Catalyzing Utility Reform in Sub-Saharan Africa QUICK WINS MATTER FOR TRANSPARENCY AND ACCOUNTABILITY TO P I C A L PA P E R UTILITY PERFORMANCE AND BEHAVIOR IN AFRICA TODAY YADVIGA SEMIKOLENOVA IAN DRISCALL MIN A LEE ABOUT ESMAP The Energy Sector Management Assistance Program (ESMAP) is a partnership between the World Bank and 18 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP’s analytical and advisory services are fully integrated within the World Bank’s country financing and policy dialogue in the energy sector. Through the World Bank Group (WBG), ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable, and modern energy for all. It helps to shape WBG strategies and programs to achieve the WBG Climate Change Action Plan targets. 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Catalyzing Utility Reform in Sub-Saharan Africa Quick Wins Matter for Transparency and Accountability YADVIGA SEMIKOLENOVA, IAN DRISCALL AND MIN A LEE 1. INTRODUCTION Robust corporate governance is vital if power utilities are ing, help build financially healthy entities that support to perform well (Irwin and Yamamoto 2004; Foster and economic development and expand access to energy. Rana 2020). Corporate governance has internal and exter- nal dimensions. Aspects of internal governance include The World Bank has broken new ground with a data plat- board autonomy, the quality of board proceedings, sepa- form called “Utility Performance and Behavior in Africa ration of board and CEO roles, and clear expectations for Today” (UPBEAT). As a first step in exploring the health the CEO’s performance. These expectations should then of corporate governance, UPBEAT details electric util- cascade down through management and staff. Employ- ities across Sub-Saharan Africa. The resulting platform ment policies help to ensure the presence of high-quality allows industry participants to understand, diagnose, and management and staff who are able to meet expecta- benchmark utilities across dimensions related to finance, tions. The methodical collection of data helps in monitor- operations, and T&A, thereby informing the decisions ing performance of management, staff, and board. This made by policy makers, financiers, and private sector means appropriate and supporting information systems stakeholders. UPBEAT allows the utilities’ varied practices must be available. and experiences to be shared and compared. This shar- ing and comparing of data encourages good practices All this happens within an accountability context estab- and continuous, consistent monitoring. Utility managers lished by an effective board. But it may also be set, in find it easier to diagnose problems and find solutions part, by external actors, such as the state or private when they have measurement baselines and peer data. owners, capital markets, or regulators. Transparency is achieved when stakeholders (owners, oversight agen- UPBEAT collects and then connects a number of attri- cies, and consumers) are able to compare the utility’s butes seen in power utilities. First, it establishes the status actual performance against the performance goals set quo and provides a tool allowing users to track changes in the accountability framework, which should specify over time. Second, it focuses on individual utility analy- the performance data, organizational structures, policies, ses, rather than aggregating the utilities and analyzing processes, and procedures that are to be made available. the sector as a whole. Third, it harnesses facts and data Transparency and accountability (T&A) are therefore key that are either publicly available or can be easily verified; to good governance. Utilities that are accountable for its assessments avoid metrics that rest on controversial their performance, through transparent and timely report- assumptions that might undermine stakeholder confi-  1 2 • U T I L I T Y P E R FORM A N C E A N D BE H AV I OR I N A FRI CA TODAY dence. Fourth, it highlights the critical importance of T&A index of regulatory frameworks in the power sector. The in setting targets, and then publicly compares perfor- Global Electricity Regulatory Index (GERI) is based on the mance against the targets. AfDB’s Electricity Regulatory Index, launched in 2018, and a complementary index the World Bank developed in the This paper analyzes the data collected under UPBEAT’s same time period (Foster and Rana 2020). By measuring T&A mandate to draw conclusions on the status of the the adoption of regulatory best practices, GERI enables region’s utilities. It also identifies what we call “quick countries to Identify gaps in their regulatory framework wins”—simple achievements that could make utilities and benchmark their performance against global peers on more transparent in the short term and spark important regulatory governance and regulatory substance. reforms. The paper first presents an overview of the liter- ature and discusses objectives and methodology. It then Comparative studies of utilities range across different sets moves on to present current T&A findings, making a case of countries, and they deploy different methodologies for certain improvements. Third, it recommends ways to and definitions of key indicators. They even differ on what obtain some quick wins. Fourth, and finally, the paper factors best correlate with performance. Also, no study, suggests ways to expand UPBEAT so it can track broader including this one, can prove causality—good gover- governance variables in the future. nance may drive better performance, on the one hand; on the other, better-performing companies may simply have more time and resources to devote to T&A and other gov- 2. LITERATURE REVIEW ernance matters. There could even be a positive feedback loop between them. While utilities subject to capital market discipline must comply with governance standards and market expecta- Other pertinent work includes the Worldwide