Rwanda has embarked on reforming its energy sector with the aim of cutting power bills and securing reliable supply of electricity. The reforms include liberalising the industry to allow the private sector to participate actively in electric power production, transmission, distribution and trading both within and outside the country. This will see the formation of an independent agency, the Energy Holding Company , which will manage energy development and electricity distribution in the country. Currently, the government is the leading investor in the sector with the state-owned Energy Water and Sanitation Authority (EWSA) controlling generation and distribution of electricity. READ: Call to privatise water, energy in Rwanda Economists say that allowing in private players and expanding energy sources outside hydropower will see more households linked up to the national grid and ease power costs for households and businesses. Rwanda is trying to bridge its widening energy deficit, which is putting pressure on its economy. Rwanda's installed capacity is around 110MW (local) and it imports 14.5MW. The cost of energy in the landlocked country has risen to $0.22 per kilowatt-hour (KWh), compared with $0.08 to $0.10 in the rest of the region, according to World Bank figures. While the World Bank says connectivity to the national grid in East Africa remains relatively low, at 15 per cent of households, Rwanda is among the best performers in the region. According to the World Bank , Tanzania has the highest number of households without electricity, at 7.2 million. This is followed by Kenya at 6.2 million, Uganda at 5.5 million, Rwanda at 1.7 million and Burundi at 1.4 million. But the bank further says Rwanda experiences the highest number of power outages, with an average of 14 blackouts per month, followed by Burundi and Tanzania , both with 12. Ugandans expect 11 blackouts a month. Kenya's power grid is more reliable, but still experiences an average of seven blackouts a month. READ: EWSA struggles to supply electricity Although the new company to be set up in Rwanda will still be owned by the government, the private sector will be contracted to carry out some of its tasks to increase efficiency. The government has also simplified tendering procedures to allow local investors to bid for lucrative contracts, as opposed to before, when the state specifically targeted foreign companies. "Replacing the existing government agency with specialised companies will allow management to focus on the sectors and empower them to make the complex decisions needed to efficiently provide energy and water services," said Silas Lwakabamba, Rwanda's Minister for Infrastructure. Prof Lwakabamba said the reforms in Rwanda will allow the government make the investments in new electricity infrastructure that the country needs. Given that such investments require planning, feasibility studies, and skilled staff dedicated to sourcing private investors, under the reformed regime, an energy development company will be established as a subsidiary to the energy company to focus on this area. "This will benefit the electricity utility by allowing the management to focus on providing better and more efficient service to the consumer," said Prof Lwakabamba. Analysts say for the government to achieve its ambitious target of 563MW installed capacity and 70 per cent electricity access by 2017 — from the current 110MW and 17 per cent — it must continue to pursue effective partnership with the private sector and put in place effective regulatory and incentive frameworks. "There has to be innovation around policy, supported by enhanced capacity in sectoral planning. It will require strong planning units for reform to be effective," said Yohannes Hailu , an energy expert at the Sub-Regional Office of United Nations Economic Commission for Africa (UNECA) based in Kigali . Mr Hailu said Rwanda will also have to explore cost-effective means of developing energy resources and tapping into regional energy trade opportunities as a transition strategy from the current generation portfolio, which remains, by regional standards, costly at $0.24 /kWh compared with Kenya's $0.15 / kWh, Uganda's $0.17 /kWh, and Tanzania's $0.05 /kWh. " Rwanda has done well in improving energy access and in expanding power generation capacity as a share of its capacity in the recent past, but the current level of generation still remains a major constraint to Rwanda's economic transformation aspirations," he said. Investors in Rwanda have had to endure high costs of energy, a key constraint to their competitiveness as their peers in the region enjoy relatively lower rates. The high energy costs are attributed to the country's dependence on expensive thermal resources, in particular diesel and heavy fuel oils, which account for approximately 40 per cent of the country's 110MW installed energy capacity. Hydropower accounts for 59 per cent and methane gas 1 per cent. Rwanda's peak demand is currently estimated at 92MW during peak hours, the second lowest in East Africa after Burundi at 49MW, while Kenya's is the highest at 1,194MW, followed by Tanzania at 895MW and Uganda at 445MW. But the local private sector is also concerned that state control leaves no room for competition. "It is unfair competition because EWSA is still very heavily involved in production and management," Edward Ndayisaba , vice chairman of the Energy Private Developers Association , told The EastAfrican. For instance, some private investors in biogas production in rural areas that have no connection to the electricity grid have pulled out or suspended their projects after the government set the profit margin on constructed small bio-digesters below what is considered sustainable. "Many companies have stopped working with EWSA — it fixed the profit margin on each biodigester at Rwf50,000 ( $73.4 ), which does not make economic sense because you can spend more than a month working on the same project. It also did not take into account the administrative costs incurred by the investor," Mr Ndayisaba said, adding that installing a biodigester on average costs Rwf600,000 ( $881.7 ). Rwanda exclusively depends on imported refined petroleum products to meet local demand. Oil imports now account for above 5 per cent of GDP, up from less than 2 per cent by 1998. The African Development Bank (AfDB) states that 40 per cent of Rwanda's hard currency earnings go to petroleum imports. Due to its current huge energy deficit, Rwanda's electricity reserve margin is very low at approximately 0.9 per cent on average, well below the international norm of 15-20 per cent. However, this year, government expects an additional 65.5MW to be generated with the completion of ongoing projects, which include Nyabarongo I MHPP (28MW), Kivuwatt Methane Gas (25MW), Giciye MHPP (4 MW), and the IPP Solar PV power plant. READ: Methane power to double Rwanda energy output "The projects will provide low cost power supply and increase grid stability," Prof Lwakabamba said, adding that the state is investing in new generation capacity to ensure higher reserve margins and more reliable and low cost electric service. It will be second time the government is attempting reforms to attract investment. In 2003, the government gave Electrogaz which used to manage the electricity and water supply to a German company, Lahmayer International , to manage and restructure the body for five years. However, the contract was terminated after two years with the government assuming full control in March 2006 . Under government control, Electrogaz was split into two corporations: Rwanda Electricity Corporation , and Rwanda Water and Sanitation Corporation , though no tangible results were achieved from the process, forcing the government to again merge the two institutions into what is now EWSA. "Despite the reform, the government will be the biggest shareholder. I don't see any change. I think the problem is management: the government has to think about how the new energy company will be managed," Mr Ndayisaba said. AfDB says to make EWSA a self-sufficient utility, it needs to be put on a path towards becoming a credible entity capable of corporate borrowing from commercial sources and possibly issuing of bonds to be sold to domestic investors. The bank is recommending a management audit of the institution to review the present structure and improve creditworthiness. The Government has set a national target to increase the country's electricity access to 70 per cent by 2017. READ: Rwanda set to generate 800MW power by 2017 It plans to increase installed capacity to 1,160MW by 2017 according to estimates by AfDB. This requires a total investment of approximately $4.2 billion from 2013-2017 with an annual investment of $845
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