KEY ISSUES IN THE ENERGY SECTOR IN AFRICA AND PLANNED ACTIONS TO IMPROVE ENERGY SECURITY PRESENTED BY HON. DAUDI MIGEREKO, MP MINISTER OF ENERGY & MINERAL DEVELOPMENT MINISTER OF ENERGY & MINERAL DEVELOPMENT THE REPUBLIC OF UGANDA & CHAIRPERSON FORUM OF ENERGY MINISTERS OF AFRICA MEETING OF INFRASTRUCTURE CONSORTIUM FOR AFRICA AND ENERGY MINISTERS OF AFRICA MEETING OF INFRASTRUCTURE CONSORTIUM FOR AFRICA AND ENERGY MINISTERS OF AFRICA ADDIS ABABA, ETHIOPIA June 20, 2006

CONTENT Introduction Introduction Key Issues Behind the Current Electricity Shortage in Africa Key Issues Behind the Current Electricity Shortage in Africa Way Forward Way Forward Short Term MeasuresShort Term Measures Medium to Long Term MeasuresMedium to Long Term Measures Suggested Actions by FEMASuggested Actions by FEMA

INTRODUCTION The Energy Ministers of Africa welcome the formation of the Infrastructure Consortium for Africa and are glad to note that the Consortium found it fitting to organise this side event to discuss this important subject of Energy Security in Africa.

Energy Ministers from Africa, confronted with the challenges of insecurity of energy supply and the need to scale up energy access so that the Millennium Development Goals (MDGs) can be met, decided to form a Ministers’ forum called the Forum of Energy Ministers of Africa (FEMA).

The Forum provides a platform for political leadership and policy direction in the energy sector; for collaboration and the exchange of experiences; and for advocacy in the provision, access, use and management of energy resources for sustainable social and economic development.

KEY ISSUES BEHIND THE CURRENT ELECTRICITY SHORTAGE IN AFRICA The African Continent is currently facing a critical shortage of electricity supply. This has been brought about by a number factors which include the following:

Decline in investment in Energy Infrastructure There has been a decline or lack of investment in electric power generation, transmission and distribution infrastructure in the region. There has been a decline or lack of investment in electric power generation, transmission and distribution infrastructure in the region. Energy investments from ODA to Africa have been on the decline in the last 10 – 15 years from US$1.4 billion per annum to as low as US$ 100 million per annum. Energy investments from ODA to Africa have been on the decline in the last 10 – 15 years from US$1.4 billion per annum to as low as US$ 100 million per annum. The low and declining public expenditure in infrastructure for selected African countries is shown on next slide. The low and declining public expenditure in infrastructure for selected African countries is shown on next slide.

While public expenditure in other sectors was increasing for infrastructure it has been decreasing see below

Direct foreign investments (DFIs), which had been anticipated to flow into the reformed power sectors did not materialize to anticipated levels. Direct foreign investments (DFIs), which had been anticipated to flow into the reformed power sectors did not materialize to anticipated levels. Although several African countries reformed their power sectors, it has been established that foreign investment (both debt and equity) in the power sector is strongly influenced by external factors like appetite of offshore capital markets, environmental lobby groups and world politics. Although several African countries reformed their power sectors, it has been established that foreign investment (both debt and equity) in the power sector is strongly influenced by external factors like appetite of offshore capital markets, environmental lobby groups and world politics.

Electricity supply situation has been exacerbated by climatic conditions Taking the East African region as an example, the prolonged drought which has persisted since 2003 has had a heavy toll on the electricity supply in Uganda, Tanzania, Kenya and Rwanda. Taking the East African region as an example, the prolonged drought which has persisted since 2003 has had a heavy toll on the electricity supply in Uganda, Tanzania, Kenya and Rwanda. To mitigate the problem, these countries have resorted to installing expensive thermal generation capacity to replace the lost hydropower supply. To mitigate the problem, these countries have resorted to installing expensive thermal generation capacity to replace the lost hydropower supply. This involves huge expenditure in foreign exchange, wear and tear of the roads and increased environmental pollution. This involves huge expenditure in foreign exchange, wear and tear of the roads and increased environmental pollution.

