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Factsheet November 15, 2017

Q&A: Shedding Light on Electricity Utilities in the Middle East and North Africa - Insights from a Performance Diagnostic

1.     What are the goals of this performance diagnostic of electricity utilities in the Middle East and North Africa?

The electricity sector in the Middle East and North Africa (MENA) is in the grip of an apparent paradox. Although the region continues to hold the world’s largest oil and gas reserves and has been able to maintain virtually universal electricity access in most of its economies, it may not be in a position to cater to the future electricity needs of its fast-growing population and their business activities.

The annual electricity investments needed in the MENA region to keep up with demand have been estimated at about 3 percent of the region’s projected gross domestic product (GDP). However, in most economies of the region, the ability to make those investments is limited by fiscal and macroeconomic constraints. This study demonstrates that the solution is readily available: by improving the management and performance of the region’s utilities, more than enough resources could be freed up to make the needed investments.

This report is targeted at managers of electricity utilities, regulators, policy makers, and other stakeholders concerned with the performance of utilities in the region. The main goal of this quantitative assessment of electricity utilities’ performance is to provide insights into the relative performance and scope for improvements of MENA electricity utilities by assessing different categories of indicators (technical and operational, commercial, and financial) across relevant key factors that affect performance (utility size, utility ownership, the presence or absence of a regulator, and the level of development of a given economy). An estimation of the quasi-fiscal deficit of the power sector is also carried out to determine which categories contribute the most to inefficiencies (underpricing, collection losses, transmission and distribution losses or overstaffing). Additionally, the report attempts to distill useful lessons for the region on improving the performance of electricity utilities from four country case studies.

2.     How is the performance diagnostic of electricity utilities in the Middle East and North Africa different from other studies of the electricity utilities in the region?

The strength of this study lies in the MENA Electricity database, a newly generated dataset covering 67 electricity utilities in the following 14 economies of the MENA region: Algeria, the Arab Republic of Egypt, Bahrain, Djibouti, Iraq, Jordan, Lebanon, Morocco, Oman, Qatar, the Republic of Yemen, Saudi Arabia, Tunisia, and the West Bank. The data were collected by means of a standardized survey completed by utilities and regulatory agencies, covering indicators of technical, commercial, and financial performance. Before this survey, information on the region’s power sector was very uneven.

This study further goes on to use these data to estimate the quasi-fiscal deficit (QFD) of the power sector in the economies of the region, and to determine what proportion of the deficit can be attributed to underpricing (setting tariffs below costs), collection losses (failure to bill or collect revenues due to the utility), transmission and distribution losses, and overstaffing (employing more labor than an efficient utility of the same size and characteristics would employ).

3.     What are the key findings of the performance diagnostic of electricity utilities in the Middle East and North Africa?

There are five main key findings of this study:

  • Cutting hidden costs in the power sector is key to financing sorely needed investment. In other words, the sector’s investment gap could be filled simply by halving the current level of inefficiency.
  • Underpricing is the major source of inefficiencies; other inefficiencies are economy- and utility-specific. About two-thirds of the inefficiencies are due to tariffs set below cost-recovery levels.
  • The power sector in the Middle East and North Africa must match the region’s technical success with improvements in commercial and financial management. Commercial and financial performance indicators tend to be worse in MENA than in other regions of the world.
  • Well-targeted institutional and economic reforms would boost the region’s power sector. Our assessment of the correlations between institutional and contextual characteristics (utility type, size, ownership, presence of a separate regulatory agency, and national income) and performance indicators suggests how and where reform policies may be most effective.
  • More systematic monitoring of power sector performance is needed. The gaps in the data needed for good policy and management are real but not unsurmountable.

4.     Beyond conducting a performance diagnostic of electricity utilities in the MENA region, will the findings of the study have any future use?

The MENA Electricity Database is a valuable public resource for policy makers as it can help reconcile the multiple dimensions of utility management performance with key policy concerns at the sector level. The policy issues raised through the analysis of this set of data and the recommendations can all be used for helping in decision-making and further research. The exercise of carrying out periodic performance assessments with the direct involvement of electricity utilities should therefore be reinforced in the region.

To be effective and to ensure accountability of policy makers and managers, progress needs to be measured from baseline to target, generating comparisons that can become an input for policy. The database also provides a baseline against which future progress can be tracked and measured.