If LEC Needs Subsidies To Survive, Then Revisit Prior Offers

The Perspective
Atlanta, Georgia
March 20, 2022

The Liberian People’s Party (LPP), in September of 2021, published a letter addressed to the United States Ambassador to Liberia, His Excellency, honorable Michael A. McCarthy in which the Party appealed for his help to get Liberia Electricity Corporation’s 2014-2019 Financial Statements.

Again, the Liberian Electricity Corporation (LEC) and its agents, including ESBI Engineering & Facility Management Ltd. l should provide information on the following

1. Administrative costs:
a) Management fees                          $4,712,849      (11/08/2017 Page # 119)
b) Milestone Fees                              $310,000         (11/08/2017 Page # 121)
c) Performance Fees                         $3,000,000      (11/08/2017 Page # 122)
d) Consultant (AZOROM)                $1,500,000      (Estimate)
e) Compensation for local managers, including members of the Board of Directors
f) Compensation for Millennium Challenge Account-Liberia

2. Disbursement schedule of USD 350M from the USA.

3. Disbursement schedule of the loans:  $314 M from the W/B and USD 103 From ADB (See 2019 Debt management Unit- page # 14-16).

4. LEC generated Rev: $27M, $21M, $23M in 2017/18, 2018/19 and 2019/20. (See LEC annual report as per Liberia National Budget-2081/19)

5. Government’s Subsidy: $6M, $6M, $6M, $8M, $4M, and $5M in 2017/18, 2018/19, 2019/20, 2020/21, 2021/22, and 2022/23. (See National Budget of 2021/22).

The public, after reviewing LEC’s financial statements, might understand why Millennium Challenge Account-Liberia (MCA-Liberia) stated in 2017, that it “…had installed all four turbines…and rehabilitated MCHPP, including the 88 megawatts. Further, it stated that “LEC has increased connections, improved reliability, and provided more affordable electricity because it purchased transformers, meters, surge arrestors, specialized vehicles, spare parts for generators, utility poles, conductors, tools, and personal protective equipment.” Also, in January of 2021, MCA-Liberia stated that.  “… LEC has reduced the average number of electricity outages by 45 percent since the start of the Compact in 2016.”

The exercise to review LEC’s previous activities might help the public in understanding if replacing government-appointed managers with private-hired managers (i.e., the initial path to privatization) minimized corruption and LEC provided affordable electricity to many Liberians. Presumably, the belief that profiteers are less corrupt than government managers was pivotal in encouraging former President Ellen Johnson Sirleaf to reject offers from China and Brazil to build electric power, according to Dr. Christopher Neyor, former LEC managing director.

The change from public managers to profit-making managers has not improved LEC services. In fact, customers are worse off now than ever before. From power theft to power outages to limited power supply. The Ministerial Complex’s employees use generators because LEC is not providing electricity.

For now, let us review some data (i.e., facts about Liberia) and stories of three African countries to analyze the theory that private investors may provide accessible and affordable electricity without subsidy.

Liberian data:
(1) Are there enough citizens (5,000) within settlements (cities, towns, or villages) to buy the services of LEC? The 2008 report by Modi Group of Columbia University stated no. It stated that Liberia has 21 settlements have between 5,000 and over 100,000 (i.e., presumably, the number of clients needed for electricity to make money), while the remaining clients are residing within79 cities and villages. In essence, LEC might operate within the fifteen capital cities of the fifteen Counties plus six other cities without subsidy, study indicated.

(2) Unlike Ivory Coast where cocoa farmers used electricity for businesses, Liberia has limited agricultural activities that use electricity, and it has a limited number of industrial and commercial customers. For instance, there are 60 registered businesses within four Counties, (Grand Cape Mount, Gbarpolu, River Cess, River Gee, and Grand Geddeh) while one County (Margibi County) has 108 registered businesses, according to the 2015 United Nation Development Program report. If the money-lending institution can’t find clients in these four Counties, can LEC?

(3) The Central Bank of Liberia, 2020 Annual Report, stated that six Counties had no commercial banks, meaning that those Counties don’t have enough clients for a bank. If commercial banks can’t find clients within six Counties, can LEC find? I don’t think so.

Let’s review the electricity stories in the Ivory Coast, Ghana, and Sudan: “…Ivorian Electricity Company (CIE), privatized in 1990, holds a monopoly on the operation of the system of production, transport, distribution of electricity. In 2020 it sold electricity to six neighboring countries, including Liberia - according to the Ministry of Energy. Yet, CIE is facing customers’ revolt, because of increases in tariff and outages of electric power. CIE customers are paying $0.121per KWH, while it is $0.002 in Sudan and $0.054 in Ghana. Why is CIE (i.e., a private entity) failing to make energy affordable and accessible in the Ivory Coast?

In Ghana, the state-owned energy entity is not only providing electricity at a lower cost as compared to CIE. Energy is accessible to 83 percent of its 31M population, while the Ivorian-private-entity provides energy to 68 percent of the 26.3M people. In order to achieve affordability and accessibility, the Ghanaian state-owned energy entity, I guess, reduced its desire for profits and allowed entry into the energy sector two profit-making (local and foreign). When profit is the bottom line, the theory of affordability and accessibility is irrelevant. CIE didn’t just charge a higher price of $0.067 more than Ghana’s; it also didn’t provide energy to 32% of its population but rather sold its services to clients in neighboring countries.

Another country where the state-owned entity provides electricity at a lower cost than Ivory Coast is Sudan. Energy cost is $0.002 per KWH, which is the lowest cost of electricity in Africa. Its population (43.5M) is almost twice the population of Ivory Coast 26.3M people, yet it provides electricity to 56 percent of its population.  

I suggest that LEC managers should focus on seeking alternatives, including offers made by China and Brazil. Liberia’s data indicate that there are countless challenges for any investors to provide energy that is affordable and accessible: (1) in each of the 79% of the settlements (cities and villages) residents are than 5,000, (2) industrial and commercial clients are at a minimum, and (3) Liberia has limited number of technical human resources and inadequate infrastructure. Additionally, an investor can’t estimate reasonable revenue from 4.5M Liberians, since 60% of them live on USD 5 per day, (my estimate)? Predictably, our international partners might find it difficult to reject proposals from Liberia if the Millennium Challenge Account-Liberia (MCA-Liberia) can reconcile its rosy picture of LEC as reported on January 1, 2021, against stories of power theft, outages of electricity, and zero electricity at Liberia’s ministerial Complex, for example.

J. Yanqui Zaza
New York State Certified Public Accountant (NYS-CPA), MPS
VOA Paynesville, Liberia
011-231-776-491-322
jyanqui@aol.com

 

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