What is a silver bullet? According to the Merriam-Webster Dictionary, a silver bullet is “something that acts as a magical weapon, especially: one that instantly solves a long-standing problem.” Many would-be pundits of Liberia’s electricity sector and LEC have made so many simplistic analyses void of factual support and understanding, which have led to erroneous conclusions.
The CLSG (acronym for Cote d’Ivoire, Liberia, Sierra Leone, Guinea) is a 1350-kilometer transnational power transmission line interconnecting the power networks of the four CLSG countries. It was constructed through the collaboration of the four countries and jointly financed by the World Bank, African Development Bank, KfW, and the European Investment Bank. The initial financing cost was $445.5 million for the 225kV line. It was built as an infrastructure for the trade in energy across the four countries and to integrate these countries into the larger West African market under the West African Power Pool.
The CLSG is managed by TRANSCO CLSG, a Regional Transmission Company established by a Treaty between the four countries, which has a mandate to finance, construct, own, operate, and further develop the CLSG transmission line.
Trading on the CLSG requires a buyer, such as LEC, to enter into two agreements; namely a transmission service agreement (TSA) with TRANSCO CLSG and a Power Purchase Purchase Agreement (PPA) with an energy supplier such as Cote d’Ivoire Energies (CIE). A TSA is only signed when a party intends to use the CLSG line to import, export, or utilize the line internally to transmit electricity. A PPA is signed between a buyer and seller of electricity, such as LEC and CIE.
A TSA is a more straightforward agreement whereby the buyer of electricity pays a fixed fee to reserve the line capacity required to receive electricity over the CLSG. LEC has already reached an advanced stage of TSA agreement with TRANSCO CLSG that will be signed once and acceptable TSA tariff is known and agreed by the 4 countries and an acceptable PPA is signed. Note that TRANSCO CLSG does not sell electricity it is simply a conduit for electricity.
A PPA is a more complex agreement requiring various commercial terms that impact cost, affordability, and reliability. The delay in concluding a PPA with CIE is primarily due to financial requirements of CIE and constraints faced by LEC/GoL.
Why has Sierra Leone and Guinea concluded a PPA with CIE and not Liberia? Unlike the two countries, Liberia has a separate and existing agreement with CIE for electricity supply to Nimba, Grand Gedeh and Maryland counties, which is in arrears in excess of $8m. CIE is linking the payment of this arrear to the PPA under the CLSG arrangement. Liberian therefore has to meet the normal financial requirements of the PPA with CIE, in addition to the arrears from the cross border arrangements. The normal PPA financial requirements of CIE, which is applied to Sierra Leone and Guinea is a security payment equivalent to two months’ supply of electricity. For Liberia, that would total around $3.6m a month, thus $7.2m security payment. On top of this security down payment, Liberia would also have to pay off its arrears of over $8m. Hence, Liberia’s financial commitment to operationalize the supply of electricity from CIE over the CLSG is over $15m, which is in addition to the monthly consumption cost ($3.6m initially).
What are other constraints of the PPA with CIE?
Firstly, one of the commercial terms of the PPA is the requirement for a Take or Pay arrangement in which the buyer has to pay for all the energy contracted , whether it is used or not. In Liberia’s case, the Mt. Coffee Hydropower plant will begin providing electricity in the rainy season creating a situation whereby Liberia will have to pay for some energy it is not consuming thus carrying the cost of energy up. LEC is therefore reviewing the option of commencing the PPA during the next dry season when there will be a major energy deficit created by limited hydroelectric power. This period will also allow LEC and GoL to raise the required funding for the PPA.
Secondly, because there is only one supplier of electricity currently in the market, there is no competition in pricing, which allows CIE to unilaterally dictate terms and prices. LEC’s analysis of the cost of electricity through CIE, which takes into consideration technical losses across hundreds of kilometers of transmission and overhead costs indicate that the final cost could equal or exceed current approved tariff rates in Liberia, which might even lead to a financial deficit to LEC.
Thirdly, CIE does not guarantee reliability of power supply. In the past year, Cote d’Ivoire experienced a 200MW generation deficit resulting into numerous power outages in the country. As a consequence, CIE had to cut power supplies to neighboring Burkina Faso and Mali. Generation deficit in Cote d’Ivoire was in part due to a prolonged dry season and low water levels at the country’s hydropower dams. https://www.reuters.com/business/energy/power-generation-woes-ivory-coast-ghana-hit-industry-neighbours-2021-05-11/
Fourthly, the CLSG line is currently a single circuit line although it was designed for a double circuit. The line has no redundancy and runs over 600 kilometers to Liberia over dense tropical rain forest, which makes vegetation management a major challenge. As a result, faults along the CLSG can be anticipated due to vegetation overgrowth. During the first month of the CLSG connection to Sierra Leone, a tree fell and cut the line causing a disruption in power supply for over two weeks. A temporary solution has since been put into place and power supply has been restored to Kenema, Sierra Leone.
The CLSG Project is a transformative project that will go a long way in bringing reliable and affordable electricity to West Africa, thus stimulating economic growth and development. However, the CLSG and the greater West African Power Pool will only achieve their objectives when there are multiple sources of power supply, including those in Liberia, creating a robust and vibrant market characterized by competition. In its incipiency, there will be many start up challenges for the participating countries that will have to be worked through, such as those faced by Liberia. Development partners will need to work with participating countries to address these challenges in order to create a sustainable base for the West Africa energy market. One place to start is the promotion of private investment in power generation, cost reflective tariffs, fulfillment of governments’ obligations to energy utilities, and energy regulatory reforms.
Every country must seek to achieve a certain level of domestic energy security, which means LEC and GoL must now consider further investments in domestic energy generation to meet its energy supply base, while utilizing the CLSG as a supplementary source of power capable of meeting demand peaks and future growth demand.