Utility Performance and Behavior in Africa Today (UPBEAT) Update Briefing 1 ACKNOWLEDGEMENTS ➢ This report would not have been possible without generous funding provided by the Energy Sector Management Assistance Program (ESMAP). ESMAP—a global knowledge and technical assistance program administered by the World Bank—assists low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, the European Commission, Finland, France, Germany, Iceland, Italy, Japan, Lithuania, Luxembourg, the Netherlands, Norway, the Rockefeller Foundation, Sweden, Switzerland, the United Kingdom, and the World Bank. ➢ This report was drafted by a team comprising David Loew, Arun Singh, and Fabrice Karl Bertholet from the World Bank and Stephen Nash, Tim Morgan Boyd, and Katrina Dasalla from Kuungana Advisory. The work was carried out under the leadership of Julia Fraser. Data collection and validation was carried out by Alessandra Di Renzo, Rebeca De Bakker Doctors, Muna Abucar Osman, and Irene Hu, who also provided valuable editorial contributions. ➢ The World Bank UPBEAT team has benefited greatly from partnership with the Association of Power Utilities of Africa (APUA) and the African Development Bank (AfDB). The UPBEAT team would like to thank Batchi Baldeh and Liezl Harmse from AfDB and Abel Tella from APUA for guidance and coordination provided in data validation and dissemination and for their contributions to this report. The team is grateful to all the utilities covered in the report for their strong collaboration during the data validation process and in discussions of the preliminary results. ➢ This report compliments the publicly available UPBEAT dashboard. The data platform can be accessed using the following link: https://utilityperformance.energydata.info/. 2 CONTENTS 4 Key messages 7 Objectives and overview of the indicators 12 Financial performance 37 Operational performance 42 Transparency and accountability 46 Annex A: UPBEAT performance indicators 54 Annex B: Utility list 3 Key messages 4 KEY MESSAGES ➢ This report presents summary findings from an update of the UPBEAT stakeholders to transparently allocate revenue requirements across database. UPBEAT was launched in 2020, presenting data analyzing the electricity consumers (via tariffs) and taxpayers (via subsidies). performance of Africa’s utilities to 2018. This update reflects new data ➢ Cost of supply greatly influences whether a utility is able to recover through 2020, where data is available. its costs. Less than 40% of utilities with average cost of supply >20 ➢ Most utilities in Sub-Saharan Africa (SSA) still do not fully recover $c/kWh recover operating costs, and less than 20% recover operating their costs. The UPBEAT framework includes several indicators that and debt service costs. Reducing cost of supply through better planning measure cost recovery, comparing the revenues earned by a utility to the and competitive procurement should be a priority for high-cost utilities. costs that these revenues need to cover. While cost recovery has been ➢ Covid had a short, sharp impact on some utilities, but the effects stable in recent years, median operating cost recovery remains below may have been less than feared or may have yet to fully materialize. 100%. This is consistent with another finding of this updated survey: that the Analysis conducted in 2020 for the initial launch of UPBEAT suggested median utility is not profitable. that the Covid-19 pandemic would likely have a detrimental impact on ➢ Operating subsidies are important for some utilities, but the role of utility performance. Covid did negatively impact the performance of some subsidies varies widely across the sample. Less than half of utilities utilities, often in the form of reduced collection of bills and decreases in benefit from subsidies, with utilities with the lowest cost recovery most demand, but the impacts on utilities appear in many cases to have been likely to rely on subsidies. Until 2018, transmission utilities received most short-lived—utility performance was primarily affected in the quarters or subsidies, while distribution utilities received the least. Since 2019, the half-years most impacted by lockdowns, and the effects have since median subsidy paid to distribution utilities has increased sharply; this reversed for utilities examined in more detail as case studies later in this is largely the result of a substantial new tariff subsidy received by Nigerian Briefing. Across the sample, the early impact of Covid-19 on cost distribution utilities. However, the approach to providing operating subsidies recovery seems to have been limited. in Nigeria also demonstrates good practice by clearly linking subsidies to efficient cost of supply determined by the regulator and allowing 5 KEY MESSAGES ➢ Utilities’ liquidity remains a challenge and has been declining over ➢ There has been little noticeable improvement in the operational time. More than half of all utilities and more than 80% of distribution utilities performance of utilities. Utilities in SSA are often not billing enough of have a current ratio of less than one, indicating that their short-term assets the power they deliver and are not collecting of the revenue they have are insufficient to pay for short-term liabilities. While debtor and creditor billed. There is a significant relationship between higher transmission & days, which measure the extent of a utility’s receivables and payables, did distribution losses and lower cost recovery, although the correlation not rise as rapidly between 2018 and 2020 as during earlier years covered between these variables is weak, indicating that losses are likely just one by the UPBEAT database, there is no obvious improvement in these of many factors involved in cost recovery. Data availability remains poor indicators. Transmission utilities continue to have rising creditor and debtor for operating performance indicators, especially for indicators relating to days, with falling collection rates, suggesting that transmission utilities may system reliability. be an easy target for governments seeking to keep tariffs low during ➢ Availability of utility performance data remains poor and may be economically challenging times. deteriorating. While there have been some signs of improved reporting ➢ Some utilities are taking on more debt, but gearing remains low across regarding areas such as gender and cyber-security (both of which have UPBEAT utilities. This could suggest that not all debt raised to finance benefited from additional attention in recent years), many utilities do not utility investments is reflected in utility balance sheets, as would be the case publish financial or operational performance on a timely basis, if at all. if governments raise debt for infrastructure on behalf of state-owned utilities. This is concerning, not only because UPBEAT depends on timely Distribution utilities generally have the lowest gearing and highest cost-of- availability of high-quality data, but also because the analysis suggests debt. Distribution utilities are also most likely to be privatized, which likely that transparency may be associated with improved performance. means less access to concessional finance, leading to higher cost-of-debt and lower gearing. 6 Objectives and overview of the indicators 7 Recap: Objectives, rationale, and methodology UPBEAT measures utility performance using financial, operational, and transparency indicators • UPBEAT tracks the performance of electrical utilities in Sub-Saharan Africa. It was launched in 2020, covering data Hierarchy of data sources to 2018, by the World Bank, in cooperation with the Association of Power Utilities of Africa (APUA) and African Development Bank (AfDB). The current update incorporates FINANCIAL PERFORMANCE TRANSPARENCY & data to 2020. ACCOUNTABILITY • Audited IFRS/OHADA financial • UPBEAT analyzes utilities using indicators that measure statements • Utility annual reports financial, operational, and transparency aspects of • Audited financial statements • Utility information published performance. Poor performance in any one of these areas using other standards on its website can create a vicious cycle resulting in utility under- • Unaudited financial statements • Other utility reports performance. The UPBEAT framework is designed to help • Other reports utilities compare their performance to peers and identify areas where performance might be improved. Interventions informed by this analysis can help turn this vicious cycle—shown OPERATIONAL PERFORMANCE SUPPORTING INFORMATION schematically on the next page—into a virtuous cycle. The database aims to provide a valuable resource for researchers, • Technical statistics published • Technical statistics published investors, policymakers and development partners. by utility by utility • Performance monitoring data • Performance monitoring data • A data source hierarchy is used to balance the need published by regulator published by regulator for robust data with the aim for the database to be • Utility accounts or annual reports • Utility accounts or annual reports extensive. The hierarchy identifies multiple sources that can • Other utility or industry reports • Other utility or industry reports be used for data collection, but establishes a clear order of preference, with the preferred source at the top of each list in the figure. Data was validated with World Bank teams, and Notes: utilities were invited to a series of workshops to both validate • UPBEAT Phase II study comprised 72 utilities, of which 15 had unaudited financial statements. UPBEAT’s approach is to include and provide input. as many utilities as possible, to maximize the data collected, so long as financial statements / annual reports are publicly reported. 