Written by Brian Burrell - Horizon Ethiopia Staff Writer
Tuesday, 13 January 2009
How most souks (shops) were operating during rolling blackouts.
Emerging as Ethiopia is from the worst rolling power shedding ever seen, energy may be a sore topic for some at the moment. Speculation that the full page power outage warnings published in the Ethiopian Herald will begin even earlier this year are circulating faster than the Ethiopian Electric Power Corporation (EEPCo) can increase its capacity with massive hydropower dam projects. The one billion USD Tekeze Dam and two billion USD Gilgel Gibe II Dam that were supposed to come on line this year will be delayed at least until next rainy season.
And electrical power is just one of Ethiopia’s energy needs that is fraught with challenges at the moment. Although oil prices have taken a steep dive in the last two months alone from their stratospheric highs of mid year, Ethiopian consumers have not felt any relief but an increase in prices due the complete removal of long standing government subsidies. Though spending an amount equivalent to the country’s exports became an unpalatable drain on foreign currency reserves, can the public stomach an instant 50% jump in kerosene and 40% rise in diesel rates?
While oil and electricity are the two components most frequently viewed as the backbone of energy policy in most places, for a large majority of Ethiopians the primary energy consideration is what they use for cooking and that revolves primarily around biomass fuels. Dependence on forestry resources by the largely rural and off-grid population even led to the “2 trees for 2000” campaign to combat deforestation taking center stage in the official Millennium hoopla. Is this enough in a country where alarming studies indicate forest coverage has dropped by over half in the last 20 years?
THE ECONOMY’S LIFEBLOOD
From agriculture to services and industry to transport, energy is the driving force of any economy. Ethiopia’s 85% agrarian society feels the pinch when bringing goods to market becomes an expensive venture, cutting margins and squeezing the growing urban population struggling to feed itself under the prevailing 20% inflation rate. Though mechanized farming is currently fighting to find its feet amongst scattered small landholdings and inaccessible credit, the promises this revolution holds for Ethiopia to wean itself off food aid dependence cries for the energy to power its development.
The dam at Tekezze - long awaited relief from blackouts may come when it is completed. After twice promising but not delivering, EEPCO's credibility in promising to have this one and Gibe ready sometime in 2009, is meeting with a healthy dose of skepticism.
While the government’s decree that exporters were to receive uninterrupted electricity during the trying times of power shedding seemed a noble but desperate intervention, this policy touched but a fraction of the country’s business interests. For two months many businesses could operate about half the time. The economy is still characterized by small-scale enterprises reliant on erratic power supplies. Without electricity, realizing economies of scale and specialization is a fleeting hope.
POWER TO THE PEOPLE
One of the immediate impacts of the power shedding was individuals’ taking matters into their own hands. This is a movement in the wrong direction for a sector indisputably subject to efficiency gains from mass (if not public) distribution. Indeed the rush on generators was monumental, as the rumbling of machines burning diesel became commonplace and office location within a privately supplied building was paramount. When left with no other option, the private sector is forced to divert resources from primary business activities towards short-term solutions; the negative economic ramifications of which are still being gauged.
But emerging from all these woes the spirit of entrepreneurship spawned by acute need is pushing the traditional energy boundaries in the direction of diversification. New sources of energy are receiving increased attention: solar, wind, geothermal and natural gas all hold great promise both for private business development and the great push to bring power to the people.
Solar energy is now an option for many ventures as GDP growth means deeper markets are ripe for new products produced at off-grid locations. The increased investment flows and developing credit markets mean initial expenditures to invest in a technology whose returns accrue further down the line. The falling price of silicon, the primary input of solar panels, doesn’t hurt either.
Geothermal, wind and natural gas are more public markets for now. Government control of land means EEPCo is usually a customer to the foreign firms granted concessions and awarded projects by partnering ministries. Competition appears to be growing stiffer in bids opened to exploit these natural resources, showing the opportunistic outlook international investment carries, while the supporting local goods and services needed should be seen as a hot sector. Developing these resources in remote areas (a wind farm in the rugged Tigray hills as well as geothermal and natural gas) will involve the foreign firms with expertise subcontracting many logistical and temporary camp erections/operations to local firms.
The French group Vergnet’s 210 million euro venture to develop the Ashgoda wind field around Mekele and the Iceland government’s cooperation in geothermal development are just the beginning of an expanded web of opportunity. Hydropower, which supplies 99% of the country’s electricity and is at the forefront of investment promotion in the “water tower of Africa”, is currently a large-scale affair. This is ripe for change as the recently reformed regulations for private power generation, slow progress of the behemoth projects and acknowledgement of logistical challenges in remote distribution network areas call out for private ventures.
OPPORTUNITY OR OBSTACLE:GLOBAL ADDICTION TO OIL
The global debate on how to decrease dependence on fossil fuels, the degree of urgency and whether it presents an obstacle or opportunity for economic development bears on the Ethiopian case with its own peculiarities. To be sure, the reality of how the country will be affected by these dynamics lies in the uncertain gray areas of these discussions, with both positive and negative ramifications.
Mollifying the crippling effects of oil imports worth about a billion USD (roughly one billion litres) on the exhausted federal budget just occurred in one fell swoop; the private sector is now scrambling to incorporate fuel prices tied to international markets into its ventures. Blending fuel with ethanol in a 95-5 ratio is a step towards using domestic resources (the by-product of the growing sugar industry) to meet energy needs. A rush to extract oil supplements this.
The flood of investment into biofuels, long considered Africa’s answer to capture energy opportunities, holds great promise. With a suitable climate, land and growing global environmental consciousness the Ministry of Mines and Energy’s Biofuel Department is seeing to it that large tracts are finding their way into investors’ hands. Proponents of the industry hold that this endeavor holds great promise to solve a number of the country’s dilemmas (see The Promise of Jatropha) .
BALANCING ENERGY NEEDS WITH FOOD SECURITY
But biofuels and energy policy in general are not without their critics. In a country with recurrent droughts and at a time of global food price increases, devoting valuable agricultural or forested land to non-food purposes draws caution from environmentalists and agro-economists alike. Expecting the country to be food secure in this climate is almost as contentious as the new philosophy of letting the public fend for itself without subsidies to obtain fuel.
The answer is a fine balance of development promotion with social safety nets embodied in a nuanced policy framework. Supporting resource exploitation for long-term growth must be done carefully with an eye to ensuring the public can bear the costs incurred to do so. Many variables remain uncertain. Can hydropower promise electrify the country and earn export revenue? Can oil and gas reserves be exploited and alternative power ventures be transmitted into needed energy supply? The jury is still out.
