4 0 WORLD BANK 22 059 > ONL8 Africa Region. Number 62. March 2001 Findings Infobriefs reports on Good Practice in ongoing operational, economic and sector work carried out by the World Bank and its member governments in the Africa Region. It is published monthly by the Knowledge and Learning Center on behalf of the Region. The views expressed in Findings are those of the author/s and should not be attributed to the World Bank Group. Mozambique: Private Participation in Isolated Electrical Grids Following the passage of the Electricity Law in 1997 which de-monopolized EDM, the national utility, and allowed private sector participation in the industry, the Urban Household Energy Projectfunded a pilot isolated grid electritcation project in two coastal towns in Mozambique, Low-cost electricity services were extended to the two isolated areas after an enabling framework had been created for private sector partici- pation. Impact on the ground * Cost recovery tariffs were introduced. The tariffs were set to generate revenues to cover all costs includ- ing the management fee, depreciation, and a return to the government of about 8 percent on its capital investment. * More than 60 new jobs were created during construction. * About 400 households/industries now enjoy 24-hour electricity supply. The demand growth exceeded the projection by 50 percent, with a monthly growth of over 10 percent. * Obsolete low-voltage overhead lines and some poles were replaced and new transformers and other facilities were placed. The grids were extended to the Vilankulo airport which has become a main hub to bring in an increasing number of tourists. * Noise pollution from the gas generators was contained by placing them in sound- proof power houses with the high boundary walls. * A number of streetlights have been built along the main roads and around the public places. The esti- mated electricity consumption for streetlighting is about 5 percent of electricity generated, which is paid for by the electricity users. * Better lighting improved health clinic services and extended their operating time. * The power sector reforms that permitted the creation of independent grids with cost-based tariffs were rated as a "significant achievement" by the Bank's internal independent review (OED). The " Good Pr . , r, . ' r,h.ir/ ri e ,e b. PC .1 1h.i R.,, J. -55 A, lee, ando Lea, mne Ce er. %VcrlId Bank. 1818 H Street Alt', Washington D.( .'f'433 .?I4314 ~ aIp"'iii' ~ I,, Lessons learned * It is possible to significantly reduce electrification costs via lower-cost options, i.e., independent grids rather than costly transmission extensions and use of readyboards. * It is difficult to estimate the suppressed demand and willingness and ability to pay. The average electric- ity tariff for consumers is estimated at MT 1,558 (US cents 12.6)/kWh, which is significantly higher than the current average national tariff at US cents 7.5. After the systems were commissioned, demand grew much faster than anticipated at the time of the feasibility study. * The electricity law restructured the power sector, which set the legal framework for private participation in the program and sustainable sector operation. However, full reform implementation is not a prerequi- site for private participation in distribution. * The private sector can be attracted to participate in rural electrification schemes, even in a poor coun- try, if the appropriate legal framework and risk management options are in place, including the assur- ance of a level playing field in terms of competition and the ability to charge full cost-recovery tariffs. * Financial support for house-wiring/connections and for the purchase of appliances helps increase coverage and build load. * Consumers are able and willing to pay higher tariffs in return for improved services and theft can be avoided. Non-technical distribution losses are very low (around 5 percent) and collection exceeds 98 percent. * The availability of electricity stimulates the development of small and micro enterprises and led to increase in new private investments. This article was written by Yuriko Sakair, Senior Economist, Africa Region. For more information, please e-mail Ysakairi@worldbank.org WORLD BANK Persons accessing the Bank's External Website can access information on Ener by clicking on Topics and Sec- tors, then Energy. World Bank staff can access the necessary Information by cgddng on Sectors and then on Energy.