8 Objectives: Supporting the virtuous cycle of utility performance The three pillars of utility performance are self-reinforcing Utility performance—UPBEAT aims to turn an at-times vicious cycle of under-performance into a self-reinforcing Indicator subcategories virtuous cycle, driving performance improvements • Cost recovery • Profitability • Liquidity • Capital structure Better communication with Financial • Subsides & resource extraction stakeholders makes it easier to Performance explain need for tariff increases Better financial performance allows utilities to and/or external funding. make necessary investments and maintain assets. Strong performance improves Improved operational performance mitigates the the incentive to publicize that risk of revenue leakage, improving financial performance. performance. Indicator subcategories • Reliability Indicator subcategories • Efficiency • Performance management and reporting Transparency & Operational • Integrity and internal controls Accountability Performance Investment in utility systems improves ability to track • Financial discipline and report data. • Stakeholder relations Transparency can improve accountability and help to identify areas where performance can be improved. Note: Figure reproduced from UPBEAT Phase 1 summary report. Link. 9 Methodology: What is new in this update? The indicators analyzed have been refined for this update of the UPBEAT database 1 2 New indicators focused on analyzing the New cost recovery indicators importance of subsidies • Analysis of financial performance during the original • Cost-recovery was at the heart of the financial analysis in the original UPBEAT study. UPBEAT study highlighted the importance of subsidies. Cost recovery was measured in different ways: • New indicators have been added to quantify interactions between – analyzing operating costs or operating and debt service costs, Treasuries and utilities: – measuring recovery with and without subsidies, and – Operating-costs covered by subsidies – on a cash received or on a billed revenue basis. – Capital expenditure covered by subsidies • For this update, more cash-based indicators have been added. Measuring cost recovery – Effective taxation rate on a cash basis is more appropriate as the indicator measures a utility’s ability to – Dividend distribution to government generate enough cash to cover its costs. The range of cost recovery indicators is discussed later. 3 Additional financial indicators to add richness to the database 4 Reduction in operational performance indicators to reflect lack of data • EBIT margin is added to complement the existing EBITDA and net profit margin indicators. • In the original UPBEAT study, data availability was particularly poor for some of the • Interest coverage ratio added to replace debt service coverage ratio operational performance indicators. (DSCR), because DSCR is arguably better suited to project-financed infrastructure projects. • Indicators such as generator availability and time to connect have been dropped to reflect the fact that this is rarely publicly available. • Debt-to-equity and net-debt-to-sales ratios added to complement existing debt to assets ratio, noting that additional richness can help with analyzing utilities with volatile balance sheets. More detail on the changes made to specific indicators in this update is provided in Annex A. 10 Methodology: Utility sample and data availability Utilities from most countries in Sub-Saharan Africa feature in the UPBEAT database • UPBEAT includes utilities from most countries in Sub-Saharan Africa study and is a result of many African utilities still taking more than two (SSA), as shown in the map (figure below, left). For some countries, multiple years to publish financials. It is expected that data availability for 2020 utilities are included in the sample. will be improved by the time of the next update. • Utilities from all SSA power pools (CAPP, EAPP, SAPP, WAPP) are • Approximately half of the sample is made up of vertically integrated included. In some cases, regional trends or comparisons are evaluated utilities (VIUs), as shown in the figure on the right. There are 36 VIUs in on the basis of power pools. the sample, compared with 20 distribution-only utilities, 11 of which are in Nigeria. Additionally, there are 7 generation, 6 transmission, 1 • More than 90% of utilities have published financial statements in generation/transmission and 2 transmission /distribution utility in most years, but the number falls in 2020, as shown in the middle figure. the sample. The full list of utilities is provided in Annex B. This decline in availability mirrors the trend seen in the original Map of included utilities in SSA Availability of financial statements Number of utilities by type 11 Financial performance 12 Overview: Financial performance measurement UPBEAT measures financial performance across five categories Cost recovery Profitability Subsidies and resource extraction • Cost recovery considers the extent to • A viable business should be profitable • New subsidy indicators measure the which a utility’s income covers its costs. over the long-term, to ensure it can meet importance of subsidies in funding operating its costs and pay a return to investors. and capital costs • Recovery of operating costs and recovery of debt service costs are measured both in • Profitability is measured at several levels; • Only subsidies recorded directly on utility terms of billed revenue and cash collected net profit, which considers all costs financial statements are considered. This as well as with and without subsidies, as including interest and taxation, is most typically excludes indirect subsidies such described on the next slide. frequently used in this analysis. as input or consumer transfers. • Effective taxation is also examined. 1 Liquidity Capital structure The first part of this chapter analyses cost recovery as well as its interaction with utility • Liquidity considers the extent to which a • Capital structure considers the composition profitability and the role of subsidies. utility has cash (or cash-convertible) of utility balance sheets and whether a utility assets available to cover short-term can meet its longer-term financial obligations. obligations. • Key indicators include gearing and the 2 • A lack of liquidity can result in a utility matching of long-term (or non-current) becoming unviable. liabilities to long-term assets. Analysis is then presented on liquidity and capital structure indicators • Key indicators include current ratio, debtor days and creditor days. The full list of indicators, together with formulae used to calculate the indicators, is contained in Annex A. 13 Note: Averages across utilities are reported as medians unless otherwise stated; a more comprehensive ESMAP treatment of subsidies can be found at Link.. Cost recovery: Definition & measurement Cost recovery is central to UPBEAT’s measurement of financial performance Revenue Cost recovery = Costs to be covered Revenue basis Revenue is considered on both a cash collected basis and on a billed revenue • Cost recovery is a measure of the extent to which (income statement) basis. For many a utility’s income allows it to cover its costs. utilities, poor bill collection can result in significant differences between billed • Multiple versions of this indicator have been revenue and cash collected. developed for UPBEAT. These different permutations of cost recovery simply measure either the numerator or the denominator in the above equation differently. Scope of costs Cost recovery is calculated (a) Inclusion of considering only operating costs, operating subsidies or (b) considering both operating Cost recovery is measured and debt service costs with and without operating subsidies added to revenues In the following analyses: • We focus on two measurements of cost recovery: • Operating cost recovery on a cash collected basis • Operating and debt service cost recovery on a cash collected basis 15 • These versions of cost recovery are analyzed with and without subsidies Cost recovery: Overall trends Cost recovery has been stable in recent years, but the median value remains below 100% • Cost recovery trends have been stable in recent years. The graphs show than has been the case during earlier periods. Cost recovery has median values across the utility sample and, in the left chart, by type of improved markedly across distribution utilities, but largely due to a tariff utility. As noted on the previous slide, cost recovery analyzes operating and subsidy in Nigeria, described later (UPBEAT contains 10 Nigerian debt service costs, on a cash collected basis and including the benefit of distribution utilities). Volatility in the time series for transmission utilities subsidies, unless otherwise stated. Cost recovery has also been stable over is largely a result of the small sample size (6). time when only operating costs are analyzed, as shown in the central chart. • The role of subsidies in supporting cost recovery has increased. • Cost recovery performance has converged across utility types. The The chart on the right shows cost recovery both with and without difference in cost recovery across different types of utility is much smaller subsidies. The gap has widened over time, although the difference is more volatile over recent years. Recovery of operating vs. operating and Cost recovery trends, by utility type debt service costs Cost recovery trends, with and without subsidies 16 Cost recovery: Implications for profitability Cost recovery of less than 100% means that the median utility is not profitable • Since 2012, the median net profit margin has been mostly negative Net profit margin trends, by utility type and stood at -1% in 2020. • A negative median net profit margin is consistent with median operating and debt service cost recovery being below 100%. Net profit margin and operating and debt servicing cost recovery are correlated (R2 of 0.57), which is unsurprising: good cost recovery would be expected to be associated with profitability, although some counterexamples do exist. For example, Ghana’s GridCo had cost recovery of 69% in 2020 but still achieves a net profit of 15%, as a result of higher transmission revenues that have not been fully converted to cash as receivables build up. Conversely, Sudan’s SETC Relationship between net profit margin and cost recovery, had cost recovery of >100% because of large operating subsidies, latest year for each utility but its net profit is persistently negative as a result of high depreciation charges. • Distribution-only utilities’ median net profit margin has improved sharply. Most of this recent improvement is due to the Nigerian tariff subsidy, analyzed later. 