Synergies between West Africa Power Pool (WAAP) and AfCFTA

Mohammed Dramani, Accra, Ghana
September 19, 2024

A cess to electricity is a priority for the AfCFTA ambitions to create a interconnected electricity market. The continental trade institution sees an opportunity to work with regional initiatives such as the WAPP. Over the past two decades, countries and development agencies have invested significant financial and technical resources to liberalize African regional electricity markets. The continent has five independent electricity markets: the Eastern Africa Power Pool (EAPP), West African Power Pool (WAPP), Southern Africa Power Pool (SAPP), Central Africa Power Pool (CAPP), and Comité Maghrébin de l'Electricité (COMELEC). Their common goal is to integrate these five institutions and turn them into a single market. In Central and East Africa, institutions are still embryonic, which means that countries are not pooling their resources together to provide greater access to electricity to the population of individual countries.

According to the The United Nations Conference on Trade and Development (UNCTAD), in sub-Saharan Africa alone, 600 million people, or approximately 53 per cent of the region’s population, live without access to electricity. While Ghana, South Africa, Kenya and Gabon are closer to full access to electricity for their population, the situation in the rest of the Sub-Saharan Africa region hide extreme discrepancies. Chad, the Democratic Republic of Congo (DRC), South Sudan and The Central African Republic (CAR) have the lowest access to electricity.

These countries will need substantial investments to improve access to electricity. However, the African Union, the African Continental Free Trade Area (AfCFTA) want to accelerate development in this critical area through cooperation with regional electricity markets such as the The West African Power Pool (WAPP).

Where is WAPP now?

The West African Power Pool (WAPP) consists of 14 member countries of Economic Community of West African States (ECOWAS). The WAPP is a specialized institution devoted to regional power system. It aims to integrate the operation of national electricity networks into a unified regional market. Another mission of the WAPP is to strive towards an optimal, reliable and affordable electricity supply to the populations of the member states.

The WAPP networks cover two geographical areas also grouped as A and B. The ‟Zone A” are interconnected and consists of 8 countries, namely Nigeria, Niger, Benin, Togo, Burkina Faso, Ghana, and Cote d’Ivoire. In ‟Zone B”, Senegal and Mali are already interconnected. Work in underway to connect Liberia, Guinea, Sierra Leone, Guinea Bissau and Gambia.

The WAPP has a regional regulator known as the ECOWAS Regulatory Energy Regulator (ERERA). It also has a trading hub, or WAPP Information Coordination Center (ICC), which is based in Cotonou and five Areas Control Center (ACC) across the region.

AfCTA and Electricity Initiative

Bilateral export trade continues to dominate electricity trade. Three countries are exporting electricity to their neighbors, including Ghana (actual electricity), Côte d’Ivoire (actual electricity) and Nigeria (gas). Three countries have the potential and plan to export natural resources for electricity production. They are: Mauritania (Coal) and Senegal (Gas) and Guinea (coal).

African countries have signed the AfCFTA agreement (with Eritrea being the exception), which mandate the new trade organization to boost trade. The members expect an improvement in the standards of living for Africa’s 1.2 billion population. By lifting all barriers to trade, AfCFTA combines a gross domestic product (GDP) of US$3.4 trillion a in a single continental free trade market.

The main instrument for AfCTA’s intervention in the African electricity sector is the Africa Single Electricity Market (AfSEM). In 2015, this framework received financial and technical assistance from the European Union and the African Union (AU). The goal of the assistance was to harmonize regulatory frameworks for the electricity market in Africa. Since 2015, the AU-EU cooperation has yielded a series of policy documents including a roadmap and a governance plan, which became official during the AU Head of States at the 34th AU-Summit in in February, 2021. According the African Union, AfSEM will bring greater energy security, sustainability, and competitiveness to the Africa Union Member States.

AfCFTA resources

AfCFTA can support WAPP in at least three key areas: mitigation of currency risk, market transparency and digitization.

A major impediment to trade in Africa in general and in ECOWAS, is the complexity and huddles in payments and settlement systems. According to S. E. Omoruyi, researcher at the Central Bank of Nigeria, the multiplicity of currencies and the inconvertibility of most of them create problems for payments arrangements and inter-state commercial transactions. Through his research, Omoruyi, demonstrates that currency inconvertibility impedes a free flow of goods and services and capital movements and unilateral transfers.

ECOWAS member states have had to settle intra-African trade in non-regional currencies such as the Pound Sterling, the French Franc and the U.S. dollar¹. The WAPP electricity market has also inherited this anomaly. For example, credit limit for market participants are set US dollars. This exposes market participants to currency risks which also constitute a cost that is passed on to customers.

AfCFTA’s solution is the Pan-African Payment and Settlement System (PAPSS), a system adaptable, to facilitate electricity trading, the efficient and secure flow of money across African borders. The platform minimizes risk and contributes to financial integration across the regions. AfCTA describes PAPSS as a centralized financial market infrastructure, which can enable the efficient and secure flow of money across African borders. According to AfCTA, the platform minimizes risk and contributes to financial integration across the regions. PAPSS is an African Union infrastructure developed in collaboration with the African Export-Import Bank (Afreximbank) to complement trading under the AfCFTA.

Harmonization

A credible electricity market must guarantee a symmetrical access to market data and information to all the participants. The AfCFTA expects member countries to publish trade related regulations and procedures. According to researchers from the Canada-based think tank, the International Institute for Sustainable Development (IISD), this is indispensable for an inclusive and transparent framework to ensure that interests of different energy stakeholders in the region are aligned². One area that needs harmonization is accounting. Within ECOWAS, accounting standards vary widely. English- speaking countries have their own domestic rules, while French speaking have the OHADA (Organization for the Harmonization of Business Law in Africa Translated from French). OAHDA is a treaty between 17 countries (mainly French Speaking in West and Central Africa).

OHADA contains accounting norms, business law and conflict arbitration and resolution mechanisms. On the other hand, some countries in the region have adopted and make significant progress in the implementation of International Financial Reporting Standards (IFRS). Although OHADA has strived to align it norms to IFRS, many of its rules have become obsolete. The Association of Chartered Certified Accountants (ACCA) has identified variation in laws, standards and policies as important barriers to trade. For the ACCA, accounting has an overarching function in the AfCFTA, notably as a connector whose functions fuel the interdependencies and interplay of key players in driving trade integration and sustainability on the continent.

Finally, on the opportunities offered by digitalization, there are synergies in the objectives. ECOWAS has established a department of infrastructure, energy and digitalization, while AfCFTA set up digital “AfCFTA Hub” platform. The objective is the same, grow trade in all economic sector through digital transformation. In February 2020, the AU Assembly issued protocol on digital trade which is now an integral part of the AfCFTA Agreement.

Furthermore, in May 2021, the AU Council of Ministers established the committee on digital trade to coordinate and facilitate the negotiations of the protocol on digital trade under the AfCFTA. According the Overseas Development Institute (ODI), the AfCFTA protocol on digital trade could provide a framework for the convergence of domestic and regional policies. The ODI thinks that a deep agreement with binding and enforceable provisions could provide a significant boost to continental integration in general, and the digital economy in particular³. Cross-border electricity trade within WAPP stand to gain from digital transformation through access to and transparency of market data, improved efficiency, cost reduction, and enhanced customer experience.

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