Blackout: How Frequent Power Interruptions Challenge Businesses, Industries

Prime Minister Hailemariam Desalegn, in his first official visit to Kenya in November 2012, elaborated how it will be profitable for Kenyans to invest in Ethiopia. During this meeting with the country’s business people, he mentioned some of the benefits they will reap if they engage in Africa’s second populous nation. He mentioned the natural wealth and cheap labour in the nation to sway his audience. Among other things, he stressed that the country has one of the cheapest electric fare in the world, making it an ideal place to establish a manufacturing plant. But what the Premier short fall of disclosing to the potential investors was how his country is also among the nations where power interruptions and sporadic blackouts and brown outs (reductions in voltage) are all but common, and in fact part of everyday life.

The country is using the ‘cheapest electric fare in the world’ card as one of its comparative advantage to attract Foreign Direct Investment (FDI). But distribution inefficiency and repetitive and sporadic power interruptions are tarnishing this image the nation is trying to project. This erratic blackout is on going for months now and is creating havoc on the business community.

Brothers Flour and Biscuit Factory is one of the well known names engaged in agro-processing in the country. Located at Adama, Oromia Regional State, the factory produces high quality flour and distributes it all over the country. In addition to the flour, the company is also famous for its tasty biscuits, kids’ favourites. But it is becoming hard for the company to maintain its reputation because of frequent power interruptions, which is making it hard for the company to produce in full capacity and deliver on promises. Like other factories in the nation Brothers is suffering from power outages. “Even though we are given prior power outage warnings for us to take precautionary measures, there is still a huge loss that comes with stopping the machines every now and then. The power may interupt without prior notice, and when this happen we have to remove the biscuits from the cycle manually. These biscuits are either over baked or under baked, forcing us to dump thousands of birr worth materials,” says Getachew Demessie, advisor of the Company.

Getachew also complains how expensive inputs bought with hard currency went to waste because their good-before dates passed due to the outage, which forced them to work way under their capacity. “Any investor assumes he gets continuous electricity when he establishes a plant and pay for transformer and everything, but I don’t think this is what the reality is at this time,” ponders the Advisor.

In recent months, frequent power interruptions have become part of everyday life. Disrupting social life and creating additional bottlenecks on the private sector that is already stretched to the limit. Even though Ethiopian Electric Power Corporation (EEPCo) still maintains that there is no supply deficit, businesses in every sector are facing enormous challenges regarding consistent power availability. The situation is particularly acute in manufacturing industries like Brothers whose operations are solely dependent on electric power.

Electric Power was first introduced to Ethiopia in the late 19th Century, during the reign of Emperor Menelik II. The first generator was said to be installed by the Emperor around the Year 1898, to light the palace. In addition to the use of generators, Menelik was also the one who got the first Hydro Power Plant to be constructed on Akaki River in 1912. This power plant was able to supply power to small factories and the palace, which later was extended to public places and major roads in the city.

However, the effort of the government to extend the power supply to the public was hindered by the Italian invasion in 1936. During this temporary occupation, an Italian company named Coneil overtook the generation and distribution of electric power. The company installed generators at different places and extended the power supply to the then major towns. After the Italians were driven out from Ethiopia in 1941, an organization called Enemy Property Administration was established and took over along with other activities the generation and distribution of power to the public.

In 1948, this entity evolved in to an organization called Shewa Electric Power. Shewa, although with limited capacity, managed to increase the power supply all over the country, in light of this, its name was changed to Ethiopian Electric Light and Power in 1955 and then was transformed to the Ethiopian Electric Light and Power Authority, the famous EELPA, according to historical records. Conferred with the powers and duties of the now defunct EELPA, the Ethiopian Electric Power Corporation (EEPCo) was established in 1997 as a public utility enterprise. Currently, with around 12,000 workers the Corporation produces, distribute and sells electricity all over the nation and beyond.

The dark country

According to a research paper by Precise Consult, a local consultancy firm,  more than 80 million jobs are expected to leave China in the coming few years.  Ethiopia, having invested for more than a decade in preparation for this opportunity, is probably best placed to take advantage of this megatrend. Even though this may be realised in the long run, currently the opposite seems truer especially when it comes to providing the much needed consistent power supply. The business community is paying the price as a result of the erratic power interruptions.