16 Cost recovery: Implications for effective taxation Because many utilities are not profitable, median effective taxation is zero • Across the UPBEAT sample, effective taxation is near-zero, as shown corporate income tax (indicated by a zero tax value) or are accruing tax in the figure below left. This is consistent with the median utility having a losses (indicated by negative effective taxation). Conversely, a majority negative net profit margin. of profitable utilities pay some income tax. • The median tax % for utilities with a positive tax charge has been • Utilities in SAPP are most likely to be subject to standard tax policies. relatively constant over time, at ~30%, as shown in the figure below left. Over a 5-year period, there are few utilities in this region with an effective tax rate of <=0. Conversely, in the WAPP and EAPP regions, the median • Utilities with negative profit margins are less likely to be paying tax, as effective tax rate of utilities is zero or near-zero, suggesting that many utilities shown in the middle figure. These utilities typically are either exempt from benefit from favourable tax regimes. Median effective taxation for different Relationship between profitability and a samples utility paying income tax, latest year 5-year median effective taxation by power pool 17 Cost recovery: Top performers Very few utilities consistently perform well on cost recovery • Most utilities do not achieve cost recovery in the most recent year for which data is available in the UPBEAT database. • Few utilities have performed consistently well on cost recovery. The table below lists the only 4 utilities that have recovered their operating and debt service costs (without subsidies) in all years since 2014. Utilities with cost recovery (excluding subsidies) of >100% in every year since 2014 Why do so few utilities perform consistently well on cost recovery, and Cost recovery excluding Utility Country subsidies, 2020 what are the implications? Central Electricity Board (CEB) Mauritius 107% The analysis presented over the following slides explores this further, covering: Erongo Regional Electricity Namibia 104% • The implications of poor cost recovery on the role of subsidies. Distributor (ErongoRED) Public Utilities Corporation (PUC) Seychelles 120% • The impact of cost of supply, as a key driver of poor cost recovery. UMEME Uganda 104% • The more recent impact of Covid on utility cost recovery. 18 Cost recovery: Role of operating subsidies (1/2) Utilities with the lowest cost recovery from revenues are most likely to rely on subsidies • Operating subsidies, sometimes referred to Operating and debt service cost recovery by utility. as tariff subsidies, should ideally be Dark shading indicates cost recovery without subsidies designed to cover the gap between allowed revenues set by the regulator to recover Lighter shading shows the impact of including subsidies efficient cost of supply and actual revenues collected after adjusting tariffs for any Government policies (e.g., subsidizing heavy industries). Yet in several countries subsidy provision is unrelated to regulated revenue. Only a quarter of utilities recovered both operating and debt servicing costs, and many utilities not achieving cost recovery benefit from subsidies. However, most utilities do not fully recover costs even with subsidies. • Improvements in cost recovery can reduce pressure on government finances. Analysis later in this brief shows that investments that reduce cost of supply (e.g., renewables competitively procured in line with a least-cost plan) may improve cost recovery, allow for lower tariffs and reduce the need for subsidies. When assessing potential investments, policy makers should consider the impact on cost recovery and subsidies. 19 Cost recovery: Role of operating subsidies (2/2) The importance of operating subsidies varies considerably across utilities included in UPBEAT • Most utilities did not report receiving any operating subsidies (see left transmission-only utilities in 2020 is the result of a smaller samples size: chart). While median operating subsidies are zero, the upper quartile of the SETC (Sudan) is not included in the 2020 dataset and has received subsidies percentage of operating costs covered by subsidies is trending upwards, as covering ~60-70% of operating costs in previous years. shown in the middle chart below. • Distribution utilities generally receive lower levels of operating subsidy, • Transmission-only utilities have historically received higher operating though there is a sharp increase in the last two years of UPBEAT data. This subsidies than other utility types. This suggests transmission-only utilities is mostly explained by high tariff subsidies for Nigerian distribution utilities may be less able to charge a tariff which allows them to recover operating- (DISCOs)—when they are excluded, the increase in operating subsidies to costs. The apparent reduction in operating subsidies received by the distribution-only utilities is more modest, as shown in the chart on the right. Upper quartile of percentage of operating costs Distribution showing percentage of Upper quartile of percentage of operating covered by subsidies, distribution utilities, with operating costs covered by subsidies costs covered by subsidies, by utility type and without Nigerian DISCOs 20 CASE STUDY Role of operating subsidies: Nigeria case study (1/2) A tariff shortfall subsidy had a material impact on the performance of Nigerian distribution utilities • In Nigeria, the regulated electricity tariff has been below cost recovery in Revenue compared to operating subsidy for Nigerian DISCOs previous years. This means that distribution utilities have not been able to pay all (latest year available) invoices from NBET (the bulk electricity trader) and have accumulated debt on their balance sheets. • In recent years, a tariff shortfall subsidy has been introduced to address the gap between costs and revenues. These operating subsidies are clearly linked with tariff shortfalls assessed based on the regulator’s methodology. This is part of the Nigerian power sector recovery plan (PSRP), intended to restore the financial viability of the power sector in Nigeria. There are two components to the subsidy paid to DISCOs: o Historical Tariff Shortfall: the PSRP aims to fully fund the shortfall covering the period 2015–2019 to remove the debt burden from the DISCOs’ balance sheets. o Ongoing Tariff Shortfall: Annual financing of tariff shortfalls of the sector from Cost recovery, with and without subsidy, for Nigerian DISCOs 2020 onwards so that no new arrears are accumulated. (latest year available) • For many of the distribution utilities, this subsidy exceeds revenues, as shown in the graph on the far left. This is a result of the historical tariff shortfall component of the subsidy, highlighted above. The subsidy has a significant impact on cost recovery, as shown in the second graph. • In September 2020, end-user tariffs were substantially adjusted for the DISCOs to more closely reflect efficient cost of service. This adjustment significantly reduced the tariff shortfall in subsequent years. Introducing transparency and the discipline that efficient revenue requirement not covered by consumers are passed on to taxpayers provided a strong incentive to adequately adjust electricity tariffs. 21 CASE STUDY Role of operating subsidies: Nigeria case study (2/2) Nigerian distribution utilities receiving the tariff shortfall subsidy skew the overall analysis on distribution utilities • Many of the results for distribution utilities shown in this brief are • When Nigerian utilities are removed from the sample, cost recovery impacted by the Nigerian tariff subsidy, as shown in the graphs on cost for distribution-only utilities has been more stable over time, though recovery and net profit below. As noted earlier, distribution utilities’ overall net profit margins have been declining. The graphs below show median cost recovery has improved and is now ~100%, and overall net profit margin cost recovery for distribution utilities excluding Nigerian utilities hovering has also improved. However, the biggest driver of these improvements below 100% in recent years, and median net profit margins declining below is the NERC tariff subsidy to Nigerian distribution utilities. 