FrancaisElectricity tariffs: legal framework and stakes in the Democratic Republic of Congo
Abstract
In the Democratic Republic of Congo, the Law No. 14/011 of June 17, 2014, relating to electricity sector "put an end to monopoly of the national electricity company (SNEL) in the exploitation of electricity".[1] The law advocates the liberalization and total opening of Congolese electricity market to private sector. Considering the impacts of electricity market open to competition from private companies with regard to the fixing of electricity tariffs, the law has provided a legal supervision on the electricity tariffs that establish the principles of tariffs truth, equality, equity and non-transferability. In addition, it provides the procedures for fixing and revising tariffs, rules for electricity tariffs to final consumer, tariffs for access to transport and distribution networks as well as producer tariffs. Despite legal supervision, electricity tariffs raise several stakes in the Congolese electricity sector that deserve to be analyzed in holistic approach in this article.
Keywords: electricity law, electricity tariffs, stakes, tariffs revision, fossil fuels, kilowatt hour, mathematical model, deadline, regulatory authority, sector, operator.
I. Legal framework for electricity tariffs
The legal supervision of electricity tariffs in the DR Congo is characterized by legislative and regulatory framework.
I.1 Legislative framework
Law No. 14/011 of June 17, 2014 relating to electricity sector constitutes a reference legislative text which devotes provisions on electricity tariffs.
The merit of this law is to establish the principles of tariffs truth, equality, equity, and non-transferability of charges.[2] It also sets the rules for establishing electricity tariffs to final consumer, access to transport and distribution networks as well as producer tariffs.[3]
In addition, the law imposes operator to submit the new electricity tariffs to the control of Regulatory Authority.
Expect the Law No. 14/011, “the provisions of Decree-law on pricing”[4] are applicable to electricity tariffs. The Decree-law stipulates that the selling prices of products and services are freely set by those who make the offer. They are not subject to prior approval but, after they have been fixed, the file must be transmitted to the State Commissioner having the economy in his attributions for a posteriori control.[5]
I.2 Regulatory framework
The core regulatory text for electricity tariffs is inter-ministerial Order No.009/CAB/MIN-ECONOMAT/2018 and 013/CAB/MIN-ENRH/2018 of March 15, 2018, determining the rules, procedures and methods of setting and revision of electricity purchase tariffs for electricity producers, tariffs for access to electricity transmission and distribution networks as well as tariffs for sale of electricity to the final consumer. This inter-ministerial Order draws its legal basis from Law No. 14/011 and determines the elements that operator must consider during the setting electricity sale tariffs and use of public networks.
There is also appendix to Order No. 081/CAB/MIN/ENRH/18 of December 27, 2018 on the general specifications for activities in electricity sector which lays down the provisions on electricity tariffs.[6]
II. Services covered by the setting of electricity tariffs
In reference to provisions 12, 13, 14, 15, 16, 19 and 22 of Inter-ministerial Order No. 009/CAB/MIN-ECONOMAT/2018, the electricity tariffs are mainly applied to the services of electricity producers, access to transport and distribution networks of electricity, importers of electricity. In addition, the tariffs apply to electrical energy resellers, final consumers, rural electrification, and electrical energy transit.
III. Electricity tariff setting process
Article 25 of Law No.14/011 provides a legal basis for setting and revision of electricity tariffs. However, inter-ministerial decree No. O009/CAB/MIN-ECONOMAT/2018 provides in detail the rules, methods, and procedures for setting and revision of tariffs.
The operator must apply the tariffs proposal for sale of electricity and network access to Regulatory Authority for the Electricity sector.[7] He sets the tariffs corresponding to exercise of his activity authorized by competent authority.[8] The operator's tariff proposal is applied using a mathematical calculation model which notably considers elements of cost tariff per kWh, energy marketing costs and service charges. The mathematical equations for calculating tariffs, known as "tariff models", their quantified elements and resulting prices for the various tariffs that the operator is authorized to charge from the date of entry into force of concession, license, are in prior presented to Regulatory Authority.[9]
Regulatory Authority is required to analyze and give opinion on tariff proposal applied within 15 days. In absence of opinion from Regulatory Authority and at the end of 15 days period, the proposed tariffs are submitted to Minister of Economy and Minister of Electricity for decision. The ministers have a period of 30 days for validation of tariff proposal submitted by the operator. The decision to validate the tariffs granted to operator is made through inter-ministerial Decree which is published in the Official Journal.
