The energy sector has the largest natural potential in Africa and needs to strengthen its role as a driving force in the structural transformation process. The Democratic Republic of Congo (DRC)’s national energy policy is currently being finalised. The Government’s strategy seeks to provide abundant, affordable, and environmentally friendly electrical power as part of its energy mix. This is expected to effectively support the structural transformation of the Congolese economy and increase overall productivity through the implementation of transformative projects, especially the PTA and the Local Development Programme of the 145 Territories (PDL-145T). However, reforms to liberalise the energy sector and their implementation have been slow. The legal framework for PPPs in the sector needs to be enhanced. The population access to electricity is very low (22.1% in 2023), with a wide disparity (45.4% in urban areas and 1.1% in rural areas). Yet, the technically exploitable hydropower potential is estimated at 774,000 GWh per year, corresponding to exploitable power of about 100 GW, distributed between 217 identified sites, including the Inga site, which alone accounts for 44% of the potential. However, only 3% of the DRC’s potential has been tapped to date. The significant shortfall in energy infrastructure is a major hurdle to the DRC’s development, including the empowerment of women.

Source: DRC Country Strategy Paper 2023-2028, and AEP data

The key electricity sector institutions and operators in the DR Congo include:

• Ministere des Ressources Hydrauliques et electricite (MRHE)
• Société Nationale d’Electricité (SNEL)
• Agence Nationale de l’Electrification et des Services Energétiques en Milieu Rural et Périurbain (ANSER)
• L'Autorité de Régulation du secteur de l'Electricité ARE (ARE)

The DRC has about 30 small Independent Power Producers(IPPs) to date producing between 0.1 MW to about 39MW

LAWS

• Law N°14/011 of 17 June 2014 relative to the electricity Sector in the democratic Republic of the Congo
• Law 18-031 amending and et completing the law 14-011 on electricity here

DECREES

• Decree 15/009 of April 25, 2015 on tax and customs relief measures applicable to the production, import and export of electrical energy
• Decree 18/024 of December 24, 2018 - the procedures for awarding, modifying concessions/licenses in the sector
• Decree 08/053 of December 24, 2018 - conditions for electric export and import
• Decree 18/054 - December 27, 2018 - amending law on tax and customs decree, click here for more information

ORDERS

• There is limited information on the democratic Republic of the Congo electricity sector regulations, orders and legislations as stated on the link here

Support DRC in improving the economic and technical power sector regulation capacity

INTRODUCTION

Regional/country context and sector issues

The Democratic Republic of Congo (DRC), located in Central Africa and bordering nine countries is the largest and fourth most populous country in Sub-Saharan Africa, with a land surface area of 2.3 million square kilometers and an estimated population of about 77 million inhabitants, the country depends on mineral resources to drive its economy. Despite the vast mineral resources and arable land (80 million hectares) the country suffers from a very low GDP, ranking as one of the poorest countries in the world (164 out of 174) according to the Human Capital Index, which is below the sub-Saharan Africa average of 0.4. The DRC has vast natural resources, including the world’s third largest hydropower potential (behind China and Russia), the world’s second largest tropical forest area, and substantial concentrations of mineral wealth (world largest cobalt producer and third producer of copper). With the vast natural resources outlined above, DRC has the potential to achieve significant economic growth and job creation. However, unlocking this potential requires substantial policy and governance reforms and investments in infrastructure and human capital.

Like most sub-Saharan African countries, the DRC’s energy consumption is denominated by biomass, which accounts for around 93%, followed by hydrocarbons (4.1%). The electrification rate of the DRC is very low, estimated at 19.1% nationally, with considerable disparity between rural (less than 1.1%) and urban areas (41%) despite estimated power generation potential of 100,000 MW. The country’s size, dispersed population, natural topography, and history has made it difficult to develop connectivity between the provinces and to have an interconnected national network. Currently, there are three independent interprovincial separated major transmission grids - (a) the Inga-Katanga backbone; (b) the North Kivu grid; and (c) the South Kivu grid. Aside from these grids, the overall network picture is fragmented and mainly supplied by relatively small independent grids (10 kWh - 10 MW), mining companies, NGOs, and the rural electrification department of the state-owned power utility, (Société Nationale d'Électricité, SNEL). Other challenges in the power sector include inefficient institutions, operating tariffs that are below cost-recovery levels, opaque power purchase agreements and special arrangements with operators, low billing collection rate (especially from high-revenue customer segments), poor commercial and technical performance, network losses are also high, and are between 40% and 50%, which impacts operator’s performance. As such, creating attractive conditions for sector involvement by enhancing the enabling environment, institutional capacity and finance is among the key pillars to mobilizing energy investments and improving the country’s electrification rate. In 2014, the country enacted an Electricity Act which established the Electricity Regulatory Authority (ARE) and National Agency for Rural Energy Services (ANSER) with the goal of increasing electrification access to rural and peri-urban areas, regulate the sector and attracting private sector investment through measures including sector liberalization. The role of the Electricity Regulatory Authority (ARE) in this project is to further enhance key regulatory aspects that continue to encourage the uptake and rising of the above factors that continue to challenge the DRC power sector.