0% before recovering slightly in 2020. Operating and debt service cost recovery for distribution Net profit for distribution utilities, with and without Nigerian utilities, with and without Nigerian DISCOs DISCOs 22 Role of capital subsidies The importance of capital subsidies also varies; most utilities do not report any capital subsidies • Most utilities did not report receiving any capital subsidies, • Distribution utilities generally report lower levels of capital as shown in the figure below left. Capital subsidy values are highly subsidy. Many of the distribution utilities included in the sample are variable, largely because capital expenditure itself is often volatile; private utilities and tend to benefit from lower levels of subsidy. it is also not always the case that the cash inflow associated with a • Transmission-only utilities typically have had the highest level of subsidy aligns with the cash outflow associated with capital capital subsidy. Transmission infrastructure is frequently funded expenditure. Upper quartiles have been used to focus the analysis through subsidy, rather than the cost being fully recovered through on utilities reporting subsidies. The figure below right indicates a tariffs. The 2019 peak in capital subsidies is driven by a large subsidy slightly upward trend in the upper quartile values. inflow for the Angolan transmission utility (RNT), likely prior to • This data only covers subsidies reported in the financial construction of the subsidized assets being complete. statements. There are many forms of unreported subsidies which this data does not capture. Upper quartile capital expenditure covered by subsidies Number of utilities by extent of reported capital subsidy 23 Cost recovery: Impact of cost of supply High-cost utilities are much less likely to recover their costs than those with lower costs • Median cost of supply remains above the Trends in cost recovery, tariff and cost of Ability of utilities to recover costs by cost median tariff charged. This is consistent supply of supply with cost recovery being lower than 100%, and subsidies being required by many utilities, as already discussed. • Utilities with high cost of supply are less likely to recover costs. As shown in the chart on the right, less than 40% of utilities with average cost of supply >20 $c/kWh recover operating costs and less than 20% recover operating and debt service costs. • Reducing cost of supply should be a priority for high-cost utilities. Reducing cost of supply, for instance through improved procurement practices or shifts to lower-cost generation sources, can help improve the financial viability of utilities and improve affordability. High costs of supply cannot always be passed through to consumers where ability or willingness to pay for power is low, especially without commensurate quality of service. 24 Cost recovery during Covid Covid had a short, sharp impact on some utilities, but the overall impact has been less than feared • The Covid-19 pandemic, combined with policies implemented to Share of utilities recovering their costs mitigate its effects, was expected to have a detrimental impact on Data only shown for utilities with data for 2018, 2019, and 2020 utility performance. Analysis of the pandemic’s expected impact, prepared in the spring/summer of 2020, was published alongside the original launch of UPBEAT. The analysis did not cover the full UPBEAT sample, but it did project a severe impact on some utilities. The analysis suggested that while the pressure on utilities would ease (after lockdowns), the cumulative impact could affect utility financial performance for many years. • The actual impact on utilities has been more nuanced. For specific utilities, some of the expected effects can indeed be observed in financial data. However, the effects are mostly visible in quarterly or half-year results; any deterioration in performance has in many cases swiftly reversed. Case studies over the next few slides indicate the impact on a small number of utilities in more detail. • Across the sample, the impact on cost recovery has been limited. The graph on the right shows how many utilities recovered their costs in 2018, 2019 and 2020. The most noticeable trend is that fewer utilities achieved the ‘gold standard’ of recovering both operating and debt service costs without subsidies. This exclusive group shrank from 17 in 2018 to 13 in 2020. However, it is unclear whether this can be attributed to Covid. More analysis will be possible in future as data from the post- Covid period becomes available. 26 CASE STUDY Impact of Covid: KPLC (Kenya; Transmission & distribution) case study The pandemic impacted Kenya’s utilities, but the impacts were shorter lived than expected • KPLC’s cost recovery was adversely impacted by collection issues • KPLC (T&D) delayed payment to KenGen (G), with payables to KenGen during the early stage of the Covid crisis. Receivables increased increasing from 148 to 194 days between 2019 to 2020. The next slide analyzes sharply at the start of the pandemic but stabilized by year-end. Bad debt the impact of the pandemic on KenGen. costs, however, were higher in FY2020 compared to either FY2019 or • Cost recovery improved in 2021 as revenue grew sharply as electricity FY2021. demand recovered. Drivers of operating and debt service cost recovery changes at KPLC The reduction in cost recovery in 2020 was short- lived. The impact was greatest during the first half Challenges in collecting Revenues grew strongly in 2021, of the year and, especially, the second quarter receivables resulted in lower having been static in 2020; costs cost recovery in 2020 grew at a slower rate Notes: • KPLC’s financial year is July to June. • Cost recovery on this slide has been adjusted to remove the impact of corporation tax rate changes on deferred tax charges. This results in better visibility of the impact of Covid, but means the values shown differ slightly from the UPBEAT database. 27 CASE STUDY Impact of Covid: KenGen (Kenya; Generation) case study KenGen’s underlying cost recovery remained stable, mostly as a result of favorable operating cost movements • At the start of the pandemic, KenGen saw a large increase in receivables • In 2021, some pandemic-era trends reversed—receivables stabilized, from KPLC. This was offset by a reduction in operating costs, driven by lower oil but operating costs climbed. Receivables from KPLC stabilized at higher prices combined with KenGen’s commissioning of new, low variable cost pandemic levels, while operating costs climbed a little with higher fuel prices. geothermal capacity. This coincidental evolution of the generation mix had a material impact in helping to cushion the impact of Covid on Kenya’s power sector. Lower oil prices and timely Changes in profitability and operating and debt service cost recovery at KenGen Receivables increased commissioning of new, low in 2020, largely as a variable cost geothermal Some unwinding of result of a build up in capacity resulted in lower these trends in Volatility in net margin is largely driven by deferred amounts owed by KPLC operating costs 2021 tax movements – these effects are stripped out from cost recovery analysis on the right Notes: • KenGen’s financial year is July to June. • Cost recovery on this slide has been adjusted to remove the impact of corporation tax rate changes on deferred tax charges. This results in better visibility of the impact of Covid, but means the values shown differ slightly from the UPBEAT database. 28 CASE STUDY Impact of Covid: EDM (Mozambique; Vertically integrated) case study Receivables increased sharply at EDM in 2020, but this impact was reversed in 2021 • Profitability and cost recovery were both hit hard at EDM during the first appreciation led to lower operating-costs in 2021, despite the total amount year of the pandemic. A build up of receivables resulted in reduced cost of energy acquired increasing from 7,264 GWh in 2020 to 7,694 GWh in 2021. recovery, but this effect was reversed in 2021. An interest rate hike and appreciating commodity prices are thought to have contributed to the currency appreciation, which was sustained through most • EDM benefited from favorable currency movements in 2021. Payments to of 2022. IPPs fell as a result of a strengthening of the Metical versus the US Dollar. The Changes in profitability and operating and debt service cost recovery at EDM (Mozambique) EDM’s profitability fell sharply at the An increase in receivables, from 14,509 Receivables Favourable currency start of the pandemic but quickly mMT in 2019 to 21,178 mMT in 2020 subsequently declined movements also helped to recovered resulted in a large drop in cost recovery to 14,131 mMt in 2021 push up cost recovery in 2021 Notes: • EDM’s financial year is January to December. 29 CASE STUDY Impact of Covid: Umeme (Uganda; Distribution) case study Demand reduction affected Umeme’s financial performance in 2020, but with a swift recovery in 2021 • UMEME’s revenues contracted in 2020. Electricity sales volumes increased, • Less revenue was also received from Uganda’s Electricity Connections but more modestly than might otherwise have been the case because of the Policy, which pays Umeme for connecting new customers. Work to add new impact of Covid-related lockdowns. However, much of the demand growth connections was impacted by lockdown restrictions. A restructuring of some of was in Umeme’s large industrial tariff category, which attracts a lower tariff Umeme’s debt reduced debt servicing costs in 2020, offsetting the impact of than other customer categories, while demand from higher-tariff categories fell. revenue reduction. Changes in profitability and operating and debt service cost recovery at Umeme Covid-related lockdowns resulted in a Lower revenues in isolation This impact was offset by a restructuring of Revenues sharp fall in revenues and profitability, would have resulted in a fall some of Umeme’s debt service requirements recovered although recovery was fast in cost recovery (independent of the pandemic) in 2021 Notes: • Umeme’s financial year is January to December. 