2019/107 Supported by K NKONW A A WELDEGDEG E OL N ONTOET E S ESREI R E ISE S F OFRO R P R&A C T HTEH E NEENREGRYG Y ETX ITCREA C T I V E S G L O B A L P R A C T I C E THE BOTTOM LINE Electricity Utility Reform in Mali: Lessons from Operations In conflict-ridden Mali, where 61 percent of the population still lack access to electricity, demand What is at stake in the reform of Mali’s years. The government subsidizes the utility’s operations, but the subsidies are insufficient to meet the utility’s cash-flow needs or to for electricity is outpacing supply, electricity utility? cover operating losses. The government cannot raise the subsidies limiting the country’s prospects Mali’s future depends on wider access to affordable because its limited resources are needed to address other priorities, for industrial and economic development. At the request of and reliable power such as social protection and security concerns. To reduce the electricity sector’s reliance on public funds, the the Malian government, the World Mali is vulnerable to extreme weather, including high temperatures, Malian authorities in 2017 asked the World Bank to prepare and Bank launched a comprehensive floods, and drought. It is also fragile and beset by conflict and execute a plan for a self-sustaining electricity sector. This brief assistance strategy to identify violence. Together these conditions represent a critical development reports on progress to date. the causes of the financial challenge and a source of social and political instability. In this difficulties of the electricity utility; context, accessible and reliable utility services are not only essential devise a corporate and financial to provide economic opportunities to the population but also to What are the main challenges? restructuring program; and provide foster peace and stability. However, the ability of the government to High costs, stagnant revenues, and creeping targeted technical and financial use electricity service for these purposes is hampered the financial insolvency are strangling the utility support to address priority and operational difficulties faced by the national utility, Energie du concerns. The actions have already Mali (EDM). Mali still relies heavily on expensive thermal power generation from borne fruit, improving the financial EDM generates, purchases, transmits, distributes, and sells EDM-owned plants and rented generation facilities. Over the years, situation of the national utility. If all electricity to customers connected to the country’s main grid and both fuel consumption and cost have increased steadily as demand the issues identified are properly to its diesel-powered mini-grids.1 The utility’s customer base has for electricity has grown, worsening the utility’s position over time. addressed, the utility will be able to expanded by almost 50 percent since 2014, with demand growing In 2017, the share of thermal generation in the energy mix was reduce its reliance on government about 10 percent per year, but supply has not kept up, increasing 41 percent, with a unit cost averaging $0.24 per kWh. Less-expensive subsidies. only 33 percent over the same period. The mismatch results in hydropower ($0.07 per kWh) and electricity imports from Côte frequent load shedding and the use of costly rental power solutions d’Ivoire ($0.11 per kWh) made up only 38 and 21 percent of the at peak times. In 2017, approximately 10 million people—61 percent energy mix, respectively (figure 1). The considerable potential of solar Franklin Gbedey is a senior energy specialist in of the population—still lacked access to electricity. technologies is not being exploited, despite the new competitiveness the World Bank’s Energy and Key impediments to EDM’s performance include the high cost of solar power projects in the region, as witnessed by the $0.042 per Extractives Practice. He is of generation (with the bulk of electricity supplied by expensive kWh tariff resulting from a 2017 solar auction in neighboring Senegal. based in Bamako (Mali). thermal generation plants and rented power generators), high losses, Renewable energy and electricity imports are envisioned as ways to and below-cost retail tariffs that had not been adjusted in many reduce the cost of energy while also ensuring the sustainability of Monyl Toga is a senior electricity service delivery. energy specialist in the World Bank’s Energy and 1 The rest of the country is served by rural electrification operators through off-grid solutions Extractives Practice. and mini-grids, under the umbrella of AMADER, the rural electrification agency. 2 E l e c t r i c it y U ti l it y Re f o r m i n M a l i : Le s s o n s f r o m O p e r ati o n s Figure 1. The energy mix in Mali’s electricity sector in 2017, by In the years leading up to the request for World Bank assistance, source (thermal, hydro, imports) EDM was not generating enough revenue to operate as a viable business, with costs routinely exceeding revenues (figure 2). The average tariff of $0.18 per kWh stood against an average cost of 16% service of $0.24 per kWh—a 30 percent average loss per unit of elec- Renewable energy and 21% 21% tricity supplied, not considering operating subsidies. On top of this, 38% electricity imports are technical and commercial losses amounted to 19.5 percent of the energy supplied, the result of aging and overloaded transmission and envisioned as ways to Supply Cost distribution infrastructure, coupled with