The Gambia Solving the Electricity Problem

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The Gambia Solving the Electricity Problem

Electricity (and/or broadly energy) are important element in improving living standards. Such electricity should be reliable – available 24/7 365 days. Power outages should be abnormality and in events of occurrence should be very brief.  That electricity should be affordable – cost at or below cost of living of the people.

Gambia failed to meet people’s need for electricity. Gambia government assumes electricity provision from colonials but for the entire country and not just Banjul.  We had Gambia Utilities Corporation (GUC) for the 1st 20/25 years since independence and fall short of the desired target. This was (is) true for all the other social-services departments of our government. In the 1980s with the arm-twisting of Word Bank/IMF government agreed to let some of these social-services departments ‘go as public financed privately run businesses on a Performance Contract with selected Board of Directors and a General Manager’. These were then commonly known as parastatals (in The Gambia) and are now usually referred to State Owned Enterprises (SOEs). They were about 8 including NAWEC (is it PURA now?) which is responsible of electricity. Although NAWEC (or PURA) never seem to be better than when it was GUC, the other entities made a promising start. To date none has succeeded in delivering nationwide reliable and affordable service. They’ve since stagnated and/or even going south. This is largely because over time operational separation of these entities from government dwindled (or receded) back to executive control.  Yahya once (or so) assumed the roles of Managing Director of NAWEC as if that will magically power-up Kotu machines. GPTC has long stopped to exist and we still don’t know what happened to our monies.

In 2017, upon demonstrations over what was referred to as acute electricity shortages (measured against what it was under Yahya), Barrow administration pronounced a plan called ROAD MAP. The central piece of the plan is to import electricity from Senegal by that November. I wrote at the time is not going to happen or if it those it would not be sustained. Why? Senegal cannot afford to supply Gambian consumer free electricity when more than ½ of Senegal is dark. On the other hand, cost of living is higher in Senegal hence unit cost of electricity from Senegal will be too high for an average Gambian consumer unless subsidized. Gambia government cannot sustainably subsidize otherwise they could redirect such cashflow on to Kotu to generate the needed Kwh and as well fix the dilapidated distribution infrastructure. In short whether we want to import from Senegal or generate within the same factors come to play. On the flip side Senegal masterfully play to these tunes because their long standing main economic interest in Gambia is to bridge Yeli/Bamba Tenda crossing and were on track on that at the time. This gives Senegal a very affordable north/south (vis-à-vis) access. Those efforts were stalled both under Jawara and Yahya but Macky Sall masterfully puppeteered Barrow with his supposed leadership role in ECOMIG.

HOW DO WE FIX KOTU? This is the wrong question. Kotu or not – what we want is reliable and affordable electricity. The right question is – HOW DO WE PROVIDE RELIABLE AND AFFORDABLE ELECTRICITY? Gambia is a secular democracy – supposed to. In such a country with a free-market economy good government’s remained focus on the fundamental roles of governing such as creating enabling conditions for market forces to compete. Gambia government throwing more money at Kotu will never produce anything better than what we having. Equally government importation of electricity faces similar challenges as generating it at Kotu.

Here under practical market-based solution:

ROLE OF GOVERNMENT

  1. Government should get out of the businesses of provision of some (or all) of the social-services. These are no core functions of a democratic government and are very bad at them

 

  1. Government should make laws, regulations, policies and processes/procedures that induce private investments and competition

 

  • Government should divest public holdings of NAWEC/PURA. Equally divest public holdings at Gamtel, Gamcel, SSHFC, GPTC, GRTS, etc.

 

  1. Government should rewrite Tax Code to massively improve the less than GMD10b (< US$200m) annual tax revenue. Give tax-breaks on capital invested in vital social services such as electricity… eg. All diesel burnt directly to generate electricity should go tax-exempt

 

  1. Government should develop market-oriented Consumer Protection Laws, Anti-Trust Laws, Consumers Protection Commission, etc. – all private capital into social services should account for costs of living. Government will not arbitrarily price-controlled but ensure market-based safeguards that consumers are not rip-off. Prevent industrial monopoly/collusion, price-manipulation. Ensure market-based competition

 

  1. Cut out bureaucratic red-tapes and clean-up the administrative regulatory systems to protect investors from corruption/bribery. For example, an investor interested in piece of land at TDA shouldn’t be swindled ¼ of capital and wait 10 or so years to be approve/disapprove of the land. The system should be streamlined, requirements publicly known and straight forward.
  • Put in place robust Environment Protection Laws while not stifling everyday human endeavor – right balance
  • Encourage clean renewable energy but don’t push it beyond the natural pace of the free-market.

