Evidence and gaps in evidence in use of management contracts for electricity distribution & supply
Several Sub-Saharan Africa countries have attempted to implement electricity sector reforms over the past two decades
Following the example of developed countries, several Sub-Saharan Africa countries have attempted to implement electricity sector reforms over the past two decades. The main objective of these reforms has been to improve utility performance and increase the rate of electrification. The participation of the private sector in the operations of the power sector, including the distribution and supply, was seen as a crucial step for achieving the above objectives.
Due to the unwillingness of private investors to take large risks, usually associated with full privatisation, management contracts have often been perceived as an intermediate model, either to improve utility performance and management for continued operation under Government/parastatal ownership or in preparation for deeper privatisation options. However, the practical application of such contracts in Sub-Saharan Africa countries, according to the limited literature available, has generally been disappointing.
Their short duration, together with other factors, including contract designs that provided limited incentives, adverse external circumstances, expensive management fees that call for donor support and tensions between the expatriate firm and the utility’s board of directors have been the main reasons behind the failure of management contractors to achieve sustained performance improvements.
There is limited evidence, one way or the other, whether management contracts achieve the objective of enhancing the capacity of utilities and improving performance on a sustained basis. Management contracts tend to be limited to relatively short periods (3-5 years) that may not be sufficient to turn around a utility. The fees charged by management contractors were found to be too high for governments to cover to extend contracts without donor support and there is limited evidence of the impact on sustained performance through extended contracts.
The relatively limited literature that considers the outcomes of management contracts in electricity in Sub-Saharan Africa, tends to focus on the performance against prescribed targets and asks the reasons why these have or have not been achieved (contract design, poor public communication, tensions between the contractors and the utility Boards, external factors beyond anyone’s control, etc.). More work could be undertaken in this area, particularly to assess the performance of these contracts on a consistent basis and to identify the most important characteristics of a successful management contract. There is a larger evidence gap in relation to the fundamental question of whether management contracts achieve the goal of sustainably enhancing the capacity of the electricity utilities and whether it is either an effective alternative to more substantial private sector participation or is a precursor to fuller effective private sector participation. Evidence from other sectors may also be useful with regard to both the design of a successful management contract and to whether management contracts are fundamentally valuable in achieving the above objectives.
This report has been produced by Economic Consulting Associates for Evidence on Demand with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by DAI (which incorporates HTSPE Limited) and IMC Worldwide Limited.
Economic Consulting Associates. Evidence and gaps in evidence in use of management contracts for electricity distribution & supply. Evidence on Demand, UK (2015) iii + 21 pp. [DOI: 10.12774/eod_hd.december2015.economicconsultingassoc]