Overcoming Corruption

Here's the final section of my paper on electrification that I wrote for the Alliance For Responsible Citizenship

.Tangled power lines in Beirut, June 23, 2021. (Joseph EID / AFP)

Greetings from London. I’m here for a remarkable conference that was put on by the Alliance For Responsible Citizenship. Today is the final day. Here is the final installment of the paper I wrote for the Alliance For Responsible Citizenship. If you want to read the entire report, it’s available here.

In February 2023, while the entire country of South Africa was enduring rolling blackouts lasting eight or more hours per day, Andre de Ruyter, the outgoing CEO of Eskom, alleged that the state-owned utility was losing $50 million per month to corruption.

For years, Eskom, which supplies more than 80% of the country’s electricity, has been dogged by allegations of mismanagement and corruption. But de Ruyter’s claims were notable because they were made by such a high-ranking official. The timing of his claims was also significant because de Ruyter made them just a few days after South Africa’s president, Cyril Ramaphosa, declared a state of disaster because of the electricity shortages, which he called an “existential threat” to the country’s ailing economy. Furthermore, de Ruyter’s allegations came at about the same time that South Africa’s 60 million people were being warned that power cuts could be increased from 8 hours per day to 12 hours per day.

According to the Associated Press, inquiries into allegations about corruption at Eskom have implicated senior officials within the country’s ruling African National Congress and former South African president, Jacob Zuma.

Two months after making the allegations, de Ruyter appeared virtually from an undisclosed location for a parliamentary inquiry into corruption at Eskom. De Ruyter said he was taking extra precautions during his testimony because, according to the Associated Press, “sources who had provided him with information had expressed fears for their safety.” De Ruyter himself told the investigators that the “criminal and unlawful activities that are currently under investigation are of a very sensitive and complex nature and they involve elements that are best characterized as organized crime.”

The problems in South Africa’s electric sector are all too common in developing countries. Nigeria, an oil-rich country where per capita electricity use is just 147 kilowatt-hours per year, provides another unfortunate example of the corruption that is stifling electrification.

In 2021, Nigeria’s “The Guardian” newspaper carried an article headlined, “Corruption is Nigeria’s power sector demon.” The article, written by Zuhumnan Dapel, a researcher at the Scottish Institute for Research in Economics, said “Nigeria is home to over 200 million people, yet 85 million of its inhabitants live without access to grid electricity. To put this into perspective, the country has installed electricity capacity at the same level as Edinburgh, the capital of Scotland, and a city of roughly half a million people. Why does Nigeria, which has almost 400 times more people than Scotland’s second-largest city, have such low levels of electricity access that claim its title as ‘the world’s most underpowered country.’” Dapel continued, noting that electricity shortages are so bad that:

“…approximately 60% of businesses in the country own and use electric generators (self-generating 59% of their total energy need, which is three times more expensive than from the public grid). Moreover, Nigerians spent $13 billion per year buying gasoline and diesel to power their generators, thereby constituting a huge dent in the nation’s foreign exchange and consequently balance of payments. To close its energy gap and to meet the growing demand of its bulging population size (over 400 million by 2045), Nigeria would need an installed capacity of 213 [gigawatts], that is, raising the current capacity by more than 1500%. According to estimates, this will require a yearly infusion of cash of up to $10 billion over a decade.”

Nigeria’s electric sector suffers from a lack of cash because many customers simply do not pay their bills. But ultimately, contends Dapel: “Corruption is the power sector demon. It heavily bleeds government investments in energy and stifles efforts that are designed to boost the availability of electricity in the country. Until this monster is vanquished—regardless of how much cash and expertise are infused into the sector—many Nigerians will remain in darkness.”

Over the past decades, untold billions of dollars have been spent on Nigeria’s electric grid. But the country, which ranks 150th out of 180 countries in Transparency International’s 2022 Corruption Perception Index, has made little progress in increasing the amount of electricity it supplies via the national grid.

How might Nigeria reduce the corruption that is crippling its electric grid? Dapel said that since “government intervention creates corruption avenues, rents for bureaucrats, and misallocation of resources, full privatization of the power sector might be one of the ways out of the problem.” He continued, “In any case, Nigeria must find a way out of this situation if it must extricate itself from the iron grip of energy poverty.”

The electricity shortages in South Africa, Nigeria, and other countries that are wracked by corruption prove a simple truism: Theft is the enemy of light. And unfortunately, in many developing countries, endemic corruption is slowing, or even stopping, electrification efforts.

