The privatization of the electricity sector in Cameroon refers to the process by which the generation, transmission, distribution, and sale of electricity in Cameroon has been transferred from the state to the private sector. This includes the sale of assets and the granting of concessions to the private sector. The landmark event of this process is the sale of 56% of the Société National d'Electricité (SONEL), the fully integrated public company responsible for the generation, transmission, distribution, and sale of electricity in Cameroon, to AES Corporation in 2001. The deal also granted concessions for each sub-sector to the newly formed AES-SONEL company. The new regulatory framework to prepare for this privatization was implemented between 1998 and 2000.
In 2011, a law set a new regulatory framework allowing for the introduction of more competition, in particular in the production sector. In addition, the law established the basis for the disintegration of the electricity sector by the renationalization of the transmission subsector.
Forms of privatization
Privatization in the strict sense refers to the transfer of public companies and assets to the private sector. In the broad sense, it refers to the delegation to the private sector of the provision of services previously provided by the public sector. In other words, in a broad sense, privatization means having private sector actors replace public actors in the provision of certain services and goods.
In the case of Cameroon, the privatization of the electricity sector refers to the process by which 56% of SONEL, the fully integrated public company responsible for the generation, transmission, distribution, and sale of electricity in Cameroon, was sold to the private sector, as well as the concessions granted to the private sector to operate these four subsectors of the electricity sector. By implication, it also refers to the period of private management of the electricity sector in Cameroon and the various regulatory reforms that accompanied the process of privatization.
In 2001, the state-owned Cameroonian electricity company SONEL was sold by the government to the US-based firm AES Corporation. AES Corporation was the only bidder in the public tender. ENEO was sold in compliance with the World Bank's third structural adjustment credit project. The initial privatization process in Cameroon is peculiar in that a vertically integrated electricity company was sold as a joint venture, giving a quasi-monopolistic position to the buyer. With the 2011 reform, more competition was introduced in the market by renationalizing the transmission subsector and introducing more legal opportunities for other private firms to produce electricity and compete in this market.
Background
Oil Boom (1978–1986) Starting in 1978, Cameroon knew an economic boom that lasted until 1986. During this period, real gross domestic product (GDP) grew 8.8% a year on average. By 1986, per capita real GDP had risen by 52%. This growth was mainly due to the boom in the oil sector, stimulated by high prices on the world market. The sector's production jumped from less than 5 million barrels in 1978 to over 66 million barrels in 1986.
Government revenues benefited greatly from this boom. The state's oil revenues rose from less than 20 billion FCFA in 1980 to 330 billion FCFA in 1985, representing 9% and 41% of total revenues, respectively. In total, government revenue went from an average of 17% of GDP during 1965–1977 to an average of 21% of GDP during the period from 1978 to 1986.
Due partly to the favorable fiscal situation, the state launched ambitious economic policies. It started substantial capital investments, notably directed at improving public infrastructures. New public agencies were created and expanded. The state was involved in most sectors of the economy.
Economic recession (1987–1993) From 1987 to 1993, Cameroon went through a severe economic crisis. During this period, real GDP per capita dropped by 40%. External factors deemed important by scholars were the devaluation of the FCFA and the deterioration of the terms of trade on the global market. Cameroon's economy was still based mainly on the export of primary commodities, such as oil, cocoa, and coffee, the prices of which were plummeting. Among the internal factors, the decline in oil production and the inability of state-owned enterprises and the government to react and adjust their spending are understood as important additional factors by scholars.
State revenues had already peaked in 1984, and the budgetary crisis knew its worst in 1987 when the state deficit reached 13% of GDP. During this period, the average state deficit amounted to 7% of GDP. The deficit was mainly financed by the accumulation of domestic and international arrears and external debt.
In the electricity sector, SONEL, a state-owned fully integrated company founded in 1974 and granted monopoly status in 1983 over the production, transmission, distribution, and sale of electricity in Cameroon, experienced financial difficulties. This was due in part to the devaluation of the FCFA, which hampered its ability to repay its international debt remaining in foreign currency. As a result, investments stalled, preventing the maintenance and repair of existing facilities and slowing down rural electrification.
Reforms and privatization (1989–2003) The crisis led to numerous economic reforms, most of which took place between 1989 and 2004. The government received substantial loans and assistance from the World Bank (WB) and the International Monetary Fund (IMF) to help manage the consequences of the crisis. They were conditioned to the realization of structural adjustment programs (SAPs). Their overarching goals, as stated officially by the IMF were to "(a) strengthen macroeconomic stability and restore external and internal viability; (b) bring the economy onto a sustainable development path; and (c) improve the social conditions of the population and substantially reduce poverty." Specifically, the main operational requirements of the WB and IMF were to deregulate the market, promote the private sector and disengage the state from the economy, as well as to improve economic and social infrastructure and transparency, and reduce corruption.
