The Senegalese legal framework was completely renewed one year ago by Law n°2021-31 of 9 July 2021 creating an Electricity Code which replaces the previous Law n°98-29 on the electricity sector.
On the same day, Law n°2021-32 created the new Energy Sector Regulatory Commission (hereafter "the CRSE").
This Code enshrines the obligation for the State to communicate its planning of the sector, further liberalizes the production, distribution and sale of electricity, and allows for public-private partnerships in the transmission sector.
However, all of these provisions refer to a multitude of decrees, orders or resolutions of the CRSE, which are currently being drafted and should be finalized by the end of 2022, according to the Minister of Energy.
Consequently, the possibility for an independent power producer to sell to eligible customers or to distributors other than Senelec is still some time away.
1. THE STATED OBJECTIVES
The objectives of the Senegalese legislator through these texts are:
- improving access to electricity for the population, particularly by allowing off-grid production in rural areas;
- the planning of the electricity sector with the implementation of a future integrated plan at lower cost ("Plan intégré r moindre cout", PIMC), a five-year strategy for the planning of the sector by segment of activity and, pursuant to this plan, a national program for the production of electricity from renewable energy sources (which should be released in July 2023)1;
- the eventual introduction of competition in the wholesale sale and purchase of electricity, which will entail the end of Senelec's monopoly in the latter area2 and the splitting of Senelec into three subsidiaries, one for production, one for transport and one for distribution and sale, headed by a holding company by December 20233;
- free access to the transport and distribution networks for producers, subject to public tariffs, to supply eligible customers or new independent retailers;
- the development of renewable energies.
The text constitutes a framework which refers to a multitude of decrees, orders or resolutions of the CRSE to define the implementation details of these objectives which, according to the Ministry of Energy, should be ready by the end of this year 2022.
2. ELECTRICITY SECTOR PLANNING
This is probably what was previously lacking: the introduction into the electricity sector regime of planning documents for production, transmission, distribution, sale and rural electrification in particular.
The Code seems to provide for a hierarchy of documents in the following order, (in a way similar to the urban planning sector):
- the so-called "Plan intégré r moindre cout" (PIMC) drawn up by the Ministry of Energy, which is defined as a medium- and long-term plan for all the sector's activities, with a prioritization and programming of the projects and investments that will result4;
- the national plan for the production of electricity from renewable energy sources, also established by the Ministry of Energy5
- the lists of projects validated by decree.
If these planning documents are used in the spirit intended by the Code, they will enable investors to prepare for future tenders, to assess the integration within a national policy of the projects they are interested in, and to evaluate their economic feasibility. However, these plans must not be contradicted by abusive recourse to direct agreement procedures or private initiative offers.
3. LIBERALISATION OF PRODUCTION
With little change compared to the previous text, the Senegalese State can select private independent producers to supply the country's electricity needs. Generation is then a public service6 and the selection will in principle be done through a tender process, under the control of the CRSE.
Private operators will have nonetheless various possibilities to avoid this tender process.
Firstly, a spontaneous offer to the Senegalese authorities, known as a private initiative offer, concerning new projects not anticipated in the planning documents seen above. If the project is selected, a call for tenders will be organized but the project leader will be given a bonus to take account of his efforts.
This private initiative offer can even be coupled with a direct agreement if the project leader manages to convince the State and the CRSE that the project is innovative and competitive and that it leaves an important place for local content (in addition, of course, to the fact that it provides the funding covering the total cost of the project). It seems difficult to understand how such a project could be competitive without a tender. It is assumed that this could be the case if the technology proposed for the project allows for much lower production costs than those used in other tendered projects7.
Without going as far as a disruptive technology, this award process will also be open to off-grid generation project developers. This provision is welcome. The competitiveness of these rural electrification projects is not the result of competition but of the project itself, which must produce an affordable kilowatt-hour for low-income consumers. In practice, we never see tenders for such projects.
Moreover, direct agreement in projects that are normally put out to tender remains possible, although it is not clear on what criteria. All that is known is that the CRSE will have to give its assent on the basis of the principles of the PIMC, which we understand to be sustainable and inclusive purchasing and budgetary sustainability... which is rather vague.
And even if the CRSE were to issue an unfavorable opinion, the Government could override it "for reasons relating to the exceptional circumstances of the case concerned involving overriding reasons of public interest."8
These provisions give the Government a wide discretion to allow projects without a tender, which could discourage new entrants if the State makes extensive use of it. It would have been preferable at the very least to define more precisely the cases in which this procedure is to be used.
Regarding production from renewable energies, the Code mentions the possibility of "compensation measures" to allow "sufficient remuneration and incentives for investments" and "the financial balance of the distribution network operator". This means that the Government is leaving open the possibility to provide tax incentives for certain types of energy, or even a feed-in tariff and subsidies to distribution concessionaires.
The role of Senelec's production subsidiary has yet to be clarified. It seems that it will be able to take a stake in independent production projects and that it will be partly responsible for building production facilities to ensure security of supply, which will probably be specified in the PIMC10. It does not appear, at least we hope, that it will be able to compete in calls for tenders for the granting of an independent production license.
4. LIBERALISATION OF ELECTRICITY PURCHASE
Until now, independent power producers could only sell the energy they produced to Senelec, which held a monopoly on the wholesale purchase, transmission and sale of electricity in the country11.
In fact, under the previous regime, Senelec was to benefit from this monopoly for a limited period of time, initially ten years, after which other entrants could have intervened in the purchase of electricity.
The Electricity Code renews this intention and sets the deadline at December 2023. If this timetable is met, it will be possible from that date for producers to sell their production to eligible customers whose power threshold exceeds a minimum that will be determined by decree by then. This question of the power threshold for eligible customers can be tricky because the lower it is, the more customers Senelec will lose.
The Code also allows for the participation of independent retailers who will be entitled to purchase energy for retail sale to consumers. They may also be granted a concession or leasing of the distribution network12.
If the Code delivers on its promises, independent producers will eventually be able to enter into one or more PPAs with eligible customers, distributors or Senelec-Distribution and use the transmission and distribution network in return for payment of a transmission tariff set by the CRSE.
5. TRANSPORT WILL REMAIN A STATE MONOPOLY
The Senegalese State holds the monopoly on transport, which it may entrust to an operator that is assumed to be the transport subsidiary of Senelec13. The extension and maintenance of transport facilities will normally be carried out through contracts financed by Senelec-Transport. The Code nevertheless opens the door to private financing for this purpose14. It is therefore conceivable that the Senegalese government would be willing to use public-private partnership contracts for this activity.
1. Cf. Section 54 of the Code
2. Previously, monopoly provided for in Section 19 of Law 98-29
3. Cf. Section 82 of the Code
4. Cf. Section 33 of the Code
5. Cf. Section 54 of the Code
6. Cf. Section 9 of the Code
7. Cf. Section 37 of the Code
8. Cf. Section 36.2 of the Code
9. Cf. Section 24 of the Code
10. Cf. Section 23 of the Code
11. Cf. Section 19 of Law n° 98-29
12. Cf. Section 26.3 of the Code
13. Cf. Section 14 and 26 of the Code
14. Cf. Section 26.1 of the Code
Originally published July 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Philippe de Richoufftz
Alexander & Partner
The Octagon Building
2nd floor, Unit B207
Barnes Road - Accra Central
P.M.B. 25 TUC