Figure 11

Transparency International’s Corruption Perceptions Index provides a handy way to correlate corruption and electricity availability. In the graphic above, I matched per capita electricity generation numbers with the 180 countries on Transparency International’s Corruption Perceptions Index. As can easily be seen, the countries that are perceived as more corrupt are producing far less electricity than those that are perceived as being less corrupt.

Understanding why corrupt societies cannot produce as much power for their people can be understood by remembering that electric grids run on fuels like coal, natural gas, uranium, solar, wind, or refined petroleum products, but the commodity that keeps grids running is money.

Successful electric grids require three things: capital, integrity, and fuel. Of those, integrity is the most important. In societies where corruption reigns, electric grids simply do not work well. The reason for that is simple: grids need constant infusions of cash and if the cash is not available, they eventually degrade and quit working. Constant infusions of money are needed to make sure that the electric system’s generators are maintained, that the generators have enough fuel, and that the poles, wires, and transformers needed to deliver electricity to customers are in good condition.

Electric grids are like buckets. If they leak too much, they become useless. Successful electric grids keep leakage to a minimum. Leakage—whether it is political leaders taking kickbacks from suppliers, company insiders stealing cash from the grid operator, or marijuana growers who have illegally tapped a distribution line to reduce their electricity costs—theft must be kept to manageable levels. Put yet another way, for an electric grid to work and work well, there must be some esprit de grid. That is, the people who operate the grid, as well as the people who rely on it, need to have some sense of responsibility for it.

Understanding why integrity is so critical only requires a look at the overhead electric wires in your neighbourhood or city. Keeping electricity flowing to consumers requires putting enormous amounts of wire in the air, and in densely populated areas, safely underground. That wire—along with the necessary number of poles, towers, and insulators— must be kept in the air, no matter the weather.

Keeping those transmission and distribution wires high enough in the air to keep the wire safe from people—and people safe from the wire—is no small feat. It requires trucks, wire, rigging, slings, cranes, ladders, protective clothing, insulated tools, and lots of skilled workers who are ready and willing to go out in all kinds of weather at every hour of the day or night to keep the electricity flowing. But if a distribution line or transformer cannot be fixed because someone stole the bucket truck, or maybe just the battery from the bucket truck, then electricity reliability in a given area will necessarily decline. Electricity use will cease until the wire or transformer can be repaired.

In short, electric grids have to pay for themselves. So how can policymakers and international lenders help reduce public corruption? One answer is greater transparency in the deals that are being negotiated. Another is the increased use of microgrids. Let’s take those in order.

Promote Price Disclosure

In 2003, a group of energy industry officials met with non-governmental organisations (“NGOs”) and investors and agreed to the Extractive Industry Transparency Initiative (“EITI”) Principles. Those principles, which have since been widely adopted, were designed to assure that the wealth of countries that are rich in natural resources should have open and transparent disclosure to reduce the potential for graft. Countries that join the Extractive Industry Transparency Initiative:

“Commit to disclose information along the extractive industry value chain—from how extraction rights are awarded, to how revenues make their way through government and how they benefit the public. Through participation in the EITI, more than 50 countries have agreed to a common set of rules governing what has to be disclosed and when—the EITI Standard.

As the energy transition gains traction, it will have a transformative impact on the extractive industries and global economy. The EITI Standard can play a role in building awareness of how the transition will affect extractive sector activities and revenues and in supporting the responsible and transparent production of minerals that are critical for a sustainable future. The EITI provides data that can help identify and close channels for corruption—not only in mining, oil and gas but increasingly in the renewables sector.”

The Energy for Growth Hub, a Washington-based NGO, is using the EITI as a blueprint for a similar effort in the electric sector. Energy for Growth Hub has begun an initiative called PPA Watch, the goal of which is to make power purchase agreements (“PPAs”) in developing countries more transparent. The group explains that “In emerging markets, PPAs are typically negotiated, signed, and implemented behind closed doors. Greater PPA disclosure will improve governance, attract sustainable investment, and ultimately expand clean power while providing citizens with reliable, lower-cost electricity.” The move for more transparency, will, PPA Watch says, “harness open competition to support the efforts of policymakers and planners, investors, and development finance institutions to accelerate energy access and market development.”

PPA Watch has also begun publishing transparency scores for developing countries, ranking them as transparent, partly transparent, or not transparent. Todd Moss, the executive director of Energy for Growth Hub, said that negotiating and signing electricity supply contracts “invites all kinds of nonsense. Any time you have a secret price, by definition you aren’t getting the best price. We want to see open competitive procurement and the market should be transparent.” He continued, explaining that when electricity contracts are awarded in a competitive market, the “incentives are for everyone to behave themselves.”

