LEGAL AND REGULATORY BRIEF
SIERRA LEONE[1]
| Country Population | Actual Generation Capacity | Deficit (in MW)[3] | Energy’s contribution to the GDP | Ease of doing business (ranking) |
| 8,605,718[4] | 35.2 MW | 8198.7 MW | Industry, Mining, Energy and Manufacturing:
22%[5] |
163rd (2020) |
ENERGY MIX OVERVIEW
| Fuel Mix: Sierra Leone’s fuel mix is dominated by hydropower, biomass, and fossil fuels |
| Installed versus Actual Generation capacity: Installed capacity is 133 MW as of June 2022.[6] while actual generation capacity is 35.2 MW in wet season and 70 MW in dry season as of June 2020[7] |
| Transmission Capacity (Wheeling capacity)[8]:Sierra Leone has less than 150 MW of operational capacity and roughly 150, 000 connected customers[9] Transmission capacity stands at 50.83 MW (as of 2016),[10], equivalent to 59.80 MVA. |
| Electricity Access Rate: The electricity access rate in Sierra Leone is 26.2% with 4.8% in rural areas and approximately 54.7%[11]in the urban areas |
| Electricity Demand: Electricity demand is 236 MW as of January 2018[12] and it is projected to grow significantly with expectations that it will exceed 360 MW by 2023.[13] |
| Off-Grid/Renewable Energy Capacity and Framework: The Integrated Resource Planning (IRP) in Sierra Leone provides a framework within which more detailed network development plans (NDPs) and off-grid / mini-grid supplies can be planned by operational utilities under the policy directives of Ministry of Energy (MoE) and delivered under the regulation of the Sierra Leone Electricity and Water Regulatory Commission (SLEWRC). Currently, the Government has a good view on the priority and least cost electricity investment projects for Generation and Transmission. There is also a strategic plan (phase I) available for grid rehabilitation, strengthening and extension that should be expanded within phase II. The IRP is focused on planning the off-grid electricity supply public service with the participation of the Local Authorities as appropriate entities responsible for the development of local services. One of the benefits of the IRP would be to maintain a pipeline of mature projects for electricity supply and development.[14] |
| Alternative Off-take Arrangements: The electricity sector does not allow the participation of competent entities and undertakings as credible off-takers for electricity sale and purchase, in addition to the Electricity Distribution and Supply Authority (EDSA.) Power Purchase Agreements (PPAs) in Sierra Leone recognize the Electricity Distribution and Supply Authority (EDSA) as a sole public off-taker in the electricity industry. It should be noted that the government and EDSA are jointly and severally liable for EDSA’s off–take performance in the electricity industry.[15] |
ELECTRICITY SECTOR OVERVIEW AND MODEL
Power Sector Model: Sierra Leone’s electricity sector operates under a “Single-Buyer” model, which requires power produced by the Electricity Generation and Transmission Company (EGTC) to be sold and transmitted to the Electricity Distribution and Supply Authority (EDSA). The EDSA subsequently distributes power to the end-use consumers.[16]
Utility Type Structure: The National Electricity Act 2011[17] unbundled the vertically integrated National Power Authority into the Electricity Generation and Transmission Company (EGTC) and the Electricity Distribution and Supply Authority (EDSA). Furthermore, through the Electricity and Water Regulatory Act 2011, a regulatory body, the Sierra Leone Energy and Water Regulatory Commission was established.[18]
VALUE CHAIN DYNAMICS/ADMINISTRATION
Structure of the Value Chain: The electricity value chain in Sierra Leone is divided into four operational segments: Generation, Transmission, Distribution and Retail.
- Generation: Electricity generation is carried out by the EGTC. It is important to note that the government of Sierra Leone encourages private participation in its electricity sector; hence Independent Power Producers are also eligible to generate and transmit electricity. IPPs are recognized under the Electricity Act of 2011 as part of the electricity value chain in Sierra Leone. Their primary function is to sell electricity to the EDSA through PPAs.
- Transmission: Electricity transmission is also carried out by the EGTC which oversees the generation and transmission of electricity at high voltage levels (161kV)
- Distribution: EDSA is responsible for electricity distribution and sub-transmission (33kV and below).
