As you may know, Britain and some parts of Europe are experiencing an energy crisis as the high cost of natural gas has pushed up energy prices. There are a number of causes for this but the war in Ukraine is notable in that it has compounded the problem, and made it much worse.
Below in no particular order, are 6 key lessons African governments can learn from the UK’s energy crisis.
1. Beware who you authorise to provide utilities (electricity, gas & water) to your people.
In some sectors cowboys abound. Irresponsible executives wanting to make a quick buck, whose companies do not spend enough time thinking about how their actions could negatively impact some of their customers. As a result, they have insufficient policies (or ignore such policies) to mitigate against any such harm.
African governments should carefully undertake sufficient due diligence to ensure that providers of important services to their citizens are thoroughly scrutinised, before being authorised or awarded a supply license. Their track records and previous occurrences of malpractice or maladministration should be duly noted, and used to mark them down. Because what you don’t want to do is invite a cowboy entity with a bad or chequered history into your house, when there are less controversial providers available.
2. Tight Regulation matters more than anything else in utilities supply.
You don’t want an open market where any provider can do whatever they like. Or where a group of providers can collude to charge exorbitant prices or establish identical priced tariffs which leave consumers with little choice or no affordable options.
So your regulation should include a price cap – a maximum ceiling above which no one should be allowed to charge. And that price cap should be rigourously enforced.
Of course the utility companies can be free to charge lower tariffs if they like. But no one should be allowed to charge more than the price cap. This is important for affordability because not everyone has the means to afford expensive electricity, water or gas prices.
But the price cap should not be interfered with unnecessarily, or be prone to amendment without independently verifiable identical increases in supply costs.
Further, utilities are existential necessities which humans need for our very survival. Thus, it doesn’t make sense leaving such an important tenet of existence to the market, or into the hands of speculators who are driven more by profit than service delivery or ethical considerations.
3. Legislate a framework for controlling executive pay structures of utility companies (electricity generation and distribution, water supply, gas supply, etc.
If someone is coming to do business in your country then they must abide by the laws which you have established, many of which are designed to protect not only your society but your country’s citizens as individuals.
Therefore no executive should earn more than five times the wages of the lowest paid worker. And executive pay including bonuses should be capped at no more than US$60,000 a year, with no more than 2.5% increase year on year. Bonuses per person should be capped at no more than $15,000 a year and should be directly linked to performance (in terms of how well the company is serving their customers not how much they can make off them). That bonus too should not increase by more than 2% to 5% a year, if the company is serving it’s customers well. Also as the highest paid executive’s salary increases, so should the salaries of the lowest paid workers.
Such a system will prevent the exorbitant executive pay structures which citizens decry, especially when energy costs keep increasing while service delivery remains poor or inadequate.
It’s not a socialist system as some people (who it must be said would stand to be prevented from exploiting unsuspecting customers if such a system were in force in each African country) would have you believe. Instead, it would protect against extreme inequality and force one small aspect of responsible corporate behaviour.
4. Each utility company operating in the market should file a refundable bond of the order of US$25 million before being awarded a licence to supply electricity, gas or water.
Those who are arleady operating, should be given 3 to 5 years to raise such sums. The costs should not be passed onto consumers, as some providers may try to do, but should originate from the capital reserves of such companies.
That money should be kept by the regulator in case in the years following licencing, an unforseen crisis or other threat (such a corporate failure) leads to a loss on the part of customers of that utility company.
Essentially it’s an insurance policy which says that should the worst happen, there’s a pot of money to ease the ‘pain’. It would also ensure that only financially solid companies can enter the space to supply those important commodities. Like I’ve already stated above, utilities are too important to leave into the hands of every Jim and Jack.
5. Diversify your energy supply sources, and don’t depend on only one or two sources.
Obviously the ideal position is one where your country generates all it’s energy needs itself.
But in practice this is very hard to achieve because not all countries are blessed with multiple key natural resources that are viable to exploit in energy generation. Further, energy generation infrastructure is capital intensive and our countries in Africa often struggle to mobilise resources to fund such large infrastructure projects, without resorting to bad loans.
So the second best optimal position is to have multiple interdependent energy sources. For example if Zambia had surplus energy capacity, but an option of sourcing between 10% to 15% of one energy type from Angola exists, 10% to 19% from the DRC, 7% to 10% from Tanzania and 5%-7% from Malawi, with the rest being generated internally, while at the same time Angola is buying 15% of the internally generated energy of Zambia, 15% from the DRC, and 8% from Solar generated in Namibia; Zimbabwe is buying 16% of another energy source from Zambia, 15% of Solar capacity generated by Botswana, and 5% from Mozambique; Mozambique (which say has a 20% to 35% surplus) is buying 8% of the internally generated energy of Zambia, 25% from South Africa, and 15% from Tanzania, with the rest being generated internally, it follows that if there’s a disturbance anywhere in this complicated web of interdependence example, there will be some flexibilities and options to fall back on, than if each country is heavily reliant on only one or a couple of energy sources.
It could also prevent this unenviable situation where your energy costs suddenly soar as a result of market forces, or supply chain volatility you have zero control over.
Otherwise, if you think about what’s happening with the war in Ukraine for example, despite all the benefits of globalisation, it simply doesn’t make much sense that citizens of countries that are far away from where the conflict is happening should bear the brunt of high energy prices. The arguement between Russia and Ukraine is none of their business so why should they have to suffer because of it?
Thus, African governments ought to collectively invest in diversified energy sources as a matter of urgency. It’s a necessary rigmarole because today we’re struggling because of Ukraine, who is to say that tomorrow it will not be Qatar or Norway (never say never), Saudi Arabia or Nigeria?
So if your country does not have the multiple alternatives or cannot switch within a few weeks and sustain that switch for months, then your parliament needs to be discussing this issue.
I want to see Angola investing in energy projects in Zambia, DRC, Botswana and Namibia. I want to see Botswana investing in energy generation projects in Zimbabwe, Zambia and Mozambique. I want to see Mozambique investing in energy generation projects in Zimbabwe, Malawi and Tanzania. I want to see Kenya investing in energy generation projects in Uganda, South Sudan, Tanzania, Burundi and Malawi. I want to see Malawi investing in energy generation projects in Zambia, Mozambique and Zimbabwe. And I want to see Tanzania investing in energy generation projects in Mozambique, Burundi, Uganda, Malawi and Zambia.
Of course some people are not ready to hear this Pan-African message. But whether they like it or not, the fact remains that this is the type of collective capacity generation and resilience we need to build as Africans, to prevent our countries being hijacked or negatively affected by market forces beyond our control.
6. Reserve Stocks are Important
Not just fuel reserves, but reserves of any type of important commodity.
African governments need to increase their oil and gas reserves which they keep for rainy days like the current economic downtown. Or when something else restricts supply chains. Beyond oil and gas, what about water, grain and fertilizer?
Reserves won’t solve any energy supply problem per se, but it provides a breathing space or window for alternative arrangements to be established in the midst of a crisis – without adversely affecting your economy too much.