Subsidies are biggest threat to region's power sector

06 November 2013

Demand for power will increase by 8.4 per cent annually

Subsidies are the biggest threat facing the Middle East and North Africa (Mena) power sector, according to D. Hisham Khatib, honorary vice chairman of the World Energy Council.

Speaking at the MEED Mena Power conference on 6 November, Khatib said the demand for power in the region will rise 8.4 per cent annually over the next five years, which is three times faster than the rest of the world. To meet this demand, the total amount of investment required for the energy sector across the Mena region (not including Iran) over the next five years is $280bn, an average of $56bn a year.

However, the main driver for more energy investment is not population growth, but subsidies. “Mena’s power demand is free wheeling, it is not controlled by the economy,” he said. “The proliferation of subsidies is the biggest threat to the Mena power sector.”

He said electricity is subsidised in every Mena country, but at varying degrees. “In some Mena countries it is provided almost free or even free. These subsidies lead to waste, over use, and neglect for efficiency and conservation practices,” he said.

Lack of cooperation in the region is also a challenge for the power sector. “More cooperation is needed. There are only modest regional power and gas networks, which are small in geographical extension and capacity mainly due to political reasons,” he said.

The challenges facing governments provides opportunities for investors and contractors. “Facing difficulties in procuring investment funds due to the Arab Spring and degraded credit ratings, most Mena governments are shying away from power investments. Therefore, we are seeing an increasing number of IPPs in most of the region,” he said.

Khatib said governments need to make fundamental changes to address their energy challenges. “The failures are of our own making. Therefore the solution has to be also of our own making. It requires phasing out subsidies, enhancing regional cooperation, privatising power utilities, and ending corruption,” he said.




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