30 Liquidity: Current ratio Utilities’ liquidity remains a challenge in SSA, with less than half having a current ratio greater than one • The liquidity of utilities has been declining. Both the median current ratio (left • Distribution utilities have particularly low current ratios. This highlights the figure) and the proportion of utilities with current ratios >1 (right figure) have been challenges that many distribution utilities have in paying bulk suppliers of falling over time. However, these indicators have stabilized (though not electricity – normally a result of low cost recovery. Only one distribution utility in improved) in the last few years. the sample has a current ratio >1 in 2020. • More than half of utilities have current ratios <1. These utilities have more current liabilities than assets, suggesting that they experience difficulties in meeting short-term payment obligations. Median current ratio by utility type Proportion of utilities with current ratios >1 31 Liquidity: Debtor and creditor days Debtor and creditor days have started to stabilize, but working capital management remains a challenge for utilities in SSA • High debtor days (receivables) and creditor days (payables) remain a balances for Nigerian distribution utilities had built up because of low cost concern. These indicators are not increasing as fast as in recent years, and in recovery, and the subsidy has been backdated to clear some of the arrears. some cases have stabilized, but there is no obvious improvement, as shown in However, debtor days has continued to rise (middle figure) and collection rate the left figure. The increase in debtor days shown in 2020 is partly caused by a has continued to fall (right figure), for these utilities, suggesting that long-term smaller sample size, but may also be a result of Covid-related pressure on cash issues remain. collection for some utilities. • Transmission-only utilities have rising creditor and debtor days and • Creditor days for distribution utilities have fallen, but largely due to the falling collection rates. It is possible that state-owned transmission utilities are impact of the tariff subsidy for Nigerian distribution utilities. Payables an easy target as governments seek to keep tariffs low during challenging economic periods. Debtor and creditor days, overall median Debtor days by utility type Collection rate by utility type 32 Capital structure: Overall trends Some utilities are taking on more debt, but gearing remains quite low across the UPBEAT database • Gearing (indebtedness) is increasing for some utility types, likely as a • Distribution utilities have the lowest gearing and highest cost-of-debt, as result of increased investment in fixed assets. Increased debt-to-equity reflected in the debt-to-assets and debt-to-equity ratios in the left and middle ratios (left figure) indicate increased gearing, although this is somewhat figures, and the cost-of-debt figure on the right. This is especially true for distorted by the impact of utilities with negative equity. The debt-to-assets ratio Nigerian distribution utilities, likely due to cost recovery challenges resulting in is not impacted by this effect and does not show the same upward trend (middle difficulties accessing finance and a high cost-of-debt when finance can be figure). For some utilities, this could be explained by debt being deployed to obtained. Distribution utilities are also most likely to be privatised (the UPBEAT fund new fixed assets, but in other cases debt might have been used to fund sample does not include IPPs), which likely means less access to concessional current assets (cash shortfalls, increasing debtor days). finance, leading to higher cost-of-debt and lower gearing. Debt-to-equity by utility type Debt-to-assets by utility type Cost-of-debt by utility type 33 Capital structure: Balance between long-term assets and liabilities Maintaining a ‘balanced’ capital structure is key to being able to finance investment in new infrastructure • Maturity matching compares utilities’ non-current assets to non- Analysis of maturity matching and interaction with other financial current liabilities and equity. A value close to one is generally performance indicators considered favorable as it suggests that utilities have financed long- term assets with long-term liabilities or equity. A low value indicates that a utility might find it difficult to service its long-term debt (e.g., if debt is being used to fund short-term cash requirements). A high value indicates that short-term liabilities may have been used to fund investment in assets, resulting in a constant need to refinance. • Utilities with maturity matching closer to one are more likely to have lower cost of debt and positive interest coverage ratio. With a ‘balanced’ capital structure, these utilities are able to take on, and sustainably service, a larger amount of debt. • The Nigerian distribution utilities have large mismatches between non-current assets and liabilities. Many of these utilities have very high (3 of the 11 Nigerian distributors) or very low (4 utilities) maturity matching ratios. Tariffs have been well below the levels required for these utilities to recover their costs. The resulting shortfall in cash has either been funded by debt (resulting in low maturity matching) or has resulted in equity being depleted (resulting in high maturity matching). 34 Summary of financial performance: Overall performance Some performance indicators that were previously deteriorating have stabilized • Some performance indicators, such as cost recovery, have improved utilities were impacted negatively by the effects of the Covid-19 modestly since UPBEAT was first launched. Some of this modest pandemic, but the impact was less than feared for most utilities. improvement can be attributed to the tariff subsidy that has improved cost • However, in most cases, the trends observed in the original recovery in Nigerian distribution utilities. As noted on previous pages, some UPBEAT study (2012-2018) have not changed materially. Median value (most recent Trend Trend Dimension Financial performance indicators year) (2012–2018) (2015–2020) Cost recovery Operating and debt service cost recovery (cash collected), including subsidies 91%   Operating and debt service cost recovery (cash collected), excluding subsidies 77%   Notes: • Medians in this table are Liquidity Collection Rate 92%   calculated using the most recent year of data Debtor days 203   reported by each utility. Creditor days 248   • The trends are calculated by deriving Current ratio 82%   the line-of-best-fit Interest coverage ratio 0.78   through the selected years. The color of the Capital structure Debt to assets ratio 17%   arrow indicates where a trend is favorable Cost of debt 4%   (green) or unfavorable (red). No color is used Profitability Net profit margin –3%   where there is no trend. 35 Summary of financial performance: Top performing utilities Few utilities perform consistently well across financial performance indicators Top performing utilities across financial indicators Operating and debt service cost recovery, excluding subsidies • Cost recovery, collection rate, and net profit margin are used Utility Country to evaluate utilities’ broad financial performance. These Central Electricity Board (CEB) Mauritius 107% indicators were selected as providing a good overall measure of Erongo Regional Electricity Distributor (ErongoRED) Namibia 104% financial performance during the original UPBEAT study. The Public Utilities Corporation (PUC) Seychelles 120% following thresholds are used to define good performance: UMEME Uganda 104% • At least 100% cost recovery (excluding subsidies) in each year since 2014. Utilities that only achieve good cost recovery Utility Country Collection Rate through subsidies are not included. Eswatini Electricity Company (EEC) Eswatini 101% • At least 97% collection rate in each year since 2014. Eskom (ESKOM) South Africa 99% Collection rate is a good indicator of a utility’s ability to UMEME Uganda 98% recover cash. • Positive net profit margin in each year since 2014. Utility – Country Net Profit Margin No capital structure indicators are included as it is less Botswana Power Corporation (BPC) Botswana 3% appropriate to define a threshold for good / bad performance. Central Electricity Board (CEB) Mauritius 5% • Few utilities perform consistently well across these 3 Compagnie Ivoirienne d'Electricité (CIE) Côte d’Ivoire 2% financial indicators. The table to the right identifies utilities that Eswatini Electricity Company (EEC) Eswatini 15% have performed consistently well. Erongo Regional Electricity Distributor (ErongoRED) Namibia 2% • UMEME is now the only utility to meet these thresholds for Kenya Electricity Generation Company (KenGen) Kenya 42%1 all three indicators. This is a decline in the number of utilities Societe d'Energie et d'Eau du Gabon (SEEG) Gabon 2% meeting this threshold since the previous UPBEAT report, when UMEME Uganda 3% three utilities qualified. Key Strong performance Strong performance Strong performance in one category in two categories in three categories 36 1 KenGen’s unusually high net profit margin is largely the result of a significant one-off tax credit received in 2020 Summary of financial performance: Role of subsidies A minority of utilities benefit from subsidies (resulting in zero median values), but subsidies are trending upwards • The median value of all subsidy indicators is zero, but this may not • Analysis of the upper quartile value shows that operating present an accurate picture. Some utilities do not receive subsidies, subsidies have increased over time. The upper quartile values are but others do not report subsidies clearly or in line with international analyzed, because they provide a better indication of how subsidies accounting standards in their financial statements, meaning that evolve over time for utilities where subsidies are recorded. The values subsidies may not be captured by the analysis. In other cases, indirect can be volatile from one year to the next, but operating subsidies in subsidies such as consumer cash subsidies or fuel (or other input) particular have increased in recent years. subsidies do not appear in financials but still affect performance. Median value Upper quartile value Trend Dimension Financial performance indicators (most recent year) (most recent year) (2015–2020) Subsidies and Operating-costs covered by subsidies 0% 13%  resource extraction Capital expenditure covered by subsidies 0% 8%  Effective taxation rate 0% 28%  Dividend distribution to government 0% 0%  Notes: • Medians in this table are calculated using the most recent year of data reported by each utility. • The trends are calculated by deriving the line-of-best-fit through the selected years. The color of the arrow indicates where a trend is favorable (green) or unfavorable (red). No color is used where there is no trend. 