Institutional Framework for a Program of Rural Electrification

René Massé

1. Rural Electrification (Monitoring of repayments by the licensees and the settlement of litigation RE) in Africa

The majority of countries which have achieved electrification of their rural areas have done so through their national electricity companies, and out of their own capital

In Africa, we can put the countries into five groups based on their rate of rural electrification^[1] :

The countries which have already connected their rural areas to electricity, as well as those who are in the process of doing so, haven't systematically or exclusively involved the private sector. Countries like Tunisia and Morocco were able to carry out rural electrification by entrusting their national electricity companies with the electrification mission and the management of financial resources, and it was up to them to delegate parts of the mission to the private sector (PERG Solaire in Morocco, for example). To succeed, the governments not only showed a strong political will, but they also mobilized from their own capital the core of the required financial means, to support this effort for decades. As a result:

• Tunisia needed 30 years (1976 to 2006) to raise its rate of rural electrification from 6% to 98.5%, but only half that long to go from 6% to 70%:

• Just to compare : Vietnam needed 16 years (1992 to 2008) to raise its rate of rural electrification from 10% to 95%, but less than half that (7 years) to go from 10% to 70%.

But the majority of African countries cannot take the financial strain of RE.

The majority of African countries do not possess enough financial resources of their own that would be sufficient to support a financial effort of this scale over the long term. These countries have no other choice but to try to find those resources elsewhere, be it, first, from international donors or, second, from the private sector.

Donors offer conditional financing of RE

Bilateral and multilateral cooperation institutions have made their financial participation in the investments conditional upon the opening of the rural electrification sector to the private sector, with two main arguments: the professionalization of the sector and the mobilization of private financing.

• Professionalizing the sector: the national electricity companies were (are), for the most part, very disorganized, in chronic deficit, and generally found incapable of carrying out the programs of RE on that scale. They face difficult problems of deficit of energy supply vis-a-vis the energy demand. Therefore, international donors encourage states to distinguish the sub-sector of rural electrification from the national grid so they can open it to other operators with different rules of the game (other technical regulations, other customer management styles, other [fee/tariff] systems…) and a referee (a regulating institution that has become necessary with the multiplicity of operators on the market).

• Mobilizing private financial resources: in exchange for their access to these new markets, the commercial operators are expected to contribute financially to the investments in RE. In the countries in question, rural electrification does not currently represent a financially profitable market: it was thus discarded to expect the private sector to finance the investment in total. However, the cooperation institutions assume that if they subsidize a part of the investments, the private operators will take the risk and contribute the rest from their own capital. Thus the public financial contribution would jump-start the contribution of private resources, making it possible to mobilize the necessary important finances needed by these national programs.

Under the donors’ pressure, governments without sufficient resources for financing the programs on their own have accepted to rethink the institutional framework of the electricity sector, and in particular to define a legal, regulatory and fiscal framework for the sub-sector of RE in order to open it to the private sector. Despite much resistance, 80% of Sub-Saharan African countries have modified or are modifying their laws and statutes of electricity, and have created regulatory agencies, rural electrification agencies or even a Rural Electrification Fund (REF).

2. Institutional organisation of RE in Morocco: the Global Rural Electrification Program (Programme d’électrification rurale global – PERG)

It was His Majesty King Mohammed VI who decided to generalize the access to electricity for all Moroccan citizens. The National Office for Electricity (ONE) therefore conceived and presented to the government a national plan, the PERG, that was later on approved by the Government Council in August 1995. ONE ensured its implementation from 1996 until the end of 2007. This program is a global program which addresses three aspects:

• territorial globality: the objective of PERG was to address 98% of rural households all over the country. It was to connect 35,000 villages by the end of 2007 and to give access to electricity to more than 12 million citizens in the rural areas;

• technical globality: PERG used all technical electrification systems and all forms of energy to connect families by expanding the grid (91%), by local grids or by individual solar systems (PERG Solaire);

• financial globality : the PERG manages all the financial resources that can be deployed for the rural electrification of the Kingdom, whether they are based on national or international resources.

PERG is a participatory program, whose financing is provided by three partners: local authorities, benefiting households and ONE.

Whereas rural electrification by grid extension was directly realised by ONE, PERG Solaire was put into action on the concept of "Fee for Service", according to which ONE entrusted a private operator, selected by a call for tender, to supply the customers with a full service. In addition to the supply and installation of the photovoltaic kits, services cover the realization of the in-door electrical installation in the households of lamps and equipment as well as a service of maintenance including the renewal of all the material over a period of 10 years. This model of public-private partnership, which gives the customers a guarantee of continuity of electric service, found positive feedback among the customers and is in the process of being generalized for all the provinces with solar potential.

