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).
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]