Presentation by Gérard Mestrallet

Transcription

1 Presentation by Gérard Mestrallet Opening Session of The World Bank Energy Week 99 Washington DC April 6, 1999 First, I would like to thank the World Bank and in particular President Wolfensohn and Mr. James Bond for this invitation. During the last 10 years our group has built a partnership with the World Bank in the field of water. Together, we have been able to develop long-term concession contracts, linked with long-term financing. This has resulted in major improvements in the supply of drinking water in emerging countries. I am pleased to stress the major contributions brought by the World Bank in this respect. I consider that we are facing the same type of challenge in the field of energy. The needs remain huge since one human being out of three still does not have access to electricity. Meanwhile, we have to take into account the objectives of the Kyoto Conference on Environment Protection. The deregulation of the energy market, which is going to lead to a major restructuring, is also a key factor. The World Bank has identified these challenges a long time ago. It still has a major role to play in the future. I would like to take advantage of this seminar to share with you some thoughts about these developments. I. First, I would like to say a few words on our strategy in energy: In June of 1997, we have merged Suez and Lyonnaise des Eaux and more recently Société Générale de Belgique with the view of creating a world leader in private infrastructure services. In doing so, we have assigned to the new group to: Focus on 4 core businesses: Energy, Water, Waste Management, and Communications. Pursue international expansion to get as soon as possible 50% of the business outside France and Belgium.

2 Energy is the group's first business 11 bn Euros = 35% of the total. With an installed generation capacity of 40,000 MW through Tractebel and a natural gas transmission capacity of 100 million cubic meters per year, SLDE is the third largest IPP in the world, and the largest privately owned Energy Producer. Today, we are present in 23 countries, including Argentina, Brazil, Peru, Hungary, India, Kazakhstan, Mexico. Clearly our ambition is to become a global player, present in each segment of the energy business. II. Now a few comments on our goals in the emerging countries: The crisis of 1998 has revealed the serious difficulties of these countries to serve these needs in basic infrastructure. Public Sector Financing will become more difficult. Needs are continuing to grow (Energy consumption should increase by more than 50% in 25 years). Private money could escape or disappear and could be tempted to select more secure investment in Europe or in the U.S. The World Bank has once again a key role to play to maintain investor confidence and encourage private investor to promote new projects not only in Generation but also in Transmission and Distribution sector. In that respect, I share the opinion expressed by Mr. Boren. As far as SLDE is concerned, we are long term investor involved in long term contracts. In 1998 our priority was clearly to support our existing operations and to provide them with the financing they needed (including with debt guarantee supplied directly by the group (Manila, Djakarta). We have also sustained our effort in Latin America, in Buenos Aires and in Brazil (with the acquisition of Gerasul). I think that with the World Bank, it is time to get some lessons from this difficult period - to improve the type of financing and the regulatory framework available in those countries. III. I would like now to comment on the practical experience drawn from most recent projects. Electricity distribution is clearly the key issue Until now it is mostly in the generation side that we have witnessed the development of private electrical energy involvement. Increasing and improving generating capacity has been a high priority for emerging countries. Transmission and distribution remain largely in public or para-public sector hands. 2

3 The reasons are well known: - the reluctance of public authorities to leave a level of their energy independence in the hands of private operators; and - the private operator's greater risk in distribution due, to the virtual absence of any regulatory framework. Still, rational energy distribution is essential for responding to the challenge of serving the urban poor. We notice that electrical systems today are not adequate to satisfy demand: whole areas are without service, energy is lost, and there are shortcomings in the design and integration of systems; maintenance and oversight deficiencies abound. In half the emerging countries, technical losses are estimated at 15 percent, which is very high for this business. IV. Our experience in emerging-country electricity distribution is limited today. Nevertheless, two of our current experiences highlight fairly well both the problems that a private operator must resolve and what this same operator can contribute to serving disadvantaged urban populations. First example: Senegal Following an international tender, the government of Senegal chose our group to privatize Senelec, that country's national electric power company. We won a 25-year electricity generation, transmission, and distribution contract. Today, Senelec distributes electrical power to nearly 330,000 customers barely 25 percent of the population. Calling in a private operator will result in the necessary investments being made to rehabilitate and expand electrical energy generation, transmission, and distribution facilities in that country. Electricity demand increases each year at a rate of 7 to 8 percent. Less than 50 Percent of the population in Dakar, the country's capital city, is presently served. We have set three objectives for our involvement there: - to reduce the cost of electricity to a minimum and maximize its availability; - to improve customer service, - to make access to electricity easier for new users, including urban poor. 3

