Djibouti is pursuing its energy mix strategy. In Djibouti, the population access to electricity rose from 59.1% in 2015 to 65.2% in 2023, with 31% in rural areas. From a strategy point of view, Djibouti does not have a letter of energy sector policy. However, the country aims to achieve a 100% energy mix by 2030 with the operationalization of its renewable energy projects with contributions from TFP including the Bank as well as from national and international private sector partners. As of 2022, Électricité de Djibouti (EDD) still holds the monopoly over electric power generation, transmission and distribution notwithstanding the generation of electric power by private operators. Because of EDD’s problems related to machinery maintenance, technical losses and revenue collection, electricity prices remain high at 28 US cents per KWh in Djibouti compared to 5 US cents in Ethiopia (2022), from where 65% of the country’s electric power requirements are imported. The remaining needs are covered by electric power generated by EDD and estimated at 120 MW, by fuel oil and diesel-fired thermal plants. Based on a 10% annual increase in demand for electricity driven by customer demand and economic activities, the country’s daily needs could reach 1,000 MW in 2030. To address this ever-growing demand and while hoping for a reduction in the price of electricity, Djibouti has targeted the development of renewable energies insofar as the country has high diversified potential in these sources of energy, including the Ghoubet wind farm (59 MW), the Grand Bara solar plant (30 MW) and the Fialéh Geothermal Project (30 MW).

Source: Djibouti Country Strategy Paper 2023-2027, and AEP data

• Ministry of Energy and Natural Resources
• Electricité de Djibouti (EDD)

• No IPPs operating in Djibouti

• Electricity law n°88/AN/15/7th
• Djibouti National Energy Master Plan
• National Strategy and Action Plan for the electricity sector

Support Djibouti in operationalizing the newly established electricity regulator

Regional/country context and sector issues

As part of the regional integration process in East Africa, the African Development Bank Group, in collaboration with the World Bank, has financed the implementation of the second electricity interconnection line between Ethiopia and Djibouti. Given the important role played by the Djibouti Multi-sector Regulatory Authority (ARMD) in regulating the electricity sector in Djibouti, the ARMD was able to benefit from financing, covered by World Bank funds, to revise electricity sector policies and legal instruments in order to strengthen the role of private investors. It should be noted that ARMD is a newly created institution in 2020. It is not yet fulfilling its main regulatory functions. For this reason, ARM has approached the Bank for more in-depth technical assistance to help it fully assume its role in the technical and economic regulation of Djibouti's electricity sector. The Bank's support for this project is in response to this request.

Complementarity and coordination

The Bank's initiative to assess the development of regulatory frameworks in Africa, marked by the assessment of these frameworks, launched in 2018, through the establishment of an electricity regulatory index, has continued to this day with the participation of around 45 countries. The ERI provided a framework for assessing and diagnosing the development of electricity regulation, although Djibouti had not yet been able to participate. The support provided by the Bank, through this SEFA fund in Djibouti, will be the lever that will give ARMD the impetus it needs to have a favorable regulatory framework and enable it to participate, like other regulators, not only in the ERI 2024 assessment, but also to situate itself in relation to its peers on the Continent. Lastly, this support will complement the World Bank's focus on reviewing electricity sector policies and legal instruments to strengthen private sector investments.

PROJECT DESCRIPTION

Project rationale

The project will focus on addressing regulatory aspects that have not yet been established or are virtually non-existent in the operation of the ARMD, without which the institution will be unable to fully perform its primary function of regulating the electricity sector. So far, the Ministry of Energy has been regulating the sector by taking regulatory decisions, such as setting tariffs and defining PPA agreements. To remedy this situation, the project support will provide the country with an independent and capable regulator to take on this function, acting as a reference institution and intermediary between stakeholders in the electricity sector regulatory affairs, including the power utility (Electricité de Djibouti - EDD), the Government of Djibouti, Civil society, and Consumers. While ARMD is the direct beneficiary of the project, the development impact will favor these stakeholders, as well as the private sector, thanks to the improved regulatory environment created by ARMD's increased capacity.

Project objectives

The objectives of the project are to strengthen the capacity of Djibouti's multi-sector regulatory authority in the following regulatory areas: (i) technical regulation; (ii) economic regulation; and (iii) legal regulation. More specifically, the Bank's intervention will focus on quality of service, the development of a legal framework, tariff studies, the study of service costs, and human capacity building in the three aforementioned areas.

Project description

This project is designed to strengthen the regulator's regulatory capacity. It involves setting up standards and tools for quality of service code, recruiting a legal firm, training a number of regulatory institution staff, carrying out a cost-of-service study (production, transmission, and distribution costs), and a tariff study.

Project Components and Activities

The project has three components as follows:

Component 1: Technical regulation: The activities of this component include the development of regulations and standards relating to quality of service code for both transmission and distribution. The activities will also include staff training on these issues (estimated budget: 105,000 USD, estimated duration: 06 months).

Component 2: Economic Regulation: The activities of this component include recruiting a firm to conduct a cost-of-service study (CoSS) and subsequently assisting the regulator in establishing a tariff review framework. It includes organizing 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 budget: 165,000 USD, estimated duration: 9 months).

Component 3: Legal regulation: The activities of this component include the recruitment of a national law firm to draw up the institution's internal regulations, royalties’ calculation, operators’ licensing templates, procedures and procedures manual. (estimated budget: 150,000 USD, estimated duration: 12 months).