Complementarity and coordination

In addition to AfDB, the main donors operating in the sector are the World Bank (WB), the European Investment Bank (EIB), KfW, the French Development Agency (AFD), Japanese (JICA), American (USAID), Belgian, Korean and Chinese Cooperation Agencies. The EIB and WB are jointly financing with AfDB the Project for the Rehabilitation and Strengthening of the Inga Hydropower Stations and Kinshasa Distribution Grid (PMEDE), for which the DRC has made significant efforts to coordinate various donors’ actions through

SNEL and MERH.

During implementation of this project, the Bank’s team envisage to engage with most of these partners to underscore the complementarity between and coordination held by DFIs in investing in the country and the Bank role through this technical assistance program as a catalyst to strengthen regulatory activities in the electricity sector.

PROJECT DESCRIPTION

Project rationale

Robust and transparent regulatory regimes are critical to creating an enabling environment that is required to attract private investment into the energy sector of regional member countries. It facilitates the achievement of universal access to electricity in Africa as envisaged under the Light Up and Power Africa High 5 and underscored by the Bank’s New Deal on Energy for Africa (NDEA). One of the critical drivers to enable this goal will be to strengthen energy policy, regulation, and sector governance across Africa. This involves supporting and providing leadership in the establishment of appropriate energy policies and clear, predictable, and transparent regulatory frameworks to ensure financial sustainability of the sector and mobilize private investments. Launched in 2018, the Electricity Regulatory Index for Africa (ERI), assesses the regulatory frameworks of African countries; benchmarks their performance against international best practices, and makes recommendations to address challenges. Fundamental to the regulatory bottlenecks identified by the ERI is the inability of the regulators to effectively monitor utility performance, the inability to analyze the activity of operators for tariff regulation; inadequate institutional, legal, and regulatory frameworks, instruments, tool, that impede stakeholders’ participation in the power regulation sector, insufficient staff capacity to carry out various regulatory functions including technical and commercial audits. The Bank continues to forge strategic collaborations with development partners to support regional member countries (RMCs) to address key regulatory bottlenecks identified by the ERI in 43 countries. In this regards the Bank is currently implementing technical assistance projects in Ghana, Nigeria, Uganda, Tanzania, Liberia, Guinea, and Central Africa Republic, deploying Database Management Systems and institutional capacity building programs to develop tools and institute mechanisms for increasing the technical performance of regulators.

In a quest to address the above challenges, the government of DRC decided to speed up power tariff reform to develop a system with well-designed generation, transmission, distribution, and retail tariffs that are comparable with the power sector reforms and requested a technical assistance (TA) from the African Development Bank to assist the Electricity Regulatory Authority (ARE) to develop its power pricing strategy with a focus on tariff setting and regulation.

Project objectives

The objective of the TA was to help “the Electricity Regulatory Authority (ARE)” optimize power operation and development through proper power pricing strategy in order to promote sustainable power sector growth in the DRC by formulating a power pricing strategy and a reform action plan focusing on cost-of-service study, tariff setting and tariff regulation. In terms of electricity transport, network codes for transmission and distributions are areas that also need to be developed to allow the different companies know under what conditions access to the transport network takes place when their production must be sold.

The scope of the TA is threefold: firstly, on the cost-of-service to help improve its quality of service, secondly on the tariff side, the project seek to (i) examine key issues related to power tariff setting/methodology, tariff regulation, generation tariff under competitive power market, bulk generation tariff, transmission and distribution tariffs, end-user tariff paid by different consumers categories and develop a strategy and an implementation plan to address these issues; (ii) optimize available power capacity through proper tariff setting and regulation; (iii) assess impacts of power tariff reforms on consumers’ affordability, power utilities’ financial viability, and environmental protection; (iv) analyze the issue of subsidies; and conduct a consultation workshop with main stakeholders. Thirdly, regarding supporting development of network codes, the project’s scope will seek to develop a set of rules to develop a harmonized electricity grid connection regime. These rules also aim to ensure a fair competition in the DRC electricity market and facilitate the electricity trade across the regions and neighboring countries as necessary.

Project description

The project can be categorized as a technical assistance project that relates to the development of a tariff study and network code program for DRC. It is a means to enhance efficiency of the regulator by providing the tools and instruments that will ensure the long-term financial stability in the DRC power sector project through enhanced regulation of the sector. It shall also build the national capacity in terms of operation and commercial tools that guide an efficient pricing regime for profitable power trade.

Additionally, through the development of network codes that will serve as the legal instrument harmonizing the standards, rules, and processes to be applied mandatorily by all electricity market players for the operation of the national transmission network distributed across three regional grids within DRC.

