Competitive Tendering (Concessions, Auctions)

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Overview

Competitive tender is a form of tender where different organizations are asked to tender for a contract, especially for government or local government work.

Typical Schemes

The following schemes exist:

• Competition for the market (bidding for concessions)
• Open descending subsidy auction

Bidding for Concessions

• Bidding for Concessions (Michael Klein)

Experiences

Senegal

The concession approach in Senegal began with creation of the rural electrification agency ASER in 1998, driven by the World Bank and other international donors. This development, again, was driven by sector reform and the creation of a law, in 1998, that introduced first steps toward liberalisation of the energy market (IPPs were allowed, but the state utility remained the single buyer).

Three types of concessions were put into ASER's toolbox:

• PPER concessions (Programme Proiritaire d'Électrification Rurale - Priority Electrification Programme)
• ERIL concessions (Électrification Rurale par Initiative Locale - Rural Electrification through local initiative)
• PREM concessions (Projet Énergétique Multi-Séctoriel - Multi-Sector Energy Project)

One of the goals seems to have been to invite private investors from abroad into the Senegalese market. In addition, different bidders can compete in a concession, based upon the number of people served with a given subsidy. This is hoped to create an effective lever to bring down electricity prices for rural customers. Long-term experience will have to show if bidders will actually live up to their commitments.

As of mid-2010, four PPER concessions have been awarded, no ERIL concession has been awarded (although several concessionaires operate under temporary licenses), and no PREM concession has been awarded.

PPER

At the outset, the country has been divided into about 20 concessions, covering all unelectrified rural areas. As interest was limited, these were consecutively consolidated into 13 concessions. Each concession is financed by a donor (World Bank, KfW, AfDB, AFD etc.).

For investment, a concessionaire may receive up to 70% subsidy from the state; 20% are the concessionaire's contribution; and 10% are paid by the user / final customer.

A concession is granted for 25 years.

ERIL

ERIL concessions are complimentary to PPER concessions. From the outset it was clear that PPER concessions would be cumbersome and lengthy to implement, and would not reach all customers in a given area. Therefore, and in order to accomodate local initiative, the tool of ERIL concessions was created.

The subsidy scheme is the same as in the other concessions: up to 70% by the state; at least 20% by the concessionaire; up to 10% by the user. ERIL concessions are granted for 15 years. GTZ/PERACOD supports ASER in the process of creating ERIL concessions.

PREMS

PREM concessions were initially created to promote productive use of electricity, and to allow for electrification of social infrastructure. This kind of concessions has drawn the least attention from the private sector.

Further Information

• Financing and Funding Portal on energypedia