Businesses in every sector are having trouble functioning as per their plan. The service sector including companies in the financial industry are facing a challenge in carrying out their day to day activities because of the sporadic power outages. Super markets and establishments that deal with perishables are hit the most. Households are also having a hard time using their electronic appliances. In addition to the instantaneous, momentary or sustained interruptions, the absence of consistency in the electric flow has damaged countless electronic devices,  the decoder at my home being among the casualties. Following this, Automatic Voltage Switcher (AVS) importers are having a field day. A sales person, who wants to stay anonymous, an Metro plc, one of the importers of these devices and exclusive agent for LG products in the country, says the Company has seen a sales increase of more than 15 pct in the last six months alone.

These unplanned power outages and the poor power reliability have created additional pressure on the already congested telecommunication networks as well. In fact, in some instances the national television and radio stations were not able to transmit their programs in some parts of the country due to power failures. Yet, no one seems more in distress than the manufacturing industry. “It is becoming hard for factories to be punctual, forcing them to fail on their agreements and promises of delivery,” says G/Hiwot G/Egziabher, president of Ethiopian Chamber of Sectoral Association, explaining some of the problems industrialists face because of the blackouts. He continues, “Absence of adequate power supply is also creating problems for the new entrants to the sector, hindering their activities and disturbing their schedule.” G/Hiwot and the Association have been working with EEPCo, to limit the damage but with no major accomplishment. And according to the President, this imbalance between the supply and demand of power and the continuing interruptions are giving manufacturers a hard time.

But what really is the problem? Is there really a power shortage or the problem is with distribution (aging facility, system overload and inefficiency)?

Misikir Negash Public Relations Directorate Director of EEPCo argues that the problem is not the absence of enough supply of electricity rather he says the interruptions are because of man made and natural hazards like strong wind and rain and capacity problems at power stations in combination with inefficiency. In fact, the corporation maintains it could have provided more than eight thousand GWh of power, more than 500GWh than what it delivered to its customers this year, had there been a need for it. But Misikir acknowledges the presence of new registered customers that paid the necessary fees, who are waiting to get power but haven’t yet got services.

Yet, the level of sophistication in the national grid and power transmission is very low, except for some new power stations located at new hydroelectric power stations and new transmission lines that are few in numbers:  the overall electric system of the nation is outdated. “When most of the power stations and electric lines were installed they took in to consideration the Ethiopia that was ten or fifteen years ago, so with the growing demand and supply visible now, an overload may happen, especially at peak hours, creating power interruptions,” says Misikir.

Weather asked if the alleged corruption cases in connection with the purchase of transformers and other materials have contributed to the current situation, Miskir declined to comment on it citing the ongoing litigation.

Whatever the reason for the power interruption, one thing that is certain is that the business community is suffering from it. Many factories are facing losses and machine failures. And most of the time these kinds of losses and machine failures that are caused by unbalanced load goes without compensation. “If it is proved by a committee that the damage was caused by failures of the corporation like unbalanced load and if the customer registers the incident with in twenty four hours to the nearest office of the corporation, EEPCo will pay the appropriate amount according to the receipt that the device was bought with,” says Misikir.

Yet, most of the customers of the corporation that EBR talked to believe that they will not get a single penny and don’t even bother to register their losses. “We don’t even know the procedure and even if we do, I don’t think we will get anything from a bureaucracy of a monopoly like this,” a manager in one of the mineral water bottling factories who wants to stay anonymous told EBR.

Let there be light

Even though the country has the potential to produce more than 45,000 MW from hydroelectric power alone, its electric power supply at this time is 2,178MW. Yet this number is expected to reach around 10, 000MW by the end of the Growth and Transformation Plan, in 2015 and 16,000MW by 2020, according to the revised strategy of EEPCo.

The country’s demand for electricity on average, increases by 2.15pct for every 1pct growth of its GDP. A couple of years ago most of the electricity was consumed by households. But following recent economic development and the associated industrialization, the consumption dynamics has changed, industries and business organizations taking the driver’s seat, consuming more than 60pct of the supply now. The country’s demand for electricity has grown by more than 25pct per year, on average for the last seven years. Currently, the aggregate electric demand of the nation stands at 7,700GWh, and this number is expected to hit 39,209GWh by 2020.

At the start of the year, there were talks in the town surrounding the possible split up of EEPCo in to two. One that will take care of the power generation end of the business, being led by the current CEO, while the second tipped to be handled by Israel Electric Corporation (IEC), which would be responsible for the day to day operation, distribution and sales of electric power. Though there was not an official confirmation from the corporation, taking lessons from what happens in ethio telecom, many thought it is a move by the government to rid of customer dissatisfaction and inefficiency that many believed the corporation is riddled with. As it turns out, in unprecedented turn of events, the government is finalizing a deal with an Indian company to manage the operational segment of the corporation, according to industry insiders.

