Monday, December 29, 2008

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Different sources of electricity in Cameroon

production means the quantity of electricity generated by any means and any ancillary transport activity to the high voltage busbar positions of power. Source of production comes from hydropower and thermal power.

Hydropower is almost 95% of electricity production in Cameroon, and Sanaga River [1] is the main source of production. On its course, dams are built Song-Loulou, which has a capacity of 390 MW, and Edea, whose capacity was about 263 MW. Of dams, (Mape, and Bamendjin Mbakaou) were constructed upstream of the Sanaga to regulate its price in periods of low flow. The total capacity of these dams is about 7.8 billion m3.

During 2001/2002, the total capacity of these dams has risen to 5.1 billion m3, down from 3.7 billion m3. There has been gradually increasing this capacity in 2002/2003, but the level reached was lower than the year 2000/2001. The direct consequence was the decline in electricity production. The figure below shows the changes in the production of electricity from two main sources, namely hydro and thermal.
[1] During the dry season, the natural flow of the Sanaga can drop 5000m3 / 80m3 S / S.
There is a decline in electricity production in 2002/2003 following the decrease in flow of the Sanaga River. The direct consequence was the decline in production from hydropower. It also notes an increase in production in 2003/2004. This upgrading of the production is partly due to increased production of thermal origin in early 2003.

Increased electricity generation from this source overcomes the shortcomings can be observed in periods of low flows. It is one of the priorities of AES-Sonel who in two years, has built new power plants in Yaounde (Oyomabang) Douala (Log-Baba Bassa and IIIB) and Bafoussam for additional production of 47 MW. The total cost of these investments was estimated at 35 billion FCFA. In addition, the company has invested nearly 25 billion CFA francs in the construction of a power of 80 MW Limbe running on heavy fuel and is already operational. The AES-Sonel also intends to build a gas power plant of 150 MW will be operational in 2006. In addition, 64 billion CFA francs were invested in the year 2004 and CFAF 30 billion will be injected in 2005 to improve the functioning of the network.

Saturday, December 27, 2008

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Measuring the Welfare?

This can be done from a function of social welfare or social surplus.

measurement from a function welfare
A social utility function is a rule or group aggregate levels of individual welfare. Consider the following program is to maximize social welfare:


Let the consumption vector of consumer i and , the vector of available resources.

If you look at a variation of the initial resources , with corresponding changes in consumption , with prices constant, the resolution of this program leads to the result below:

This result shows that the change in welfare is equal to the variation of resources weighted by price.

Measuring the social surplus
This method is to calculate the social surplus from the cost functions and demand. The surplus Social is defined as the sum of consumer surplus and producer surplus. The method of calculating the social surplus and the loss of welfare due to monopoly is shown in the figure below.
The pricing at marginal cost (MC) is the point F defined by the OA and the price level of output Q *. In this situation, the monopoly was forced to sell at a loss. He recorded a deficit equal to fixed costs ABCD.

The pricing of the average cost is the intersection of the curve of average revenue and average cost (C). This second situation is more favorable the producer than the last, as it covers its production costs, but it causes the decrease in welfare for the community. Indeed, passing from F to C, the consumer surplus is reduced by the surface of the trapezium AFCD, while producer surplus is increased by the rectangle ABCD. The net loss of welfare is the triangle BFC.

Wednesday, December 10, 2008

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Electricity demand in Cameroon

The evolution of the total number of subscribers is préssentée in the table below

This table shows an increase total subscribers over time. It is noted that before privatization, consumers were grouped into three categories: Consumers in low voltage, medium voltage and high voltage. Subscribers to the low voltage class represent more than 95% of the total number of subscribers.

After privatization, we find that low-voltage, 89% of customers use electricity for exclusively domestic, 10% are business subscribers and subscribers using 1% of electricity for public lighting . Medium-voltage, over 85% of the subscribers belong to general scheme. Regarding the high voltage, five subscribers are classified in this category it is mainly ALUCAM SOCATRAL, PPC (ex CELLUCAM), and CIMENCAM CICAM.