37 Operational performance 38 Overview: Operational performance measurement UPBEAT indicators capture operational performance through efficiency and reliability Efficiency • Efficiency indicators are focused on losses. Losses include transmission losses and distribution losses, and account for both technical and commercial losses. • For utilities with a transmission and distribution function, system losses combine transmission and distribution losses. Reliability • SAIDI and SAIFI provide measures of system reliability by measuring the average duration and frequency of outages, respectively. 39 Efficiency: Trends over time and link to financial performance Little improvement in losses in recent years, with high operational losses contributing to poor cost recovery • Any improvement in operating losses in recent Trends in losses and number of utilities reporting data years has been modest. The figure on the top shows the median transmission, distribution, and total system losses over time. A small improvement is visible in the last 2-3 years, but this is likely a result of lower data availability during these year—utilities that are slow in reporting data are typically less likely to be top performers. • Higher losses are correlated with lower cost recovery, as shown in the figure on the bottom. This correlation is statistically significant (p<10–11), although the correlation is weak (r2=0.14 for system losses, 0.06 for distribution losses). This indicates that while losses Relationship between losses and cost recovery can be an important factor affecting financial performance, there are many other factors that also Notes: impact cost recovery. A similar negative correlation is Two outlier values have been seen between losses and net profit margin. removed from the scatter plot shown on the right. These • High losses increase cost of supply for a utility, outliers are the result of one- which lowers cost recovery. More generation is off accounting entries. The relationship remains significant required to serve the same electricity demand. And as at the 1% level when these shown earlier, there is a strong relationship between results are included. high cost of supply and lower cost recovery. 40 Reliability: Trends over time Median SAIDI has declined while SAIFI has increased, but data availability is poor for these indicators • Reliability indicators suggest that performance is mixed Trends in SAIDI and number of utilities reporting data across the sample. SAIDI trended down (top figure), suggesting shorter duration of outages, while SAIFI trended up or remained stable (bottom figure), suggesting more frequent outages. • The decrease in SAIDI and increase in SAIFI may be due to better measurement rather than any changes in performance. Shorter duration outages may have been better observed using improved data collection methods. However, it is difficult to draw any clear conclusions from this data given the limited sample size and the likely variation in methodologies applied by utilities in calculating these indicators. Trends in SAIFI and number of utilities reporting data • Less data is available in 2019 and 2020, but reporting has improved over the medium-term, as shown by the bars in the figures. In many cases, lower data availability in 2019 and 2020 is likely due to a delay in publishing rather than reduced reporting. The figures suggest that the number of utilities reporting reliability indicators has been improving over the medium-term. 41 Summary of operational performance: Overall performance Data availability remains a limiting factor in drawing firm conclusions on the operating performance of utilities • Data availability remains low for many operating performance reliability indicators, albeit again noting that data availability was poor. indicators. This is especially the case for reliability indicators, as shown in Data collected for this update suggest that these trends have stabilized. the table below and on the previous page. The number of utilities reporting reliability indicators has declined. However, this may simply reflect a delay • Efficiency indicators show some signs of improvement, with rather than a reduction in reporting. reductions in transmission and system losses over time. As noted previously, this apparent improvement is modest and again could simply • Overall, operating performance appears to be stable across the be a result of a delay in reporting by some utilities. database. The original UPBEAT publication identified some deterioration in Previous UPBEAT report This update Operational performance Utilities Reported Trend Utilities Reported Trend indicator Reporting Range (2012–2018) Reporting Range (2015–2020) SAIDI/Transmission 5 0.01–45.9 h  7 0.01–232 h  Reliability SAIFI/Transmission 4 0.2–22.2  5 0.21–56.5  SAIDI/Distribution 20 0.4–353 h  14 0.35–140.6 h  SAIFI/Distribution 20 0.1–3,658  14 1.72–3,326  Efficiency Transmission Losses 12 1.5–15.0%  14 2–14%  Distribution Losses 14 8.5–51.0%  12 6–36%  System Losses 17 10.5–58%  21 6–63%  42 Transparency and accountability 43 Overview: Transparency and accountability (T&A) measurement Performance on T&A is measured across four key dimensions Performance management and reporting Integrity and internal controls • These indicators measure whether the utility • These indicators observe whether basic internal publishes performance data, especially financial controls (internal audit, eProcurement, advertising statements. vacancies) exist. • Some indicators also focus on the quality and • Reporting on governance (e.g., within a utility’s timeliness of the information made available. annual report) is also covered. Financial discipline Stakeholder relations • This section covers whether there are factors • These indicators measure the ease with which that would hold the utility’s financial reporting to the utility can be contacted; e.g., to obtain a enhanced standards, e.g., public listing or connection or to report a fault. maintaining a formal credit rating. • Reporting on areas of interest to different stakeholder groups (CSR, environment, gender) is also covered. 44 Summary of T&A performance: Overall performance Publishing of timely accounts has deteriorated, while coverage of areas such as gender and cyber-security has improved • Many performance management indicators Utilities reporting Dimension Transparency and Accountability 2016 2018 2020 Trend suffer from delays in publishing. For example, Performance Publicly available performance agreement with government or regulator 9 10 11 the “financial statements published on website” management and Publicly available regular performance reports from regulator 17 22 12 reporting Financial statements published on website 32 27 19 indicator trends downward due to delays in Annual report published on website 25 21 17 publication. Financial statements use IFRS/OHADA; independently audited 47 35 29 Audit opinion unqualified 29 25 20 • However, other indicators show an Annual report covers actions taken to address cybersecurity 3 4 6 improvement. An example is a sharp increase in Up-to-date corporate strategy publicly available 10 15 15 the publishing of gender statistics. Reporting on Annual report confirms performance management system in place 16 14 11 cyber-security has also improved. These are both AR includes relevant operational and financial KPIs 21 22 15 Integrity and Annual report includes a governance section 18 13 15 areas that have benefited from additional attention in internal controls Board is organized into sub-committees (including an Audit Committee); annual report 17 12 11 recent years. includes a charter on each Annual report provides information on Audit Committee activities 12 10 14 Internal controls exist; internal audit function reporting directly to Board 25 22 22 Vacancies advertised on company website 38 22 Utility uses eProcurement 10 7 Utility is listed 3 4 3 Financial discipline Utility maintains a credit rating 3 3 4 Notes: Stakeholder Utility website provides connection procedures 27 21 Relations SMS/app/call center supports service interruption reporting and billing inquiries 30 22 Grey cells are web-based indicators which could not be collected before for Annual report includes Corporate Social Responsibility narrative 20 17 14 years prior to launch of the first UPBEAT Annual report includes an environmental narrative 20 17 12 database in 2018 Annual report includes gender statistics 13 12 19 45 Summary of T&A performance: Link to financial & operational performance Utilities reporting more performance management indicators have more consistent cost recovery • The number of utilities meeting the requirements of the UPBEAT cost recoveries reported while those scoring well on performance management transparency and accountability indicators remains low. No clear trend have more consistent (and generally higher) cost recoveries. Greater is observable, as shown in the figure on the left transparency increases pressure upon utilities to publish accurate financial statements, which increases the usability of published data. • Utilities publishing more performance management indicators are less likely to have very low cost recovery. The middle figure shows operating • There is no clear correlation between performance management scores cost recovery excluding subsides against the percentage of reported and losses (right figure). While the relationship between performance performance management indicators. The data appears heteroskedastic — management and distribution losses is significant (p<0.01), the correlation is utilities with a low number of P&M indicators