Roundup: Heavy debt puts African utilities on "slippery slope": World Bank

The World Bank warned on Tuesday that increased borrowings to cover costs may put African utilities on "a very dangerous slippery slope."

The warning came at the 17th annual African Utility Week which kicked off in Cape Town on Tuesday.

Chris Trimble, senior energy specialist at the World Bank, presented findings of a World Bank report on ways to make power utilities more financially viable.

He told delegates that it is always better for power utilities to be self-sufficient and not depend on government subsidies to avoid becoming trapped in a vicious spiral when debt gets out of control.

The warning followed media reports that South Africa's power utility Eskom had reported increased costs and declining profits.

Trimble refused to comment on Eskom's performance but shared in his presentation the findings and recommendations of the World Bank report on how power utilities in African countries can become more financially viable.

The World Bank report analyzed data of power utilities in 39 African countries, showing that many of these African countries are unable to cover their operating expenditure leading to deficits.

The report shows very few utilities financially viable with only 19 to half of the countries surveyed able to recover operating costs.

This was followed by a credit downgrading by ratings agency Standard & Poor with significant implications for Eskom's borrowing ability.

The Mail & Guardian last year reported that Eskom's debt obligations then already stood at 317 billion rand (about 24 billion U.S. dollars).

These findings highlight a significant revenue gap in most African countries with only two exceptions - Uganda and the Seychelles which recover all their costs, Trimble said.

"It's quite a bleak picture," Trimble added.

With many countries not recovering operating costs sufficiently, it may hamper maintenance of infrastructure which can ultimately also affect the reliability of power provision, Trimble warned.

He proposed measures to recover costs for electricity supply and make it affordable.

These include steps as starting with eradicating operational inefficiencies and gradually increasing tariffs in small amounts.

In his opening speech, SA Deputy Minister of Public Enterprises Ben Martins said the energy deficit in Africa is alarming - costing African economies between two percent and four percent of annual GDP.

He said the conference came at an important time when Africa is facing mounting challenges in terms of access to modern energy sources as a prerequisite for economic development

Martins stressed the importance of regional collaboration as key to securing energy supply and minimizing costs.

He said regional integration is mutually beneficial but remains a challenge.

Martins assured delegates of the South African government's and other stakeholders' commitment to work with them to find solutions to meet the challenge.

Over 7,000 decision makers from over 80 countries are attending the three-day conference where the latest developments, challenges and opportunities in the power and water sectors will be under the spotlight.

Over 300 experts will discuss innovative solutions to the continent's energy and water challenges and the exciting opportunities for utilities and industry players. Endit