The TA will analyze household survey data by income groups and based on the recommendations regarding the subsidy program for vulnerable and low-income groups, determine the Government’s budgetary impacts. The TA will also assess: (i) the impact of changes in electricity prices, particularly rural tariffs based on the three independent interprovincial separate grids – Katanga, North Kivu and South Kivu, (ii) the impacts that of distort the economic use of electricity, impeding private sector participation, and SNEL’s performance, and (iii) whether, through the reclassification of consumer categories, changes in electricity prices could be partially absorbed by the power utility, hence mitigating to some extent the impact on consumer groups and geographical regions. Based on the assessment, the TA will recommend (i) the policies and regulatory framework on the direct access under the conditions of competitive power market, (ii) the reform measures to remove the barriers to tariff reforms, (iii) the preferred authority for proposing and approving tariffs, and (iv) a procedure for regulating electricity tariff, including tariff adjustment and dispute settlement procedures. On the network side, this TA will also lead to (v) the development of network codes for distribution and transmission, and (vi) propose measures to ensure their enforceability, full compliance, and effectiveness of the grid codes requirements at the regional levels (Katanga, North Kivu, and South Kivu).

ARE possesses the needed technical and management experience to champion this project and as executing agency will lead and coordinate all project activities and review reports with the concerned stakeholders including SNEL.

Project Components and Activities

This project will comprise two main components (deliverables) as noted below:

Component 1: Economic regulation: The activities of this component include the recruitment of a firm to carry out a cost-of-service study (COSS) and subsequently assist the regulator in setting up a tariff review framework. It includes the organization of a national workshop with the involvement of all stakeholders to present and validate the results of the COSS. The activities will also include staff training on these issues (estimated total budget: 190,000 USD).

A)    Cost-of-service study (CoSS) – (with an estimated budget of USD65,000): To address current sector activities, the regulator will need to review the current COSS to determine its relevance and update the costs and data to determine the cost of each of the different activities related to tariff setting or determination. Currently the Regulator is not in a position to determine the cost of each of the different activities related to tariff setting or determination. A Cost-of-Service Study that identifies the costs incurred to serve each category of customers, plus fair margins at the level of generation, transmission, distribution, and retailing will help the regulator to reinforce the overall economic regulation of the sector that has been struggling as revealed by published ERI reports. The key areas in which the regulator needs support are the following:

-    Review / Assessment of CoSS (if existing)

-    Capacity building on the evaluation of service costs and leading to the determination of tariffs.

-    Development, validation or update of the methodology for determining regulated tariffs.

-    Development of a Model (Excel Spreadsheet with 20 worksheets) and User Manual.

B)    Development of Multi-Year Tariff (MYT) Frameworks – (with an estimated budget of USD125,000): Following revision and update of the COSS, this component will involve the review of the existing tariff setting frameworks, methodology, and tariff determination models. The key areas in which the regulator needs support are the following:

• Assessment/ Analysis Report on the MYT application.
• Development of the Multi-Year Tariff Order (MYTO) Tariff Framework; Tariff Guidelines and Models
• Capacity building on the application of MYTO tariff review process, guidelines, and use of CoSS model for the determination of MYTs
• Review of the existing regulatory frameworks and tools used for the determination of tariffs and recommend necessary improvements; and
• Development of new regulatory frameworks and tools for both single-year and multi-year tariff determination.

Component 2: Development of a network grid codes– with an estimated budget of USD 160,000):

Currently in the country power sector, the network codes are neither standardized nor codified, although it is one of the essential steps for a country to allow different companies integrate the sector. This component will therefore cover two major activities:

The Grid Code Study – to review and identify gaps and recommendations to develop the DRC’s electricity system requirements. The national electricity Grid Code will establish the rules, procedures, practices, and standards that that govern the development, operation, maintenance and use of the high voltage transmission and distribution systems of DRC with the purpose to provide a fair, transparent, and non-discriminatory access to grid infrastructure by all potential users and stakeholders. Where required, the Grid Code will also incorporate assess the requirements for expanding DRC’s power trade/export and develop the principal grid codes needed by the country for that matter. 

Development of Grid Codes – this will entail the development of network codes on grid connection for generators, transmission and distributions with the common standards, rules, and requirements that generators and operators must respect to connect to the grid and end-users to receive connections including the stakeholders’ rights and obligations 

Workshops – aim to validate the draft codes developed to ensure their alignment to international practices and standards for proper connections. It will also strengthen ARE capacity to monitor the enforcement of grid codes and empower operator’s capacity to check their own compliance to the grid codes at every level.

Cross-cutting component: Project management, Monitoring and Evaluation – (budget is centralized at the program level). To coordinate project activities, validate project milestones and measure indicators and targets to ascertain progress, this component will also cover capacity building of the ARE project team including Senior Management on Results-Based Monitoring & Evaluation. This will result in the hiring of a Technical Assistant at the program level to support the following: i) day to day management of key project activities alongside other projects under the larger AESTAP program, ii) Monitoring and Evaluation workshop to review and validate the project milestones, measures, indicators, and targets and the iii) coordination of capacity building trainings on the project outcomes and Results-Based Monitoring & Evaluation.