Governance tions, state-owned utilities generally lack such guidance. Indicators (which the World Bank updates annually1), but Best global practice is the benchmark for good gover- these high-level studies are not applicable to corporate nance of state-owned enterprises (SOEs) (OECD 2015; governance. The World Bank’s Regulatory Indicators for World Bank 2014), though this may have to be adapted to Sustainable Energy (RISE), which is global in scope, cov- prevailing country-specific realities. ers 35 countries in Sub-Saharan Africa (ESMAP 2020). RISE includes, as one of its eight performance indicators for A recent paper (van den Berg and Danilenko 2017) con- electricity access, indicators of transparency and monitor- tained a lucid explanation for the relationship between ing across the entire utility value chain. Financial discipline governance and T&A: “Strong institutional frameworks and is identified by the regular publication of annual reports norms and policies . . . are key determinants for success.” and financial statements. Their publication is weighted in In other words, good governance drives T&A outcomes. aggregate on a par with data collection and reporting on Studies of corporate governance and SOE performance in SAIDI/SAIFI—system and service interruptions.2 RISE 2020 Lithuania (Curi, Gedvilas, and Lozano-Vivas 2016) and the notes that Sub-Saharan utilities show the steepest recent Republic of Korea (Heo 2018) stress board quality in cor- improvements in overall scores, driven mostly by greater relations of performance. Without board quality, reform in electricity access and greater use of renewable energy. T&A and other governance features cannot succeed. Notable improvements in transparency and monitoring are one of several drivers of progress in the access indica- Few comprehensive and comparative multicountry studies tor. The RISE project proves that robust monitoring over have been done on governance and T&A; and even fewer several years does in fact encourage better T&A. Meaning- on the impact of these on operating and financial perfor- ful correlation between UPBEAT and RISE is not possible, mance in SOEs in general or utilities in particular. Many however, because RISE has a country-level focus. country-level studies are available, but few follow a com- mon methodology. No study on the effect of governance The most useful comparative study for this paper’s anal- and T&A on operating and financial performance of utili- ysis is Foster and Rana (2020). Their Rethinking Power ties has focused on Sub-Saharan Africa. However, on the Sector Reform studied 15 developing country utilities, regulatory side the African Development Bank (AfDB) and including four in Sub-Saharan Africa.3 In doing so, the the World Bank are collaborating to create the first global authors defined a comprehensive utility governance indi- CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRI CA  • 3 cator (UGI) made up of five elements that overlap most • To identify “quick wins” for utilities to improve T&A and of the indicators collected by UPBEAT, although they are facilitate reform. organized differently. With a broader scope than just T&A • And, in light of the foregoing, to consider: indicators, the UGI includes internal governance compo- nents, such as board appointments, autonomy, roles, sep- – how the current methodology used to assess T&A aration of responsibilities, and process. Rethinking Power in Sub-Saharan power utilities could be improved Sector Reform concluded that by far the most notewor- to sustain and expand the UPBEAT data platform thy correlations with operating and financial performance – other investigative avenues using UPBEAT’s data are T&A in financial and human resource management. and approach – the merits and challenges of extending the It is widely agreed that weak governance is the root approach beyond T&A to broader governance cause of most performance issues in the region’s utilities. measures. Weak governance undermines well-meaning attempts to improve performance using, for example, management Over the 2016–18 reporting period, UPBEAT gathered contracts. Also critical for utilities is noninterference data on 76 utilities, both public and private, in 45 countries from political entities and ethical behavior as a general across the entire value chain. In the process, it derived 23 matter. There is support for these findings in political T&A indicators for utilities with a distribution function and economy studies, but they provide no list of practical 21 for utilities with no distribution function. The full set of actions that would strengthen governance. There are T&A indicators is shown in table 3.1. The 23 indicators are few quick solutions to weak governance. Nevertheless, grouped into four categories: weak governance can no longer be thought of as exog- • Performance management and reporting. The extent enous—or something we have to accept. An expanded to which a framework exists to set and monitor expec- UPBEAT has the potential to strengthen the performance tations of performance by the utility and its staff (i.e., of utilities, especially when combined with the use and hold it accountable), and the extent to which the utili- enforcement of lending instruments like “Performance for ty’s performance is publicly reported (i.e., its transpar- Results.” But use of these instruments will require deeper ency). (Ten indicators.) and continuous engagement with relevant ministries and utility boards. • Integrity and internal controls. The existence of appro- priate governance and internal control processes. (Six In summary, the literature leads us to conclude that an indicators.) improved and expanded UPBEAT framework—from T&A • Capital market discipline. The extent to which the util- to governance—would be beneficial. Given the spe- ity is subject to reporting discipline through its partici- cific governance challenges