Trying to keep pace: Growing demand for power and water necessitates new state investment and an organisational revamp

Across Libreville, Gabon’s economic and political capital, construction is booming. New apartment projects stand beside office-tower scaffolding. Outside the city centre, ground is being cleared beside the village of Nkok to make way for large industrial projects in the newly inaugurated special economic zone. Inland, mining projects across the country are on the drawing board, as well as a manganese processing plant near Franceville. Gabon is under construction, laying the base for an ambitious development strategy to reduce the country’s reliance on crude oil production.

This additional construction is translating into growing demand for both electricity and water. Shortages in the country are becoming a regular phenomenon as citizens and the government struggle with an electricity generation system that dates to the 1970s. Years of delayed investment have left the electric and water infrastructure ill-equipped to handle the country’s rapid growth. To attempt to strike a balance between investment and end-user cost, the government has created new organisations to manage the energy sector.

CONCESSION: Until 1997, Gabon’s electricity and water infrastructure was managed by the state-owned utility Société d’Electicité et d’Eau du Gabon (SEEG). Despite Gabon’s relative high income per capita, only about half the households in Libreville had direct water connections and only 69% had electricity at the time. The rate was much lower outside of urban areas. The utility faced other problems, including financial losses of over $100m and a network in dire need of rehabilitation.

With help from the International Finance Corporation (IFC), the private sector arm of the World Bank, the government decided to privatise the SEEG. In 1996 the IFC conducted a technical study of the power and water sectors and proposed a financial restructuring programme that involved transferring control of the SEEG to a private operator under a 20-year concession contract. The contract transferred responsibility for serving Gabon’s major population centres – Franceville, Port-Gentil and Libreville – as well as 30 villages in the rural areas of the country without power. In March 1997 the government selected the Compagnie Générale des Eaux, a French multinational now known as Veolia Environment, a choice that was based solely on guaranteeing the largest promised tariff reduction. In addition to lowering tariffs by 17.5%, Veolia promised to invest a minimum of CFA450bn (€675m) to expand coverage and network density.

By 2008, the SEEG had increased electricity penetration by 115% and household water connectivity by 137%. In the period from 1997 to 2008, the SEEG invested CFA261bn (€391.5m) in electricity and water. The number of subscribers has continued to grow, rising 6% in 2010 for electricity and 5% for water. The SEEG has also continued to invest in Gabon, with investment of more than CFA300bn (€450m) in 2010. “Veolia, through its SEEG concession, is one of the largest sources of foreign direct investment in Gabon outside of the oil sector,” Jean-Pierre Lasseni Duboze, the assistant director-general of the SEEG, told OBG.

KEEPING UP: Despite the investments made by the SEEG, the supply of electricity and water has been unable to keep pace with the growth in demand. Consequently, shortages of water and electricity are becoming more and more frequent. Libreville has been most affected, with the city experiencing frequent blackouts, some lasting for as long as 10 days.

At the same time, tariffs have risen. After the initial cut in 1997, rates for electricity have crept back up and are now higher than they were before the SEEG was privatised. The combination of increasing rates and shortages has caused the government to question its relationship with Veolia and accuse the company of not fulfilling its promised level of investment.

According to Rick Tsouck Ibounde, country resident economist at the World Bank, one of the causes of the disagreement is the demand forecast prepared by the IFC at the time of the privatisation. “When the contract was signed in 1997, demand was forecast at about 2% to 3% a year. In reality, demand has grown at closer to 7%, putting a great deal of pressure on existing resources despite the investments of the SEEG,” he said.

The use of thermal energy has increased significantly as a share of Gabon’s overall power mix. To compensate for rising demand and declining water levels at hydroelectric stations, SEEG has had to turn increasingly to thermal power for electricity. In 2011 electricity generated by thermal power plants increased 18% while hydropower decreased 7.4%. As prices have risen over the past 10 years for liquid fuels, so have tariffs.

Demand is also forecast to rise significantly in the future. According to some estimates, Libreville needs about 100 MW of additional capacity to satisfy demand. The special economic zone of Nkok, when fully operational, could have a demand of up to 500 MW, greater than Gabon’s current generating capacity.

NEW INITIATIVES: In 2009 the government hired the global accountancy and consultancy firm Deloitte to conduct an audit of the concession arrangement with Veolia. The results of the audit were never released to the public. Following the report’s completion, however, the government moved to change the way in which the electricity and water sector is managed. In 2010 the government created the Agency for the Regulation of the Potable Water and Electric Energy Sector (l'Agence de Régulation du Secteur de l'Eau potable et de l'Energie Electrique, ARSEE).

The independent organisation, which began operation in 2011, has a mandate to supervise the SEEG contract, as well as set tariffs and manage construction in the sector. The SEEG contract is currently managed directly by the Ministry of Energy. While the transfer of the SEEG concession to an independent organisation could serve to smooth relations between the SEEG and the state, the ARSEE has yet to receive the necessary budget and personnel to support its mission.

To increase investment in the power and water sector, the government has taken over the formerly private Société d’Electricité de Téléphone et d’Eau du Gabon. In September 2011 the government invested CFA106bn (€159m) in the company and announced it would clear CFA11.5bn (€17.2m) of its debt.

The government has also announced the creation of a heritage corporation, Société de Patrimoine, which will manage the state’s electricity and water resources. The agency could serve in a role similar to the National Agency for Public Works, which has been given the responsibility of managing a number of major public works projects across the country. “It is unclear at this time the exact role the agency will play going forward,” said Duboze of the SEEG.

GOVERNMENT INVESTMENT: In addition to a reorganisation of the sector, the government is investing heavily in new generating capacity. Officially, the government has called for a tripling of generating capacity by 2020. While over the long term the government is focusing on hydro power, to satisfy short-term demand, it has also invested in two thermal plants to supply power for Libreville and Port-Gentil, respectively (see analysis).

There are three dams current in various stages of construction in the country. Two dams, FE2 and Imperiatrice, with a combined generating capacity of 78 MW are being financed by Coder, a joint venture between Pangola, a waste-management company owned by the French group Auroy, and Socoba, Gabon’s largest construction company. Coder will be the operator of the two power plants and has signed 20-year concession agreement with the state. While preliminary construction has begun, it is unclear whether the two dams will supply regional needs, including two planned mining projects, or if they will be used to augment supply in Libreville, which would require the construction of expensive high-tension lines to connect the dams to the Estuaire grid. A third dam, the €304m Grand Poubara project, is being built and financed by Sinohydro. The first phase of the project will have a generating capacity of 160 MW, with a planned second phase bringing an additional 80 MW. Located in the south of the country, the dam will be used to supply power to Eramet’s planned manganese processing plant.

Whether or not Veolia has respected the investment terms laid out under its contract, it is clear that significant investment beyond what is currently planned will be needed to meet forecast demand. While existing projects in the pipeline will serve regional needs, none of them are well-suited to fulfil the growing base-load demands of Libreville.

Even if both FE2 and Imperiatrice are connected to the Libreville grid, which will entail the construction of expensive high-tension lines through dense jungle, there would be little power left over to supply to Libreville after fulfilling regional needs.

While the government has acted to create new organisations, including an independent regulator of the electricity and water sector, until these entities are fully functional, it remains unclear what role exactly they will play. Over the long term, however, there are significant opportunities for investment as the government, most likely in partnership with the private sector, will need to invest considerable amounts to increase capacity, both in water and electricity, to keep up with demand.