Room for growth: Investing in the power network to expand electricity coverage and help meet local and regional demand

To meet 10% growth in local electricity demand and benefit from the rising regional need for power, Côte d’Ivoire will have to make significant investments in all parts of the power supply chain as well as prioritise increasing natural gas and oil production. With an advanced power infrastructure by regional standards and ample energy resources for electricity production, the country is well positioned to become a power-producing centre for the area, particularly within the framework of the West African Power Pool (WAPP).

The resurgence in economic activity following several years of armed conflict (in which energy production dropped considerably) will also require an increase in electricity production capacity; the mining sector alone needs an estimated 500 MW by 2020. While the country has strong potential to generate low-cost electricity in the medium to long term, it will need to attract high levels of investment from private investors and donors to upgrade energy infrastructure, particularly the transmission and distribution networks.

DELIVERING LOW COST POWER: Central to Côte d’Ivoire’s strategy for developing the energy sector is producing low-cost electricity for domestic use and export. To keep electricity prices low for end-users in recent years, the state has subsidised the sector by assuming the cost of rapidly rising natural gas prices. Energy subsidies have been a burden on the national budget, increasing from 0.4% of GDP in 2009 to 1.2% in 2011. Under the aegis of the World Bank and the IMF, the government is undertaking reforms that will put the sector back on the path to fiscal viability.

Key to easing the main structural cause of the country’s budgetary deficit – namely the pricing mechanism for natural gas, which indexed it to crude oil and the dollar, resulting in unsustainably high tariffs and the government going into arrears with natural gas providers – has been the renegotiation of natural gas contracts with suppliers. Tariffs rose by 161% between 2003 and 2010, with prices reaching €6 per one million British thermal units (MMB tu) in 2011. The government’s deficit of CFA150bn (€225m) in back-payments to suppliers was set to climb to CFA170bn (€250m) in 2012 until it renegotiated supply contracts with Foxtrot, Canadian Natural Resources (CNR) and Afren.

Foxtrot, which supplies 60-70% of natural gas for domestic power plants, lowered contractual prices for natural gas from its CI-27 field from €7/MMB tu in 2011 to €4/MMB tu in 2012. The government estimated that it saved CFA91bn (€136.5m) in 2012 due to the price renegotiations, which are expected to deliver future savings of CFA100bn (€150m) in the medium term. The government also entered into talks with CNR in June 2012 over a reduction in prices and expects that it will save CFA27bn (€40.5m) starting in 2013.

NEW SOURCES: Given that gas-fired thermal power plants represent 70% of the country’s electricity production, the sector’s diversification plans include raising hydropower’s contribution to electricity production to 45% from 30% and that of renewable energy, including solar and biomass, to 5% by 2020.

Studies show a potential hydropower capacity of 2500 MW, of which only a quarter is currently being exploited. The Ayame (20 MW), Ayame 2 (30 MW), Kossou (174 MW), Taabo (210 MW), Buyo (165 MW) and Faye (5 MW) hydropower plants currently generate a total of 604 MW. The government under President Alassane Dramane Ouattara has launched the construction of the 275-MW Soubre hydropower plant with a total cost of CFA331bn (€496.5m). While the government will finance CFA92bn (€138m) of the project, China will provide most of the funding, having granted a €388m facility at 2% interest through its state-owned Export-Import Bank. Another Chinese state-owned group, Sinohydro, has been selected to construct the dam and power plant, which is scheduled to take 56 months to finish and will also include a 225-MW power line to connect Soubre and Yopougon 2, an industrial area of the commercial capital, Abidjan.

GROWTH MANDATE: According to the Ministry of Petroleum and Energy’s (MPE) 2011-30 Strategic Development Plan, the government has also prioritised a number of renewable energy projects. One of the projects in the pipeline is a 2-MW photovoltaic solar plant in the north that will be built through a public-private partnership. In the private sector, Sifca, an Ivoirian diversified agricultural commodities company, is looking to develop an independent power project that will generate 42 MW from biomass. Palmci, a Sifca subsidiary, will collect palm oil waste, including trunks, branches and leaves from village plantations, to use as fuel for the project. The estimated €31m facility would require 300,000 tonnes of biomass and is expected to come on-line in fourth quarter of 2015.