Electricity Market Dynamics
Institutional and Market Structures: The Sierra Leone Electricity and Water Regulatory Commission (SLEWRC) is the primary regulatory body of Sierra Leone’s electricity sector. It regulates and oversees the sector. The electricity sector in Sierra Leone has been unbundled into different segments for generation, transmission, distribution, and retail. The National Power Authority was unbundled into the Electricity Generation and Transmission Company (EGTC) and the Electricity Distribution and Supply Authority (EDSA). The EDSA buys energy in bulk from the EGTC and IPPs and sells to consumers, hence, the market structure is considered open.[19]
Key Stakeholders and Regulatory Agencies
Below are the key stakeholders and agencies in Sierra Leone’s Electricity sector:
Ministry of Energy (MoE)
The MoE is specifically established for the purpose of creating energy policies for Sierra Leone and it exercises oversight functions of other stakeholders in the electricity sector. The MoE is notably commended for the introduction of the National Energy Policy and Action Plan which provides for an increase in the country’s generation capacity and by extension an increase in energy access.
The Sierra Leone Electricity and Water Regulatory Commission (SLEWRC)
Although not specified in the SLWERC Act, the overall function of setting electricity tariffs and prices is undertaken by the SLEWRC. The Commission provides guidelines for public utilities regarding the level of rates that may be charged to end-users. The SLEWRC in setting tariffs, takes into consideration the interests of the consumers and investors, the cost of production, the assurance of the financial integrity of the public utility, etc.
By virtue of the SLEWRC Act, no person shall engage in any operational stage of electricity generation, transmission, distribution, and retail without obtaining a license beforehand. A written application must be made by a prospective licensee and all relevant information to support the application alongside the prescribed fee is expected to be submitted to the Commission. Licenses may not be transferred except with approval from the Commission and a licence may be renewed after expiration, following an application to the Commission. The Commission is also vested with the power to modify licenses and order for their suspension, where it is established that the licensee has contravened a term or condition in the license, the licensee has given false information to the Commission and where it is in the public interest to do so. It should be noted also, that in the process of constructing and operating a power project, the EGTC or IPP are required to comply with all environmental, social, and health &safety regulations. The Commission’s notable achievement is the ratification of the 2018 Mini-Grid Regulation.[20]
Electricity Generation and Transmission Company (EGTC)
According to the Electricity Act of 2011, the EGTC is responsible for the generation and transmission of electricity and the sale of electricity to the EDSA subject to a PPA approved by the SLEWRC. In addition, the EGTC oversees the operation of electricity generation and transmission at high voltage electricity levels.[21]
Electricity Distribution and Supply Authority (EDSA)
The EDSA was established to perform the functions of supply, distribution, and retail sale of electricity within Sierra Leone except in areas in which the Commission has issued a distribution licence to another appropriately qualified entity.[22] It purchases electricity from the EGTC and IPPs subject to a PPA approved by the SLEWRC.
Renewable Energy Association of Sierra Leone (REASL)
This Association was established following the Energy Revolution initiative in Sierra Leone. It promotes renewable energy practices and utilization across the country. One of the key contributions of the Association is its successful campaign for an exemption of solar imports from import duties and other taxes in the Finance Bill of 2017.
The Public Private Partnership (PPP) Unit
This Unit was established in 2010 to coordinate and support transactions of Ministries, Departments and Agencies of the government of Sierra Leone. The Ministry of Energy is one of the coordinated Ministries of the PPP Unit.
LEGAL, POLICY, REGULATORY AND CONTRACTUAL FRAMEWORK
Laws, Policies and Regulations
The electricity sector is majorly governed by the following laws, policies, and regulations, classified into policies, primary and secondary legislation.