seen in the region’s utili- pation in debt and/or equity markets. (Two indicators.) ties, extending the scope of UPBEAT might be especially worthwhile. Possible approaches to collecting data for • Stakeholder relations. The extent to which key stake- such an extension are discussed at the end of this paper. holder groups can find and access the information they might need to engage with the utility. (Five indi- cators for utilities with a distribution function; three for 3. OBJECTIVES, DATA, AND METHODOLOGY utilities without a distribution function.) In UPBEAT, utilities themselves are classified along the The objectives of this paper are: value chain as vertically integrated utilities (VIUs, 39), • To characterize the current state of T&A in the region’s generation utilities (9), transmission utilities (6), or dis- utilities using data collected through the UPBEAT data tribution utilities (22),4 as well as by their membership in platform each of the region’s four power pools—Central African Power Pool (CAPP) (11 utilities), East Africa Power Pool • To discuss how T&A and broader governance report- (EAPP) (19 utilities), Southern African Power Pool (SAPP) ing might support more effective sector reform—nota- (16 utilities), and West African Power Pool (WAPP) (30 bly by making the case for placing greater emphasis utilities).5 on T&A 4 • UT I L I T Y P E R FO RM A N C E A N D BE H AV I OR I N A FRI CA TODAY TABLE 3.1 Transparency and accountability indicators PERFORMANCE APPLICABLE PARTS OF CATEGORY THE VALUE CHAIN INDICATORS Performance Generation, transmission, Performance agreement with government or regulator is publicly available. management and and distribution Regulator publishes regular performance reports. reporting Financial statements are published on utility’s website. Annual report is published on utility’s website. Financial statements consistent with the framework of the International Fi- nancial Reporting Standards or the Organization for the Harmonization of Business Law in Africa are independently audited. Audit opinion is not subject to qualification. Annual report covers actions that address cybersecurity. Up-to-date corporate strategy is publicly available. Annual report confirms that a performance management system in place Annual report includes relevant operational and financial key performance indicators. Integrity and Generation, transmission, Annual report includes a governance section. internal controls and distribution Board is organized into subcommittees (including an audit committee), each with a charter outlined in the annual report. Annual report provides information on audit committee activities. Internal controls exist; an internal audit function reports directly to board. Vacancies are advertised on company website.* Utility uses eProcurement.* Capital market Generation, transmission, A portion of utility’s shares are listed publicly. discipline and distribution Utility maintains a credit rating. Stakeholder Distribution only Utility’s website provides information on connection procedures, tariff, and relations planned outages.* App or call center supports reporting of service interruptions and handles billing inquiries.* Generation, transmission, Annual report includes corporate social responsibility narrative. and distribution Annual report includes environmental narrative. Annual report includes gender statistics. Note: Indicators flagged with an asterisk (*) are real-time and can be evaluated only for the current website, not for previous years. UPBEAT looks at publicly reported T&A measures in annual utility gets a category score calculated as the percent- reports and on websites. This makes data easy to collect, age of indicators reported each year in that category; the rendering independent validation unnecessary and elimi- denominator is the total number of indicators in the cate- nating subjectivity. The 23 indicators collected by UPBEAT gory. The total score is then calculated as the percentage are therefore binary yes/no indicators. Partial compliance of all indicators reported in each year, with a denominator is not reported—the data are either reported or not. “No” of 23 for utilities with a distribution function and 21 for does not necessarily mean the data do not exist inter- utilities with no such function. nally; “no” might mean a utility has chosen not to make the data public. These yearly indicators can then be averaged across 2016, 2017, and 2018 to calculate a composite indicator, Two types of indicators were gathered from websites. a proxy measure for that utility’s T&A across the three One type was found in annual reports or financial state- years—by category and for the full indicator set. Note ments published as attachments on a website; these that, to ease comparisons in calculating composite can be assessed from 2016 to 2018. The other consists of indicators, real-time website indicators were scored four real-time indicators (asterisked* in table 3.1, above), “yes” in 2016 and 2017 if they scored “yes” in 2018. All which can be assessed only from the current website. indicators were weighted equally in calculating com- Two such indicators in the stakeholder relations category posite scores. are tracked only for utilities with a distribution function. Composite indicators can be further averaged across all Based on UPBEAT data, each utility is assigned a score utilities or any subset of utilities (by value chain type or based on the number of T&A indicators reported both by power pool membership) to provide a proxy for overall category and for the full indicator set for 2016–18. Each T&A in terms of the average number of indicators reported CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRICA  • 5 in 2016–18 across that set. The denominator is the number internal controls. Transmission-only utilities are weakest of utilities in each set. on reporting indicators of stakeholder relations, which may not be surprising, as their primary customers are The analysis below, unless otherwise noted, evaluates generation utilities and large off-takers, where one-on- T&A in Sub-Saharan utilities based on their composite one communication is easy. Generation utilities are best 2016–18 scores. at stakeholder relations. On capital market discipline, not one transmission-only utility covered by UPBEAT was listed or had a credit rating. 