Solutions to improve the electricity market in Côte d'Ivoire

Independent power producers are being contractually restricted to supply only to the Côte d'Ivoire state, despite the law enabling offtake agreements with third parties. The single-buyer model is not working for the state, however, due to the operation of ‘take or pay’ clauses, which is causing the state to pay for electricity it does not need to meet market demand.

However, there are contractual solutions that the state could consider to both reduce the costs it is incurring in buying electricity and offer independent power producers enhanced reassurance over timely payment for their supply.

The problem with the current market model

One of the major contributions of the 2014 Electricity Code and its implementing texts is the evolution of the terms and conditions for the sale of electricity produced by an independent producer in Côte d'Ivoire.

Since 2014, the independent producer can in theory sell the electricity produced to any buyer other than the state. However, in practice, the electricity market in Côte d'Ivoire still operates under the single-buyer model, with the state as the sole buyer. While there may be justifications for the single-buyer model, it raises serious long-term issues for both the state and the power producers.

From a legal point of view, the purchase of electricity produced by the independent producer is guaranteed by the ‘take or pay’ (ToP) clause inserted in the power purchase agreement concluded between the state and the independent producer. The ToP clause implies that the state is bound by a firm obligation to purchase a specific volume of electricity produced. It also requires the state to take delivery of the electricity produced, even if it no longer meets its needs. If the state fails to take delivery of the electricity produced, or takes less than agreed, it is contractually obliged to make a payment to the independent power producer. The state is therefore always obliged to make a payment, whether or not it takes delivery of the electricity. This ToP system, although advantageous for the independent producer, is therefore legally restrictive for the Côte d'Ivoire state.

The single-buyer model also has economic consequences for the state. It has been shown that between 2015 and 2018, the rigidity of the ToP obligation led the state to incur costs that did not correspond to the actual amount of electricity it needed.

From 2015, while the state expected electricity demand to continue growing in line with its forecasts, electricity demand remained linear and then finally stagnated. The need for power became lower than the quantities envisaged in the power purchase agreements the state signed and the state did not collect all of the power it was required to under those agreements, meaning it was compelled to pay for contractual quantities in excess of the actual quantities of power received. All this resulted in exorbitant additional costs for the state, which corresponded neither to its needs nor to the energy actually purchased.

As far as independent producers are concerned, the single-buyer model forces them to depend on a single buyer. If the state fails to purchase power, independent producers may find themselves with a stock of power they cannot sell on the national market, which can entail huge risks for their investments.

Potential solutions to the problem

Contractual solutions can be envisaged to circumvent the contractual rigidity of the ToP clause – and enable the plurality of purchasers provided for in current legislation.

One solution would be to replace the ToP clause in power purchase agreements with a ‘take and pay’ (TaP) clause. In the TaP system, while the electricity purchase price remains agreed in advance, the buyer only pays for the electricity it accepts to be delivered to the power grid according to its needs. The buyer is not bound by a firm purchase obligation agreed in advance. The contractual flexibility of this clause has led some African countries, such as Ghana and Kenya, to announce their intention to move away from the ToP model and adopt a TaP model in their power purchase agreements. The government of Côte d'Ivoire could also consider taking that approach when current agreements expire, rather than systematically renewing the same model for several years.

However, it is clear that the TaP model is less advantageous for independent producers, since it is based on less predictable financial flows, and places the risk of end-user demand on independent producers.

Another contractual solution would be to include stabilisation clauses in contracts signed with the state. The advantage of this clause would be to freeze the texts in force at the date of signature of the contracts with the state. In particular, this would enable independent power producers to continue to benefit, for the duration of the project, from priority payment of their invoices for electricity produced and sold to the state. This approach is provided for in Decree no. 2010-200 of 15 July 2010, on the definition of rules for managing financial flows in the electricity sector, amended by Decree no. 2018-2785 of 17 October 2018.