Policies
Energy Efficiency Policy 2016: The Energy Efficiency Policy aims to improve energy access while transforming the energy sector towards greater sustainability. The recent government agenda for prosperity (AfP) spurs the need for Sierra Leone to expand its energy supply and increase the current rate of access to electricity and power system operations efficiency rated at 55%.[23]
Energy Policy of Sierra Leone 2018: This policy was launched in 2018 and it outlines the status of renewable energy deployment in the country including specified objectives, projections and expected improvements in the energy sector.[24]
National Renewable Energy Policy of Sierra Leone (NREP) 2018: This policy clarifies the Energy Policy of Sierra Leone and extends it to include goals, policies, and measures for solar and other forms of renewable energy.[25]
Primary Legislation
National Electricity Act 2011: This Act came into force in 2011 and is currently the principal law on electricity regulation in Sierra Leone following a repeal of the National Power Authority Act of 1982. It unbundled the National Power Authority into the EGTC and the EDSA. The Act further enabled the participation of IPPs in the generation and distribution of electricity in Sierra Leone.[26] Please refer to EL’s guide on the Electricity Act.
Finance Act 2016: The Finance Act which enacted in 2016 guarantees duty waivers for imported solar products that fulfill International Energy Commission Standards.[27]
Secondary Legislation
Mini-Grid Regulation 2018: This Regulation provides protection for basic mini-grid and full mini-grid licensees. A basic mini-grid license authorises a licensee to construct, install and operate isolated mini-grids with a distributed power of up to 100 kW in aggregate. The basic mini-grid licence comprises of a generation licence which authorises the licensee to produce electricity; and a sale licence which authorises the licensee to sell electricity to consumers in a designated unserved area stated in the licence. A full mini-grid licence authorises the licensee to construct, install and operate isolated mini-grids. The full mini-grid licence comprises: a generation licence which authorises the licensee to produce electricity; a distribution licence which authorises the licensee to distribute electricity directly or indirectly to consumers within a designated unserved area stated in the licence; and a sale licence which authorises the licensee to sell electricity to consumers in a designated unserved area stated in the licence.
For basic licence holders, the Regulations stipulates that where a main-grid utility or a full mini-grid licensee extends its distribution network to an area served by an isolated mini-grid under a basic mini-grid licence, on request of the main-grid utility or the full mini-grid licensee, the basic mini-grid licensee shall decommission and remove all its assets and equipment within two (2) months after the main-grid utility or the full mini-grid licensee has started supplying electricity to the area..[28]
Incentives and Fiscal Policies
The electricity sector in Sierra Leone offers several incentives to foreign and local investors seeking to undertake investments in the sector.
| Legislation/Policy/Incentive | Particulars |
| Goods and Services Tax | There is a 15% Goods and Services tax on electricity in Sierra Leone which was introduced in 2016[29] |
| Exemption from VAT and import duties | Following the introduction of the Energy Revolution Initiative in October 2016, the National Finance Policy has been amended to make all solar PV home systems exempt from VAT and import duties in order to reduce the cost to customers.[30] |
| Renewable Energy Incentives | There are no specific incentives in place for private sponsors to invest in renewable energy in Sierra Leone. However, the Renewable Energy Policy has as one of its objectives to develop policy and regulatory measures to encourage private investments in renewables. It should be noted that while the Government intends to provide the necessary incentives, Sierra Leone’s fiscal resources are limited, and there are competing high priority social and economic programs. Hence, the financial resources for these incentives will have to come from a combination of the Government of Sierra Leone and international funding sources.[31] |
Contract and Transaction Structures
The primary contract and transaction structures underpinning the electricity sector of Sierra Leone are[32]:
- Power Purchase Agreements: These are agreements entered into by the EDSA to purchase electricity from the EGTC and Independent power producers.
- Public-Private Partnership (PPP): This is an arrangement where the government partners with a private sector entity to supply infrastructure assets and services that have been provided by the government traditionally.[33]
- Management Contract: This is a contractual arrangement for the management of a public enterprise by the private sector. Several categories of such contracts include- supply/service contract, maintenance contracts and operational contracts. Supply/service contracts as the name implies are contracts for the supply of equipment, raw materials, energy and power, and labour. Maintenance contracts are contracts for the maintenance of utilities and equipment used for operations. Operational contracts are contracts which involve a private operator that is contracted to perform operational tasks for a fixed fee. A combination of operational and maintenance contracts is known as O&M contracts. An example of an O&M contract would include the O&M contract of Bumbuna hydro and transmission line.[34]
- Concessions: These are contracts whereby the government entity defines and grants specific rights to a private sector entity to finance, build and operate a facility for a fixed period. In Sierra Leone, there are three possible Government entities that own public assets of the electricity sector: The central government, local governments, and EDSA. The Government entity may retain the ultimate ownership of the facility and / or the right to supply the services. Concessions are awarded under two types of contractual arrangements: Franchise or Build-Operate-Transfer (BOT) type contracts.