Rise of Oil Prices on International Market The oil prices on the international market are steadily rising with serious consequences for land locked countries. This has had a negative impact on the economies of African countries, especially those which import all their petroleum products.

Lack of Regional Power supply infrastructure Until recently, most African countries have been developing power supply for domestic consumption only. This makes these projects unattractive for financing. Consequently, even the regional power supply infrastructure remains largely undeveloped.

WAY FORWARD In order to address the above constraints, we need to take measures on the continent which are both short term as well as medium to Long term:

Short Term Measures i)In the short term, efforts have to be made to reduce the losses in the power distribution networks and also to institute energy efficiency measures to reduce power wastage. To overcome the barriers of disseminating energy efficiency technologies, Governments have to put in place appropriate incentives which will make energy efficient technologies more affordable and accessible.To overcome the barriers of disseminating energy efficiency technologies, Governments have to put in place appropriate incentives which will make energy efficient technologies more affordable and accessible.

ii)The other short term measure is the development of locally available renewable energy resources which provide least cost solutions for meeting electricity supply needs. These renewable energy resources could play a key role in meeting energy supply for rural communities.These renewable energy resources could play a key role in meeting energy supply for rural communities. As in the case of energy efficiency measures, appropriate incentives have to be put in place to facilitate the development of renewable energy resources.As in the case of energy efficiency measures, appropriate incentives have to be put in place to facilitate the development of renewable energy resources. These resources include among others, solar power, modern biomass, wind and hydropower.These resources include among others, solar power, modern biomass, wind and hydropower.

iii) National Governments should prioritise energy in their poverty eradication strategy papers so as to attract financing. For many countries on the continent, energy has not been among the top priorities yet it is a key input to poverty eradication. iv) Domestic resource mobilization and development of financial instruments to facilitate investment in the energy sector should be mainstreamed by African Governments. This should make it easy for the Consortium to come up with innovative products for the energy sector.

Medium to Long Term i)In the medium to long term, there is need to develop the existing large hydropower potential and oil and gas projects on the continent as regional projects to serve the continent. ii)To facilitate power trade, there is need to fast track the interconnection of the electricity grid system on the continent so that electricity can flow from regions with a surplus to those with deficits. The same goes for oil and gas pipelines.

Suggested Actions by FEMA FEMA supports Governments to take leadership in accessing investment and financing for either public investment or through public/private partnerships. FEMA supports Governments to take leadership in accessing investment and financing for either public investment or through public/private partnerships. To achieve this, FEMA will liaise with relevant organisations to organise and actively participate in forums for dialogue with the private sector, multilateral financing agencies and donor community.To achieve this, FEMA will liaise with relevant organisations to organise and actively participate in forums for dialogue with the private sector, multilateral financing agencies and donor community.

FEMA will also collaborate with national governments and sub-regional bodies to ensure that power sector reforms improve efficiency, yield growth and sustainable development. FEMA will also collaborate with national governments and sub-regional bodies to ensure that power sector reforms improve efficiency, yield growth and sustainable development. We Propose that FEMA and the Infrastructure Consortium should undertake a comprehensive analysis of the African power shortage which will also propose a menu of proven response options which will ensure energy security in Africa. We Propose that FEMA and the Infrastructure Consortium should undertake a comprehensive analysis of the African power shortage which will also propose a menu of proven response options which will ensure energy security in Africa. Finally, FEMA recommends that the Consortium should prioritise energy in its investment plans as it is the engine of growth and expansion for the other infrastructure projects. Finally, FEMA recommends that the Consortium should prioritise energy in its investment plans as it is the engine of growth and expansion for the other infrastructure projects. This will necessitate establishment of an Energy Investment Fund (EIF).This will necessitate establishment of an Energy Investment Fund (EIF). The Fund, when established, will be instrumental in addressing the current and future electricity supply shortage on the continent.The Fund, when established, will be instrumental in addressing the current and future electricity supply shortage on the continent.

Thank you for your attention!