poor customer management. reduce the cost of energy Arrearages from government entities and public sector customers while also ensuring the were equivalent to 260 days of sales. Though tariffs had not been 41% sustainability of electricity 63% increased since 2004, there was no political support for raising them Hydropower in the absence of a credible promise of improvements in service service delivery. Thermal Imports delivery and efficiency. In order to continue providing electricity services, EDM was Source: Based on EDM Annual Report 2017. relying on bank loans to fill its cash shortfall. The situation had Note: Imports shown are sourced from Côte d’Ivoire. reached a point where EDM could no longer service its debt unless it contracted additional debt. In other words, it was insolvent. Payments to lenders and suppliers, including for electricity imports from neighboring countries, were made only after long delays. Figure 2. EDM revenue and cost structure, 2015 to 2018 120 111% 111% 110 107% 105% 100% 100% 100% 100% Revenue 100 Operating subsidies 90 Utility income 80 70 Costs Percent 60 Tax 50 Financing cost Other operating cost 40 Salaries and wages 30 Purchase of electricity 20 Fuel cost 10 0 Revenue Costs Revenue Costs Revenue Costs Revenue Costs 2015 2016 2017 2018 Source: Based on EDM annual reports. 3 E l e c t r i c it y U ti l it y Re f o r m i n M a l i : Le s s o n s f r o m O p e r ati o n s How did the Bank propose to address the challenges? illustrates the linkages between the activities contemplated under the DPF and the IPF, and the objectives of the government. In a first for West Africa, the Bank applied two types The DPF and the IPF complement several ongoing regional of financing in a combination that shows promise projects: The immediate priority was to achieve financial viability by improving • The Regional Electricity Access Project (P164044) aims to Investment in the regional EDM’s cash flow, increasing its revenues, reducing its expenses, and increase electricity grid access in Guinea-Bissau, Mali, Niger, The electricity system, restructuring its debt. That would be followed by actions to improve Gambia, and Togo. the commercial, technical, and operational performance of the utility. • Solar Development in Sub-Saharan Africa–Phase 1 (Sahel) combined with the The third priority was to reduce the cost of the electricity mix. focuses on strengthening the technical capacity of the West expansion of solar PV Africa Power Pool to prepare a large-scale solar project. To promote rapid implementation of the priorities, the Malian generation and electricity authorities and the Bank agreed to combine two financing products.2 • The Guinea-Mali interconnector (P166042). storage systems, will A development policy financing (DPF) instrument was deployed to • The Battery Energy Storage Systems and Synchronization Project fund short-term reform actions, such as improving the utility’s cash (P167569) will enable the regional power system to accommo- facilitate a sustainable flow and revenues, while an investment project financing (IPF) vehi- date rising shares of variable renewable energy capacity. transition. cle was designed to create enabling conditions for the sustainability of the reform actions. A key target of the IPF is to strengthen the Overall, investment in the regional electricity system, combined The approach exemplifies transmission and distribution networks. The IPF includes disburse- with the expansion of solar PV generation and electricity storage ment linked indicators (linked to medium-term reform actions. systems, will facilitate a sustainable transition away from generation the wisdom of an African The disbursement-linked indicators are used to monitor imple- based on expensive fossil fuels and aid government efforts to achieve proverb: “If you want to go mentation of a revenue protection plan, improve fuel monitoring universal access to affordable, reliable, and modern electricity services. fast, go alone; if you want and storage, and increase the share of low-cost power imports and to go far, go together.” of renewable energy in the energy mix. This is the first time the two What are the key lessons from the World Bank’s financing instruments have been combined and used with disburse- engagement in Mali so far? ment-linked indicators to improve a power sector in West Africa. The strong engagement of the Malian authorities during the Three lessons stand out preparation of these operations led the government, in 2019, to settle High-quality analytical work builds consensus. In 2017, many the utility’s payment arrears and establish a prepayment mechanism stakeholders were aware that EDM was struggling to operate as a for the government’s electricity consumption. The government also going concern. However, there was no agreement on priorities. The paid off EDM’s obligations to electricity and fuel suppliers, restruc- corporate and financial restructuring program undertaken in Mali tured its short-term debt to commercial banks using concessional made it possible to identify the drivers of EDM’s financial difficulties, funds, and increased low-cost electricity imports from Côte d’Ivoire provide supporting quantitative data, and recommend reform from 40 MW to 100 MW. actions. Critically, it provided all stakeholders and donors with the These actions relieved the pressure on EDM’s cash flow and same information, paving the way for consensus building. contributed to the