The distribution of consumption will be presented following types of voltage: low voltage (LV), medium voltage (MV) and high voltage (HV). The figure below shows this distribution.

The total electricity consumption has increased over time and with the number of subscribers. It is found that consumption of high-voltage customers representing over half the consumption total each year. The annual consumption of subscribers at low voltage is about 25% of total consumption, and that of the middle class subscribers voltage is about 23%.

Moreover, consumption in domestic use, professional and public lighting are proportional respectively to 66%, 32% and 2% of total consumption low voltage. Average voltage, 57% of total consumption is allocated to the general system subscribers.

After the privatization of SONEL, electricity consumption increased at the same time that tariffs; figure below shows this trend.

We can see that the total electricity consumption has increased substantially after privatization, and coincided with increased rates of consumer categories low and medium voltage. However, rates for subscribers of high-voltage class have not suffered a significant increase, although they consume more than half of electricity generated.

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The optimum consumer

The goal of rational consumer is to maximize its usefulness in its budget constraint. Suppose that consumes an amount Electricity x1 x2 and a quantity of other goods, the problem can be written as:

The budget constraint or budget line defines a line in the plane (x1, x2). Solving this program yields the optimal quantities of electricity x * 1 x * 2 and other goods that maximize consumer utility.
Graphically, this optimum can be characterized as follows:

This figure characterizes the optimum of the consumer. The utility is maximized point of tangency of the curve and the budget line. The pair (x * 1, x * 2) represents this optimum. It also shows that the increase in electricity consumption would automatically lead to reduced consumption of other goods, so that the budget constraint is saturated.

This defines the demand function of a property. The figure below shows the demand function of good X1.

function of electricity demand expresses the optimal choice of the consumer depending on the price of electricity and how much income it provides. The demand curve is an inverse relationship between the quantity of electricity consumed and its price.

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The optimum power producer monopoly: evidence from the case of SONEL

The problem of the producer is to determine the quantity Q that maximizes its profit (the difference between its revenues and its cost of production). Profit л (Q) = PQ - TC is a function of the quantity produced. Its maximization leads to equal marginal revenue and marginal cost. The selected production is thus defined by this equality. The figure below shows this equilibrium.

The function Q (P) which combines the selling price the amount produced is called supply function of the company. She is represented by the portion of the marginal cost curve lying above the average cost curve (MC). Is an increasing function of price.

A monopoly operates so at a point where price is above marginal cost, whereas a competitive firm operates at a point where price is set at marginal cost. Monopoly, as is the case for AES-Sonel, the price will be higher and output lower (PM and QM), whereas in a competitive situation (P * and Q *) is the otherwise. The consequence is that electricity consumers will benefit from a lower level of satisfaction when the sector is organized as a monopoly rather than as competitive.

Tuesday, November 25, 2008

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relationship ARSEL - AES-Sonel



1. The power control ARSEL
To ensure effective management of the sector, a link is established between the company and the Agency, which has within its powers, a general power of control.
Through this control and from the exercise office opened in 2002, SONEL promptly communicate to the Agency, then on an annual basis, an estimate of production capacity, transmission and distribution connected to the network and an analysis of interconnection requirements with other networks, with potential capacity of transportation and control of electricity over a period of ten years it will update and circulate to the Agency annually.

SONEL also communicate to the Agency the following documents:
i) An estimate of slipping demand for electricity over three years, updated annually ;
ii) An investment program into a source of electricity supply rolling three-year updated annually, mentioning all the supplies that the company deems necessary to satisfy its obligations to sell electricity
iii ) An annual report including an operating management report, a technical report and a report showing the performance monitoring of compliance with quality standards, and
iv) A financial plan five-year rolling updated annually .
Furthermore, SONEL notify the Agency will make available any person making the application rates or formulas applicable tariff and the main conditions of service. It will also have access, through its supervisory duties, any premises, facilities or production sites SONEL upon his request to it.