4.  ANALYSIS AND KEY FINDINGS There are particular concerns around utilities with a dis- 4.1  Transparency and accountability by utility type tribution function in two categories: integrity and internal Performance against T&A indicators is generally poor for controls and stakeholder relations. Distribution utilities all utilities in the data set. No utility type has an aver- and VIUs perform least well on reporting on integrity and age composite score for 2016–18 that exceeds 35 percent internal controls—a disturbing fact given that the distri- across any indicator category; most have scores in the bution business relies on robust billing (which minimizes mid- to high 20s (figure 4.1). This is not to say there are no nontechnical losses) and cash collection to drive financial high-scoring utilities (see section 4.2), but there is ample performance along the entire value chain. Whereas VIUs room for aggregate improvement. are almost as strong as generation utilities on stakeholder relations, distribution-only utilities are notably weaker. Notable differences in T&A can be seen across the utility value chain, but these occur more in specific categories The low scores on capital market discipline reflect the than for overall performance. Transmission-only utilities dearth of capital markets in Africa. Yet the few utilities in UPBEAT are much stronger in the category of perfor- subject to capital market discipline are among the most mance management and reporting. Like utilities with a transparent and accountable in Sub-Saharan Africa. Par- generation function, they perform best on integrity and ticularly notable are Kengen and KPLC in Kenya, Eskom in FIGURE 4.1 Composite scores by category and utility type, 2016–18 Performance management & reporting 100% 80% 60% 40% Performance management Integrity & & reporting Stakeholder 20% internal relations 0% controls 35% 30% 25% Capital markets discipline 20% 15% 10% 5% Stakeholder Integrity & 0% internal relations controls All Utilities (n = 76) VIU (n=39) G & G/T (n=9) T (n=6) D & T/D (n=22) Capital markets discipline 6 • U T I L I T Y P E R FORM A N C E A N D BE H AV I OR I N A FRI CA TODAY South Africa, Umeme in Uganda, Nampower in Namibia, In the stakeholder relations category in 2018, only 44–49 and, to a lesser extent, Senelec in Senegal. These same percent (27–30 of 61) of utilities with a distribution func- utilities also tend to show the best operational and finan- tion reported adequate customer outreach and commu- cial performance, confirming the generally held view nications. This indicator is composed of (i) the posting that capital market discipline is a key driver of good per- on company websites of comprehensive information formance. on customer processes, tariffs, connection procedures, and other useful information, and (ii) the provision of While the primary intent of this paper is to describe the customer communication methods other than basic call status of T&A among the region’s utilities based on their centers, such as SMS messaging capability, a dedicated composite 2016–18 scores (or the percentage of indi- mobile app, or a web portal dedicated to customer ser- cators reported), some interesting trends and details vice. Annual reports provide narratives on environmental emerge if one examines how many utilities (or what per- performance and corporate social responsibility in just 22 centage of the total sample) report specific T&A indica- percent (17 of 76) of all cases, and, for gender, only 14 per- tors. In the category of performance management and cent (11 of 76). reporting, the three core indicators are also the most widely reported. Those indicators are (i) independently 4.2 High- and low-performing utilities audited6 financial statements; (ii) on-time publication The top utilities in terms of T&A, measured by their 2016– of financial statements; and (iii) audits free of qualifica- 18 overall composite score, are shown in figure 4.2. tions. Ample room remains, however, for improvement. Only 45 percent (34 of 76) of utilities were independently These utilities are: audited in 2018, and only slightly more than two-thirds of • Kengen in Kenya, scoring 82.5 percent (17.3/21 indi- them achieved unqualified audits. Only 25 percent (19 of cators). At 49.9 percent, Kengen is listed on the Kenya 76) of utilities published financial statements within one Stock Exchange and therefore follows governance year of year-end close. Compared with 2016, the three standards set by the Kenyan Capital Markets Authority. core indicators in 2018 show notable declines, most In addition, it must comply with the comprehensive likely due to delays in year-end closing or appointment and practical Mwongozo code of governance, which of the auditor. was developed by the Public Service Commission for all state-owned enterprises. Robust accountability frameworks are uncommon, with only 25 percent (19 of 76) of utilities showing evidence • KPLC in Kenya, scoring 79.7 percent (18.3/23 indica- of reporting regularly to the regulator in 2018, and only tors), operates under the same accountability stan- 16–17 percent (12–13 of 76) reporting that they operate dards as Kengen. Note, however, that its audits have under a performance agreement with government or been qualified from 2016 to 2018. have an internal performance management system in • Nampower in Namibia, scoring 73.9 percent (17.0/23 place. Cybersecurity policies are reported in just 5 per- indicators), maintains an