achievement of the objectives of the DPF. Figure 3 An inclusive approach among stakeholders builds buy-in. In Mali, the utility, the ministries of energy and finance, and the donor 2 The DPF is the Development Policy Financing for Sustainable Energy and Improved community were full participants in the reform process. Within the Service Delivery for Increased Stability (P167547) approved by the Bank’s Board in Decem- ber 2019. The program document is available at http://documents.worldbank.org/curated/ World Bank, teams specializing in energy, macroeconomics and fiscal en/908101576465260674/Mali-Sustainable-Energy-and-Improved-Service-Delivery-for-In- management, and poverty and equity worked together and with the creased-Stability-Development-Policy-Financing. The IPF is the Mali Electricity Sector Improve- ment Project (P166796) approved by the Bank’s Board in June 2019. The project appraisal International Monetary Fund to conduct a productive dialogue with document is available at http://documents.worldbank.org/curated/ en/395041561428121687/ the Malian authorities. This multisectoral engagement was essential Mali-Electricity-Sector-Improvement-Project. 4 E l e c t r i c it y U ti l it y Re f o r m i n M a l i : Le s s o n s f r o m O p e r ati o n s Figure 3. Theory of change of Mali’s electricity utility reform MAKE FURTHER CONNECTIONS ULTIMATE Sustainable electricity service GOAL Live Wire 2014/9. “Tracking Access to Electricity,” by Sudeshna Ghosh Banerjee and Elisa Portale. Live Wire 2014/16. “Capturing the LONG-TERM Profitable and creditworthy utility Efficient utility Multi-Dimensionality of Energy OUTCOMES Access,” by Mikul Bhatia and Nicolina Angelou. Better cash flow Lower average Strategic planning Reduced cost of power taking RE into technical Live Wire 2014/20. “Scaling Up Access Higher revenues from generation and account Better losses to Electricity: The Case of Lighting INTERMEDIATE operational Africa,” by Daniel Murphy and Arsh OUTCOMES electricity sales purchases performance Reduced Sharma. commercial Lower financing costs Reduced indebtedness Reduced fuel losses losses Live Wire 2014/35. “Planning for Electricity Access,” by Debabrata Chattopadhyay, Rahul Kitchlu, and Rhonda L. Jordan. Refinance short-term Write off some debt owed Increase low-cost Purchase equipment Implement commercial debt to government power imports and tools for planning, revenue Live Wire 2014/36. “Supporting Raise (and index) End connection subsidies design, and O&M protection plan Hydropower: An Overview of the ACTIVITIES World Bank Group’s Engagement,” by MV customer tariff for MV customers Implement fuel William Rex, Vivien Foster, Kimberly Develop and regularly monitoring and Lyon, Julia Bucknall, and Rikard Liden. Settle debts owed by public Pay off debts update RE strategy and storage plan and semi-public entities owed to suppliers least-cost plan Live Wire 2015/38. “Integrating Variable Renewable Energy into Establish prepayment mechanism Invest in transmission and distribution networks Power System Operations,” by Thomas Nikolakakis and Debabrata Chattopadhyay. Activities linked to Activities linked to development policy financing investment project financing Live Wire 2015/48. “Supporting Transmission and Distribution Note: MV = medium voltage, O&M = operations and maintenance; RE = renewable energy. Projects: World Bank Investments since 2010,” by Samuel Oguah, Debabrata Chattopadhyay, and Morgan Bazilian. to reaching agreement on reform actions and designing a financing needed. Significant further efforts will be needed to achieve universal Live Wire 2015/51. “Scaling Up Access approach (IPF plus DPF) aligned with the government’s vision. The access to electricity in a country where 10 million people still lack it. to Electricity: Emerging Best Practices for Mini-Grid Regulation,” by Chris approach exemplifies the wisdom of an African proverb: “If you want Electricity tariffs in rural areas are double those in cities and urban Greacen, Stephanie Nsom, and Dana to go fast, go alone; if you want to go far, go together.” areas, owing to low population density in vast areas of sparsely Rysankova. Achieving universal access in Mali requires a combi- settled semi-desert land. A tariff study has been commissioned Live Wire 2016/66. “Can Utilities nation of structural reforms to improve on-grid electricity to explore solutions to improve affordability for the poor. Off-grid Realize the Benefits of Advanced Metering Infrastructure? Lessons service delivery and off-grid solutions to serve sparsely solutions based on renewable technologies (solar, wind) are already from the World Bank’s Portfolio,” by populated areas. In the short term, Mali opted to adjust electricity being deployed in rural areas. Ultimately, the goal is to expand Varun Nangia, Samuel Oguah, and Kwawu Gaba. tariffs for medium-voltage industrial and commercial customers coverage to underserved areas, leaving no one behind. only. This adjustment was combined with measures to eliminate Live Wire 2017/77. “Electricity Tariffs For their comments on the draft of this Live Wire the authors thank Clemencia for Nonresidential Customers in Sub- inefficiencies and improve performance so as to gain political and Torres de De Mastle, senior energy economist at the World Bank, and Koffi Saharan Africa,” by Masami Kojima public support for further tariff adjustments in the medium-term, if and Jace Jeesun Han. Ekouevi, senior economist at the World Bank.