Power Sector Regulation and Private Sector Participation in Africa

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Author(s) :
Alpha Ly, Raja Chakir, Anna Creti

Faced with financial constraints, most African countries have adopted the recommendations of the Bretton Woods institutions by opening up power generation to private actors in order to meet the challenges of universal access to electricity. The participation of these private actors takes place notably through independent power producers (IPPs) or through public-private partnerships (PPPs). However, capital markets remain limited on the continent and most of the inputs (fixed or variable) required for power generation are imported. This situation exposes private actors to currency and inflation risks (increased foreign currency debt burden and cost of imported inputs), which would act as obstacles on private investment in the sector. Using the theoretical framework of Nucci and Pozzolo (2001), followed by an empirical method that combines the local projection (LP) à la Jordà (2005) and the impact evaluation methodology (AIPW doubly robust estimator) proposed by Lunceford and Davidian (2004), we show that the adoption by the regulator of measures such as the automatic tariff adjustment mechanism or cost reflectivity allows the mitigation of currency and inflation risks on the evolution of installed capacity in the 54 African countries over the period 1990-2019.