VI. Imposition of electricity tariffs and compensation mechanisms
For the general interest, the Congolese government may impose operator tariffs condition not provided in concession contract, leading operator to sell electricity at tariffs lower than its operating costs, including financial charges. In this case, the Congolese government takes the necessary measures for financial balance of contract, in particular by granting subsidies.[10]
V. Revision of electricity tariffs
Electricity tariffs may only be revised to tariffs applied to final consumers, access to transmission and distribution networks and producers, in the event of significant change in operating conditions or due to events substantially modifying the economic or technical environment in which the concession contracts, licenses or authorizations were established.[11]
The initiative to revise tariffs may come from the operator, Regulator Authority, or competent authorities.[12] In addition, consumers can, in the same way as competent authorities and operator, request the revision of maximum basic tariffs.[13]
In the event of significant change in operating conditions, or due to events substantially affecting the economic parameters used to determine the electricity sale tariffs, the operator may request the Regulator Authority, to revise tariffs.[14]
VI. Stakes of tariffs in the Congolese electricity market
The question of electricity tariffs raises legal and economic issues in the Congolese electricity market.
The first legal issue that arises acutely in the electricity market is the "application of tariff proposal to Regulatory Authority on the concessions regularly granted by the government before the entry into force of Law No. 14/011 relating to the electricity sector.
The story reveals that some concession contracts have been signed between competent authority and operators before the entry into force of Law No. 14/011 on one hand, and operationalization of Regulatory Authority on other hand. As soon as Law No. 14/011 entered into force and Regulatory Authority became operational[15], the Decree No. 18/052 of December 24, 2018 setting the procedures for selecting operators, awarding, modifying and canceling concessions, licenses and authorizations in the electricity sector characterizes these contracts as 'inappropriate permits'. The Regulatory Authority, for its part, requires concessionaires of inappropriate permits to start by submitting files to him for the regularization before any submission of tariff proposals.
Faced with this situation, Law No. 14/011 provides: "that any holder of one or more titles acquired before the entry into force of the aforementioned law, which have become inappropriate, is required to have each title converted into a permit".[16] In addition, it asks the administration in charge of electricity to ensure the compliance of these titles. Under the law, the procedure for converting titles into permits obliges the holders of titles acquired to submit their file to Regulatory Authority, for regularization before submitting the tariff proposals.
Another major legal stake is “the right reserved for competent authority to carry out unilateral changes to concession contract, the scope of which may affect the tariffs”. As part of concession contract, the competent authority reserves the right to impose unilateral changes on concessionaire in accordance with the Law No. 14/011. However, the concessionaire is entitled to financial compensation if the unilateral changes lead to significant costs and profit reductions of the concessionaire's activities. The financial compensation may take the form of tariffs increase or any other form.[17]
In any case, the concessionaire finds the tariffs increase to be plausible remedy for unilateral modification likely to compensate for the losses and costs suffered. Insofar as the competent authority proceeds with a prejudicial unilateral modification, the concessionnaire must follow the procedure for tariffs revising to obtain compensation. Concernig economic issues, it should be noted that fuel price inflation is a part of economic issue that impacted electricity tariffs. The "war in Ukraine also contributed in some way to the increase in the price of fuel"[18]. In most areas of the concessions, electricity is supplied to consumers based on thermal power stations that work out on fuels. Faced with fuel price inflation, which also impacts electricity tariffs, could the concessionaire reserve the right to unilaterally change tariffs, taking into account the costs of repercussions on fuels as element of tariffs calculation ? In response to this question, it is relevant to mention that fuel price inflation cannot be considered as isolated case that gives the concessionaire the right to unilaterally change tariffs without seeking the approval of the competent authority. The question of fuel is a case explicitly regulated by the inter-ministerial Decree No.009/CAB/MIN determining the rules, procedures and methods of setting and reviewing tariffs [...], which addresses the issue of prices of fossil fuels and the reasons for the events, essentially the economic parameters which resolve the question of the passing of fuel costs. However, the concession contract clauses stipulate that the concessionaire may propose to the competent authority any modification it deems useful.
