Regional Distribution Companies

Creation of Regional Distribution Companies. The creation of Regional Distribution Companies is a key element of the Rural Energy Master Plan and a major change to the current institutional framework requiring further and more detailed studies. The Master Plan and present chapter outline some of the key elements to be considered.

Initial setup. The initial setup of Regional Distribution Companies can be complex. In Senegal, where the country was divided into several concessions, the setup took many years and still today the model faces significant challenges. The existing cross border grids represent short term concrete opportunities to start developing and testing the contractual structure. Additionally, the need to combine grants with private sector and to have REFUND as an asset ownership platform allows the investment process – supported in owners engineering services - to advance in parallel with the creation of the Regional Distribution Companies.

Local presence and transition from “Community Current”. Selection process should give preference to partnerships between Liberian Companies – coming from other sectors – with size and financial capacity together with experienced utilities operating already in other countries. The process should also try to include “Community Current” entrepreneurs as preferred employees of the Distribution Companies as hundreds of such entrepreneurs may risk becoming unemployed and may constitute an obstacle to the new Distribution Companies.

Affermage contracts. The need to have grant funded assets separated makes the use of Affermage or Lease Contracts a preferred option for Distribution activities in Liberia. In Leases and Affermages the operator does not receive a fixed fee but charges a tariff to consumers. In the case of affermage – the preferred model - the operator has its remuneration guaranteed (assuming that the receipts are sufficient to cover costs) and it is REFUND that takes the risk on the rest of the receipts collected from customers.

Hybrid License/Affermage model. Normally in pure Affermage contracts it is the asset owner that remains responsible for financing and managing investment in the assets based on a rental payment. In the water sector in recent years in West Africa, a hybrid affermage/concession arrangement has been adopted successfully – for example in Cote d’Ivoire - where it is the Private Company that assumes the management of the investment process in articulation with the asset owner. The Master Plan proposes a similar hybrid solution to be developed based on REFUND and LERC regulation that allows Licensees to lease grant funded assets, to own and invest in network expansion assets, while limiting demand risk and potentially reducing tariff differentiation among regions.

Demand risk. Rural electricity demand faces still significant uncertainties with impact on private operators. If revenues are significantly below expectations than fixed costs or high running costs such as diesel may be hard to support in a sustainable way – limiting the level of service provided and population’s acceptance and adherence. The Affermage contract with lease fees to REFUND dependent on results can mitigate significantly demand risk impact on Distribution Companies economics.

Tariff and service differentiation. Significant tariff and service differentiation between Regional Distribution Companies may not be well understood by population limiting acceptance and adherence. REFUND, through differentiated lease fees, can act as a balancing mechanism between Distribution Companies – avoiding significant differences in tariffs. The Rural Services Unit(s) in charge of managing the pre-paid meter and billing infra-structure and software can also mitigate differences between Regional Distribution Companies in terms of service delivery and promote synergies.

Regional structure. The map represents a possible division of the country in 5 Regional Distribution areas based on the existing Region structure and taking into consideration the existing and planned cross border infra-structures. Region 2 because of its size was divided in two different distribution areas: Lofa on one side and Bong/Nimba on the other. Region 3 would be managed by LEC Distribution Unit.