Embrace Microgrids and the “Generator Mafia”

In Lebanon, nearly everyone pays two electric bills: One to Electricité du Liban (“EdL”) the state-owned utility, and the other to the “generator mafia.” The reason for this arrangement is simple: EdL cannot provide reliable electricity. A taxi driver in Beirut explained in stark terms during an interview with me in 2016. In his Beirut neighbourhood, Harit Herik, EdL was only providing electricity for “six hours. Seven hours, maximum. The rest of the hours, we pay for the generator.”

The generator mafia thrives in Lebanon because of the ongoing economic and political disarray in the country. Indeed, the generator mafia provides a stark illustration of the fact that people will do whatever they have to do to get the electricity they need. If the government cannot provide reliable electricity, someone else will; and for the people who need electricity, concerns about cost, air pollution, and climate change take a back seat to their need for power.

Understanding how the generator mafia became integral to everyday life in Lebanon requires understanding its history. Lebanon is a war-torn cocktail of religious, political, and geographic alliances. It has 18 officially recognised religious groups, including four Muslim sects and 12 Christian ones. About 27% of the population is Sunni Muslim, 27% is Shia, and 21% are Maronite Christians. Greek Orthodox make up 8% of the population and Druze about 5%, with the remainder of the populace split among Mormons, Jews, Catholics, and other sects. Making things more complicated is the 1943 agreement known as the “National Pact.” Under that arrangement, Lebanon’s president must be a Maronite, the prime minister must be Sunni, and the speaker of parliament must be Shia.

Lebanon’s political-religious-military Rubik’s Cube has been further complicated by the flood of refugees fleeing the war in Syria. Those refugees are putting additional strain on Lebanon’s overtaxed power grid, which was already threadbare due to repeated conflicts with its neighbours. And while Lebanon’s deadly civil war, which raged from 1975 to 1990, is officially over, the country continues to be paralysed by its hyper-factionalised and deeply corrupt politics. A friend of mine, I will call him Khaled, has lived in Beirut for many years. He has a doctorate in economics and has worked for the Lebanese government, as well as for private consulting firms and big international lenders. He described Lebanon as: “A failed state dominated by populism, sectarianism, nepotism, and fascism.”

The lack of integrity in Lebanon’s political system prevents improvements to the country’s electric grid, which in turn, imposes an energy tax that is felt across the entire Lebanese economy. A 2016 analysis by Elie Bouri and Joseph El Assad, two academics at Holy Spirit University of Kaslik, found that blackouts are costing the Lebanese economy about $3.9 billion per year, or roughly 8.2% of the country’s GDP.

While that name—generator mafia—has a negative connotation, some analysts see microgrids, and the people that operate them, as necessary providers of a critical service. Riad Chedid, an engineering professor at the American University of Beirut, one of the most prestigious universities in the Middle East, told me that the generator mafia is getting a bad rap. “I don't like to call these ‘mafias,’” he said. “I would say these are companies or businessmen that were created by necessity. If the government was giving or EdL, or if the national utility was supplying electricity reliably 24 hours, these wouldn't have existed.” He went on, “My parents live in a village and I know without those generators, life would've been much, much more difficult. So to me, this is a party that's providing a service, a very costly service, but nobody is obliging you to buy it. You don't want it, don't get it.”

One official at a multilateral lender who has lived in Lebanon for many years, agreed with Chedid’s assessment. He explained that while small electric grids are not optimal from a financial or operational point of view, (bigger grids are usually more efficient due to economies of scale) “if there’s a lack of trust, then you have to shrink the system.”

That concept—shrinking the system—makes sense from an operational standpoint. If countries like Nigeria and Lebanon cannot make their national grids work, then it stands to reason that operators have to make electric grids smaller until the integrity of their systems can be assured.

A 2020 paper by Pallavi Roy of the SOAS University of London’s Anti-Corruption Evidence research consortium, concluded that due to corruption and inefficiencies in Nigeria’s main power grid, “off-grid solutions are imperative.” Roy continued, writing that microgrids operated by small to medium enterprises, or “SMEs”,

“…are potentially productive and are likely to play a critical role in sustaining growth and employment in Nigeria...we recommend an anti-corruption solution of disaggregated and embedded generation that is less expensive than the costs currently incurred to source electricity informally, while providing adequate electricity supply. The likelihood of insider support should also ensure that the policy is self-sustaining and therefore self-enforcing.”

