good governance in national electricity sectors, main factor for

07/07/2009
TABLE OF CONTENTS
PRESENTATION PROPOSED FOR THE 16th UPDEA CONGRESS
1. Synopsis
2. Introduction
3. Sonelgaz Group
TOPIC:
GOOD GOVERNANCE IN NATIONAL ELECTRICITY SECTORS,
MAIN FACTOR FOR ACHIEVING ACCESS TO ELECTRICITY FOR
ALL AFRICAN PEOPLES
BY
Mitiche Rédha El Hadi
Historical Background (main dates)
Evolution of some Physical and Financial Indicators
4. The Law on Electricity and Pipeline Gas Distribution
5. Restructuring of Sonelgaz
6. Sonelgaz Funding Policy
7. Development Programmes and Their Funding
8. Funding of Public Programmes
9. Good Governance Elements
10. Medium-term Prospects
11. Conclusion
Director of Financial Affairs and Commitments
Executive DIRECTORATE, Finance and Accounting Branch
2. Introduction
1. Synopsis
The sector of energy and namely the electricity sector play a leading development role in the economic
environment in the sense that its development conditions the soar of a whole country’s economic growth. That’s
why good governance in national energy (electric and gas) sectors is of a particular importance given its spill-over
effects in terms of democratisation of the access to electrical power and gas supply.
Being a highly capitalistic sector, it calls for a sustained and continuous investment effort covering the maximum of
regions. Sometimes, this effort calls for a restructuring of electricity companies which acts an engine for growth.
From this point, it is worth reviewing and commenting in this presentation the experience of SONELGAZ in terms
of effectiveness of the restructuring efforts conducted in 2004-2006 as well as in terms of financial policy enforced
and means deployed to ensure access to funding and thus be able to cover most of its investment programme.
The new energy policy advocated by Algeria stems from a global strategy which is in line with the reforms initiated
since 1986, the main objectives are as follows:
This presentation deals with the financial policy followed by Sonelgaz group and the funding facilities set up at
different times to sustain the ceaseless investment effort undertaken for some years now and which accounts on
average for 70-80 percent of the turnover achieved over the past few years.
Through the financial policy promoted by the group, we can list the financial means the Group was able to access.
They range from loans contracted with International Financial Institutions to local and foreign banks’ commercial
loans, governemental allocations for development programmes, resorting to bond markets and, finally, to funding
through Treasury funds.
The aspects dealt with in my presentation will also address the types of funding used as well as the financial
conditions secured which share a common feature, that is being in adequacy with the specificity of the
investments; the said investments are most of time profitable over the long term without jeopardizing the financial
balance of the group.
SONELGAZ leading player in this dynamics: transition from an economic development model based on centralized
planning to a market economy the fundamentals of which are free enterprise and competition.
In a bid to avoid lagging behind, we had to initiate a quick restructuring made necessary by the February 2002 Law
on Energy.
The target fully met with thorough transformation of SONELGAZ from a vertically-integrated enterprise into a
group of incorporated companies comprising a parent company and branches of which it is the majority or sole
shareholder.
Concurrently, the pace of development was maintained through the achievement of the investments planned
through an adequate financing policy and negotiated as well as appropriate funding terms and conditions.
The presentation will deal with these two key aspects, that is:
the development and diversification of State incomes
the greater job creation by increasing the training standards
the reinforcement of the engine role the energy sector plays
the upholding of public interest by preserving the notion of public service
the exploitation of opportunity niches induced by globalisation
SONELGAZ’s adjustment to the new context fostered by the Law on Energy by establishing good
governance instruments
The financial policy enforced at different periods and its consequences in terms of financial means
made available to meet investment needs
As a result of the exerted efforts: some achievements having a direct impact on the population in the field of rural
electrification and public distribution; these achievements do reflect Algeria’s genuine efforts made to popularize
the access to energy for all.
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07/07/2009
3. Sonelgaz Group: Historical
Background (1/2)
1946: Act # 46-628 of April 8, 1946 on the nationalisation of electricity and
gas
1947: Implementing order applicable to Algeria of the Act dated April 8, 1946
(creation of Electricity and Gas of Algeria – EGA)
1962: Independence of Algeria
1969: Order # 69-5 signed on January 30, 1969 dismantling EGA
establishing SONELGAZ (National Electricity and Gas Utility)
1983: In the framework of the restructuring of Sonelgaz: externalisation of
activities and work performance by establishing 6 companies in charge of
works
1991: Modification of the legal status and transformation of SONELGAZ into
an EPIC (Public Trading Enterprise)
1995: Publication of the statutes of SONELGAZ as an Epic
1996: Financial improvement of SONELGAZ
1999: Establishment of subsidiaries assigned with handling SONELGAZ’s
ancillary activities, with the emergence of peripheral subsidiaries
3. Sonelgaz Group: Evolution of
some Physical and Financial Indicators
A nnée
U n ité
1970
1980
1990
2005
2006
2007
P ro d u ctio n é lec .