international credit rating. cent (4 of 76) of cases. Similarly, only 20 percent (15 of 76) disclose their corporate strategies on their websites • Umeme in Uganda, also scoring 73.9 percent (17.0/23 and only 26 percent (20 of 76) publish key performance indicators), operates under a 20-year concession indicators (KPIs). agreement (a form of performance agreement) signed in 2005. It is listed on the stock exchanges of Uganda In the category of integrity and internal controls in 2018, and Kenya. only 28 percent (21 of 76) report having internal audits and • Eskom in South Africa, scoring 72.5 percent (16.7/23), controls in place. Only 13–17 percent (10–13 of 76) report maintains an international credit rating. It follows the governance activities at the board level, board subcom- King IV code of corporate governance and practices mittee structures, or audit committee activities. While 50 integrated reporting. (These are widely regarded as percent (38 of 76) use their websites for recruiting, only 14 international best practice but require substantial inter- percent (11 of 76) use eProcurement. nal resource commitments, more so than the Mwon- CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRICA  • 7 FIGURE 4.2. Composite scores for high performers, 2016–18 Performance management & reporting 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Integrity & Stakeholder 0% internal relations controls All Utilities (n = 76) Kengen KPLC Nampower Umeme ESKOM Capital markets discipline gozo code.) Eskom also operates under a performance TABLE 4.1 UPBEAT utilities with a composite score of agreement with the Ministry of Public Enterprises. Its zero, 2016–18 audits from 2016 to 2018 contained qualifications. Régie de Production et de Gestion de l’Eau et de Distribution d’Eau et l’Electricité aux Comoros d’Electricité (REGIDESO) (MAMWE) These utilities are among the highest-performing in both Electricité d‘Anjouan (EDA) Enugu Electricity Distribution operations and finance. Again, this suggests that a robust Company (EEDC) governance code, capital market discipline, and a per- Benin Electricity Distribution Ibadan Electricity Distribu- formance agreement with government can, if effectively Company (BEDC) tion Company (IBEDC) monitored, drive better performance. A positive feedback Société des Energies de Ikeja Electricity Distribution loop is probably at work here: good reporting drives bet- Côte d‘Ivoire (CI-ENERGIES) Company (Ikeja) ter performance, which encourages still better reporting, Sociedad de Electricidad de Electricity Generation and Guinea Ecuatorial (SEGESA) Transmission Company and so on. (EGTC) Eritrean Electricity Corpora- Sudanese Electricity Trans- On the other hand, 16 of the 76 (21 percent) utilities cov- tion (EEC) mission Company (SETC) ered by UPBEAT scored zero from 2016 to 2018 in their Electricidade e Aguas da Sudanese Thermal Pow- composite scores in all categories (table 4.1), further Guiné-Bissau (EAGB) er Generating Company (STPGC) underlining the poor performance on T&A in the region Société Mauritanienne Zimbabwe Electricity Trans- and contributing to the low average scores overall. Eight d‘Électricité (SOMELEC) mission and Distribution of these are VIUs, and another four are distribution utili- Company (ZETDC) ties. Roughly half are in English-speaking countries; the other half in countries mostly speaking French, Arabic or another language. 8 • UT I L I T Y P E R FORM A N C E A N D BE H AV I OR I N A FRI CA TODAY 4.3  T&A by power pool membership utilities (figure 4.4). English-speaking utilities outperform T&A performance by power pool, as measured by an French-speaking ones, not only overall, but also—and average composite score of the member utilities over significantly—in the categories of performance manage- 2016–18, appears in figure 4.3. SAPP members perform ment and reporting and integrity and internal controls. much better in all categories, except capital market dis- The gap is smallest in stakeholder relations, driven by bet- cipline, where EAPP has a slightly higher percentage of ter gender reporting. The highest-scoring French-speak- listed or credit-rated members. EAPP comes in second ing utility is CEB in Mauritius, scoring 70 percent on its on all other categories. Both SAPP and EAPP perform 2016–18 composite indicators. Kengen and KPLC are the much better on all components than the average of all highest-scoring English-speaking utilities. These Kenyan utilities, suggesting that membership in a well-governed utilities are subject to capital market discipline and oper- power pool encourages T&A, just as strong governance ate under the local Mwongozo governance code that is frameworks and capital market discipline do. WAPP and applied to all SOEs. CAPP members perform less well than the average of all utilities, suggesting an opportunity to improve the Most of the region’s French-speaking countries are sig- governance and T&A expectations in those pools. When natories to the Organization for the Harmonization of compared with CAPP, members of WAPP are stronger on Business Law in Africa (OHADA), which seeks to attract stakeholder relations. foreign investment by harmonizing commercial legisla- tion. OHADA’s reporting requirements, still relatively lax, 4.4  T&A in English- vs. French-speaking utilities might explain the apparent underperformance of utilities Comparisons of the composite scores of utilities in in French-speaking Sub-Saharan Africa. More robust are English- and French-speaking countries (excluding for utilities governed either by the King IV code, the “inte- the moment those speak Portuguese or Spanish) deliver grated reporting” approach used in South Africa, or by interesting results. French-speaking utilities, in general, Kenya’s Mwongozo code. OHADA’s provisions on corpo- earn lower performance scores than English-speaking rate governance were, however, strengthened in 2014 FIGURE 4.3 