Wednesday, August 5, 2015

Energy Reform in the Democratic Republic of Congo: From an Untrustworthy Monopoly to Competition and Reliability

By Socrates Djemba

Socratesse Djemba, a student in Lewis & Clark Law School's LL.M program, interned with GEI this summer. Socratesse is originally from the Democratic Republic of Congo, and his blogs reflect on energy insecurity and policy in the DRC.

As my previous post described, the majority of the population in the Democratic Republic of Congo (DRC) lives without electricity. This inadequacy is attributable to many challenges, such as lack of funds to construct appropriate transmission lines and to assure maintenance of equipment.  The overarching problem, however, is the lack of effective energy regulation and policy. An inadequate policy framework explains why a country with the potential to produce over 100,000 MW of electricity has installed capacity less than 2,500 MW so far.  

Commentators attribute many of the DRCs energy problems to ineffective state-owned monopolies. According to Emery Mukendi, the legal framework that has governed the electricity sector in the DRC is essentially composed of antiquated, disparate, out-dated and unsuitable legal instruments that have not kept pace with the evolution of the sector. In addition, the government has retained a monopoly in electricity sector for more than 40 years. In 1972, the Congolese government established the SNEL (National Society of Electricity) as the state-owned agency to generate, transmit, distribute, and trade electric power. Undoubtedly, this monopolistic situation in the electricity market has failed to provide the entire population with access to electricity. 

While article 48 of the Congolese Constitution of 2006 guarantees access to electricity as an inviolable right, I wonder how much the government is aware of its flagrant violation of the Constitution.

Fortunately, the Ordinance-Law of July 7, 2008, launched the process of transforming Congolese national enterprises that have not reached their goals. Under the ordinance, SNEL triggers the criteria for being transformed into "commercial corporation" in which the government will be "the majority shareholder" among other shareholders, including private operators. As a result, SNEL should lose its monopoly over producing and distributing electricity.

More recently, President Kabila signed into law the Act number 14/011 of 17 June 2014 to govern the electricity sector, which adopts the following fundamental principles:
 - The liberalization of the sector and the opening of the electricity market to any operator;
- The allocation of concurrent powers in this area between the central government, the provinces and decentralized territorial entities;
- The erection of any hydroelectric or geothermal site as an inalienable site of public interest;
- The environmental protection requirement for all development projects in this sector; and
- The State's obligation to promote the electrification of rural and suburban areas, in order to increase the electricity access rate throughout the country; ensuring the protection of both the operator and the consumer.

As a result of this act, the monopoly regime will be replaced by a more competitive energy sector. In addition, the central government has lost its role as the single regulator of the energy. Local governments now have the autonomy to manage their natural resources and to engage in energy markets in accordance with the law. Also, the government is no longer the only actor who bears the burden of providing access to electricity because private investors are among the main actors in electricity sector. Article 25 of the new statute on electricity allows investors to propose new tariffs of electricity for review. While article 77 established a regime of freedom to any person to develop a private power plant with a capacity not exceeding 50 kW, article 81 authorizes the government to delegate to a third party the management of its electricity utilities. The promotion of public-private partnership is one of the significant innovations brought by this new legislation.

Should the Congolese population cheer these reforms? Is this legislative success enough to bring back hope and satisfaction? The SNEL Director of Transmission Department, Mr. Alex Kadiayi, announced that the process of SNEL's transformation into a commercial company is complete. Has this transformation ever changed anything? Doubt persists and population still lives in the shadows.

Brazils experience could offer some indications of how the DRC may perform. Brazil is also a developing country with a population of more than 200 million inhabitants and an area of 8,515,767 km2. Brazil has an installed capacity of more than 75,000 MW of hydropower, but it aims to reduce its reliance on hydropower by promoting alternative renewables, such as ethanol and wind. Moreover, Brazil's energy policy encourages private generation and distribution electricity to large users. The government retains the exclusive right to supply electricity to residential users. Generally speaking, distribution of electricity is dominated by private companies, as supplemental actors. It would not be a surprise to hear that nearly 100% of the Brazilian population has access to electricity, and the rate of outages is very low.

Brazil may also offer a cautionary tale, for while Brazil has a great potential to produce hydropower and other types of renewable energy, it is still an importer of electricity in order to meet the high demand of its population. The DRC also has incredible potential to produce renewables without needing alternative energy from fossil fuels. The Congolese population is growing, and the country's installed capacity of power has remained the same for decades.

To ensure the DRC can produce and deliver power for this growing population and to meet the 2025 goal of 60% electrification rate, the Congolese government should provide a number of incentives for construction of transmission lines for renewables in order to increase its installed capacity. For example, operations of transmission lines could be exempted from service taxes. The importation of equipment for renewable power plants should also be exempted from port taxes. Rather than merely rely on hydropower, the DRC should also promote alternative renewable sources of energy, such as geothermal, solar, and ethanol.

In the United States and other countries with high electrification rates, affordability and reliability are pillars of energy policy and supply. The problem with the DRC is that ratemakers blindly follow affordability and undermine reliability. Imagine a scenario where the government sells electricity to other countries, but the local population does not have reliable access to electric power produced in its own country. Fortunately, new laws now criminalize some practices in electricity sector. For instance, article 122 of the Congolese new electricity legislation provides for imprisonment and a fine ranging from $1000 to $500,000 for anyone who interrupts the supply of electricity to consumers without valid cause. In this case, the population should have opportunity to bring claims against the government and private suppliers, and obtain relief.

The changes to the DRCs energy laws should improve competition in energy sector. Monopoly and hegemony in energy sector did not produce their fruits we expected, so perhaps private operators will play a better role, particularly if their rights and investment were guaranteed.