Primary energy demand in the Mena region is expected to continue to rise at an annual rate of 1.9 percent through 2035, requiring a significant increase in generating capacity. However, investments have not been rising fast enough to meet that requirement, according to World Bank.
The World Bank study, which covered 67 electricity utilities in 14 economies of the region, including Qatar, noted that the annual electricity investments needed to keep up with demand have been estimated at about 3 percent of the region’s projected gross domestic product.
The study, “Shedding light on electricity utilities in the Middle East and North Africa,” offers policy makers, regulators and the managers of electricity utilities an extensive analysis of the current performance of electricity utilities.
Underpricing is the major source of inefficiencies in the region. Low tariffs and overstaffing often reflect good intentions, but they are not the most effective practices. Given their present macroeconomic prospects, many Mena economies cannot afford to continue to lavish on average 2 percent of GDP on poorly targeted electricity subsidies.
Improving the sector’s performance will allow economies to increase the social returns on fiscal resources by allocating savings where they will do the most good, whether within the sector or outside it, the document noted.
“Explicit and implicit subsidies of Mena’s power sector impose a very heavy burden on taxpayers and power users. The burden can be measured in the utilities’ hidden costs, or quasi-fiscal deficits (QFDs), which express the cost of not operating in the manner of a well-run utility. The QFD encompasses four types of inefficiencies: collection losses, transmission and distribution losses, underpricing, and overstaffing.”
According to World Bank, there is a need for Mena’s power sector to match its technical success with improvements in commercial and financial aspects. The region’s economies tend to perform better than the sample of economies outside Mena.
Unfortunately, there does not seem to be a clear correlation between good technical performance and sustainable financial performance, and unless the sector can increase its revenue or better manage its costs, the current technical level is unlikely to be sustainable. A well-targeted institutional and economic reform would boost Mena’s power sector.
The document noted desalination plants are an integral part of the energy sector in the member countries of the Gulf Cooperation Council (GCC), supplying both municipalities and industries for the past two to three decades.
Also, several energy utilities are involved in water or sanitation activities. These two trends can be observed in Oman, where desalination activities are common among several electricity generation utilities (GUs), and in Morocco, where the 11 distribution utilities (DUs) are also involved in water and sanitation activities.
Also of interest is the introduction of renewable energies in the energy mix, in a region in which fossil fuels remain the dominant source of electricity, mostly due to their abundance and the conventional generation technologies and practices that have been in place for several decades.
In 2013 in Morocco, 31 percent of total installed capacity was from renewable, of which 7 percent was not hydropower. Oman, in contrast, depended entirely on thermal power generation, with natural gas and diesel oil making up 98 percent and 2 percent of the energy mix, respectively.
With several members of the Mena region benefiting from an abundance of solar and wind resources, the region’s potential has yet to be exploited and is lagging behind other world regions mostly because renewable energy sources are disregarded in policy design.