Composite scores, by category and power pool, 2016–18 Performance management & reporting 100% 80% 60% 40% Performance management 20% Integrity & & reporting Stakeholder internal 0% relations controls 50% 40% Capital markets 30% discipline 20% 10% Stakeholder Integrity & relations 0% internal controls All Utilities (n = 76) CAPP (n=11) EAPP (n=16) SAPP (n=19) WAPP (n= 30) Capital markets discipline CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRI CA  • 9 FIGURE 4.4 Composite scores by category, English- vs. French-speaking utilities, 2016–18 Performance management & reporting 100% Performance management 50% & reporting Integrity & Stakeholder 0% internal 35% relations controls 30% 25% Capital markets 20% discipline 15% 10% 5% Stakeholder Integrity & relations 0% internal controls All Utilities (n = 76) English speaking (n=40) French speaking (n=21) Capital markets discipline for public limited companies; Senegal’s Senelec is the lections, cost recovery (operational and full), tariffs, and largest of these. The provisions clarified the roles of reliability. Utilities already monitor these kinds of KPIs for directors and encouraged board committees. Conflicts internal management reporting. Posting them on their of interest were addressed, along with director remu- website—even if qualified as unaudited—is the logical neration and the need for auditors to be present at all next step. board meetings. A report on board activities must also be presented at the annual general meeting, though not If a performance framework exists—whether with a gov- explicitly in the annual report. But the 2014 changes did ernment owner or regulator (where performance expec- little to raise standards for external reporting. tations are implicit in a tariff ruling)—a parallel quick win could be achieved by posting the framework on the utility’s website. If no external framework exists, publish- 5. QUICK WINS ON T&A ing the utility’s corporate strategy is a good proxy, as it reveals the performance expectations of board and man- As the analysis above shows, there is a clear and sub- agement. KPIs and the performance framework should be stantial opportunity to improve T&A across the region’s carefully aligned. utilities. If a broader range of stakeholders, beyond just owners, can see the performance framework holding The next step is more challenging: timely year-end clos- the utility accountable—while reporting into that frame- ing and publication of audited financials and annual work in a robust and timely manner—major improve- reports. Six months after year-end is a reasonable expec- ments in T&A will result. tation. This step is more challenging because it likely needs the active cooperation of the state auditor in the The simplest quick win is for utilities to publish KPIs on a form of timely appointment of a quality independent quarterly basis. Ideally, with the aid of an industry asso- external auditor, one ideally adhering to the Interna- ciation, the utilities could establish such a set of KPIs. tional Financial Reporting Standards (IFRS). Appointments Obvious key indicators include data on losses and col- should be made well before year-end, and auditor turn- 10 • UT I L I T Y P E R FORM A N C E A N D BE H AV I OR I N A FRICA TODAY over should be limited so that auditors hold office long out” tactic that focuses on internal governance. This does enough to understand the utility’s challenges and build not negate, of course, the value of mastering the internal on that knowledge over several years. To prepare incom- governance variables. ing auditors, utilities should try to build handover periods into these transitions. A qualified audit result should not The UPBEAT data platform can help implement these delay any publication of financial statements. quick wins and track their sustainability. To support better public reporting, UPBEAT establishes reporting Another quick win could be achieved by providing more benchmarks for T&A that can be compared across util- information on utility websites and making them easier ities. This approach should encourage best practices in to find. For utilities with a distribution function, obvious robust and timely reporting, which in turn should bet- examples include greater attention to customer commu- ter inform decision making by policy makers, financiers, nication and expanded channels for service interruptions and private sector stakeholders. UPBEAT also facilitates and follow-up. Greater use of eProcurement—fully inte- diagnosis of operating and financial performance by the grated, ideally, with the utility’s information systems— utilities themselves and supports their improvement. If would improve transparency in procurement across all fully embraced, UPBEAT might also enable the setting of types of utilities. standard reporting expectations and templates across Sub-Saharan Africa. Why do these quick wins matter? In discussing the imple- mentation of power sector reform, Foster and Rana (2020) highlight the following challenges: HOW TO IMPROVE T&A ASSESSMENT AND 6.  