The human cost of business in North Africa

In geopolitical terms, it was a lifetime ago… when Col. Muammar Gaddafi was just about tolerated (responsible as he was for 10% of Italy’s natural gas), the European Investment Bank was lending 313 million euros to Tunisia for public transit and energy infrastructure projects and Mubarak’s Egypt was tendering for the country’s first tranche of (four) nuclear power stations.

But it was only late January / early February – a mere five months ago, when efficiency savings was on everyone’s lips, but next to nowhere was it practised. Despite decades of international dialogue and declarations, our future is still stubbornly fossil-fuel-based, with sustainability considerations seemingly no more than a speed-bump to business-as-usual. It was under this guise that the participants gathered for The French Institute of International Relations annual energy conference in Brussels.

Top and tailed with remarks by the President of the European Council and the European Commissioner for Energy, it fell to Jean-Michel Charpin, the Inspecteur Général des Finances within France’s Ministère de l’Économie to outline the prejudices, politics and patience required to reach profitability in North Africa. Owing to understated(!) management complexity, market price uncertainty, and the difficulty of breaking even,  successful business plans were slow to progress. [General dysfunction within the Union for the Mediterranean, and further set-backs in the Arab-Israeli peace process likely did not help matters].

Credit: Pierre Charpin. Image: Institute Français de Relations International.

For illustration purposes, Charpin diagrammatically shared an example financial statement for concentrating solar power (CSP) in North Africa (see figure). With a levelised cost of energy (LCOE — see text box) of 20.5 Euros cents per kilowatt-hour (c€/kwh), CSP has the lowest costs of the available solar electricity technologies, with energy payback periods of a year or less. However, for this business plan to be viable, and the costs to be competitive with conventional electricity production cost (~6 c€/kwh), an extra-ordinary, multi-lateral combination of loans, concessions, risk hedging, and export incentives were necessary. Even so, in this example, the power purchase agreement (PPA) price is 50% more expensive than the market price. Profitability, though tenuous, is possible, Charpin suggested, although patience is essential.

More energy falls on the world’s deserts in six hours than the world consumes in a year

That was of course just before the Arab Awakening, meltdown within the Fukushima Daiichi nuclear reactors, and consequently Germany’s, Switzerland’s and Italy’s rejection of nuclear power. Mindful of the opportunities presented by change, and courtesy of an expensive public-relations exercise, there is a lot of renewed buzz about Mediterranean solar plans.

Owing to its proximity to Europe, and the enormous amount of solar energy falling on the Mediterranean southern rim, a number of ambitious renewable energy initiatives have been proposed for the desert regions bordering the Sahara Desert eco-region (see text box). Proponents  argue that only a tiny fraction of the desert would be required to meet a significant portion of the Middle East’s and North Africa’s electricity demand by 2050, as well as a fraction of Europe’s.

The policy instrument which offers EU Member States to fulfil their obligations by importing renewable energy from third countries is Article 9 of the Directive 2009/28/EC of the European Parliament and the Council on the promotion of the use of energy from renewable source. Although serious challenges remain for the organisers, and the only evidence on the ground of their ambitions is a five megawatt demonstration project at Ouarzazate in Morocco, the directive’s mandatory target of 20% energy from renewable sources is focusing minds on turning these grand visions into reality.

The most heavily promoted of the ambitious enterprises is the Desertec Industry Initiative (Dii). As followers of energy developments will likely already be aware, Desertec has the much heralded aim of turning countries in the Middle East (Jordan) and North Africa (Morocco, Algeria, Tunisia, Egypt) into solar and wind power producers for the European-Mediterranean region. Although Dii is at pains to emphasise its motives are honourable, the hitherto narrow pursuit of profitability by multi-national companies at the expense of democracy in North Africa isn’t likely to be quickly forgotten.

Parabolic trough, concentrating solar power thermal-electric plant. Image: kjkolb CC:BY SA2.5.

Though laudable in its renewable energy aims, Desertec is essentially the same extractive business model pursued in the grand hydropower projects in Ethiopia and the Democratic Republic of Congo, by Nigeria’s oil and natural gas industry and in the uranium mines of Namibia and Niger. Instead of focusing on local capacity-building, the extraction of natural resources transforms the local communities into passive consumers, whilst (arguably) the bulk of the profits flow overseas, or into the pockets of a few warloads and local government officials. As a result, the countries that were once rich in natural resources, tend to be left with under-performing economies, higher incidences of violent conflict and human rights abuses, and poor governance.

It’s also worrying that the structural stability and orderly determinism now nascent in North Africa should be of secondary importance to financial priority. Trying to jam the lid back on young Arabs’ manifest discontents, in the pursuit of short-sighted profit “realism”, without adequate consideration of the social and environmental consequences, is merely to trade bad trouble today for worse tomorrow.

Paul van Son, Dii CEO

This may seem like a trivial issue, but it is not. Nations thrive or languish usually not because of one big bad decision, but because of thousands of small bad ones – decisions where priorities get lost and resources misallocated, so that the nation’s full potential cannot be nurtured and it ends up being less than the sum of its parts.

The neo-colonial development failures of Côte d’Ivoire and Afghanistan are cases in point. Democracy proselytisation that fetishised presidential elections, but left term limits, the balance of powers, and the strengthening of legislatures by the wayside have distinguished Côte d’Ivoire and Afghanistan for their dysfunctional governance structures and entrenched networks of corruption.

To avoid accusations of economic imperialism, multi-stakeholder dialogue and bottom-up engagement approaches by the North Africa community need to be promoted as a matter of urgency! Furthermore, transparency and education initiatives, such as the Extractive Industries Transparency Initiative (EITI), which assist in strengthening accountability and good governance, as well as promoting greater economic and political stability, should be adopted and participated in. At present, of the Dii shareholders and associated partners, only RWE Energy actively participates in the EITI process (see table).

Only RWE actively participates in the EITI process. You'd expect better from international financial institutions like Deutsch Bank and Munich Re, and multi-national brands like E.ON, Siemens and Deloitte.

None of the Middle East and North African countries involved in Desertec participate in EITI either. This is lamentable as implementing countries provide a clear signal to investors and international financial institutions that they are committed to greater transparency and long-term stability, whilst participating companies benefit from a level playing field and mitigated political and reputational risks.

Planning with the people, not for the people

It is not yet clear that the EU is equal to the events in the Arab world. A more human approach to nation-building is needed, one that does not aim to fulfil the quixotic visions of unaccountable chieftains and multi-national companies, but one that originates from the local communities and meets the needs of the people who personally sacrificed for greater public equity and representation.

With respect to energy: the question remains, how do we organise a turnaround in European energy provision from exploitive, inefficient and carbon-intensive energy production modes towards more sustainable, efficient, and intelligent energy supply? As a start, it is imperative that we become more discerning of how our energy is sourced, with a human economy geared to the ecological and social realities. For the citizens of the countries whose natural resources we are dependent on, and whose hopes, circumstances and future are interwoven with ours, I cannot imagine anything more difficult or desolate than to be facing a liberal democracies-sanctioned return to authoritarian corruption and stagnation at the hands of unscrupulous industrialists.

It doesn’t have to be this way. As we have found ourselves on the wrong side of history in the revolutions in North Africa, we should urgently and genuinely re-establish the respect for good governance and basic civil rights in our overseas energy interests. For some, a more coherent and effective EU foreign policy wrought by the Lisbon Treaty, and the creation of the European External Action Service (EEAS), could not come soon enough.

About Paul Parrish

Paul was the Policy and Advocacy Officer of the Sustainable Energy Security programme between November 2010 and November 2012.

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