S o n elg a z
P ro d u ctio n é lec .
P ro d . ind é p e n d
C a p a cité
in sta llé e
C lien ts
élec tric ité
C lien ts
Gaz
R é sea u
élec tric ité
R é sea u
Gaz
V en tes
élec tric ité
V en tes
Gaz
C h iffre
d ’a ffa ire s
In v estisse m e n t
Twh
1 .6 9
6 .2 2
1 5 .4 5
3 2.48
2 8 .8 8
2 7 .8 8
Twh
-
-
-
1 .1 6
6 .1 5
9 .1 9
MW
650
1 8 52
4 567
7 4 92
7 939
8 382
En
m illier
En
m illier
Km
720
1 6 03
3 159
5 6 02
5 827
6 002
182
402
854
2 0 17
2 208
2 412
2 6 7 50
4 8 54 4
1 2 9 92 7
2 41 8 8 2
250 162
2 5 5 28 6
Km
2 574
7 5 62
1 3 3 78
3 5 77 8
4 0 1 66
4 5 3 33
Twh
1 .5 1
5 .4 5
1 3 .0 1
2 7.32
2 8 .6 2
3 0 .3 2
M illia rd
Th
M illion
DA
M illion
DA
2 .7 4
1 5 .19
2 7 .7 7
5 5.20
5 8 .5 5
6 4 .1 0
307
1 3 00
4 200
1 00 7 7 0
1 1 4 64 4
1 1 6 85 9
292
2 7 00
5 400
8 6 24 0
9 3 5 51
1 3 4 86 5
R atio
in v es t./C .A .
%
9 5 .1 %
207 %
128 %
8 5 .5 8 %
8 1 .6 0 %
1 1 5 .4 %
3. Sonelgaz Group: Historical
Background (2/2)
2002: Enactment of the Law on electricity and pipeline gas-supply
and the change of SONELGAZ into a full-fledged incorporated
power production company (Spa)
2004: Setting up of three branches dealing with baseline activities:
Sonelgaz Electricity Production (SPE), Electricity Conveyance
Network Management (GRTE) and Gas Transportation Network
Management (GRTG)
2006: Setting up of four distribution branches: Sonelgaz Distribution
Alger (SDA), Sonelgaz Distribution Centre (SDC), Sonelgaz
Distribution Est (SDE) et Sonelgaz Distribution Ouest (SDO) jointly
with the transformation of the System operator (OS)
2007: Constitution of a group of enterprises a common corporate
taxation system with a parent company and 7 branches called
baseline companies
2008: Completion of the restructuring process with the creation of
branch-specific Information and Engineering Systems
4. Law on Electricity and Pipeline Gas-supply
Enactment of Act # 2-01 on February 05, 2002 on Electricity and
Pipeline Gas-supply. It enshrines the:
- opening of the production business line to competition and private
investment
- opening of distribution to concession systems.
- setting up of a independent regulatory authority, CREG which sees to
the effective operation of the power and gas market.
- setting up of a market operator
- free access of third parties to networks
- the notion of eligible client, while maintaining State guarantee as
regards public utility.
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07/07/2009
Target-oriented Flowchart for the Structuring
of the New Electricity Institutional Framework
Ministère Energie
et Mines
Target-oriented Flowchart for the Structuring
of the New Gas Institutional Framework
Ministère
Energie et Mines
CREG
CREG
PRODUCTEURS
Producteur 1
Producteur 2
Producteur n
GRTG
(gestionnaire réseau transport gaz)
Traders
Opérateur Système + Gestionnaire Réseau
Transport Electricité + Opérateur Marché
Traders
Distributeur 1
Distribution 1
Distribution 2
Distributeur 2
Clients éligibles
Clients
éligibles
Clients captifs
Organisation Chart of Sonelgaz Group
AG/CA
SONELGAZ CHAIRMANSHIP
The process started by the transformation of Sonelgaz into an incorporated company in June 2002.