reported have a wide spread in very weak (r2=0.03). The relationship for system losses is not significant. Relationship between performance Relationship between performance Transparency indicator trends management and cost recovery management and losses 46 ANNEX A UPBEAT performance indicators 47 Financial performance indicators Cost recovery indicators have been updated to focus more on cashflow • Cost recovery indicators provide information on the ability of • In this update, the focus is on cost recovery indicators that are utilities to recover their recurring obligations. Three main variants calculated on the basis of cash collected. In particular, operating and have been explored in analyzing cost recovery, as described earlier: debt service cost recovery is only calculated on the basis of cash ❑ Recovery of operating costs only, and recovery of both operating collected as these indicators are more informative compared to and debt service costs. indicators calculated on the basis of billed revenue. Unless stated otherwise, analysis presented in this brief shows cost recovery ❑ Cost recovery on a cashflow basis and a billed revenue basis. indicators on a cash collected basis. ❑ Measure of cost recovery with and without subsidies. Financial performance Utility name New in this Dimension indicators Description Calculation UPBEAT update Cost Operating cost recovery Ability to cover recurrent operating [Revenue plus Operating Subsidies minus Cashflow from Net Trade Receivables recovery (cash collected), including obligations through cash collected, (Net Trade Receivables—Net Trade Receivables Previous Year) plus Bad Debt Expense plus subsidies including operating subsidies. (Deferred Income on Prepaid Sales minus Deferred Income on Prepaid Sales Previous Year)] divided by Operating Costs [-(Cost of Sales plus Other Operating Expenses minus Bad Debt Expense plus Income Tax)] Operating cost recovery Ability to cover recurrent operating [Revenue minus Cashflow from Net Trade Receivables (Net Trade Receivables—Net Trade (cash collected), excluding obligations through cash collected, Receivables Previous Year) plus Bad Debt Expense plus (Deferred Income on Prepaid Sales subsidies excluding operating subsidies minus Deferred Income on Prepaid Sales Previous Year)] divided by Operating Costs [ – (Cost of Sales plus Other Operating Expenses minus Bad Debt Expense plus Income Tax)] Operating and debt service Ability to cover recurrent payment [Revenue plus Operating Subsidies minus Cashflow from Net Trade Receivables (Net Trade cost recovery (cash obligations and service existing Receivables minus Net Trade Receivables Previous Year) plus Bad Debt Expense plus collected), including debt through cash collected, (Deferred Income on Prepaid Sales minus Deferred Income on Prepaid Sales Previous subsidies including operating subsidies. Year)] divided by Operating Costs [—(Cost of Sales plus Other Operating Expenses minus Bad Debt Expense plus Income Tax)] plus Debt Service [Interest Paid plus Repayment Component of Debt Servicing Cashflows] 48 Financial performance indicators Cost recovery indicators have been updated to focus more on cashflow Dimension Financial Description Calculation New in this performance UPBEAT indicators update Cost Operating and debt Ability to cover recurrent [Revenue minus Cashflow from Net Trade Receivables (Net Trade Receivables minus recovery service cost recovery payment obligations and Net Trade Receivables Previous Year) plus Bad Debt Expense plus (Deferred Income on Prepaid Sales (cash collected), service existing debt through minus Deferred Income on Prepaid Sales Previous Year)]divided by Operating Costs [ – (Cost of Sales excluding subsidies cash collected, excluding plus Other Operating Expenses minus Bad Debt Expense plus Income Tax)] plus Debt Service [Interest operating subsidies. Paid plus (Repayment Component of Debt Servicing Cashflows plus Negative Net Proceeds)] Operating cost Utility name [Revenue plus Operating Subsidies] divided by Operating Costs [ – (Cost of Sales plus Other Operating Ability to cover recurrent recovery (billed operating obligations through Expenses minus Bad Debt Expense plus Income Tax)] plus Debt Service [Interest Paid plus Repayment revenue), including revenues, including operating Component of Debt Servicing Cashflows] subsidies subsidies. Operating cost Ability to cover recurrent Revenue divided by Operating Costs [ – (Cost of Sales plus Other Operating Expenses minus Bad Debt recovery (billed operating obligations through Expense plus Income Tax)] plus Debt Service [Interest Paid plus (Repayment Component of Debt revenue), excluding revenues, excluding operating Servicing Cashflows plus Negative Net Proceeds)] subsidies subsidies. 49 Financial performance indicators Liquidity and capital structure indicators largely remain unchanged with a few additional indicators added • Liquidity indicators detail the utility's ability to convert assets to • Capital structure indicators detail the mix of debt and equity used to cash. The utility's ability to collect receivables, delay payments and finance utilities’ activities. This looks at both the gearing used by generate cash to cover debt repayments are covered by these indicators. utilities as well as the cost of debt financing available. Debt to equity and • Interest coverage ratio is a new liquidity indicator. This indicator net debt to sales ratios are new indicators for UPBEAT this update. These indicators add richness to the database, supplementing the previous debt examines whether operating income covers interest obligations, without to assets ratio, which is useful for understanding the capital structure of considering debt repayments. This replaces the DSCR indicator, which is utilities with a volatile balance sheet. better suited to a project financed entity (with a finite investment lifetime) than to a utility business. Utility name Financial performance New in this Dimension indicators Description Calculation UPBEAT update Liquidity Collection Rate Percentage of billed revenue collected. [Revenue minus Cashflow from Net Trade Receivables (Net Trade Receivables minus Net Trade Receivables Previous Year) plus Bad Debt Expense plus (Deferred Income on Prepaid Sales minus Deferred Income on Prepaid Sales Previous Year)] divided by Revenue Current ratio Ability to use current assets to meet current Current Assets divided by Current Liabilities liability. Debtor days Average number of days required to receive Gross Trade Receivables divided by Revenue multiplied by 365 payments from customers. Creditor days Average number of days required to pay —Gross Trade Payables divided by Cost of Sales multiplied by 365 suppliers. Interest coverage ratio Ability to use operating income to repay interest —Earnings Before Interest and Tax divided by Interest Expense obligations without including debt repayments (which could simply be refinanced) 50 Financial performance indicators Liquidity and capital structure indicators largely remain unchanged with a few additional indicators added Financial performance New in this Dimension indicators Description Calculation UPBEAT update Capital Debt to assets ratio Ability to use debt to finance assets. Debt [Long Term Debt plus Current Portion of Long Term Debt plus structure Short Term Borrowings plus Bank Overdraft] divided by Total Assets Debt to equity ratio Additional indicators to examine utility gearing. Debt [Long Term Debt plus Current Portion of Long Term Debt plus These two additional measures can be helpful Short Term Borrowings plus Bank Overdraft] Utility name for understanding capital structure, especially divided by Total Equity if a utility’s balance sheet is volatile. Net debt to sales ratio Net Debt [Long Term Debt plus Current Portion of Long Term Debt plus Short Term Borrowings plus Bank Overdraft minus Cash and Cash Equivalents] divided by Revenue Maturity matching Non-current assets to non-current liabilities Total Non-current Assets and equity. This provides an indication of divided by [Total Non-Current Liabilities plus Total Equity] whether non-current liabilities are balanced with non-current assets. Cost of debt Effective interest rate paid on debts. — Interest Expense divided by Debt [Long Term Debt plus Current Portion of Long Term Debt plus Short Term Borrowings plus Bank Overdraft] 51 Financial performance indicators A new category of indicator analyzing the role of subsidies has been included • Profitability indicators examine the ability of utilities to turn • A new category of financial indicators analyzing subsidies and revenues into profit. In UPBEAT the first analysis, net profit margin and resource extraction has been added to the UPBEAT database. EBITDA margin were calculated. In this update, EBIT margin is also The aim of these indicators is to help examine how much of utilities’ calculated. This indicator was added for completeness, supplementing the activities are financed by subsidies. other measures of profitability. Financial performance New in this Dimension indicators Description Calculation UPBEAT update Profitability Net profit margin Utility name Ratio of net profits to revenues. Profit for the Year divided by Revenue EBIT margin Ratio of Earning Before Interest and Tax (EBIT) to Earnings Before Interest and Tax revenues. divided by Revenue EBITDA margin Ratio of earning before Interest, Tax, Depreciation Earnings Before Interest and Tax Depreciation Amortization and Amortisation (EBITDA) to revenues. divided by Revenue Subsidies Operating-costs Proportion of operating-costs that are met by operating Operating Subsidies and/or covered by subsidies subsidies. This indicator is calculated on income divided by Operating Costs [ – (Cost of Sales plus Other Operating resource statement data. Expenses minus Bad Debt Expense plus Income Tax)] extraction Capital expenditure Cashflow capital expenditure covered by cashflow — Cash