Nonetheless, there are a number of obstacles to the development of renewable offerings in the energy regulatory framework. The principal hurdle is the lack of a fiscal and legal framework for calculating power tariffs from renewable energy projects for the privately held power utility, Compagnie Ivoirienne d’Électricité (CIE). In an encouraging sign for the sector, the government is currently working on the final sale price per KWh with the CIE. The revised power code is likely to be passed at some point in 2013 and also aims to set up a new regulatory body that will oversee the development of local renewable energy sources.

PUSH IN UPSTREAM EXPLORATION: Despite plans to reduce reliance on natural gas supplies, an increase in upstream oil and gas exploration as part of a bid to become self-sufficient in energy sources for power generation is an essential component of the government’s strategy. The MPE has set a crude oil production target of 200,000 barrels per day (bpd) by 2018, up from its current 31,286 bpd. According to the US Energy Information Administration, Côte d’Ivoire produced 53bn cu ft of natural gas in 2011, of which the majority was destined for local consumption.

Given that only 30% of the sedimentary basin had been explored as of 2011, there is potential for significant commercial-grade discoveries in light of major findings in neighbouring Ghana. Many oil and gas fields have seen a drop in output, necessitating increased investment to further exploit existing fields or discover new ones. Lured by the success of Ghana’s Jubilee field, a mix of large and junior international oil companies, including Total, Lukoil, Rialto Energy and Anadarko, have snapped up exploration blocks in Côte d’Ivoire over the last two years (see Mining analysis).

OIL & GAS PROJECTS: To supplement natural gas supplies in the short term, the government has pushed ahead with a liquefied natural gas (LNG) project that will boost feedstock to power plants. In March 2013, the Société Nationale d’Opérations Pétrolières de la Côte d’Ivoire (Petroci) welcomed expressions of interests for setting up a joint venture LNG project. The winning bidder will supply LNG over a 20-year period starting in 2015, and operate a floating storage re-gasification unit, with Petroci owning 40% equity in the project and the remaining 60% stake being held by the private investor. Petroci has already awarded a contract to Saipem for the building, operating and maintenance of the terminal in receiving, uploading, storing and undertaking the re-gasification of LNG. LNG will be purchased by Lion Gas Plant, Petroci for its natural gas distribution network, Société Ivoirienne de Raffinage (SIR) and thermal power plants. The largest source of demand is the electricity sector, which required 215.2m standard cu ft per day in 2012, followed by SIR with 30m standard cu ft per day.

While the project will help narrow the LNG deficit, Côte d’Ivoire needs some 37bn cu ft of LNG per annum to meet current demand. The electricity sector has unmet demand of 69.92m cu ft per day, whereas SIR’s requirements will reach 19.44m cu ft per day. According to 2013 figures published by Petroci, natural gas demand in the long term is expected to be two-pronged, with the mining sector needing around 5trn cu ft and the electricity sector roughly 3.6trn cu ft, with the latter predominantly for powering thermal power plants.

Petroci is scheduled to complete construction of a 385-km pipeline that will transport petroleum products from the state-owned petroleum company Gestoci’s depots in Abidjan to storage units in Yamoussoukro and Bouake by mid-2013. The pipeline will have a total capacity of 1.6m cu metres per year to carry current volumes of 750,000 cu metres of petroleum products per year, and will allow Côte d’Ivoire to boost exports of such products to landlocked neighbouring states.

REFINERY: As a leading regional exporter of petroleum products, Côte d’Ivoire’s refinery, SIR, has the second-largest processing capacity in the region at between 75,000 and 80,000 bpd, or 3.8m tonnes per year, after Nigeria (whose four refineries are operating at less than 50% capacity). The facility is equipped with vacuum distillation and hydrocracking units, and has two maritime stations that can receive cargoes ranging from 80,000 to 250,000 tonnes of crude.

At 29% of production, diesel comprises the largest share of SIR’s output, with kerosene (23%), gas (20%) and heating oil (18%) representing other key products. SIR imports the majority of its crude oil from Nigeria and uses feedstock from domestic sources, including the Lion, Espoir and Baobab fields, respectively. In the first half of 2012, production of petroleum products (diesel, refined gas, petrol) saw an aggregate 112.09% year-on-year jump to 1.3m tonnes, up from 610,689 tonnes in 2011. Domestic consumption also rose by 100.97% in 2012 to a total of 722,304 tonnes, up from 359,415 tonnes in 2011. SIR is able to meet domestic demand with 25-30% of its total production, while the remaining output is destined for export. Exports of petroleum products saw a 98.11% increase in the first half of 2012, rising to 592,415 tonnes from 299,026 tonnes in the same period over the previous year.