SOCIAL PARTNERS
Clients captifs
Clients captifs
Clients
éligibles
5.Restructuring of Sonelgaz
Distributeur n
Distribution n
January 2004: baseline activities assigned to subsidiaries specialised in electric power production, electricity and
gas conveyance networks management which respectively gave life to three subsidiaries (SPE) on January 1st, 2004
(Sonelgaz Electricity Production), GRTE (Sonelgaz Electricity Conveyance) and GRTG (Sonelgaz Gas
Transportation).
Given its complexity and the stakes involved (main supplier of funds for the enterprise), the reorganisation of
distribution went through a transitional phase where the business was organised around four regional general
directorates in order to lead
In January 2006 to the setting up of four distribution subsidiaries, each covering a given region (SDA, SDC, SDO et
SDE).
EXECUTIVE COMMITTEE
COMMITTEES
GENERAL SECRETARY
EXECUTIVE DIRECTORATE – HUMAN RESOURCES
INDUSTRIAL SAFETY PREVENTION
EXECUTIVE DIRECTORATE – FINANCES AND ACCOUNTS
FEMALE EMPLOYEMNT OBSERVATORY
GENERAL DIRECTORATE - DEVELOPMENT & STRATEGY
LEGAL ASSISTANT
INFORMATION SYSTEMS DIRECTORATE
INTERNATIONAL RELATIONS
MANAGEMENT AUDITING DIRECTORATE
PRESS LIAISON OFFICER
TECHNICAL AUDITING DIRECTORATE
ENGINEERING DIRECTORATE
SUBSIDIARIES
At the same time, the System Operator was turned into a subsidiary whose key mission is to ensure the stability of
the production-conveyance system.
January 2006: reintegration of five big engineering companies into Sonelgaz.
2007 witnessed the transition from subsidiary establishment to the creation of the new audit division within the
parent company.
In 2008: preparation to turn the information system business line a subsidiary in charge of developing and
implementing the information system policy in line with the group’s global strategy and the engineering business.
This evolution in the organisation of Sonelgaz into an industry group and the creation of legally autonomous entities
(corporations) favours the development contractual relationships and, therefore, a greater transparency and cost
control.
Managing Director
Baseline business
CAMEG
SKMK
MEI
TRANSMEX
SAT INFO
Managing Director
Production
Managing Director
Distribution
Managing Director
Transport
Engineering
Coordinator
SPE
SD EST
GRTE
KAHRAKIB
SKS
SD ALGER
GRTG
KANAGHAZ
SKB
SD CENTRE
SYSTEM OPERATOR
SKD
SD OUEST
KAHRIF
ETTERKIB
SKT
INERGA
SCI AMAL
MPV
FOSC
SMT
PARTICIPATIONS
HMP
ALGESCO
SKH
AEC
SAFIR
SOMITRA
NEAL
SIMAS
ST
CREDEG
SPAS
IFEG
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07/07/2009
6. Sonelgaz Funding Policy (1/3)
Situation prior to 1996
Period characterised by the continuation of a high investment pace
in relation to a relatively low turnover,
6. Sonelgaz Funding Policy (2/3)
1996 Financial Improvement
Improvement was made possible through a set of measures enabling the
capitalisation of a sum total of DA 66.2 trillion, that is USD 1.2 billion.
Improvement measures carried out:
Financial imbalance of Sonelgaz namely because of :
A definitely unsustainable indebtedness exacerbated by the
successive devaluations of the national currency
Prices frozen at low level over a long time before proceeding to
substantial adjustments by the end of the period
All these measures allowed to Company to generate:
From 1997, Sonelgaz regained a financial balance that
was made possible thanks to a substantial contribution
of the Company to the tune of 40 percent for selffinancing.
This period also characterised by State divestiture and a
diversification of Sonelgaz’s funding sources
As a result of the improvement arrived at:
There was an early repayment expensive debts which led to the
repayment of all the internal (local - BNA) debt with high interest
rates.
A level of equity equivalent to 60 % of its assets
A net positive working capital of DA 7 billion or so in 1997
A net cash flow net worth approximately 15 % of self-financing
7. The Funding of Development Programmes (1/4 )
Sonelgaz Funding Policy (3/3)
Post-improvement
capitalisation of the ADB liability amounting to DA 36,3 billion
capitalisation of previous draft repurchase at DA 21,4 billion
capitalisation of a bank draft over the year 1996 amounting to DA 6,5 billion
Payment of DA 2 billion as a VAT deduction by the Treasury
Period prior to 2001
Characterised by investments largely exceeding the turnover, and
by the divestiture of the State from investment programme funding.
