Principles and Objectives of Private Sector Participation

Public Private Partnership principles. The implementation challenge requires strong private sector involvement – in line with the recently approved energy legislation. However, the need to combine a strong grant component to achieve affordable tariffs, requires also strong donor involvement with competent public sector interface and an acceptable asset ownership model.

Objectives of private sector participation. Among the main objectives of private sector participation are (i) the on-time implementation of the investment program, targeting the increase of electricity access and renewable energy, and (ii) the improvement of the economic efficiency of the sector, with the optimization of investment and the reduction of technical, non-technical and commercial losses.

• On-time implementation of the investment program. It is expected that the private sector accelerates the implementation of the investment program for rural energy, contributing toward the mobilization of additional financial, human and material assets.
• Improvement of the electric sector’s economic efficiency. Additionally, private sector participation should contribute to the improvement of the electricity sector’s economic efficiency. This improvement may result, essentially, from the optimization of costs, regarding the life-cycle of the project, or from the maximization of the profits, by reducing the system’s total losses.

License model. The new Electricity Law considers private participation under a “License” model, with clear asset ownership clause by the licensee (Section 6.6 of the Law). Such license model is close to a BOO model of participation of the private sector which may constitute a constrain for Donor and Grant participation in the Rural Energy Master Plan – even if the Law establishes that tariffs shall not reflect costs of a “regulated entity’s asset base that was acquired by contribution from a third party”.

Asset ownership guidelines. In order to maximize funding, the BOO model will apply to LEC and to renewable on-grid generation companies that will procure their funding from Development Finance Institutions. Off-grid and decentralized grid investments and assets – coming mostly from grants – will be managed in a hybrid license/affermage model where grant-funded assets will be owned by REFUND and “leased” to licensed private operators who will operate, maintain and upgrade such assets in exchange for a variable lease fee. Licensees will be allowed to invest and own new assets which are not grant funded.

Other sectors. Private participation in other sectors can be done through traditional commercial approaches: for example, private operators may be involved in rental or retail/supply of solar portable lamps, energy efficiency or cooking gas related equipment. The Rural Services Unit(s) will act as importer. Buyer and wholesaler of Solar Portable Lamps and efficient cook stoves. On City Gas, Petrol retailers will be required to distribute and make available cooking gas in different sizes down to at least 6 kg per bottle. LPRC will support also LPG imports and storage.