Frost: Opportunities Exist for Independent Power Companies in Cameroon

November 26, 2008 // Published as a news service by IHS

According to Frost & Sullivan, however, this is dependent on the government adopting a strategic approach to gradually completing the deregulation of the electricity market, while pursuing the diversification of the country's energy mix.

Recent analysis from Frost & Sullivan of the Cameroonian electricity industry estimates the market to grow by a compound annual growth rate (CAGR) of at least 7.2% between 2007 and 2013.

"The Cameroonian electricity industry is projected to generate revenues of about $494.2 million by 2013," said Frost & Sullivan industry analyst Jeannot Boussougouth.

"This growth will be driven by the convergence of factors, such as new additional generation capacities in Yassa and Kribi, and the continued robustness of the demand for electricity in the country."

Current participants and potential new entrants have to overcome a number of challenges, including corruption, revenue collection and the lack of adequate infrastructure, if they are to fully benefit from the expected boom in the demand for electricity in the country.

Market participants are also faced with an environment in which power sector reforms have produced mixed results. AES Sonel still maintains a monopolistic position and is the main provider of funds to the regulatory body. Analysts said this does not offer an entirely independent or fair regulatory environment.

If Cameroon is to meet its goal of adding at least 10,000 megawatts (MW) of electricity by 2030, analysts said it would need to ensure that issues such as the cost reflectivity of electric tariffs are fully considered, and the opening up of the transmission and distribution segments to private companies is achieved.

"There are several challenges that have restricted the entry of private investors into the Cameroonian electricity sector," said Boussougouth. "The scale of investments required suggests that public private partnerships (PPP) are likely to be the most viable option due to their mechanism of risk sharing."

The fact that AES's concession agreement with the Cameroonian government is to a maximum power production capacity of 1,000 MW indicates there are massive opportunities in the generation function for private companies. Analysts said the recent announcement of the creation of a new electric power production company - known as Kribi Power Development Company (KPDC) - is indicative of this trend.

"In addition, Cameroon should explore the possibility of gradually shifting from the single-buyer model, which should be seen as a transition operational model, to a completely deregulated electricity market based on a direct sale of electricity to end-users," said Boussougouth. "This would limit government interventions, strengthen a market-driven decision-making process and improve productivity and efficiency."

Finally, a further diversification of the country's energy mix must be pursued, analysts said. A fast-track development of Cameroon's natural gas resources, which are estimated at approximately 105.9 billion cubic meters, will provide a viable feedstock alternative.

Source: Frost & Sullivan.