ROLE OF INVESTORS

The primary driver of private capital is ‘profit’. Of course, there could be many other 2nd tier motives. Thus, if profit potential exists in supplying electricity in The Gambia we can be confident such capital is readily available given the right political environment. That capital would do the following:

  • Generate over 500 Kwh/year

 

  • Install nationwide distribution infrastructure (could be Regionalized)

 

  • Establish an impeccable billing and collection that catches errors, fraud and abuse

 

  • Required start-up capital =US$1b/GMD50b – to be amortize in 20 years

ESTIMATION OF RETURN ON INVESTMENT

Potential electricity consumption in The Gambia – population 2m = 166,667 households/families. 55% (91,667) of these families live from Brikama Administrative Area to Banjul.

Urban Consumption Estimate

91,667 families x GMD2500 average/month = GMD229,167,500/month = GMD2.75b/year

Rural Consumption Estimate

75,000 families x GMD1500 average/month = GMD112,500,000 = GMD1.35b/year

Businesses/Trades Estimate

10,000** entities x GMD5000 average/month = GMD50,000,000 = GMD600,000,000/year

The 10,000 estimation is a wild guess; couldn’t find any meaningful categorized list of registered for-profit and/or non-profit businesses. 10,000 should be a fair number of businesses ranging from big hotels to tailoring shops. Understandably hotels may consume 10s or even 100s of thousands worth in electricity while a tailoring shop may consume far less. This conservative estimation of D5000/month/business is reasonable to make the point. In the real world, an investor will do a more thorough ‘cost benefit (profits included) analysis’ than our example with all relevant variables including Environmental Impact Assessment (EIA). Tabulation below illustrates positive profits:

Profitability Estimation (GMD in billion)
Description GMD (billions) NOTE
START-UP CAPITAL – amortized in 20 years 50.00 taxable capital
     
ANNUAL REVENUE    
Year 1 – annualized inflationary revenue grows @ 2% 04.70 5% annual consumption growth
     
OPERATIONAL COSTS    
Operational overhead 00.50 tax/non-taxable expenses
Capital amortized 02.50 capital recouped
     
EARNINGS BEFORE TAXES 01.70  
Taxes @ 5% 00.085  
     
EARNINGS AFTER TAXES (BOTTOMLINE) 01.615  
ANNUAL TAKE HOME PAY OUT 04.115  

 

This imaginary investor will take home GMD4.115b in the 1st year of investment – GMD2.5b is direct repayment of invested capital plus GMD1.615b in earnings. With cost of electricity adjusted to inflation annually 2% and forecasted GDP growth of 5% annually, the bottom-line is forecasted to be bigger at each outer year. Given this market potential, if government simply offer conducive investment environment as spelled out under the ‘role of government’ above – Gambia will be fully lit up within 5 years. The investment capital exists.

SO WHY WAS THIS NOT DONE, IF THIS SIMPLE?

Several factors are at play why Gambia government failed on electricity and likewise many other basic social services. The central reason though is governmental legalized theft of people’s meager resources. The table below is an abridged national budget of selected years to prove our assertion:

Abridged National Budget (selected years)
Description 1994/Jawara 2017/Yahya 2018/Barro 2019/Barro 2020/Barro
NATIONAL INCOME GMD in billions
Taxes/non-taxes 0.68 8.53 9.50 11.80 13.60
           
OBLIGATORY EXPENSES          
Cost of government 1.11 5.48 20.09** 9.80 25.50**
Debt Interest Payment 0.13 3.70 4.00 2.70 2.89
Total Expenses 1.24 9.18 24.09 12.50 28.39
           
Cash Balance -0.56 -0.65 -14.59 -0.70 -14.79

 

The costs of government figures for 2018 and 2019 must be wrong due to wrong categorization or lack of it. The table demonstrates that all of the money Gambians pay in annually for their common welfare needs/wants instead go to paying wages and work-conditions of public servants. Public service overhead at over 100% of annual national revenue is an unacceptable ‘legalized theft’.  With no money left Gambia could not afford citizens 24/7 domestic water or construct a kilometer road length/year or power up Kotu generators for an uninterrupted 24 hours or consistently collect domestic refuse from our streets, etc. without begging and/or contracting new loans. In addition to these abysmal budget figures Gambia has an outstanding National Debt estimated at about 130% of GDP (D75b – D100b). While 40% of the debt is borrowed from outside sources; 60% is contracted from local sources. Any default in such a locally skewed debt-structure will likely collapse the entire economy.

This legally sanctioned mismanagement of public resources is the primary macro-cause of poverty in The Gambia. The average educated Gambian men and women viewed Gambia government ‘an enterprise to finance their adopted lifestyles and not a public service organization.’ We need paradigm shift and re-education on the role, scope and size of government.  Costs of government has to be drastically reduced to between 10-25% of national revenue, increase national revenue to D75 – D125b in 10 years and judiciously manage all our resources. This would not only require fundamental reorganization of governance but also a seismic cultural reorientation. Merely changing the president and/or laying off some employees will not do the trick.

Reliable and affordable electricity is positively related to national prosperity. Prosperity and as well freedom/civil liberties are products of good democratic governance.

For The Gambia Ever True

Burama FL Jammeh

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