OBG talks to John Rice, Vice-Chairman, General Electric

 Interview: John Rice

To what extent will liberalised electricity tariff regimes in Africa provide investment potential?

JOHN RICE: Sustained power generation is acquiring critical importance in the Middle East and Africa, where the governments are focused on infrastructure development and in meeting the increasing demand for electricity from a fast-growing population. The watchword in sustaining the investment and growth potential of the region’s power sector is efficiency: Is the investment making a tangible difference? Are generation, transmission and distribution losses being addressed? How can operational efficiencies be achieved? When efficiency is ensured, there is greater trust in you as a partner, and it opens the opportunities for investments with governments convinced that they have reliable partners who can meet the requirements. The emphasis on a liberalised electricity tariff regime in Africa has increased the investment options. But what is really defining about the power generation sector in the Middle East and Africa is the adoption of renewables – this will have a huge bearing on future investments.

What role will renewable energy play in the development of the Middle East and Africa?

RICE: Renewable energy will play an increasingly crucial role in defining the energy mix of the region’s future. This is not an option; it is an imperative, despite the fact that the Middle East and Africa have some of the world’s largest oil and gas reserves. Already with one of the largest carbon footprints, the region’s developmental thrust needs to focus on achieving environmental sustainability. Turning to renewable energy is an important factor to achieving sustainability.

A key concern associated with tapping renewable energy sources is the substantial initial capital cost involved in its set up and operation, and the unpredictability of the supply. This is true in the Middle East and Africa, both of which are regions where the need for a shift to renewables is even more pronounced because the social cost of having no electricity is far more debilitating than the economic cost of generating power through whatever possible means.

What are the challenges to the successful implementation of public-private partnerships (PPPs) in the Middle East and Africa?

RICE: PPPs are a growth model that governments in the Middle East and Africa region pursue and in fact prefer. This is because of the ability of PPPs to share the risk involved in any endeavour, as well as their ability to widen the development mandate. If you examine the policy framework of most governments in the region today, there is a stronger focus on promoting private sector partnership. As in any business environment, there are some challenges – principally because a PPP is the joining hands of different stakeholders, with sometimes altogether different priorities and organisational goals. The challenge is to ensure that a PPP is effectively drawn out with clear roles for each partner, with room for continuous improvement. A partnership cannot be set in stone, especially when it comes to the development agenda. In Africa, navigating the complexity of government contracts is perceived as a challenge, especially when price considerations take the upper hand. A PPP must not be defined entirely on the basis of price bidding; it must rest on the differential that the private sector participant brings to the equation.

How does Egypt’s investment potential look and what sort of challenges do you expect to face?

RICE: Last year, US Senator John McCain and our chairman and CEO Jeff Immelt led a delegation of elected officials and business leaders to Egypt. They met with government, business and civil society leaders and discussed the role of reforms in attracting more foreign investment. A key area highlighted was how companies can come together to re-energise growth and development in Egypt, as well as contribute to localisation. I strongly believe in the potential offered by Egypt, with its wide talent pool of youth and skilled professionals.