Issue No. 863

Somaliland's Battle to Break the Energy Cartels

It is not by any accident that Somaliland's citizens are forced to pay some of the most exorbitant electricity bills in the world. For years, a serpentine hold on the industry by a handful of cartel-like firms has hindered development, forcing the majority of Somaliland's population off the disjointed grids. And in turn, amidst an often all-too-close relationship between government officials and the industry, monopolies in Hargeisa, Berbera, and Bur'ao have all flourished-- keeping prices high and efficiencies low. But with Somaliland President Abidrahman Abdullahi 'Irro' placing slashing exorbitant electricity costs at the forefront of his campaign last year and introducing sweeping new regulatory legislation in recent weeks, there are growing hopes that these costs might yet fall. 

Electricity prices are absurdly expensive in Somaliland, peaking at a USD per kilowatt-hour and routinely averaging between USD 0.60 and 0.80, several times the costs of its neighbours in Ethiopia. With average salaries hovering around a few dollars a day, such costs are highly prohibitive, even while Somaliland has immense natural resources that could be utilised to bring down prices. Instead, it is estimated that most Somalilanders-- around 80%-- use charcoal and firewood for their daily energy needs. Such dynamics are partially a result of a handful of large private firms that maintain high, non-competitive costs within the electricity sector, which is also comprised of a haphazard collection of small Independent Power Producers (IPPs). Many of these IPPs that connect neighbourhoods or a few houses to fuel-based generators were born out of the obliteration of swathes of Somaliland in the late 1980s and its gradual recovery, with businesses buying generators and selling excess power to their neighbours. 

But the issue of monopolisation has become particularly acute over the last decade, with the government's 'minimal intervention' policy allowing mergers to take place and market dominance to materialise. One of the most extreme cases of absorption is SomPower (formerly Hargeisa Power Company), which acquired 39 municipal generators between 2013 and 2017 to establish itself as the pre-eminent supplier for the city and its environs. And so, despite a flourishing green energy sector during this period, electricity costs have remained stubbornly high in Somaliland. 

With several of these electricity firms linked to Al-I'tisaam, the shadowy Salafist movement that operates across the Somali-speaking Horn, the lines between business and politics are, as ever, deeply murky. Senior officials, including ex-ministers, sit on the boards of power companies or have familial ties to them. The Ministry of Energy had been oft-accused of either complicity in the monopolies or absence, abandoning its responsibilities to the Energy Commission or the Interior Ministry. In recent months, Irro has publicly acknowledged that the past energy policy was "too close" to commercial interests and pledged audits of past fuel contracts. Under his instruction, both the Energy Ministry and the Somaliland Energy Regulatory Commission (SEC) are supposed to be investigating allegations of overbilling by certain IPPs.

These monopolies may prove hard to break. One of the most notorious cartels has thrived in the bustling port city of Berbera, where the Berbera Power House has long dominated the metropolis's energy supply. Fitful attempts to break the control have floundered in the face of Hargeisa's previous meddling as well, with a UAE-financed solar power plant built in Berbera subsequently handed over to Berbera Power House. Meanwhile, the company has repeatedly charged retail tariffs of around USD 0.80 per kilowatt hour, while consumers have complained of frequent outages. But in March, Irro laid the foundation for the Berbera Solar Power Project. Backed by the World Bank and costing around USD 20 million, it is expected to slash costs from USD 0.8 per kWh to around USD 0.20. In another intervention last week in Bur'ao, Irro said that he intends all of the electricity costs across Somaliland to be brought down to USD 0.20 in the coming years. Unrecognised by the international community, Hargeisa has been unable to borrow on World Bank or African Development Bank sovereign terms, but has nevertheless secured a number of other significant projects. In 2023, the World Bank approved a USD 50 million grant for the Somaliland Electricity Sector Recovery Project, which was facilitated through the Kenyan government. 

While retaining incumbent Energy Minister Ahmed Jama Barre, Irro pledged new regulations to break the entrenched monopolies in his maiden address to parliament earlier this year. At the forefront of this is the new 'Electricity Management Law,' with a draft 'Power Sector Regulatory Act' placed on the parliamentary agenda in June. Under these laws, the state will have new power to coordinate rural electrification and auction off renewable energy investments, as well as formalise the SEC's authority to make and enforce regulations. Further, several longer-term strategies are in the works, including a draft 20-Year Power Master Plan-- supported by the World Bank and a National Electrification Strategy. The SEC, which was established in 2020, will be further empowered to combat price-gouging and is currently working on a unified national tariff formula to address the widespread problem. Even exclusive franchises appear to be a thing of the past, and the government has encouraged mini-grids in some areas to merge to offer more competitive prices. 

But there have been stumbles as well. Earlier this year, the Ministry of Interior and the SEC contradicted one another in relation to authorised electricity providers in Bur'ao. The Ministry of Interior had stated that HECO was the sole provider, while the Commission asserted that  Al Nuur Energy was also now permitted to operate. HECO, too, has been another monopolistic company that has been frequently criticised for power cuts and high costs. Accusations that HECO works had slashed power lines recently installed by Al Nuur, unsurprisingly, did not go down well in the local community. But upon travelling to Bur'ao recently, Irro announced that the costs would be brought down to USD 0.59 per kilowatt-hour from USD 0.79, overhauling a recent Ministry of Energy directive that would lower costs over a longer period.

The likelihood of a national grid arriving in the near future is improbable, but the Irro government's move towards spurring greater competition, regulation, and green investment is smart politics that should benefit the polity and Somaliland's administration. Yet starved of investment for decades and international assistance, Hargeisa must also keep alert not to be overwhelmed by a deluge of cash and investment entering the polity in the case of possible recognition. These current reforms may yet help break the monopolies, but new extractive relationships can easily spring up in their place as well. Today, it is a particular set of energy cartels; tomorrow, it could be another host of relationships that are steering Somaliland's politics and development. But in the meantime, lower costs and cheaper electricity for Somaliland's citizens through diminished economic monopolies will be widely welcomed.
 

The Somalia Wire Team