3. Institutional organisation in Senegal, Mali, Madagascar and Guinea - a concept for Rural Electrification supported by the World Bank

This concept of RE has been put into action in the Sub-Saharan countries; it can be divided into four stages:

3.1. Adapting the legal, regulatory and fiscal framework for creating conditions for rural electrification

New laws concerning electricity have been established which set an adequate framework for RE by:

• Defining the field of application of the specific modalities of RE compared to those of conventional electrification;

• Defining the different status of RE operator: Authorization holders, Concession holders, Licence holders, and the way these status are acquired;

• Creating an institution responsible for RE, such as the Senegalese Agency for Rural Electrification (ASER), the Development Agency for Rural Electrification (ADER), Bureau of Decentralised Rural Electrification (BERD), Malian Agency for the Development of Domestic Energy and Rural Electrification (AMADER)… ;

• Creating a regulatory institution for the electricity sector;

• Planning a pricing policy adapted to RE: charged per unit of energy or based on a fixed price; a single fee or diversified across the country…;

• Creating a Rural Electrification Fund;

• Defining the potential role of regional authorities in the context for decentralisation;

• Introducing specific technical regulations for RE (light technical specifications to reduce the costs of investment in RE);

• Specify the role of different public and private actors.

3.2. Creating a specific Institution (agency, bureau, etc) for RE

When an electrical company is in financial difficulties, and the government services do not have the autonomy to manage political pressure, donors prefer partitioning and the creation of a specialised institution: an agency, a bureau, a board…

Tasks of an institution charged with rural electrification:

• Communication and information in order to

• make public the new institutional and regulatory framework for technical and financial support to local authorities and private RE operators, to stimulate the demand and supply of rural electrification services;

• continuously document the development of RE in the country and make the progress known on a national and international level to round up RE policy and contribute to the mobilization of necessary funding.

• Development of private operators offering electrical services in rural areas;

• strengthen national expertise (training) (?);

• offer financial solutions and services adapted to the needs of RE concession holders and licence holders;

• promote technical and client management innovations to reduce costs and make the services accessible to the greatest number of people;

• assist operators in setting up their project.

• The implementation of the National Program of Rural Electrification (PNER), as specified by the ministry in charge of energy matters and the donor organisations; in particular:

• Support the ministry in a technical and economic feasibility study of PNER;

• Processing of application files for authorizations and concessions;

• Processing the application files for subsidies from the Rural Electrification Fund (REF);

• Technical and methodological support for licence holders and concession holders;

• Follow-up of licence holders and concession holders to ensure compliance with public service standards;

• Maîtrise d'ouvrage déléguée du Ministère de tutelle pour la réalisation de projets d'électrification qui seraient programmées par l'Autorité concédante (dans le cadre d'un Plan Directeur d'électrification rurale par exemple), et

• implementation of tasks delegated by the ministry concerning with the realisation of electrification projects planned by the licensing authority (within a rural electrification master plan, for example), and

• Follow-up on and evaluation of PNER results and achievements, with regular information to the ministry on the development of electrification penetration in rural areas.

• Management of the Rural Electrification Fund (REF);

• Autorisation of financial operations on the REF accounts;

• Monitoring of the implementation of the management agreement made with the selected commercial bank;

• Monitoring of repayments by licence holders and settlement of litigation;

• Regular reports to the ministry in charge of the REF and to the financial donors;

• Participation in negotiations with the donors for contributions to the REF accounts.

• Prevention of conflicts and rules for regulating litigation between customers and RE licence holders ;

• Follow-up on installations and reception;

• Follow-up on the licence holders' compliance to public service provisions and their scale of prices;

• Mediation and settlement of conflicts between clients and licence holders.

• Advice the Minister in charge of electrical energy on establishing a general policy for the sector of electricity.

• The institution takes care to preserve the legitimate interests of the companies having an authorization/concession on rural electrification, as well as those of the customers.

• Regulatory and/or legislative proposals relating to rural electrification, aiming to improve in particular:

• The technical norms and measures designed to protect the people and the environment of the rural areas;

• The criteria for quality of service for the rural customers;

• The duties and obligations of RE licence and concession holders ;

• The types of relation between RE licence and concession holders and their customers;

• Formalities, timeframe and certificates requested for the administrative procedures by the institution on behalf of the public authority in charge.

• Other services include :

• the contribution to studies and research (testing new technologies, for example) in the sector financed by international donors.

The status of an institution tasked with rural electrification: the example of the Guinean Agency of Rural Electrification (AGER)

The choice of status for an institution depends on the legislation in force in the country. In Guinea, two statutory options were possible for a public service institution:

• Regulation N°91/025 from 11 March 1991 defines the institutional and judicial framework for public enterprises: either a limited company with a more or less important public participation, or a State-owned industrial and commercial establishment (EPIC);

• The Act n°L/2001/029/AN from 31 December 2001 distinguishes seven categories of public service: central services, deconcentrated regional services, attached services, external services, decentralized collectivities, so called Organismes personnalisés, and public development projects and programs.

Among all these options, only two can be applied to AGER:

• A "development program", carried out over a fixed period of time, by an independent team, under the guardianship of a ministry. This status induces the idea of a temporary involvement of the public authorities, with an option to finance the program. These connotations are detrimental to AGER.