References
[1] FRENCH EMBASSY IN DR CONGO, "The electricity sector in the Democratic Republic of Congo, Kinshasa November 18, [online]", available at [https://www.tresor.economie.gouv.fr/PagesInternationales/Pages/13971f9d-3178-4715-bd09-5240a52d532b/files/176f8950-cd3c-481f-bc94-d18578236305] (accessed 4/11/2022).
[2] Article 23, Law No. 14/011 of June 17, 2014 relating to the electricity sector, in Compendium of texts of the electricity sector, Official Journal DRC, special No., October 20, 2020, p.20.
[3] Article 24, Law No. 14/011.
[4] SNEL pricing (n.d.). Retrieved from [[https://rise.esmap.org/data/files/library/congo,-dem.-rep./Cross%20Cutting/CC%2023_Tariff%20schedule%20for%20DRC.pdf] ] (accessed 04/11 /2022).
[5] Article 2, decree-law of March 20, 1961 relating to prices, as amended and supplemented by Ordinance-law No. 83-26 of September 12, 1983.
[6] Article 24 of Law No.14/011.
[7] Articles 25 of Law No. 14/011 and 35 Interministerial Order No. 009/CAB/MIN-ECONOMAT/2018 of March 15.
[8] Article 298, appendix to Order No. 081/CAB/MIN/ENRH/18 of 27 December 2018 on the general specifications for activities in the electricity sector devotes provisions to electricity tariffs, in Compendium of electricity sector texts, JORDC, special issue, October 20, 2020, p.318.
[9] Article 302, appendix to Order No. 081/CAB/MIN/ENRH/18 of December 27, 2018.
[10] Articles 15, Law No. 14/011 and 10, Interministerial Order No. 009/CAB/MIN-ECONOMAT/2018 of March 15, prec.
[11] Articles 26, Law No. 14/011 and 37 Interministerial Order No. 009/CAB/MIN-ECONOMAT/2018 of March 15.
[12] Article 37 paragraph 3, Interministerial Order No.009/CAB/MIN-ECONOMAT/2018 of March 15.
[13] Article 306, Interministerial Order No. 009/CAB/MIN-ECONOMAT/2018 of March 15, prec.
[14] Article 41, Interministerial Order No.009/CAB/MIN-ECONOMAT/2018 of March 15.
[15] Ordinance No. 20/120 of July 17, 2020 appointing the members of the board of directors and the general management of an establishment called "Electricity Sector Regulatory Authority".
[16] Article 3, Decree No. 18/052 of December 24, 2018 setting the procedures for selecting operators, awarding, modifying and canceling concessions, licenses and authorizations in the electricity sector, in Compendium of electricity sector texts, JORDC, special issue, October 20, 2020, p.92.
[17] Article 36, point 1, annex I concession contract No./MIN/ENRH/CC/PROD/2018/for production, transport and distribution in order no. 85/CAB/MIN/ENRH/18 of 27 December 2018 on standard concession and delegation contracts, models of licenses and authorizations for the electricity sector, [online]", available at: https://are.gouv.cd/documentation/arretes/], (accessed 11/13/2022).
[18] INTERNATIONAL MONETARY FUND, Press Release No. 22/154 of May 09, 2022, "Staff Completes Review of Program and Article IV Consultation with Democratic Republic of Congo" . [online]”, available at: https://www.imf.org/fr/News/Articles/2022/05/09/pr22144-imf-staff-completes-2022-article-iv-program-review-mission -to-democratic-republic-of-congo], (accessed 11/13/2022).
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