MADAGASCAR: $125 million bailout for state utilities company

[ This report does not necessarily reflect the views of the United Nations]

JOHANNESBURG, 18 Jan 2006 (IRIN) - Donors have approved a US $125 million plan to address the financial and structural problems plaguing Madagascar's state-owned utilities company, but whether the bailout will bring power to the people remains uncertain.

After months of power cuts and electricity rationing, a three-day conference in Paris last week brought donors and Malagasy officials face to face to discuss the future of Jirama, the state-owned electricity and water provider.

"We are a lot more confident about the future of Jirama now - there are no more excuses, there is financing and there is a plan," Stephan Garnier, a World Bank (WB) delegate who attended the meeting, told IRIN. A $40 million loan by the WB is part of the package.

High oil prices have hit Jirama's diesel-fired plants hard, and a failure to make necessary tariff adjustments has driven the company into bankruptcy.

According to Garnier, "The main problem has been that the tariff was not aligned with macro-economic fluctuations and, as a result, the utility was losing $5 million a month for the past two years ... the Ministry of Finance had to step in to avoid blackouts."

During the past year blackouts have slowed business and hindered economic growth. "The government estimates that the power cuts cost Madagascar 1.5 percent of GDP growth in 2005," Garnier noted.

He said the government now understood that a healthy utility company was important to the country's progress, and particularly its poverty reduction strategy.

"The government increased the tariff by 30 percent in July, 35 percent in November [2005] and [prices] will be raised by 10 percent in 2006 and 10 percent in 2007. After that the tariff must flow according to economic conditions," Garnier noted, adding that this was a brave move, "considering elections are coming up [at the end of 2006]."

For now, the bailout is expected to ease the pressure on Jirama. "In the long term, Madagascar will need to address its energy mix. In the past five years there has been a dependency on diesel, with 60 percent of energy coming from ... [fossil fuel], but there is a huge potential for hydroelectric power, which could be providing 65 percent of energy needs within a few years," Garnier observed.

The utility company's inefficiency will also need to be addressed. Garnier estimated energy losses at 22 percent, of which half were non-technical and resulted from fraud and theft.

The International Monetary Fund has long called for privatisation as a panacea for Jirama's ailments. In agreement, the WB has set loan conditions including a "tariff indexation formula" to allow prices to float according to economic fluctuations, as well as a financial roadmap plan, provided the government identifies a private concern to run the state company.

According to Garnier, "This is not complete privatisation ... in March [2005] the government brought in a German infrastructure firm to manage the company and new management has already helped a lot."

[ENDS]