• A " State-owned industrial and commercial establishment " (EPIC): according to article 13 these have to have a mission that is of general public interest or of public service. This is exactly what AGER has to do in the rural electrification sector. The EPIC status sends a strong signal of political involvement to the donors as well as to the private operators. It guarantees the independence of management, including financial management, even if the EPIC, like all public institutions, is attached to a supervisory ministry.

For these reasons, the status of EPIC was chosen for AGER.

Development of the institutional structure of the electricity sector in Guinea

ERD : Electrification rurale décentralisée (Decentralized Rural Electrification)

BICIGUI : Banque Internationale pour le Commerce et l’Industrie de la Guinée (International Bank of Trade and Industry of Guinea)

OPERD : Opérateurs d’électrification rurale décentralisée (Operators of decentralized rural electrification)

BERD : Bureau d’Electrification rurale décentralisée, (Bureau of Decentralized Rural Electrification), a public institution responsible for carrying out the pilot project of rural electrification in Guinea

EDG : Electricité de Guinée, the national electricity provider.

AGERD : Agence guinéenne d’électrification rurale décentralisée (Guinean Agency for decentralized rural electrification)

FERD : Fonds d’Electrification rurale décentralisée [Fund for decentralized rural electrification)

Bodies of the Guinean Agency for Rural Electrification

• The Administrative Council (CA) is tasked with the management of AGER. It

• Approves the internal regulations of CA and the manuals for internal procedures of AGER and REF;

• Approves yearly the provisional program of activities of AGER, including its provisional budget and the financial involvements of REF, on the basis of a proposal formulated by the president with the assistance of the Director General and in consultation with the supervising ministry;

• Continously monitors the AGER activities. The CA names the auditor and sponsors a yearly financial audit;

• Makes sure the procedures of entering the market are respected;

• Makes sure the procedures for using financial resources of the REF are respected;

• Decides on the development of the AGER organisational structure and the recruitment or dismissal of the Director General;

• Approves annually the report of activities and gives final discharge to the accounts of AGER.

• The president of AGER

• The president of the administrative council, who is also president of AGER, is appointed by decree of the President of the Republic, upon recommendation of the administrative council.

• The president presides over the CA sessions and he has a casting vote. He represents AGER to third parties.

• The Director General of AGER

• The Director General (DG) of AGER, chosen after an open call for candidates, is appointed by the administrative council upon the recommendation by the president of CA for a period of five years with the option of renewal.

• He ensures the secretariat of the administrative council;

• He maintains relations with the member institutions of AGER;

• He maintains relations with the donors;

• He monitors the realisation of the national program for rural electrification and ensures the good management of its components, in particular the REF;

• He prepares the provisional anual program of activities of AGER and the corresponding budget;

• He organises, monitors and controls all activities and budgets for the contractual involvements of AGER. He gives account of his management in front of the administrative council;

• He recruits, manages and licences the staff of AGER;

• He strictly controls the internal regulations and the manual of procedures of AGER;

• He signs for the planned transactions of the annual program carried out in the name of AGER as long as their amounts do not exceed a threshold fixed by CA;

• He decides on the apportioning of public funds from REF to permission and concession holders in accordance with the procedures and upon recommendation from the Technical Director in charge of examing applications.

• He orders the withdrawals of the funds and subsidies of REF for the benefit of the operators of RE holding an authorization (permissionaires) or a concession (concessionaires), according to the methods of withdrawals envisaged in the financing statutes;

• He puts into action the communication strategy and the training strategy of AGER; 

• He formulates and/or supports all regulatory or financial measures designed to promote the development of rural electrification in Guinea.

Organisational structure of the launch phase of AGER

2.3. Creation of a regulatory institution for the electricity Sector

The investors need confidence and the customers need protection! This is the reason for regulatory bodies.

Do not forget that :

• The benefit of regulation needs to exceed its cost;

• Regulation is a means, not an end;

• The aim is sustainable electrification, not the definition of rules: performance rather than procedure;

• “It takes two days to start a business in Australia, but 203 days in Haiti and 215 days in the Democratic Republic of Congo”. Source : Doing Business 2004 ;

• RE agencies like REF are already de facto regulatory bodies.

• Recommendation : differentiate the procedures that apply to small decentralised operators from those designed for large centralised ones.

The principal role of regulatory bodies is to:

• Determine, make public and supervise the price ceilings for electricity;

• Control and uphold the principles of competition;

• Control the norms of service quality.

Roles and means of a regulatory body:

2.4. The Creation of a Rural Electrification Fund

Rural electrification on the scale of a country requires funds sustained over time and of important amounts. Donors generally do not wish to finance RE through the public Treasury, in order to avoid political risks. They then make their contribution conditional upon the creation of an autonomous fund, dedicated to RE, which will be set up to gather all the contributions of the donor community (see the article on rural electrification funds).

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