The funding solicited during this period included:
- Traditional funding such as supplier’s and buyer's credits used for
equipment procurement in foreign exchange with relatively short (4 to 5
years) repayment time at average rates of 7-9 percent with a
guarantee issued by loan-insurance institution.
- The amounts of the loans granted by local banks were limited (4-5 DA
billion), with an average repayment term of 7-9 years and an interest
rate as high as 18 percent.
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07/07/2009
7. The Funding of Development Programmes (2/4)
The loans contracted from international financial Institutions were by far the
most advantageous. They share the following features:
As a consequence of this increased trend to resort to institutional loans:
Large amount that could be tantamount to over USD 100 million,
Relatively long repayment periods, 15 -20 years
Relatively low interest rate ranging between 4 and 7 %.
A comprehensive project strategy was developed to get substantial amounts
The debt spread over a long term
Familiarization to the procurement procedures applicable in these institutions and positive
impact on the existing procedures followed at SONELGAZ.
This period was characterised by the implementation of various credit agreements:
A global amount of more than US$ 1 billion
Terms of repayment averaging 15-20 years
Rates varying from 3.5-6.5 %.
The Funding of Development Programmes (3/4)
The framework agreements with commercial banks:
Improvement in SONELGAZ’s financial situation towards the end
of the 1990s.
Divestiture of the State
SONELGAZ has to look for funding from commercial banks that
do not require State guarantee.
Several funding and framework agreements were concluded with
banks of international repute for more than Euros 800 million.
The strategy consists in signing comprehensive framework
agreements without any commitment from both parties that could
be solicited to fund some of SONELGAZ’s acquisitions, with the
advantage of not requiring either bank or sovereign guarantees.
Main Loans Secured from Financial Institutions
Institution
Montant (en usd) Durée (ans)
Taux (%)
FADES
FSD
FAD
BID
BIRD
BEI
BAD
TOTAL
500 000 000
22 000 000
20 000 000
175 000 000
160 000 000
70 000 000
129 000 000
1 076 000 000
4,5
4,0
3,5
6,5 (taux moyen)
6,5 (variable)
5,8
Entre 7,5 % et 4%
17,5 + 5 (différé)
15 + 5 (différé)
11 + 4 (différé)
10 + 3 (différé)
10 + 5 (différé)
13 + 2 (différé)
15 + 5 (différé)
Main Credit Lines
Banque
Pays
Montant
HVB
Allemagne
NATEXIS
France
FORTIS
Belgique
ABN AMRO
Hollande
HSC/CCF
Royaume Uni
Société
Générale
France
100 millions
euro
100 millions
euro
100 millions
euro
200 millions
euro
200 millions
euro
100 millions
euro
TOTAL
Date de
signature
Observation
Uni source
9/03/2003
Multisource
25/05/2003
Multisource
6/08/2003
Multisource
6/08/2003
Multisource
6/08/2003
Uni source
800 millions
euro
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07/07/2009
7. The Funding of Development Programmes (4/4)
2001 – 2008 Period
Characterised by:
A sustained investment pace
An even more significant requirement for financial resources.
Doubling the current productive capacities
Upgrading to the 400-KV voltage conveyance network in the context of EuroMaghreb interconnection.
Resorting to Bond Market
The fact of resorting to bond market materialized in the initiation of 4
bonded loan operations on the national market for a global amount of DA
57,5 trillion, that is, US$ 790 million.
The loans were levied between December 2004 and March 2006.
Among these operations, a general public loan allowed the borrowing of DA
16 billion, that is, US$ 220 million within no time (less than three weeks).
The subscribed bonds present the following features:
What is more:
Public authorities will to put an end to leveraging
Saturation of Algerian public banks in terms of commitments (risk sharing ratio)
With regard to the foregoing, Sonelgaz has to consider other funding formulas,
hence:
resorting to bond market
resorting to funding out of the Treasury’s lines of credit.
Resorting to Treasury Resources
Main Bonded Loan Operations
Emprunt institutionnel de décembre 2004 :
Tranche (maturité)
5 ans
6 ans
7 ans
Montant de l’emprunt
8 milliards DA
4 milliards DA
8 milliards DA
Taux (coupon)
3,00 %
3,25 %
3,50 %
fluctuating dates of maturity: 5-11 years
interest rates of 3-4.8 %
The main disadvantage remains the repayment in fine (the totality of the
subscribed amount) at the bond’s maturity date.