EXPAND THE UPBEAT APPROACH • The challenges of context, that is, the political econ- omy This paper uses T&A data collected by UPBEAT to assess • The need to identify reform champions (and to dele- power utilities in the region. It does this by calculating gate responsibility to regulators), and composite scores for each utility from 2016 to 2018. The UPBEAT approach relies on publicly available data, mak- • Full stakeholder alignment—first through outreach and ing it easy to implement. It also requires no independent ultimately through legislative support. validation and is not subjective. But it has important lim- itations: The authors highlight the region’s weak appetite for reform, noting the mixed performance of management • It may underestimate the actual effect of some of contracts, reversals of privatization, a lack of independent the T&A indicators. For example, internal audits and regulation, and failures to counter stakeholder oppo- controls or performance management systems may sition. While conceding that “donors play an important exist but not be deemed important enough to report role in introducing reform ideas and supporting their publicly. implementation,” the authors observe that “they do • It does not consider the relative importance of differ- not seem to have much influence on a country’s overall ent indicators—all indicators are weighted equally. reform trajectory, which is rather shaped by local polit- ical factors.” Higher levels of T&A, while certainly not • Compliance is binary, and some indicators need more the complete solution, would encourage greater stake- definition. What, for example, is a reasonable expecta- holder pressure for reform, making political resistance tion for years of KPI data? How much detail on gover- harder. If regular performance reports were visible to nance should the annual report include? all stakeholders, one would see more actively engaged consumers and the formation of more consumer asso- By addressing these limitations, the UPBEAT data plat- ciations, making change harder to resist at the political form could improve the methodology for calculating level. The studies referenced above highlight the role of composite scores. internal governance in driving good T&A. But it is harder to improve these internal factors directly. In other words, The first limitation can be addressed with clear reporting an “outside in” approach—starting from T&A as desired expectations, including templates for annual report and attributes—is likely to be more successful than an “inside website content, setting expectations around timeliness, CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRICA  • 11 and seeding these expectations throughout all utilities in To deepen knowledge about T&A in the region’s power the region. This effort will require industry associations utilities, researchers could use the key findings pre- to fully embrace the project and to establish and exploit sented above to investigate the following five aspects networks of relevant, committed contacts within utilities. 7 of the power sector in Sub-Saharan Africa. They could This will also build sustainable capacity through good do this by: reporting practices. • Comparing the frameworks of the International Finan- cial Reporting Standards and OHADA as they affect Regarding the second limitation, some indicators are T&A—detailing their comparisons of the reporting and more important than others (notably, the three core indi- governance frameworks in use (e.g., the King IV or cators of performance management and reporting) and Mwongozo code) could be weighted accordingly. Still, the very fact that they can be reported individually removes the need to • Correlating utility T&A findings with extant SOE T&A weight them. Moreover, weighting would be subjec- frameworks, asking whether utilities are treated the tive. There is, however, value in in prioritizing improved same as other SOEs reporting on the more important indicators, such as • Correlating utility T&A findings with relevant, coun- independent audits, posting of financial statements and try-level T&A frameworks annual reports, and audits free of qualifications. Putting this priority into effect would depend on finding work- • Investigating differences in T&A in public and private able solutions to problems like timely financial close and utilities in Sub-Saharan Africa, and appointment of qualified auditors as discussed in the pre- • Comparing results with the power sector reform vious section. scores in Foster and Rana (2020). Equal weighting ensures that accountability frameworks The first of these five comparisons should produce a bet- (from performance contracts to internal performance ter understanding of the differences between English- management systems) are valued as much transpar- and French-speaking utilities and the merits of the various ent reporting. Accountability frameworks drive per- accounting and reporting governance frameworks. The formance—financial reporting keeps score. Financial other four could initially be pursued with the existing reporting is a result, and not a driver, as are accountability UPBEAT approach and then be folded into an expanded frameworks. While transparent reporting is important to framework, as described above. external stakeholders, emphasizing accountability drivers is important if the ultimate objective is to improve utility What possible extensions of UPBEAT T&A data collec- performance. tion—primarily the utility reports—should be included in calculating of T&A composite scores? Two dimensions— On the third limitation, UPBEAT needs to provide clearer including other, broader governance measures and exog- definitions of compliance. Certain indicators might also be enous factors (regulation, public service obligations, and decomposed into, say, a 1–4 scale for degrees of compli- contracting with independent power producers)—could ance, with each point weighted 0.25. This is the approach be considered. used in the RISE database. For example, on the indicator, “annual report includes relevant operational and financial As noted in the introduction and literature review (sections KPIs,” a utility might score 0.25 for reporting some KPIs 1 and 2), governance is much more than T&A. Foster and year on year, 0.5 for reporting a (predefined) compre- Rana (2020) offer a comprehensive model in the form of hensive set year on year, 0.75 for reporting at least five their Utility Governance Index, which enables researchers years of the comprehensive set, and 1.0 if commentary is to explore the effects of board independence, quality, and included. Tight, detailed definitions of each indicator (and process. The authors suggest that these factors are much degrees of conformity) would be necessary in both