New players: Institutional reforms promise to improve the coherence and efficiency of the water and electricity sectors

Demand for power and water has increased in recent years, driven by growing populations in urban areas, expanding cities and the ambitious economic development plans gradually unfolding. This has put pressure on an already strained system, often resulting in power outages and water-related difficulties such as low pressure and poor quality.

To tackle these challenges, the government has adopted a number of measures in recent years aimed at enhancing production capacity and service quality, and it is now working on an institutional reform to improve sector coherence and efficiency. This initiative will likely revise the responsibilities of the country’s key utility company, Société d’Énergie et d’Eau du Gabon (SEEG), in addition to other actors in the water and electricity sectors.

CONCESSION: French multinational Veolia Water manages the formerly state-owned SEEG, based on a 20-year concession it was awarded by the government of Gabon in 1997. The concession covers the production, transport and distribution of drinking water and electricity in the country, including its three major cities, Libreville, Port-Gentil and Franceville. The delegated responsibility extends to the majority of urban and semi-urban centres and, according to Veolia, the electricity access rate in the regions it is responsible for has significantly improved since it took over the utility company, going from 76.3% to 99% between 1997 and 2008.

GROWING DEMAND: When Veolia assumed control of SEEG, it committed to investing some CFA300bn (€450m) over a 20-year period; yet, according to local media, it has invested more than the agreed upon amount during the last 14 years. Despite its considerable investments, SEEG has still been struggling to meet growing demand for electricity and water. Power demand, for example, “is currently growing at 7% to 9% a year, which represents more than the 2% to 3% originally estimated and contemplated in the concession contract,” SEEG’s secretary-general, Jean-Pierre Lasseni Duboze, told OBG. “To keep up with the current rate of growth,” he added, “SEEG would have to install an additional 20 MW per year, equivalent to an annual investment of CFA15bn-20bn (€22.5m-30m).”

In 2012, SEEG generated a total of 1966 GWh of electricity, 7% more than in 2011. The company allocated CFA27.3bn (€40m) to investments, reflecting a year-on-year decrease of 10%, and also registered a turnover of CFA175bn (€262.6m) and a net revenue of CFA7.9bn (€11.9m), respectively corresponding to a 6.8% and 50% increase over 2011.

SEEG’s concession contract director, Erwan Rouxel, told OBG that the company is not currently in a position to make the large additional investments required to keep up with both rising demand in electricity and government targets outlined in the Emerging Gabon Strategic Plan, a government document containing a number of development policy priorities. This situation is more difficult to manage, said Rouxel, because the firm’s annual budget must already address a number of other financial challenges, including company debt and increasing operational expenses, as well as company advances to cover for delays in certain public payments.

Notwithstanding these difficulties, SEEG has achieved a temporary solution for tackling growing demand in key areas such as Libreville. The company is currently renting approximately 50 MW of electricity generating capacity, 24 MW of which comes from the US company APR Energy and the remainder from British firm Aggreko. This will allow the utility to cope better with the growth of demand in the capital over the next two to three years.

WATER CONCERNS: Meeting water demand, by comparison, has proven more challenging, even though the company’s production has increased recently, growing by 4.1% between 2011 and 2012, up to 85.6m cu metres. Lasseni Duboze told OBG, “Water demand is currently estimated to be 240,000 cu metres per day, yet SEEG only has a daily production capacity of 170,000 cu metres. Port-Gentil and Libreville are currently under capacity, and the public works that are now in development will not be concluded before the end of 2014.”

Created in 2010 to regulate all activities related to the production and commercialisation of drinking water and electricity, the Regulatory Agency for the Drinking Water and Electricity Sectors (Agence de Régulation de l’Eau Potable et de l’Énergie É lectrique, ARSEE) was given three functions: consumer protection, economic regulation and technical regulation. However, according to Alain Herth, director-general of ARSEE, since 2012 only the first function has been carried out by the agency due to a lack of human and financial resources.

The agency currently depends on state assistance, and this likely to be revised under the institutional reform under way. “The agency appears to be evolving from a sector-encompassing model, similar to that seen in Cameroon, to a more narrow scope of action, more akin to that in Senegal,” Herth told OBG. This raises questions as to who will supervise firms operating in the water and electricity sectors once the institutional reform is approved. Since 2012, and following management changes at the Ministry of Petroleum, Energy and Hydroelectric Resources, the government has been reclaiming some regulatory aspects, such as water quality control.

In 2011, the government created a new organisation, Société de Patrimoine du Service Public de l’Eau Potable, de l’Energie Electrique et de l’Assainissement. According to Herth, the new entity is currently responsible for managing infrastructure projects such as the construction of the third water pipeline connecting Ntoum to Libreville. However, its mandate is still unclear and this will likely be defined as part of the institutional reform being prepared. For the moment, it would appear that this institution will be used by the government to manage the water and electricity sectors. “The Société de Patrimoine is getting started. It will be through this institution that the government will delegate its prerogatives and organise the future operators in the water and electricity sectors,” Lasseni Duboze told OBG.

The institutional reform is also likely to make room for a change in SEEG’s responsibilities, with the potential for items to be renegotiated and any changes likely to take effect after the concession reaches its end in 2017. “In the medium to long term,” Lasseni Duboze told OBG, “one could imagine a reconfiguration of SEEG’s role, focusing on power and water distribution, as well as client management. SEEG would become a simple operator of the respective production networks, leaving behind its role of concessioner and investor. Once a new framework is established as a result of negotiations with the state, SEEG would adopt a new financial model and business plan, allowing it to allocate financial resources to specific sectors, notably the maintenance and development of distribution networks.”

POTENTIAL IMPACT: Expected for September 2013, the reform under way should provide some coherence to the water and electricity sectors, which have undergone major changes in recent years as a result of government initiatives to boost sector efficiency and tackle growing demand.

In the short term, the reform is set to offer a better sense of the functions of recently created institutions. Measures already undertaken suggest that the state will take a more active role in managing both water and electricity. By contrast, other actors, such as ARSEE and SEEG, may come to assume a more modest role compared to their original duties.

Major changes in production and service quality are only likely to take effect in the medium to long term as new production and distribution infrastructure comes on-line, SEEG’s concession ends and the regulator’s scope evolves. In the meantime, investment opportunities in the electricity and water sectors, primarily in infrastructure construction, will likely endure as the government continues to promote further development to help meet demand.