-
Assistance measures initiated by the State
in favour of the energy sector:
Emprunt institutionnel de mars 2005 :
Tranche (maturité)
9 ans
11 ans
Montant de l’emprunt
3,3 Milliards DA
4,9 Milliards DA
Taux (coupon)
-
the credit lines made available to operators through banks
with attractive conditions.
Taux (coupon)
évolutif de 3,50 à 7 %
-
This approach has enabled Sonelgaz to apply for DA 176
billion value of loans, that is, US$ 2.3 billion over a period of
17 years at an interest rate of 3.75 %.
4,00 %
4,20 %
Emprunt grand public de juin 2005 :
Tranche (maturité)
6 ans
Montant de l’emprunt
15,9 Milliards DA
Emprunt institutionnel de mai 2006 :
Tranche (maturité)
9 ans
11 ans
Montant de l’emprunt
6 milliards DA
5,6 milliards DA
Taux (coupon)
4,65 %
4,85 %
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8. State Programme Funding (Rural Electrification
and Public Distribution)
9.Good Governance Elements
The Governement subsidies are exclusively meant for rural electrification and public gas distribution programmes
Programmes determined by public authorities leading to agreements between the State and Sonelgaz.
Among the Sonelgaz Group’ strategic development foci, priority is given to internal growth and the
maintenance of productive investment.
A such, Sonelgaz is one of the privileged vehicle of the Government for the implementation of its sustainable
development policy through the implementation of programmes to ensure the access of large population sections
to electricity and gas supply.
This implies developing tools that will enable the group to be a reference in the field of good
governance.
Rural electrification: the public authorities’ will already displayed in 1965, considering rural electrification as the
engine for economic, social and cultural progress, has enabling the launching of various special programmes that
increased the electrification rate from 53% in 1975 to 90% in 1985 and 96% in 1995.
Hence the establishment of appropriate management procedures and systems.
Consequently, a general procurement procedure should be set up. This procedure integrates four
underlying principles of good governance , that are:
Public gas distribution: the real soar in public distribution was only perceptible from 1969, with an increased in
the number of subscribers from 200 000 in 1972 to 1.5 million in 2002. Currently, the rate of penetration for gas, is
around 40%, one of the highest in the world,.
Programmes for 2002 – 2010 : In the programmes identified by the Government over the period and translated
into funding agreements entered into between State and Sonelgaz the Government provided a 75% contribution
while Sonelgaz’s share amounts to 25%. The programmes initiated over the 2002-2010 period amount in terms of
value to DA 365 billion, that is US$ 4.8 billion and will permit eventually to:
The current economic condition is marked by the State’s financial affluence.
A sustained economic growth that could materialise in terms of even more substantial investment by Sonelgaz.
Greater resourcefulness in research and optimisation of funding sources.
Investment needs over the 2008-2012 period are estimated at DA 812 billion, that is US$ 12.5 (exchange rate: $1
for DA 65) broken down per business-line as follows:
Provide for 21, 000 km of distribution network and 374,000 connections to the electricity supply
Ensure supply to more than 1,000 localities by building a gas-supply network of 11,000 kms, a distribution network of 32,000 kms
and by connecting about 1.5 million to the gas-supply network
10. Medium-term Prospects
Production (inclusive of participations):
Electric power conveyance:
Gas transportation:
Distribution:
TOTAL:
DA
DA
DA
DA
DA
282,66 billion Milliards DA
206,53 billion
119,05 billion
203,98 billion
812,22 billion
the promotion of competition: by systematically resorting to competitive bidding procedures
the guarantee of fair treatment for all bidders: through the opening of tenders in the presence of the
bidders
the transparency of procedures: repeated in the instructions issued to competitive bidders and part and
parcel of the specifications
Effective procurement and performance: planned in two phases. The first is a technical phase without
price indication during which a screening is made according to offer levels. The second phase which is
commercial consists in opening commercial bids and selecting the lowest bidder.
11.Conclusion
The actions undertaken over the past years by Sonelgaz group have not
only permitted to restructure Sonelgaz as into an industry group but also to
sustain the development effort maintaining the investment level high.
In the prospect of the complete opening of the energy market to new public
and private operators, Sonelgaz should find other alternatives to implement
its development programme while combining competitiveness with its
mission as a public utility.
This necessarily requires the:
All the funding sources should be mobilised to cover this ambitious programme through:
Self-financing
Bank loans
Resorting to bond market
User participation
State subsidies for governmental programmes
Resorting to partnerships for equity investment in project companies for power plants.
optimisation of funding sources
optimisation of a policy of concurrent maintenance of the productive facilities and
networks
Cost control
Generalisation at all levels of best corporate governance practices.
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