In 2023, Roy, and three other researchers published an article in the journal Energy Research and Social Science, which again looked at Nigeria’s electric sector. The article expanded on Roy’s 2020 research. The authors pointed out that despite the privatisation of Nigeria’s distribution and generation companies, the amount of available peak power did not expand, and instead, it “remained relatively stagnant below 5,000 megawatts from 2015 to 2022.” They also found that Nigeria’s electric grid:

“…requires significant capital infusion to overhaul the efficiency parameters of the grid from gas supply to distribution as well as debt restructuring to improve the liquidity situation in the sector and attract investors. In the short term, a strategy is needed to identify solutions outside the national grid via investors who are willing to explore off-grid solutions. Our search for an anti-corruption strategy is a bottom-up approach to identify feasible and implementable solutions that work within the constraints of the sector’s distribution of power. Our policy solution is to provide disaggregated, independent-but-embedded power-generating networks, often referred to as mini grids...Mini grids are electric power generation and distribution systems that can be isolated from the main grid and designed to provide high-quality, reliable electricity.”

These microgrids (or mini grids) would be operated by SMEs. And the hope is thathey might eventually be fuelled by natural gas, a fuel that Nigeria has in abundance.  But due to lack of infrastructure, that is unlikely to happen in the near term. Instead, the generators will likely burn diesel or fuel oil, both of which emit far more CO₂ and particulates than natural gas. 

While microgrids may offer an alternative to larger grids, they also come with significant downsides including environmental and economic concerns. The neighbourhood power plants in Beirut are causing serious air pollution problems. And because many of these SMEs are unregulated, there is little chance that government officials will be able to impose rules that will address the pollution. In addition, the lack of regulation means that SMEs can charge exorbitant rates for the power they deliver. The SMEs will also be able to cut off customers at their whim, with no recourse. Finally, these smaller grids are usually less efficient, in both capital cost and energy efficiency, than their larger counterparts.

In short, microgrids are not a perfect alternative to centralised power grids. But for countries (and neighbourhoods) that are stuck in the dark, they may provide a viable alternative. They present a relatively low-cost and lower-risk opportunity for international investors and lenders to help in the electrification of developing countries. Microgrids can be deployed in stages and as the concept gets proven, it can gradually be expanded. Furthermore, microgrids allow flexibility in both fuel choice and generation technology.

In some cases, the microgrids might use solar and batteries. In others, they might use large reciprocating engines fuelled by diesel, fuel oil, or natural gas. Other grids may use turbines running on liquid fuel or natural gas.

Put Electrification Goals First, Emissions Reductions Second

In June 2023, during a speech to the League of Conservation Voters, a Washington, DC-based NGO that focuses on climate change, US President Joe Biden proudly announced a $900 million loan to help build a 500-megawatt solar project in Angola. In a press release touting the deal, the Export-Import Bank of the United States said the project would “help Angola meet its climate commitments.”

Figure 12

Of course, financing any electrification project is a good thing. But Angola is one of the last countries in the world that needs to be concerned about climate commitments. In 2021, the average resident of Angola emitted about 0.6 tons of CO₂ per year. By comparison, the per capita global average was about 5 tons and in the United States it was nearly 15 tons. Indeed, it is more than a little ironic for an American president to be boasting about a solar project in Angola when the average American emits 25 times more CO₂ per year than the average Angolan.

Furthermore, in 2021, the average resident of Angola was consuming just 476 kilowatt-hours of electricity per year, or about the same amount as is used by the inhabitants of Bangladesh. Indeed, countries like Bangladesh and Angola need big power plants like the ones that produce electricity in Europe and the United States—plants that can produce large amounts of reliable, baseload power by burning coal, oil, or natural gas.

Unfortunately, the United States and many other Western countries will not provide financing for electricity generation projects that burn hydrocarbons. Why not? They are putting concerns about climate change ahead of people.

For years, bilateral and multilateral lenders have been under pressure to quit providing loans for such projects. In 2013, several groups, including Friends of the Earth, Greenpeace USA, and the Center for Biological Diversity, sent a letter to US President Barack Obama which said the proposed Thai Binh Two power plant, a 1,200-megawatt coal-fired facility in northern Vietnam, would “emit unacceptable air pollution that will worsen climate disruption.” A few days after the letter was sent, the US Import-Export Bank announced it would halt its financing for the project. That announcement came at about the same time the World Bank declared that it would limit financing of coal-fired generation projects to “rare circumstances.” In 2018, World Bank president Jim Yong Kim announced that the bank had abandoned the last coal project on its books, the Kosova e Re plant in Kosovo and would not support any more such projects.