4 It is important to note that turning to private sector management has made it possible to keep tile cost of energy under control, rising at loss than half the rate of inflation. Second experience: Casablanca, where the Group is managing the world's first multi-utility contract in that region In 1997, the city of Casablanca awarded Suez Lyonnaise des Eaux a 30-year contract for operating water and electricity distribution and waste water treatment for the city's population of 4 million. Three projects were launched in priority: - flood control measures, - security for electrical installations, and - customer service quality improvements. The challenge is to set up a genuine customer service; culture. Improving customer service was truly our priority. We had to enlarge access to the network, improve how customers are treated, reduce repair delays, and improve the reliability of the billing system. Customer satisfaction surveys enabled us to get to know what the customers were looking for and to develop our marketing approach. Our Group has begun an ambitious program of rehabilitating and extending the electricity network, with a five-year objective of achieving electricity loss under 6 percent. This program is based on three thrusts: - improved customer security; - network rehabilitation to improve service quality; and - establishment of a development plan to scale and program investments. We launched a campaign to bring the voltage of domestic power lines within standard parameters. Sixty thousand domestic installations have already been modified. To give an idea of the magnitude of the task: - there are 280, volt meters requiring conversion to 220-volts between now and the year 2000; - 530,000 electricity meters need to be installed. We carried out a pilot project for the electrification of a disadvantaged neighborhood (Nen M'Sik) consisting of approximately 3,000 dwellings housing 21,000 inhabitants. This project made it possible to supply electricity through a collective meter. The 4

5 electrical energy, supplied in limited amounts as provided under contract, is intended for household use; billing is calculated based on the users' income category. This project was inspired by a similar system we developed for water supply in Buenos Aires. How did we go about the Casablanca operation? We were faced with finding a solution to the power supply problem of slums. This electrification project is based on a technical solution that makes it possible: - to supply electricity to the slums area through underground lines that cannot be illegally topped; - to furnish electricity from collective meters installed on the outskirts of the slums and where the interior lines and individual hookups are installed by the inhabitants themselves. The inhabitants of each block lead to be convinced to appoint a street representative. This representative plays the role of intermediary between the local operating company, our subsidiary Lydec, and the neighborhood inhabitants. He collects individual user fees and turns these over to Lydec each month. This person is a special relationship and is under a specific contract; he is also responsible for overseeing the company's equipment in his block. What general lessons can be drawn from this experience? This operation has enabled us to eliminate illicit connections. A relationship of trust between the operator and the inhabitants is developing. Their support for the project is high. So far all bills have been paid in full. We have drawn three lessons: - First, energy can be supplied to everyone; - Second, the people served have to be drawn into a dialogue with the supplier and have to be given a role in providing the service, and - Third, the introduction of a private operator is consistent with creative solutions. Experience show that it is possible to find solutions to electrical energy distribution problems that take into consideration the problems of the urban poor. With regard to the multi-utility concept: it is an approach about which we still have many questions. Based on our Casablanca experience, we can easily see that the multi-utility concept makes it possible to reduce costs and realize economies of scale. 5

6 Local authorities only have one interlocutor, and thus only one control organism to establish. Efficiency in customer management, technical operations, and billing is optimized. But can our Casablanca experience be generalized? It was possible in Morocco because the three services were provided together. Multi-utility is not an end in itself for a group like ours. In the short term, Multi-utility contracts can be only one answer among many to the challenges of emerging countries and to the predicament of the urban poor. Such contracts also require special legislation, which is often missing even in developed countries. V. In conclusion, I would like to stress that we have the greatest appreciation and confidence on the role played by the World Bank to improve the management and financing of infrastructures. And we count on its strong support for the years to come. We have also learned through those contacts that a good regulatory system was a necessary factor for success. Local regulators are not always well prepared for their mission. The World Bank should in my opinion extend its technical assistance to the training of regulation authorities. Now two final comments: 1) The current crisis is a major turning point. We have to draw lessons from that and try to get a vision of the future. 2) As a private investor in emerging countries, I can confirm the involvement of the Group each time multilateral financing is available. This is a long-term strategy for us, and a long-term commitment. By long term, I do not mean five to seven years, but twenty to thirty years. Thank you. 6