What Underlies the Poor Financial Performance of Electric Utilities in Sub-Saharan Africa ?

This study investigates the factors responsible for the poor performance of 67 electric utilities in 47 countries, using descriptive data from the World Bank, the International Energy Agency, the U.S. Energy Information Administration, and national sources. The findings show that both cost-side and revenue-side factors are responsible for the poor financial performance of electric utilities. More than two-thirds of vertically integrated utilities and electricity distribution utilities are unable to cover their operational and debt service costs by their revenues. The main causes of the poor financial performance are high fuel costs (particularly oil), low capacity factors, low capital and labor productivity, high transmission and distribution losses, and leakage in electricity bill collections. The study finds that in these countries, despite their much lower per capita income, consumers face relatively higher electricity tariffs than in many countries around the world. The study also finds that if the transmission and distribution losses were reduced to the current level of South Africa (11 percent) and the leakages in bill collection were eliminated, several electric utilities that are currently operating at a loss would have higher revenue than their operational cost. The findings indicate that policy makers in the region should focus on a portfolio of policies, including switching from expensive generation to emerging cheaper options, improving factor productivities, having efficient institutions and governance, reducing transmission and distribution losses, improving bill collection, and reforming tariffs. The policy priorities could vary across countries, depending on the roles of various factors contributing to poor financial performance.