In 2021, during the United Nations Climate Change Conference (commonly known as COP 26) in Glasgow, the United States joined a group of about 20 countries that agreed to stop funding oil and gas projects in developing countries. As explained by one news outlet, the move:

“…could take billions of dollars away from future fossil fuel production and redistribute it to low-carbon energy projects such as wind and solar. The agreement covers ‘unabated’ projects, which generally refers to fossil fuel facilities that do not capture carbon dioxide emissions...The announcement goes beyond a separate agreement by the world’s largest economies last weekend to end public financing for international coal power development.”

Also in 2021, the US Treasury Department issued guidance for multilateral development banks “aimed at squeezing off fossil fuel financing except in certain circumstances.”

Figure 13

But only lending for renewables reduces the amount of available funds to build other electricity infrastructure, and it, intentionally or not, reduces the amount of electricity that will be available to developing countries. A 2014 study by the Center for Global Development found that “more than 60 million additional people in poor nations could gain access to electricity” if bilateral lenders like the Overseas Private Investment Corporation (now known as the International Development Finance Corporation) were allowed to invest in electrification projects that rely on natural gas instead of only being allowed to finance renewable projects. The authors of the study estimated the amount of generation capacity that would be built under an investment portfolio of $10 billion. They found that:

“A natural gas–only portfolio could provide an additional 42,000 [megawatts] of electricity versus 4,200 MW in a renewables-only portfolio. Thus, we estimate that about 38,000 MW of generation is at stake. This is equivalent to about three times the entire installed capacity of all six countries that were included in President Obama’s Power Africa initiative.”

Even if we assume that the authors of the study overestimated their findings by half, a gas-only portfolio would still provide 21,000 megawatts of electric generation capacity, or nearly five times the amount that would be available under a renewables-only scenario. For a continent like Africa that is desperate for electricity, that is a huge difference, and one that cannot be ignored. The lesson from the 2014 study is obvious: policymakers should be prioritising access to electricity, not emissions reductions. Preventing developing countries from using hydrocarbons is what Vijaya Ramachandran, an economist who works for the Breakthrough Institute calls “green colonialism.”

In 2022, the Wall Street Journal published an article by Uganda’s President Yoweri K. Museveni titled, "Solar and Wind Force Poverty on Africa." In the article, Museveni wrote, “Africa can't sacrifice its future prosperity for Western climate goals. Africa will have to use fossil fuels as it makes the transition.”  He said that the “Western aid-industrial complex, composed of nongovernmental organizations and state development agencies, has poured money into wind and solar projects across the continent. This earns them praise in the US and Europe but leaves many Africans with unreliable and expensive electricity that depends on diesel generators or batteries on overcast or still days.” Museveni concluded: “Africans have a right to use reliable, cheap energy, and doing so does not prevent the development of the continent’s renewables. Forcing Africa down one route will hinder our fight against poverty.”

The way forward for policymakers is obvious: the first priority should be providing access to cheap, abundant, and reliable electricity. Concerns about emissions should come second.

Conclusion

Solving the global electricity challenge—bringing the 3.7 billion people now living in the Unplugged World—into modernity is among the biggest challenges of the modern era. There are no quick fixes. It will not be easy. And it will not be cheap.

The electrification of the developed countries has taken decades. Thus, it is reasonable to expect that the electrification of developing countries will take many years. Furthermore, each country will have to decide for itself the types of fuels and generators that will provide the most bang for the buck.

As outlined above, several policies can help accelerate electrification. They include:

• Understanding that if coal plants are built, they should be constructed with the best air pollution and efficiency technologies.

• Increasing transparency and disclosure on power purchase agreements.

• Supporting efforts to reduce corruption.

• Expanding microgrids as a way to accelerate electrification.

• Putting electrification ahead of concerns about emissions.

Bringing power to the unplugged is among the greatest challenges of our time.  Darkness kills human potential. Electricity nourishes it. This point was made eloquently by Joyashree Roy, an Indian economist who was also a contributor to the IPCC reports on climate change. Roy has spoken about electricity in terms that verge on the evangelical. With electricity, she says that humans can engage in “co-creation with nature.” But none of that creating—none of that God-likeness—happens without electricity. “If you are in the dark, if you are absorbed in the dark, darkness absorbs you, too,” Joyashree said. “So you do not see the light and you cannot bring the light to others.”

It is time to bring more light to more people. Implementing measures that will help achieve that goal should be a top priority for policymakers all over the world.     

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1. Please click that ♡ button.

2. This week on the Power Hungry Podcast, I talked to Sebastien Lai, the son of Jimmy Lai, the 75-year-old pro-democracy leader and publisher of Apple Daily who has been in Hong Kong’s Stanley Prison since 2020 on trumped-up charges lodged against him by the Chinese government.