Three SAPs took place. SAP I (1989-1994) and SAP II (1996-1999) were conditions for loans of US$150 million, and SAP III (1998-2004) was a condition for a loan of US$180 million. Privatization in Cameroon began under the 1990 Ordinance, which set the framework for the private management of previously state-owned firms and encouraged competition from private firms. Additionally, it set transparency conditions for the state and privatized firms, to reassure interested buyers and the public that there would be no corruption. Within the framework of these two first SAPs, 48 privatizations of public enterprises were carried out between 1990 and 1998. In all sectors, some state-owned firms were sold to national and international actors for a total of US$72 million.
Against this backdrop, a new regulatory framework for the electricity sector was implemented between 1998 and 2000 to allow for private involvement and competition. It was enacted by the 1998 electricity law and three subsequent decrees. Two agencies were created: the Electricity Regulatory Agency (ARSEL) and the Rural Electrification Agency (AER). ARSEL has the function of supervising the development of competition principles and private involvement by regulating the electricity sector, while AER is in charge of rural electrification. The 1998 electricity law also divides the sector into four sub-sectors with associated concessions, namely production, transmission, distribution, and retail sale.
In 2001, SONEL was privatized. It was bought at 56% by the American company AES Corporation for between US$69 and 71 million. The price was divided into approximately US$30 million to the Cameroonian government, and US$40 million to be invested in the company. AES was the only bidder in a public tender in November 2000. The Cameroonian state retained a 44% stake in the company. The deal provided a concession for each subsector, as well as a three-year period during which no penalty would be imposed on SONEL for service interruption. This concession was to last twenty years for transmission and distribution and five years for the operation of the system. The concession for sales rights, exclusive, was to last five years, except for consumers of less than 1 MW for which it could last indefinitely. Despite the stated aim of introducing competition in the electricity sector, SONEL remained the only firm with concession rights in all four subsectors until 2011. By 2005, no new concession rights had been granted to any other company.
The final concession contract signed in July 2001 was never made public. ARSEL initially refused to collaborate in its publication. Even after announcing it would release it in February 2003, it never did so. In addition, a 2000 presidential decree temporarily removed the requirement for accounting rules for SONEL, which had been set in the 1998 electricity law to ensure transparency.
Reforms, nationalization of transmission, and sale of SONEL (2011–2018) In December 2011, the executive introduced a new law to regulate the electricity sector, which was passed by the National Assembly. The law was designed with the stated aims of facilitating small-scale localized production for industrial purposes, promoting competition, particularly in the production sub-sector, as well as diversifying production sources, including the use of renewable energy sources. Another central aspect of the law was to renationalize the transmission of electricity. Since 2001, AES-SONEL had been the only transmission system operator, which gave it dominance in the electricity market as it was the only firm allowed to fully integrate production, transmission, distribution, and sales, with a de facto legal monopoly on transmission and distribution. The 2011 law changed this state of affairs and provided for electricity transmission to be placed under public management. The transfer was planned to happen after the negotiated termination of the current concession, and the transfer of assets and personnel to the new public transmission company. However, AES-SONEL still remains the exclusive distributor authorized to sell electricity to the public.
In November 2013, AES agreed to sell its 56% stake in SONEL and its subsidiaries Kribi Power Development Company (KPDC) and Dibamba Power Development Company (DPDC) to the British private investment fund ACTIS for US$220 million. This occurred in the context of a general withdrawal of AES from 8 countries in an attempt to "drive shareholder value by exiting markets where [they did] not have a compelling competitive advantage", according to AES 2013 annual report. The sale was ratified by the government in May 2014. In September 2014, as the result of a contest, ACTIS announced the new name of the electricity operator: Energy of Cameroon (ENEO).
In September 2015, ACTIS sold its shares in KPDC and DPDC to a consortium composed of the state-owned Norwegian Investment Fund for Developing Countries, Norfund, and the state-owned British development finance institution, Commonwealth Development Corporation (CDC Group). This sale occurred as part of the purchase by the two funds of all the assets owned by ACTIS in Globeleq Africa, which owned and managed DPDC and KPDC through its subsidiary Globeleq Cameroon Management Services (GCMS). ACTIS retained ownership of 56% of ENEO, for US$227 million.