in distribution. The latter is likely to involve the privatization of EDM's power distribution business.
The future legal framework is expected to establish the framework for the segregation of EDM into several business units and for the participation of private entrepreneurs in EDM's distribution business through strategic partnerships. There is also the intention to create an autonomous public entity to provide transmission assets and perform system operation, as already provided for in the Electricity Law.
In addition, the forthcoming regulations are expected to establish a cost-based and regionally differentiated tariff mechanism, in order to accomplish the public interest goal of providing low-cost access to electricity in rural areas.
The main question mark now hangs over the nature of EDM. Direct privatization may be the key to improving the company's performance, which is deemed to be essential for ERAP's success. Whatever the final solution may be, the unbundling of EDM's current business is yet another step towards the full liberalization of the country's electricity sector.
ERAP is a textbook example of how public-private partnerships can boost the growth of developing countries. While a nationwide electrification programme is beyond the scope of the Mozambican government alone, as it lacks the necessary financial and technical resources, private partners have the necessary expertise and capacity and are attracted by the potential afforded by the region's energy market. This makes associations between the state and private investors almost inevitable.
For further information on this topic please contact Alberto Galhardo Simões at Miranda Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (Alberto.GalhardoSimoes@mirandalawfirm.com).
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