cases. less important in driving performance than financial dis- Expectations about timely reporting (whether publica- cipline and human resource management. Whether that tion of audited financial statements and annual reports or conclusion holds for Sub-Saharan Africa would need to be website reporting of KPIs) should also be specified. proven, especially given that their Sub-Saharan sample 12 • U T I L I T Y P E R FORM A N C E A N D BE H AV I OR I N A FRI CA TODAY comprised only four relatively high-performing utilities. and transparent procurement of contracts with indepen- Testing the hypothesis of Foster and Rana would require dent power producers. The latter is an emerging prob- the expansion of the UPBEAT approach and the alignment lem that is very significantly affecting the performance of of indicator definitions. On the one hand, there are bene- many of the region’s utilities. Without these exogenous fits to building on an existing approach rather than pursu- transparencies, it is hard for a utility to perform well finan- ing parallel measurement frameworks. On the other hand, cially. Again, Foster and Rana (2020) include at least the there are much bigger challenges in accurate data collec- first two variables. Inclusion of an indicator that monitors tion and validation. A first step would be the preparation whether the utility considers and attempts to mitigate of a detailed questionnaire, which utilities could self- these risks through a framework that manages enterprise administer. Follow-on steps would include phone inter- 8 risk is another possibility. views or site validation and collection of supporting docu- ments, an approach used by Foster and Rana. 7. CONCLUSIONS While some questions ask for objective data (e.g., board composition by type of director), others, like board pro- This paper calculates composite T&A scores for Sub-Sa- cess and autonomy, would require 1–4 compliance scales, haran utilities using UPBEAT’s groundbreaking data plat- as discussed above. Again, the opportunity is to align with form, which promotes understanding and diagnosis, and and/or improve the Utility Governance Index approach of benchmarks utility performance across financial, oper- Foster and Rana. Sustaining this approach through a local ational, and T&A dimensions. The UPBEAT composite industry association is of course more challenging. An scores for 2016–18 demonstrate the shortcomings in T&A even better approach is a one-day governance audit con- across multiple dimensions. There are opportunities for ducted by professionals, but again this makes it harder to 9 utilities to score quick wins in advancing the T&A agenda sustain a local approach. by working with local industry associations. Such collab- oration has the potential to catalyze change and improve Utility performance is affected by several important exog- utilities, sustaining reform in Sub-Saharan Africa. enous variables, particularly in Sub-Saharan Africa. Key among these are independent and transparent setting of Suggestions for further consideration include improving cost-recovery tariffs, explicit recognition of public service UPBEAT’s existing approach and extending its scope to objectives like rural electrification that require subsidies, assess broader governance measures. REFERENCES AfDB (African Development Bank).2020. Electric Regulatory Index for Africa 2020. Abidjan, Côte d’Ivoire: African Development Bank Group. Curi, Claudia, Justas Gedvilas, and Ana Lozano-Vivas. 2016. “Corporate governance of SOEs and performance in transition countries: Evidence from Lithuania.” Modern Economy 7: 1339–60. ESMAP (Energy Sector Management Assistance Program). 2020. Regulatory Indicators for Sustainable Energy (RISE) Sustaining the Momentum. Washington, DC: World Bank. Foster, Vivien, and Anshul Rana. 2019. Rethinking Power Sector Reform in the Developing World. Sustainable Infrastructure Series. Washington, DC: World Bank. Heo, Kyoungsun. 2018. “Effects of corporate governance on the performance of state-owned enterprises.” Policy Research Working Paper 8555. World Bank, Washington, DC. Irwin, Timothy, and Chiaki Yamamoto. 2004. “Some options for improving the governance of state-owned electricity utilities.” Energy and Mining Sector Board discussion paper 11. World Bank Group, Washington, DC. http://hdl.handle.net/10986/21603 OECD (Organisation for Economic Co-operation and Development). 2015. Guidelines on Corporate Governance of State-Owned Enterprises. Paris. World Bank Group. 2014. Corporate Governance of State-Owned Enterprises : A Toolkit. Washington, DC. © World Bank. https:// openknowledge.worldbank.org/handle/10986/20390 License: CC BY 3.0 IGO. van den Berg, Caroline, and Alexander Danilenko. 2017. Performance of Water Utilities in Africa. World Bank, Washington, DC. http:// hdl.handle.net/10986/26186 CATALYZING U TIL ITY REFORM IN SU B-SAHARAN AFRICA  • 13 Endnotes https:/ 1.  /info.worldbank.org/governance/wgi/. Independent audit” is defined as an audit by an interna- 6. “ 2. S AIDI is the System Average Interruption Duration Index; tionally recognized firm, a local firm appointed by the state SAIFI is the System Average Interruption Frequency Index. auditor, or the state auditor itself. 3. K  PLC in Kenya, Senelec in Senegal, Tanesco in Tanzania, and  he Pacific Power Association in the Pacific islands has seen 7. T Umeme in Uganda success with this approach. 4. T  wo utilities with both generation and transmission functions  his is also the approach used, for example, by the Pacific 8. T have been grouped with the generation utilities, and two Power Association. with both transmission and distribution functions have been  his was successfully trialed and proved effective in the Phil- 9. T grouped with distribution utilities. ippines Electric Cooperatives.  ome utilities are in multiple power pools (six utilities); oth- 5. S ers do not belong to any pool (seven utilities).