2. Fare rules
The principles of pricing in the electricity sector are defined in the framework of concession contracts and licensing of operators. Concession contracts, licenses and authorizations set the rules and conditions for changes in rates.

rules change to the rates subject reviewed every five years or, exceptionally, before the expiry of that period, if significant changes in operating conditions, or because of events substantially altering the economic environment in which financial or technical concession contracts or licenses have been established. Moreover, price revisions are made by the Agency on the basis of principles designed to allow the operator a reasonable profit in normal activities. These rules are similar to the price-cap regulation, which focuses on the adjustment future prices to reflect changes in consumer prices. This formula was applied in Great Britain after the privatization of public services. The formula pricing allowed these companies to increase their tariffs by an amount equal to the inflation rate minus one percentage reflects the potential increase in business productivity.

In addition, it will be necessary to revise tariffs for low voltage and medium voltage in the event that revenues earned by SONEL under these rates do not follow the formulas of Fee . However, if adjustment of at least ten percent of retail prices for low voltage and medium voltage, the Agency may, in exceptional circumstances to oppose the tariff revision proposed by SONEL.

Source: My DEA

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The regulation of the sector Electricity in Cameroon: Presentation of the ARSEL and missions

1. The presentation of ARSEL
The regulation of the electricity sector in Cameroon is provided by the Agency for Regulation of Electricity Sector (ARSEL) that was created during the reform of the sector following Law No. 98-22, December 24, 1998. The

ARSEL is a public institution with legal personality and financial autonomy. It ensures the regulation, control and monitor the activities of operators and operators of the electricity sector. Resources Agency, under section 43 of the Act comes from a portion of the levy on securities, the proceeds of fines and donations and bequests.

The Agency is vested with the broadest powers of investigation, monitoring and sanctions, so that the officers or legal representatives of power companies provide him any information it deems necessary. In addition, the Agency and its employees are required to respect the confidentiality of commercial information transmitted to them, on pain of prosecution for damages in court or other proceeding.

2. Missions ARSEL
Under Article 42 of the Act, the Agency is responsible for participating in the promotion of the rational development of the supply of electricity and promoting competition and private participation in production, transportation, distribution, import, export and sale of electric energy in an objective, transparent and non discriminatory. She is also responsible for ensuring the economic and financial balance of the electricity sector and the preservation of the economic conditions necessary for sustainability.

Regarding tariffs, the Agency implements and controls the tariff system established in accordance with the methods and procedures established by the Electricity Authority promotes the interests of consumers and protects their rights in terms of price, supply and quality of electric power.

By providing the sector was opened to independent operators, legal bases have been established. The regulatory agency must submit it for signature to the competent authority, after approval, concession contracts, as well as applications for licenses and permits them, but must also ensure compliance with conditions execution of such contracts. She is also responsible for enforcing legislation to protect the environment, and monitor the implementation of standards and measures by operators of the electricity sector. In case of violation of any provision by an operator, the Agency will apply the penalties provided for that purpose.

The regulatory agency is finally responsible for ensuring third party access to the transmission of electricity within the limits of available capacity, to arbitrate disputes between operators in the electricity sector on referral of the parties and contribute to the exercise of any public duties as assigned by the government on behalf of the state in the electricity sector.
Source : My DEA

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The different currents of thought of the economics of regulation

Four schools have laid the foundation for the regulations: the regulation of public economics, industrial economics of regulation, the new public economics of regulation and the institutional economics of regulation.

The public economics of regulation
The regulator's objective is economic efficiency. It is concerned with the general interest. The existence of failures (public goods, externalities, monopoly natural) market, highlighted in the context of economic well-being, justify government intervention. The State must by regulations, influence the behavior of firms and consumers (Pigou, 1932). His approach is prescriptive, it aims to achieve optimal resource allocation Pareto type (first best). The State is compelled either to difficulties in gathering information, either by limited computing capacity. It is therefore regarded as infallible.

Institutional economics of regulation
This school leaves open many solutions to address problems of externalities, natural monopolies or public goods, including the option of doing nothing when the remedy is more costly to society than the disease. She comes from the work of Coase (1960). He said the state must intervene at once to ensure the functioning of the economy by assigning initial property rights. The regulations can not impose that on two conditions: either the transaction costs and regulatory costs are lower than other solutions, whether those costs are outweighed by the benefits of the action itself. Indeed, regulation makes sense only if it allows efficient allocation of cost.

