Power for the people and incentives for partners
SWITCHED ON LIBERALIZATION COULD TRANSFORM MADAGASCAR'S ENERGY SECTOR BY ATTRACTING FOREIGN INVESTMENT. RURAL ELECTRIFICATION IS A PRIORITY OF THE GOVERNMENT'S DEVELOPMENT PROGRAM

MADAGASCAR’S huge potential can be seen most clearly in its under-exploited energy and mineral resources, and the island’s high plateaus offer wide scope for further hydro-electric development.
The French brought electricity to the capital, Antananarivo, in 1920. Yet today, great swathes of rural Madagascar, where most of the population lives, are still without it. Rural electrification is therefore a high priority in the government’s development program, with the active encouragement of the World Bank.

ELISÉ RAZAKA Former Minister of Energy and Mines

“The problem is that the rural people’s purchasing power is low, and the investments needed are high,” says Elisé Razaka, Former Minister of Energy and Mines. “So we’ll need to subsidize private companies that would like to take on the villages.”
In contrast to the mid-1970s, when the then government nationalized many businesses operating in the energy sector, privatization and public-private partnerships are now the order of the day.
With the World Bank’s help, Madagascar’s Electricity Law was changed to liberalize the sector, starting with production. Distribution and other downstream activities are slated to be privatized at a later stage.
“We have inspected lots of sites up in the high plateaus, and are now looking to the private sector to build the infrastructure and exploit them,” Mr. Razaka says. “The state-owned energy company, Jirama, will make a contract with these companies to buy the energy produced.”

DÉSIRÉ RASIDY General Manager of Jirama

Jirama’s General Manager, Désiré Rasidy, admits that moving from a state-controlled environment to a liberalized system has not always been easy, but accepts the necessity.
“Jirama is ready, because we know our limitations,” he says. “This country needs $400 million worth of investment for the rapid development of electricity: $200 million for production, $150 million for transport and distribution, and $50 million for rural electrification.”
The World Bank would like to see a competitive element in the privatization program, with several operators involved, but Mr. Rasidy is skeptical. “How would we split everything up? By municipalities and regions, like in Chile? The regions here are unequal; some are semi-desert.”
In the petroleum sector, privatization has been under way since the monopoly enjoyed by the state oil company, Solima, ended in 2000. For example, a private company called Galana acquired Solima’s fleet of oil-transporting trucks, a number of gas service stations, and the refinery at Toamasina.

JACQUES AIMÉ RAHARINIRINA Delegate Administrator of Solima

Delegate Administrator Jacques Aimé Raharinirina says, “What remains in Solima’s hands are the non-petroleum assets, including office buildings and some villas. We still have about 200 employees, of whom 106 are sailors. So we are thinking about moving into new activities, as we have experience, personnel, and some infrastructure.”

That infrastructure includes 60 gas service stations that were not sold off. “We’ve got to get them working again, and refurbish them with the help of partners,” Mr. Raharinirina says.
Parallel to the big changes taking place in Madagascar’s energy sector, the mining sector has also been going through a period of significant reform.

It, too, falls under the authority of Minister Elisé Razaka, who is proud of the country’s new Mining Laws, which were elaborated in 1999, in collaboration with the World Bank. Under these changes, the state has withdrawn from the sector, and mining regulations have been simplified.

GOING PRIVATE A number of state-owned assets have been sold-off

One of the laws, on which American experts provided advice, relates to investment in the sector and has considerably enhanced the country’s attractiveness to foreign direct investment (FDI). “It really guarantees investment, because if there is any final litigation, it goes to international arbitration,” says Mr. Razaka.

“The Malagasy state is there to facilitate, to help the private sector install itself, and to make investments,” he explains. “Everything is done to help the investor: freedom to repatriate hard currency, no taxes on imported equipment, and so on.”
The island is blessed with mineral reserves, many of which have lain untouched—partly because of a traditional reverence on the part of the local people for the land of their ancestors. Madagascar is already the world’s leading producer of mica.

“As far as mineral resources are concerned, we really have the gamut,” Mr. Razaka says. “Ilmenite, radium, iron ore, copper, cobalt, chromium, etc. In fact, everything people need for the aerospace and electronics industries.”
In the mid-1990s, deposits of precious stones were discovered, including sapphires, rubies, and emeralds. This led to a sort of Wild West atmosphere in some remote areas, as Asian and African gem traders turned up, eager to capitalize on the new discovery.

One of the challenges the government faces is how to regularize such situations. “The state of mind here is different these days,” says Mr. Razaka. “We want transparency, so investors are reassured.”