While SIR has faced liquidity issues over the last several years that have affected its ability to buy crude oil, it has been able to secure loans from international banks to fund its purchases. In August 2011, the refinery received a €481m loan from the African ExportImport Bank (Afreximbank) to fund crude purchases. In January 2013, SIR secured a structured loan for €92.7m from West African ABI Group (Banque Atlantique) and Morocco’s Groupe Banque Populaire units Chaabi Bank and Banque Centrale Populaire for the purchase of imported petroleum products.

STOCKAGE & DISTRIBUTION: Gestoci, a storage terminal operating company that operates under the legal instruction of the minister of petroleum and energy as well as the minister of economy and finance, is responsible for stocking petroleum products for the country.

The group is 87.5% held by multinational energy firms, including Agip, BP, ExxonMobil, Shell, Texaco and Total; however, it is run as a state-owned company, owing to the government’s 12.5% stake, which is considered part of the group’s “A shares” and allows for these shares to be transferrable to the state. It has its main storage facility at the Vridi oil terminal at Abidjan port and two other depots at Yamassoukro and Bouake, respectively. MSTT, held jointly by the groups OiLibya, Shell, Total and Petroci, is the other petroleum product storage company with capacity of 80,000 cu metres in two separate facilities. Petroci is the operator of a logistics network at Vridi terminal, including two petroleum product jetties and 28-km pipelines connecting the jetties with storage units at SIR, Gestoci and MSTT. The main players in fuel marketing in Côte d’Ivoire are Total, Vivo Energy (formerly Shell), OiLibya, Corlay and a number of other independent petrol stations.

“Although business-to-business (B2B) sales growth since 2011 has not kept pace with consumption at petrol stations, investments toward the end of 2013 and early 2014 will boost B2B demand,” Franck KonanYahaut, regional director for Vivo Energy Côte d’Ivoire, told OBG. For Jean Yoou, director-general for Klenzi Distribution, a local petroleum group, “There are too many operators on the market, putting downward pressure on revenue per station, while fixed costs remain unchanged and thereby driving down profitability,” he told OBG. “Economic liberalism is positive, but too many licences have been granted, as smaller players have been leaving the market,” he added.

According to data from the Petrol Professionals Association, Total contributes the largest share of petroleum products to the local market at 35%, while Vivo Energy has the second-largest share at 27%. SIR has the exclusive right to import refined petroleum products for the domestic and international markets, so fuel marketers are not allowed to hold import licences. This restriction is mainly concerning liquefied petroleum gas production since SIR’s output of petroleum products exceeds demand. Export markets like Burkina Faso and Mali also do not have the right to import products through the Vridi oil terminal; all exports are handled by SIR and transported by Gestoci via rail link.

Some sector analysts, including Adnan Moghnnieh, managing director for Ivoirienne d’Hydrocarbure, have noted that while pump prices for super petrol have increased, diesel has remained constant. “The government preserves price and margin stability by adjusting taxes on a monthly basis in accordance with world oil price movements,” he told OBG.

Meanwhile, in butane bottling and distribution, Petroci is the market leader with 44% of the Ivoirian market, while Oryx Énergies has 28%. “The government provides significant subsidies on butane products in small packaging destined for household consumption, ranging from 6 kg to 28 kg, and around 80% of the butane consumed in the city is in this form,” Roger Dago, managing director of Oryx Énergies Côte d’Ivoire, told OBG.

POWER GENERATION: Following its renegotiation of contracts with natural gas suppliers, the government will be able to clear its debts with independent power producers (IPPs), which stood at CFA57bn (€85.5m) as of year-end 2011, according to the IMF. Côte d’Ivoire’s two IPPs, Ciprel and Azito, have launched expansion projects at their gas-fired thermal power plants that will help meet the government’s goal of raising production capacity by 80% to 2421 MW by 2018 from the current 1321 MW. Ciprel, which generates 40% of total electricity production, launched construction work on a 110-MW gas-fired turbine and a steam turbine in 2011 that will increase its output to 572 MW.

Also contributing 40% of electricity to the grid, the Azito thermal power plant started work on its €349m phase three expansion project that will increase total installed capacity to 420 MW. In December 2012, the group secured a €271m funding package arranged by the International Finance Corporation (IFC). While the IFC and the French group Proparco represent major backers of the project with loans of €97m and €42m respectively, the West African Development Bank (€38m), the Netherlands Development Finance Company (€28m), Emerging Africa Institute Fund (€23m), German Investment and Development Company (€19m), and BIO (€17m) also participated in the fundraising. In a separate deal, Azito received a €38m senior loan from the African Development Bank. Notably, the two IPPs are investing in combined-cycle turbines, which will require no additional natural gas feedstock from the state. This will help the government to keep costs from natural gas purchases down.