Under a Franchise arrangement, the Franchisee provides services that are fully specified in the Licence of the franchising authority. The private sector carries the commercial risks and will be required to make investments. In Sierra Leone, Franchising could be an option for EDSA to develop some parts of the distribution grid using private investment (including extension of the grid into peri-urban or rural areas).
In Build-Operate-Transfer (BOT) contracts, the concessionaire undertakes investments and operates the facility for a fixed period, after which the ownership reverts to public sector (i.e., central Government for national services or local councils for local services). In BOT contracts, the Government has explicit and implicit contingent liabilities that may arise due to loan guarantees provided, while a sub-sovereign government and public or private equity has explicit and implicit contingent liabilities on non-guaranteed loans. By retaining ultimate ownership, the Government entity controls policy and can allocate risks to those parties best suited to bear them or it may take measure to eliminate identified risks[35]
Licensing and Permit Process: By virtue of the SLEWRC Act, no person is to engage in any operational stage of electricity generation, transmission, distribution, and retail without first obtaining a license from the Commission. A written application must be made by prospective licensee and all relevant information to support the application alongside the prescribed fee is expected to be submitted to the Commission. Licenses may not be transferred except prior approval is sought and obtained from the Commission and a licence may be renewed after expiration following an application made to the Commission. Furthermore, the Commission has the power to modify licenses and order for their suspension and modification, where it is satisfied that the licensee has contravened a term or condition in the license agreement, the licensee has given false information to the Commission and where it is in the public interest to do so. It should be noted also, that in the process of constructing and operating a power project, the EGTC or IPP is required to comply with all environmental, social, and Health and Safety regulations.[36]
Land Acquisition and Ownership Rights: Under the Act, the Minister of Energy may order for the compulsory acquisition of private land or rights over private land to be used by the EDSA or EGTC after adequate compensation has been paid to the initial owner of the land. However, the EDSA and EGTC may be required to refund such compensation earlier received by the initial owner of the land, to the government in addition to incidental costs, where necessary. The EGTC is given the permission to sell or lease land while executing projects, break up streets, loop trees and enter land upon which it has acquired legal rights over. However, it should be noted that foreign investors are presently not allowed to buy land in Sierra Leone; but are allowed to rent.[37]
COMMERCIAL FRAMEWORK
Pricing: The SLEWRC provides guidelines for public utilities regarding the level of rates that may be charged to end-users. The SLEWRC would take into consideration the interests of the consumers and investors, the cost of production, the assurance of the financial integrity of the public utility before issuing guidelines on electricity rates to be charged.
