The case for change in Côte d'Ivoire’s electricity market

The current contractual model needs to change if the market is to work for all parties.

The evolution of the market

Côte d'Ivoire is considered one of West Africa's top electricity performers, possessing the third largest power generation system on the African continent and is one of West Africa's leading electricity exporters. Today, over 90% of the Ivorian population has access to electricity, and investments are underway, notably in thermal and renewable energies, to improve this performance over the next 12 months. These achievements in the electricity sector are the fruit of a long process that began in the mid-1980s, when vast institutional and legislative reform was initiated by the Côte d'Ivoire state, opening up the electricity market to the private sector.

The far-reaching reforms undertaken to disengage the state from the operation of the public electricity service and to attract private capital to meet investment needs in the production and extension of the power grid, led it to abandon its monopoly on the power generation segment. In 1985, Law n°85-583 of 29 July 1985, on the organisation of the production, transmission and distribution of electrical energy in Côte d'Ivoire, was passed. Article 3 of the law explicitly stated that “electricity production does not constitute a state monopoly” and this was confirmed when regulations changed in 2024, with Article 6 of the 2014 Electricity Code stating that “the generation, transmission, distribution, import, export and marketing of electrical energy do not constitute a state monopoly”.

This de-monopolisation of the power generation segment has enabled private operators to launch independent power production in Côte d'Ivoire, an activity defined by the Electricity Code as the production of electrical power for sale to third parties in return for remuneration.

On 20 July 1994, the state signed an agreement with Compagnie Ivoirienne de Production d'Electricité (CIPREL) to build, operate and transfer the ownership of a 200 MW thermal power plant. In September 1997, a second contract was signed with Azito Energy for the development of a 300 MW natural gas-fired power plant in Azito (Abidjan). In 2010, AGGREKO International Limited was admitted as a third independent power producer. Today, electricity generated by the three independent power producers accounts for over 60% of Côte d'Ivoire's energy mix.

More detail on what the legal framework provides

The collaboration between the Côte d'Ivoire state and independent power producers has been made possible by the establishment of a legal framework, particularly with regard to the sale of electricity produced by an independent producer. The terms and conditions of electricity sales are governed by the Electricity Code and its various implementing decrees.

According to article 10, paragraph 2 of the Electricity Code, the terms and conditions for the sale of electricity are specified in the agreement between the state and the independent producer. This provision is restated in Decree no. 2016-783 of 12 October 2016, on the terms and conditions for the sale of electrical energy produced by an independent producer: Article 3 states that “the terms and conditions for the sale of all or part of the energy production by an independent producer to the state are defined in the concession agreement concluded between the two parties, based on the model power purchase agreement approved by the independent regulatory body”. Article 5 further provides that the total power and quantity of electrical energy that an independent producer may periodically sell are defined in the agreement concluded with the state.

Because these provisions only refer to the agreement between the state and the independent power producer, it is up to the parties to define, on the basis of contractual freedom, the terms and conditions for the sale of electricity produced by an independent producer – subject to an important rule arising under the Electricity Code.

The Electricity Code adopted in 2014 has brought some improvements to the electricity market in Côte d'Ivoire compared to the 1985 Electricity Law. One of these improvements is the possibility of selling electricity produced by an independent producer to any eligible customer other than the state. Article 10, paragraph 2 of the Electricity Code stipulates that “the power production agreement, concluded by an operator engaged in electricity production, specifies the terms and conditions for the sale to the state or to third parties of all or part of the electrical power produced by this operator”.

This provision is also restated by article 4 of the decree of 12 October 2016, on the conditions of exercise and terms of sale of electrical power produced by an independent producer, in the following terms: “the power production agreement specifies the conditions and terms of sale to the state or to an eligible customer of all or part of the electrical power produced by an independent producer.” Since 2014 therefore, the sale of electricity to any eligible customer other than the state has been possible in Côte d'Ivoire.

This evolution is to be welcomed, as it accounts for the development of the Ivorian and regional electricity market and presents numerous advantages for both the state of Côte d'Ivoire and the independent power producers.

Despite this, today the Ivorian electricity sales market still operates under the single-buyer model – the state remains the sole purchaser of the electricity produced by the three independent producers present on the Ivorian market. As soon as the contracts are signed, contractual provisions impose an obligation on the producers to sell the electricity produced solely to the state to meet its electricity needs. While there may be justifications for the single-buyer model, it raises serious long-term issues for both the state and the power producers.

Why the single-buyer model is not effective

For the state, the single-buyer model has both legal and economic consequences.

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.

A change is needed, as it is clear the legislative and regulatory framework for the sale of electricity produced by an independent producer still lacks effectiveness. Solutions need to be found to enable the market to shift so that there is sale of electricity produced by independent producers to other eligible customers – as the Electricity Code and the Decree of 12 October 2016 provides.