Power generation has become a priority for Gabon as it attempts to address shortages against a backdrop of rising demand, with recent interest from Saudi Arabian investors helping bolster confidence in the sector.
Executives from Saudi?s Rayat Group and the Saudi subsidiary of Longxin Construction Group met with the Gabonese Ministry of Energy and Water Resources at the end of April, expressing interest in investing in electricity and drinking water projects. In the course of discussions in Libreville, the possibility of a public-private partnership was suggested, the details of which are yet to be determined.
Local media reported that Saudi?s Rayat Group ? which specialises in IT and marketing solutions, but also has a consulting arm ? was in talks regarding investments in rural electrification, where rates of electricity access are at around 50%, versus 85% in urban areas, according to government estimates.
By 2020, the government expects to achieve 100% coverage throughout the country and has made this a priority. To do this, the sector will need to rely more heavily on private investment moving forward, with financing needs estimated at CFA1.8trn (?2.7bn) by 2020. The ministry added that traditional sources such as foreign loans and investment grants will not cover the required investment.
Rising demand
Generation capacity has not kept pace with rising demand for electricity, mainly due to the rising population and rapid rate of urbanisation. The urban population is expected to grow at an annual growth rate of 2.2% over the 2013-30 period, according to UNICEF. This follows an overall population annual growth rate of 2.5% from 1990 to 2013.
An increase in industrial activity is also contributing to the growing need for electricity. Aiming at diversifying its economy, the government has been focusing on developing electricity-intensive manufacturing and processing of raw materials. ?Energy demand in Libreville, even without the demands of industry, is increasing by close to 8% each year,? Erik Watremez, a partner at EY in Gabon, told OBG in 2014.
As part of the government?s Emerging Gabon Strategic Development Plan, the target for energy generation is 5000 MW by 2016, more than double the capacity needs of 2014. To achieve this objective, more investments will be needed in the energy sector, not least in electricity infrastructure. Gabon?s distribution system currently operates via three unconnected regional grids, resulting in considerable electricity loss, as electricity cannot circulate from one grid to another.
Diversifying the energy mix
Despite natural gas being crucial for the generation of much-needed electricity, the gas industry is a relatively undeveloped sector in Gabon, with no export trade and only a small amount of gas production commercialised on the domestic market. However, the government?s efforts to diversify Gabon?s energy sector are starting to materialise. Two out of the three power plants that came on-line in 2013 are gas-powered, including Alenakiri (70 MW) and Port-Gentil (105 MW).
Recent gas finds are also supporting government policies to diversify Gabon?s energy mix, thereby reducing the economy?s dependence on oil. In October 2014 Shell discovered a substantial gas column around 145 km off the coast, west of Gamba (Nyanga province), which will help urge key players to invest in the gas industry.
In addition, Eni announced an important gas discovery in the Nyonie Deep exploration prospect, 13km from the coast of Gabon and 50km from Libreville last year. Preliminary estimates put the gas discovery at 500m barrels of oil equivalent.
In the long run, the government is also promoting the use of hydroelectric capacity and a broader use of renewables. The country?s hydropower potential is considerable, estimated at 5000-6000 MW, but the challenge of financing and managing the necessary infrastructure still remains. Given these constraints, gas is likely to be the primary focus in the near term.
In spite of current efforts, an IMF report published in February called for further structural reforms, as Gabon continues to rely heavily on oil. Indeed, oil revenues still represent about half of state revenues and more than 80% of export revenues. As a result, increasing gas production and commercialisation, together with greater electricity distribution capacity, will be necessary to continue the economy diversification process.