Tariffs: Electricity tariffs in Sierra Leone are highly subsidized, due to the high cost of imported fossil fuels (either coal or oil) used for power generation.[38] The average tariff rate sits at $1.06 kWh.[39] The tariff methodology employed is the division of the aggregate cost of transmission and distribution and assigned to the customer classes.[40]Each tariff is designed to recover the portion of costs assigned to each customer class. In June 2022, the SLWERC approved a new tariff rate for the electricity sector in Sierra Leone to be effective on the 1st of July, 2022.[41] Additionally, for mini-grids, the different mini grid developers have varied approved rates across the classes of customers.[42]
| Customer class | Units per kWh | Tariff rates (kWh) (SLL)[43] |
| Social band | 0-25kWh per month | 1, 610 |
| Normal band | 25kWh and above per month | 2, 927 |
| High-End Users | 200kWh and above per month | 3, 157 |
| Commercial | All units | 3, 007 |
| Institutions | All units | 2, 760 |
| Large customer and industries | All units | 3, 364 |
| Welding | All units | 3, 352 |
| Street Lighting | All units | 2, 316 |
| Residential Service Charge | All units | 10, 500 |
| Commercial Service Charge | All units | 14 115 |
| Institutions Service Charge | All units | 14, 730 |
| Industries Service Charge | All units | 75, 630 |
| Welding Service Charge | All units | 39, 570 |
| Street Lighting Service Charge | All units | 29, 460 |
In addition, the 2018 SLEWRC Mini-Grid Regulation recently provided some scope for cost-reflective tariffs. The Regulation stipulates that basic mini-grid licence holders (i.e. below 100kW) can charge a consumer any special tariff agreed between the licence holder and the consumer, provided an agreement is reached with the appropriate community authority (chiefs).[44]
Investment Benchmarks: Aggregate Technical Commercial &Collection (ATC&C) losses/system losses, metering, billing, and collection are established investment benchmarks in Sierra Leone. There are significant ATC&C losses in electricity generation, transmission, and distribution networks. ATC&C losses are currently over 45%.[45]There is also the need for an effective metering system that would foster legal access to electricity, and innovations in the process of billing and collection.[46]
Financing Framework: Access to finance in Sierra Leone’s electricity sector is not adequately provided for. There are only a handful of financial institutions and businesses have resorted to self-financing, donor-funding and NGO grants. Entrepreneurs in remote locations often lack the international connections and access to finance in comparison with their counterparts in the capital, Freetown. In essence, financing in Sierra Leone’s electricity sector is mostly secured and provided by international financial organizations such as the International Finance Corporation; and local commercial lenders which operate based on the principles of equity.[47]
PROJECTS AND TENDERS
Project bids are displayed on the official website of the Ministry of Energy in Sierra Leone. Bidding is conducted through the International Competitive Bidding (ICB) procedures in accordance with the Sierra Leone Public Procurement Act of 2016 and its complementary regulations and manual. Bidding is open to all eligible Engineering Procurement and Construction (EPC) contractors.[48]
INVESTMENT CLIMATE
Investment Laws and Foreign Participation: The regulatory framework for electricity in Sierra Leone can be regarded as being conducive for investment. A company may be considered wholly foreign-owned and certain incentives exist for investments in what the government of Sierra Leone considers to be “pioneer industries”, such as solar energy.[49]
Local Content: The Sierra Leone Local content policy requires investors and companies to use indigenous service providers in operating key sectors. Also, indigenous companies must be given first consideration in the award of contracts and concessions. In addition, the employment of Sierra Leoneans must be promoted in all operational stages of power generation, transmission, distribution, and retail.[50]
CHALLENGES AND OPPORTUNITIES IN THE ELECTRICITY SECTOR
| Challenges | Opportunities | Recommendations |
| Seasonal Variation | Increase in Agriculture and crop production will lead to a substantial increase in biomass as an energy source | · Investment in Off-grid solutions and biomass technology for rural electrification
· Investment in energy storage technology to manage system resilience and supply needs during off-peak generation seasons |
| Inadequate Transmission and Distribution Networks | Increase in electricity generation has been recorded over the years, so there may be a need to construct more transmission lines or explore other avenues of attaining increased energy access | Promote financing in transmission and distribution networks and overall grid infrastructure |
| Lack of Private Sector Investments | Public/Private partnerships are needed in the capacity of generation and transmission | Encourage private participation in the electricity sector via the promotion and implementation of an enabling legal, regulatory, policy and fiscal environment |
| Absence of an Enabling Legal Framework for electricity generated from RE sources | Sierra Leone is rich in RE sources | Create an efficient Legal Regulatory and Policy Framework for RE investment and deployment |
RECENT INVESTMENTS IN SIERRA LEONE
2019
- The Rural Renewable Energy Project was funded by the DFID and it supported the construction of 94 solar mini-grids in the country amounting to an installed capacity of 5 MW in rural areas and is expected to be completed by 2021[51]
- World Bank approved $50 million International Development Association (IDA) credit for the Energy Sector Utility Reform Project (ESURP) to support improvement in the operational performance of the national electricity distribution utility[52]
2020
- Karpowership signed agreement to provide electricity to EDSA for five (5) years.[53]Karpowership is a Turkish establishment owned by Turkish company Karadeniz Energy Group, which has two power ships moored off the coast of capital of Sierra Leone, Freetown. These already supply nearly 80% of the contracted electricity to Sierra Leone under a contract signed in 2018.