If true, this is a move in the right direction for Henock Assefa, a business consultant. “Unreliable and low level of power supply is one of the reasons why most industries in the country are operating at not more than 50 pct of their capacity with higher overhead costs. So, the government must do something to alleviate the problem. And public Private Partnership like this that will enable the out sourcing of the day to day operational works to a private company may be a step in the right direction.”

Many Western multinational institutions recommend the liberalization of utility companies. And this has been one of the points the ideological friction the Ethiopian government has with the West is manifested at. The late Prime Minister, trying to settle the debate once and for all, was once quoted saying, “We don’t need private investments that generate electricity, what we need is private investments that will use the electricity that we produce.”

So, if strategic solutions like these are out of the question, then what should be done to alleviate the ongoing power problem once and for all? Even if EEPCo denies the presence of supply shortage the country has been in this position for the good part of the last ten years or so. Of course, when the ongoing mega projects become operational major changes are expected to be seen, but in the short run the government must take different initiatives to solve the problem that is crippling the manufacturing industry. Alternative power sources can be used to fill the ‘power vacuum’, according to G/Hiwot. Henock also agrees with this, “EEPCo should start to use additional diesel generators to alleviate the power crisis for the time being.”

Besides short term objectives alternative power sources, even those that are not renewable, should be part of the country’s ‘green economy’ energy matrix in the long run. The energy strategy of the country is almost exclusively dependant on the amount of rain the country gets through the year. And except for geothermal power, the nation’s power provision is dependent on climatic conditions, for most part which are beyond the control of humanity.

While renewable energy is on the rise in many countries, a major drawback is the volatility of supply. This leads to several challenges. The unsteady production of energy, especially from water, wind or solar power, strains the stability of the network. In addition to this, renewable energy has to be transmitted from sparsely populated areas to the metropolitan centers of demand with higher costs and higher risk of disruption. Therefore the country should incorporate non renewable energy sources, even nuclear power in its long term strategy for the sector.

The International Energy Agency (IEA) says that the world will need to invest USD13.6 trillion between now and 2030 to boost power supply to meet increasing demand. The IEA says that 50pct of this amount needs to be invested in transmission and distribution.

This is nowhere truer than is in Ethiopia. The government seems to focus the limited resource of the nation almost exclusively on power generation, with minimum investment in power stations and distribution; an amount almost a quarter of the national budget for the next fiscal year will be spent on power generation projects in the same time frame. Even though this is an admirable endeavour on its own, the government should start realizing the challenges this is creating by now. “The problem is with its short term operations not the medium or long term plans,” elaborates Henock.

There was almost no investment in the distribution facility of the Corporation for the last ten years, only a couple of hundred kilometres substitution in a distribution line of more than 150,000km. So there is no guarantee that the current problem will be solved, even when the hydro power projects under construction goes operational. To handle these enormous technical challenges, the national grid needs to become much smarter. The corporation should develop new infrastructure with metering, control and communication functions to handle the future growth of energy needs. It should also promote storage facilities for excess energy. It is high time for the Corporation to work on this front. The supposed Indian company that is expected to run the show may be part of the solution in this regard.

The country also needs to minimize power loss. More than 18pct of the power that the country has produced in 2012 has been lost due to both technical and non technical reasons. The Corporation claims to save around 100mw by distributing more than 10 million Compact Florescent Light (CFL) bulbs to its customers. But there is still substantial amount of energy that can be saved through modernizing the distribution line.

Until a solution from the public utility company is provided, which may take a long time, business enterprises can minimize the damage that is caused by the power outage. Besides developing optimum production plan and use of supplementary power sources like generators, they can buy insurance coverage. But there is information deficit regarding insurance policies. “Most industrialists don’t have adequate information on the issue,” says G/Hiwot. Yet lack of information is not the only reason why most manufacturers don’t have insurance coverage for losses incurred because of power interruptions. “The consumer products market is price driven so we can’t afford to increase our production cost hence our price, by buying insurance policies,” explains Getachew.

Even though EEPCo promises to alleviate the problem in the immediate future it is hard to believe it, considering past experiences and the facts on the ground. One way or another erratic power interruptions are expected to continue in to the foreseeable future, till the mega projects start operations and the Corporation modernizes its distribution system. In the mean time, we have got to learn how to live in the darkness, fortunately we have ample experience on the area.