As for other projects, Aggreko, which first entered Côte d’Ivoire in 2010 when it installed a 100-MW temporary gas-fired thermal power plant, won a €58m contract to generate an additional 100 MW of gas-fired electricity. Also, in partnership with Petroci, American energy firm ContourGlobal is building a 330-MW gas combined-cycle thermal power plant at Abatta for CFA300bn (€450m). Another 20 MW will be added to the national grid upon completion of repairs to a turbine at the state-owned Vridi thermal plant.

DISTRIBUTION & TRANSMISSION: While the government owns the transmission and distribution networks, CIE, the power utility that is 54% held by Bouygues, is responsible for managing the network, including billing services to end-users. CIE posted a 32% increase in its 2012 net profit to CFA8.39bn (€12.59m), up from CFA6.35 (€9.53m) in 2011, and manages a transmission network consisting of between 90,000 and 225,000 high-voltage power lines that link power generation and distribution stations. The distribution network features 18.3m km of high-voltage lines, 15.2m km of battery terminal adapter cables and 7848 distribution stations.

Over the last two years, CIE has grappled with outages due to a lack of investment in the transmission and distribution networks, and increasing incidences of fraud. With the exception of repairs to turbines at the Azito power plant that cut power supply in 2010, the largest factor in rising power outages has been the poorly maintained transmission and distribution infrastructure. Côte d’Ivoire loses around 30% of its total power production and earnings, estimated at CFA12.5bn (€18.75m) yearly, due to technical problems.

To curb blackouts and ensure efficient electricity use, the government plans to invest CFA400bn (€600m) in building 1200 km of new power lines and repairing voltage transformers. The expansion of the transmission network will lift capacity to 3000 MW from its current level of 1400 MW. The authorities are also pushing ahead with rural electrification plans that aim to add 500 villages to the national grid by 2015.

Increasing incidence of fraud has strained CIE’s distribution capacity, contributing to more blackouts. Each year, CIE loses approximately CFA45bn (€67.5m) from illegal connections to the power grid and meter tampering. In order to combat a rise in the non-payment of bills among end-users and fraud, the group is investing in expanding its revenue collection capacity.

Theft of copper wiring is also a growing problem in the country, given high prices for the metal. To this end, CIE is in the process of replacing copper wiring in transformer substations with aluminium. However, given that the metal does not hold a high-voltage current, aluminium wiring requires frequent replacement.

REGULATORY SHAKE-UP: On the regulatory front, the MPE has drafted a new electricity code that aims to establish an energy regulatory body with stronger monitoring powers, as well as set up an agency to promote energy efficiency and renewables. The creation of model concession agreements for distribution and transmission, and changes to the tariff system and tax breaks to encourage greater foreign investment are also being considered as part of the new legislation. The code is due to be passed at some point in 2013.

Other outstanding issues in the draft include the levying of a 20% tax on capital gains as a condition for receiving mining permits (see Mining analysis). Only companies benefitting from a mining convention will be exempt. While mining companies will no longer receive a tax break on the import of equipment, machinery and spare parts for exploration operations for up to 30% of total imported goods, they will instead receive a 5% reduction on taxes and duties.

In 2011, the government set up a new regulatory body, CI-Énergies, that is responsible for financial and technical matters for the sector, by combining Société de Gestion du Patrimoine du Secteur de l’Électricité and Société d’Opération Ivoirienne d’Électricité. The National Regulatory Authority for the electricity sector is responsible for setting electricity tariffs. Under the conditions of the financial assistance provided by the World Bank and IMF, the government increased industrial tariffs by 10% in March 2012 and aims to transfer more large household end-users from the social tariff (CFA36.05 [€0.05] for the first 80 KWh and CFA73.99 [€0.11] after that) to the general tariff (CFA74.54 [€0.11] per KWh) in the medium term.

OUTLOOK: Côte d’Ivoire exports 17% of its total electricity production and is on course to export around 350 MW over the next five years. In light of reforms and greater investment, the electricity segment has the potential to grow further, particularly within the context of the WAPP, the regional electricity market set up by ECOWAS (see analysis). At the same time, the authorities must minimise the occurrence of power outages.