2021
- July 14, 2021, United States International Development Finance Corporation (DFC) committed to provide $217 million in debt financing for a new 83-megawatt power plant in Freetown[54].
2023
- Alliance for Rural Electrification (ARE) Members InfraCo Africa and PowerGen Renewable Energy (PowerGen) have announced a collaboration to roll out further mini-grids in the country.[55] InfraCo Africa has committed up to US$1.2m to the new initiative which will form part of a wider programme in Sierra Leone by the Universal Energy Facility (UEF).[56] The new project is expected to deliver 1,660 new connections across eight sites, providing first-time connections for homes and businesses.[57]
- Serengeti Energy Limited, a privately-owned company backed by shareholders KfW, Norfund, NDF, Proparco, Stoa, and Swedfund, has successfully commercialized Baoma 1, Sierra Leone’s first Independent Power Project (IPP). The 5MW solar power project marks a significant milestone in the country’s power system, with plans underway to commence the second phase in 2023. The completion of the project will bring a total investment of 35 million USD, further strengthening Sierra Leone’s energy infrastructure.[58]
REFORM INITIATIVES
The Sierra Leone Electricity and Water Regulatory Commission (SLEWRC) was established in 2014 for the purpose of regulating and supervising the affairs of the electricity sector, following which the National Power Authority (NPA) was unbundled into the Electricity Generation and Transmission Company (EGTC) and the Electricity Distribution and Supply Authority (EDSA) in 2015. The Sierra Leone Rural Renewable Energy Project (RREP) was developed in 2017 to support the Government’s energy access objectives and its renewed drive for clean energy access towards low emissions and a climate resilient, gender sensitive and sustainable growth trajectory.[59]
United States of America Millennial Challenge Corporation’s $40.5 million Sierra Leone Threshold Program (2016–2021) focused on establishing a foundation for the effective and financially viable provision of electricity and water services in Freetown[60].
Also, the $11.9 million Electricity Sector Reform Project (ESRP) aimed to improve the electricity sector’s institutional and legal frameworks, planning capacity, and operational efficiency[61].
The $7.6 million Regulatory Strengthening Project (RSP) aimed to build the capacity of the new regulator, improve sector governance, and support the long-term financial sustainability of the electricity sector[62].
The Minister of Finance, Sheku Fantamadi Bangura, on 31st January 2023 signed a $75-million-dollar loan financing agreement with the World Bank for the Installation of a 40MW Solar plant and backup battery system in Sierra Leone.[63]
DISPUTE RESOLUTION AND JUDICIAL STRUCTURES
Utility service providers in Sierra Leone have panels that address complaints relating to electricity matters. After complaints have been filed to the panel of the utility service provider in question, investigations are initiated by the panel, and the complaints are resolved by same. Where the customer is satisfied with the outcome of the matter, the issue comes to an end. However, where the customer is not satisfied, a complaint is to be submitted directly to the Commission. The Commission, in response, sends a copy of the complaint to the Utility Service Provider; makes preliminary enquiry(ies) and mediates a settlement of the complaint. If the customer is still not satisfied, the customer is to refer the matter to the Consumer Service Committee for a formal hearing. The Committee will produce a report by way of recommendations to the Commission, after which the Commission makes a final decision on the matter. When a final decision has been made, the Commission informs the customer and the concerned Utility service provider.[64]
DISCLAIMER
This document titled the “Legal and Regulatory Brief” of the referenced country is not expected to form the basis of, or be construed as standard legal advice; nor should any of its contents and representations be strictly relied upon for any activities. Electricity Lawyer (EL) will not be liable for decisions whatsoever that are made based on the contents of the document.
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[1] The Glossary of Terms referenced in this brief can be found in our Glossary of Industry Terms.