Blackout to Continue in Freetown…As Government Owes Karpowership US$36M
The Sierra Leone Economic Update launched by the World Bank in Freetown indicates the Sierra Leone government owes Karpowership the sum of 36 Million United States Dollars since the end of 2021. The report was launched on Tuesday 21st June 2022 at the Sierra Palms Hotel, Lumley beach in Freetown.
The Sierra Leone Economic Update is an annual publication of the World Bank that reports on and analyzes recent economic developments, reviews regional and global contexts, and analyzes the implications for the country. It also presents the medium-term outlook and prospects for the economy.
Sierra Leone witnessed widespread power outages intermittently since the start of December 2021, as the country struggled to pay its biggest supplier of electricity on time.
Karpowership (KP), a Turkish subsidiary which accounts for more than half of the electricity supply in Sierra Leone, has been rationing power supply in response to accumulating arrears from the government.
Freetown has witnessed the most extensive load shedding as electricity demand peaked at nearly 78MW, while supply from alternate sources (hydro and solar) amounted to 35–40MW. According to KP, the government owed US$36 million in unpaid arrears at the time of shutdown and was in violation of a previously agreed payment schedule.
The current Power Purchase Agreement, or PPA, was signed in 2020 for 5 years, between the Electricity Distribution and Supply Authority or EDSA (on behalf of the federal government) and KP. Under the current contract, the agreed price is dependent on the variable global cost of fuel. These power outages reflect three noteworthy facts.
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First, the unreliable power supply is driven in part by a significant capacity gap as energy demand exceeds installed capacity. The gap between projected energy demand and existing supply is expected to rise in the coming years to nearly 50MW by 2025. While this has made room for independent power producers (IPPs) to enter the market, it has also resulted in expensive PPAs due to lack of competition and the government’s limited negotiating power. Unreliable power supply and frequent outages represent a major constraint to growth and poverty reduction in the country.
Second, weak public finances have contributed to, and been affected by, the troubles of the power sector. Overall, poor cash management has resulted in recurrent accrual of arrears. Since Q4 of 2021 the government has reportedly accrued new arrears, including those to the power sector. Further, high technical and commercial losses at EDSA have resulted in low recovery of revenues. All EDSA obligations are guaranteed by the government of Sierra Leone (GoSL), including the arrears owed to KP, and will most likely have a direct impact on the federal budget.
Third, the indexation of fuel prices, embedded in the PPA, results in an increase in overall costs when global crude oil prices increase. During 2021, as crude oil prices have risen to above US$70 per barrel (compared to US$50 per barrel predicted under the contract) the average cost has increased from 14 USc/kWh to about 18 USc/kWh.