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ERERA as a Response to Regional Electricity Regulation

By Economic Community Of West African States (ECOWAS)
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ABUJA, Nigeria, November 18, 2013/African Press Organization (APO)/ -- The performance in the power sector across the 15 ECOWAS Member States has been consistently unsatisfactory over the years. Despite implementing power sector reforms aimed at stimulating private sector participation and liberalization, national power utilities in the region have not been able to attract a significant level of private investment. In fact, the national power utilities have continued to be under-capitalized in addition to charging rates below cost, hence they have not been able to access financial markets or attract investors for maintenance and expansion projects.

It is believed that over 60 per cent of the region's electricity generation capacity runs on petroleum fuels and, as such, any escalation in oil prices has a devastating effect on most of the economies in the region. Furthermore, most of the national electricity markets are too small for any meaningful gain from economies of scale. Against this background, the region's power utilities face enormous challenges in providing quality energy services to existing consumers and expanding coverage. Therefore, the desire of Member States of ECOWAS to develop electricity interconnections through the joint implementation and sharing of primary energy resources of the region is being progressed to address the sector challenges.

ECOWAS Initiatives in the power Sector

But first what has ECOWAS done in response to this prime concern? The initiatives of ECOWAS date back to its regional Energy Policy of 1982 that seeks to harmonize Member States' energy policies and increase collective energy autonomy. However, the Community's instrument that has given impetus to the regional energy programme, and particularly free wheeling and dealing in energy goods and services, is the ECOWAS Energy Protocol that was adopted by the Heads of States and Government of ECOWAS in 2003.

The various actions undertaken since have resulted in the establishment of the following specialized institutions of the Community: the West African Gas Pipeline Authority (WAGPA), the West Africa Power Pool Secretariat (WAPP Secretariat) and the ECOWAS Regional Electricity Regulatory Authority (ERERA), for the establishment and supervision of the regional electricity market.

The establishment of WAPP in 1999 by ECOWAS Heads of State and Government was a tactical move to create a regional market in the true sense of the word. However, the development of power interconnections goes hand in hand with an institutional requirement to efficiently manage transactions between States. There are two dimensions to this institutional approach: firstly, the establishment of the necessary legal and regulatory framework to promote long-term cooperation in the energy sector within Member States and to attract investments. The 2003 ECOWAS Energy Protocol is classical here.

The Second dimension relates to oversight and supportive frameworks for stakeholder activities. This meant putting in place a regional regulatory body, the initial foundations being the adoption, in January 2008, of the Supplementary Act establishing ERERA. Under this Act, ECOWAS leaders endorsed the requirement for an independent, credible and transparent regional regulatory authority to develop a regional power market for West Africa. This institution then became responsible, explicitly, for providing oversight for contractual arrangements, management and dispute resolution, sector performance evaluation, as well as access to the regional electricity transmission system.

ERERA was created to regulate cross-border electricity exchanges and give support to national regulators of the electricity sub-sector of Member States. It has committed to building a strong institution which is credible, respectable and able to develop a strategic vision and sustainable regulatory and legal instruments to attract the much-needed investment into the regional electricity sector.

Since its establishment and with very limited resources, ERERA has contributed a lot in the implementation of the roadmap leading to the regional electricity market. The perfect illustration of this contribution is the adoption of the Directive on the organization of the regional electricity market in June 2013 by the Council of Ministers of ECOWAS.

Need for Regulation to Speed up Development of the Regional Electricity Market

The Directive on the organization of the regional market provides for a gradual progression towards this market so that national power utilities can adapt in a flexible and rational manner, thereby taking into consideration the diversity of their current organizational statuses. It lays out the general principles governing the Regional Power Market as defined by the ECOWAS Energy Protocol.

All sector operators will have to comply with the principles and rules of the regional market, with a view to achieving a competitive, efficient, and sustainable electricity market. Since electricity transmission networks are natural monopolies, the main challenge to speeding up regional market development lies in how much trust is placed in the ability of operators to regulate the interplay of competitive forces and manage their trade contracts. This form of regulation of cross-border electricity trade calls for coherent regulatory decision-making, a necessary requirement for guaranteeing the efficiency of trade contracts binding interconnection developmental activities.

Issues at Stake for ERERA

The first issue at stake stems from the fact that the institution is still in its infancy (the institution's Regulatory Council was only set up in January 2011) and relates to its institutional capacity to impose itself as an indispensable player for the development of cross-border trade. One of the necessary pre-requisites for technical regulation and efficient trade in regional exchanges and market surveillance is for ERERA to build up its expertise and that of the national regulatory authorities in the Member States.

ERERA will then need to ensure that consolidating and fast-tracking cross-border trade is carried out with a minimum of regulatory risk for all stakeholders in the market, which means providing the best contractual arrangements between Member States' national operators. The end-result is to promote transparency in cross-border power trade and create transparent, predictable, and harmonized regulatory practices in West Africa, attract capital to the region for sector development and ensure that maximum benefit accrues to electricity consumers.

Regional regulation is therefore at the heart of the process for supporting cross-border power exchanges and must go hand in hand with support to national power regulators in ECOWAS Member States. Regional regulation is thus bound to yield results since its very efficiency builds trust and facilitates public-private partnerships, without which the massive investments required for market development would be difficult to attain.