The industrial economy of regulation
The regulatory authority is venal and under the influence of lobbyists. It is no longer the guarantor of the general interest. The regulation is analyzed here as a service exchanged between policy makers and officials (suppliers) and business leaders (plaintiffs). The suppliers are seeking to maximize their chances of getting reelected or future positions in the industries they have under their tutelage. Applicants wishing to their part to protect themselves from competition, especially foreign. This approach is known as the theory of regulatory capture, because the controller becomes a fully agent serving corporate interests. To limit the action of pressure groups, Stigler (1971), advocated a radical solution that involves removing the state the right to regulate.

The new economics of public regulation
Proponents of this theory are Laffont and Tirole (1993). The idea is to analyze the failures of the legislature and correct, as the market is not the only source of shortcomings. The failures of regulation should be minimized in order to achieve a Pareto efficient allocation of second rank. The latter is the allocation of resources is the "best possible" given the existence of different constraints to achieve a Pareto optimum. These defects are mainly: the information asymmetry between the regulator and the regulated self-interest of the regulator, and its lack credibility. The theory of incentives and contracts overcomes these shortcomings.

Sunday, November 23, 2008

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Causes of regulation: an analysis in the electricity sector in Cameroon

regulation is justified by the presence of externalities, public goods, asymmetric information and natural monopoly. These defects are the cause of observed inefficiencies in the markets.

They say there are externalities when the actions of an agent directly influence choices (total production or consumption) of another agent (SALANIE, 1998). These actions are carried out of the market. Externalities are positive (negative) when the actions of an agent leads to an improvement (decrease) welfare of another agent.

The need for regulation is therefore required when externalities are negative. In the electricity sector in Cameroon, the importance of the regulator has been felt after the privatization of SONEL that the decline in production that was causing multiple power cuts have adversely affected the well- being of consumers.

Public goods are goods that, once created, are available to all unconditionally. They possess the double property of non-exclusion and non-rivalry (VARIAN, 2000). The first refers to the inability to exclude anyone from using a service, including individuals who do not contribute to its financing. The second reflects the fact that this property can be used simultaneously by multiple agents, without the amount consumed by one decreases the amount still available to others.

As a public good, electricity should be accessible to all individuals, which is unfortunately not the case, especially in rural areas. The role of the regulator in this sector is to promote universal access to electricity, so that nobody is excluded from the consumption of this good public utility.

The problem of information asymmetry is often observed in a relationship between two actors (both principal and agent) bound by a contract. This problem leads to adverse selection and moral hazard (VARIAN, 2000).

The moral hazard refers to situations where one party to a contract does not behave the way it has undertaken, and without the other party can stop him. This is called when a problem behavior''hidden''. Adverse selection refers to situations where one side of the market can not observe the''type''or quality of property located on the other side of the market. One speaks in this case a hidden problem''type''.

The problem of hidden behavior was observed after the privatization of SONEL. Indeed, the contract required the divestiture of AES-Sonel to invest in the sector in order to increase the supply of electricity. But the lack of investment caused a less rapid increase in production compared to the consumption, which has led to rationing.

A business is a natural monopoly when its average costs are decreasing (returns to scale) for any given level of output. In these circumstances, only one firm, satisfying all the demand will lower costs to two or more companies sharing the application. Formally, let q1, ... ..., qk production of k firms, such that q1 + q2 + ... + qk = Q if each firm has cost function C (qi), then C (Q) is strictly less than C (q1) + C (q2) + ... ... ... ... .... + C (qk). Such a cost function is said to be subadditive. This situation occurs in industrial activities, such as distribution of gas and electricity, which have high fixed costs. AES-Sonel

enjoys such a position in the electricity market in Cameroon, which should encourage them to set their prices equal to marginal cost and marginal revenue. To avoid this situation, which is beneficial to the company, the regulator's role is to force it to set rates that will provide him cover its costs.
Source: My DEA