Flow from Capital Subsidies covered by subsidies capital subsidies. divided by Cash Invested in Fixed Assets Effective taxation rate Ratio of income tax expense to earnings before tax. — Income Tax divided by Earnings Before Tax Dividend distribution to Dividends paid to government divided by net profits. — [Dividend Paid multiplied by government Percent of Shares Owned by Government] divided by Profit for the Year 52 Operational performance indicators Time to connect and generator availability are no longer included in UPBEAT • Technical performance indicators are split into two categories: • A range of supporting technical data was also collected. This includes reliability and efficiency. Reliability indicators cover the frequency and analysis of generation volumes by technology and volumes duration of outages, while efficiency indicators analyze losses. of sales. This data is used to calculate several supporting indicators such as average cost of sales. • Time to connect and generator availability have been removed from the UPBEAT database. Availability was removed due to poor data availability. Time to connect came from World Bank Doing Business, which has been discontinued. Dimension Technical Utility name Description New in this performance UPBEAT indicators update Reliability SAIDI/transmission System Average Interruption Duration Index: the average outage duration for each customer served. SAIFI/transmission System Average Interruption Frequency Index: average number of interruptions a customer experienced over the year. SAIDI/distribution System Average Interruption Duration Index: the average outage duration for each customer served. SAIFI/distribution System Average Interruption Frequency Index: average number of interruptions a customer experienced over the year. Efficiency Transmission losses Percentage of electricity lost from transmission grid. Distribution losses Percentage of electricity lost from distribution grid. System losses Percentage of electricity lost from total electricity network (transmission and distribution). Notes: • Where utilities report system losses directly the reported values are used, where utilities report T&D losses separately but not combined system losses were combined according 1-(1-T)(1-D) • The following indicators were discontinued in this version of UPBEAT: − Availability of generation plants by type − Time to connect 53 Transparency and accountability indicators Indicators are also used to assess the transparency of each utility • A wide range of transparency and Dimension T&A performance indicators accountability indicators are assessed. Performance management Publicly available performance agreement with government or regulator These indicators are simple “yes”/”no” and reporting Publicly available regular performance reports from regulator questions. Collectively, the indicators Financial statements published on website are intended to reflect a best practice Annual report published on website benchmark for utility transparency. Financial statements use IFRS/OHADA; independently audited Examples of the indicators included in Audit opinion unqualified this category are shown in the table. Annual report covers actions taken to address cybersecurity Utility name • Utilities are scored across each of Up-to-date corporate strategy publicly available Annual report confirms performance management system in place four dimensions of transparency: Annual report includes relevant operational and financial KPIs performance management and reporting, Integrity and internal Annual report includes a governance section integrity and internal controls, financial controls Board is organized into sub-committees (including an Audit Committee); annual report includes a charter on each discipline, and stakeholder relations. Annual report provides information on Audit Committee activities Average scores are calculated across each category and overall. Utilities Internal controls exist; there is an internal audit function reporting directly to Board meeting the requirements of more of Vacancies advertised on company website the indicators in a given category Utility uses eProcurement achieve a higher score. Utility is listed Financial discipline Utility maintains a credit rating Stakeholder relations Utility website provides connection procedures SMS/app/call center supports service interruption reporting and billing inquiries Annual report includes Corporate Social Responsibility narrative Annual report includes an environmental narrative Annual report includes gender statistics 54 ANNEX B Utility list 55 List of utilities included in UPBEAT Public utility (majority Utility name Shortform Country Power pool Type ownership) Empresa Pública de Produção de Electricidade PRODEL Angola XX CAPP, SAPP G P Empresa Nacional de Distribução de Electricidade ENDE Angola CAPP, SAPP D P Empresa Rede Nacional de Transporte de Electricidade RNT Angola CAPP, SAPP T P Société Béninoise d'Energie Electrique SBEE Benin WAPP G/T/D P Botswana Power Corporation BPC Botswana SAPP G/T/D P Société Nationale d'électricité du Burkina Faso SONABEL Burkina Faso WAPP G/T/D P Régie de Production et de Distribution d'Eau et d'Electricité REGIDESO Burundi CAPP, EAPP G/T/D P Empresa de Electricidade e Àqua ELECTRA Cabo Verde None G/T/D P Eneo Cameroun S.A. Eneo Cameroon CAPP G/T/D x Energie Centrafricaine ENERCA Central African Republic CAPP G/T/D P Société Nationale d'Electricité SNE Chad CAPP G/T/D P SONELEC SONELEC Comoros None G/T/D P Société des Energies de Cote d'Ivoire CIENERGIES Côte d’Ivoire WAPP G/T/D P Compagnie Ivoirienne d'Electricité CIE Côte d’Ivoire WAPP G/T/D x Société Nationale d'Electricité SNEL Democratic Republic of the Congo CAPP, EAPP, SAPP G/T/D P Ethiopian Electric Power EEP Ethiopia EAPP G/T P G = Generation T = Transmission Ethiopian Electric Utility EEU Ethiopia EAPP D P D = Distribution 56 List of utilities included in UPBEAT Public utility (majority Utility name Shortform Country Power pool Type ownership) Eswatini Electricity Company EEC Eswatini SAPP G/T/D P Société d'Energie et d'Eau du Gabon SEEG Gabon CAPP G/T/D x Gambia Water & Electricity Company NAWEC Gambia,The WAPP G/T/D P Electricity Company of Ghana ECG Ghana WAPP D P Ghana Grid Company GRIDCo Ghana WAPP T P Volta River Authority VRA Ghana WAPP G P Electricité de Guinée EDG Guinea WAPP G/T/D P Electricidade e Alguas de Guine-Bissa EAGB Guinea-Bissau WAPP G/T/D P Kenya Electricity Generation Company KenGen Kenya EAPP G P Kenya Electricity Transmission Co. KETRACO Kenya EAPP T P Kenya Power and Lighting Company KPLC Kenya EAPP T/D P Lesotho Electricity Company LEC Lesotho SAPP G/T/D P Liberia Electricity Corporation LEC Liberia WAPP G/T/D P Jiro Sy Rano Malagasy JIRAMA Madagascar None G/T/D P Electricity Supply Corporation of Malawi ESCOM Malawi SAPP G/T/D P Energie du Mali EDM Mali WAPP G/T/D P G = Generation T = Transmission Société Mauritanienne d'Électricité SOMELEC Mauritania None G/T/D P D = Distribution 57 List of utilities included in UPBEAT Public utility (majority Utility name Shortform Country Power pool Type ownership) Central Electricity Board CEB Mauritius None G/T/D P Electricidade de Moçambique EDM Mozambique SAPP G/T/D P NamPower NamPower Namibia SAPP G/T/D P Central North Regional Electricity Distributor CENORED Namibia SAPP D P Erongo Regional Electricity Distributor ErongoRED Namibia SAPP D P Northern Regions Electricity Distributor NORED Namibia SAPP D P Société Nigérienne d'Electricité NIGELEC Niger WAPP G/T/D P Abuja Electricity Distribution Company AEDC Nigeria WAPP D x Eko Electricity Distribution Company EKEDC Nigeria WAPP D x Transmission Company of Nigeria TCN Nigeria WAPP T P Jos Electricity Distribution Jos Nigeria WAPP D x Kano Electricity Distribution Company KEDCO Nigeria WAPP D x Kaduna Electricity Distribution Company KADUNA Nigeria WAPP D x Port Harcourt Electricity Distribution Company PHED Nigeria WAPP D x Yola Electricity Distribution Company YEDC Nigeria WAPP D x Benin Electricity Distribution Company BEDC Nigeria WAPP D x G = Generation T = Transmission Enugu Electricity Distribution Company EEDC Nigeria WAPP D x D = Distribution 58 List of utilities included in UPBEAT Public utility (majority Utility name Shortform Country Power pool Type ownership) Ibadan Electricity Distribution Company IBEDC Nigeria WAPP D x Ikeja Electricity Distribution Company IKEJA Nigeria WAPP D x Energy Utility Corporation Limited EUCL Rwanda EAPP G/T/D P Empresa de Água e Electricidade EMAE São Tomé and Príncipe CAPP G/T/D P Société Nationale d'Électricité du Sénégal Senelec Senegal WAPP G/T/D P Public Utilities Corporation PUC Seychelles None G/T/D P Electricity Distribution and Supply Authority EDSA Sierra Leone WAPP D P Eskom ESKOM South Africa SAPP G/T/D P Sudanese Electricity Distribution Company SEDC Sudan EAPP D P Sudanese Electricity Transmission Company SETC Sudan EAPP T P Sudanese Hydro and Renewable Energy Generation Company SHREG Sudan EAPP G P Sudanese Thermal Power Generating Company STPGC Sudan EAPP G P Tanzania Electric Supply Company TANESCO Tanzania EAPP,SAPP G/T/D P Electric Power Company of Togo CEET Togo WAPP G/T/D P Uganda Electricity Transmission Company UETCL Uganda EAPP T P Uganda Electricity Generation Company UEGCL Uganda EAPP G P G = Generation T = Transmission Umeme UMEME Uganda EAPP D x D = Distribution 59 List of utilities included in UPBEAT Public utility (majority Utility name Shortform Country Power pool Type ownership) Umeme UMEME Uganda EAPP D x Copperbelt Energy Corporation CEC Zambia SAPP G/T/D x Zambia Electricity Supply Corporation ZESCO Zambia SAPP G/T/D P G = Generation T = Transmission Zimbabwe Electricity Transmission and Distribution Company ZETDC Zimbabwe SAPP T/D P D = Distribution Zimbabwe Power Company ZPC Zimbabwe SAPP G P 60 Energy Sector Management Assistance Program The World Bank 1818 H Street, NW || Washington DC || USA www.esmap.org || esmap@worldbank.org 61