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International Trade in Energy in Ethiopia: Challenges and Opportunities
Energy is a sector that plays a driving role in socio-economic advancement; poverty reduction and enhancement of the quality of life. Energy relates to all sectors of the economy as well as forming a sector itself. For decades Trade in energy has been considered as an exceptional case of International trade, different from other trade sectors and products. This is because of a variety of factors including the distinctive features of the product and the unprecedented challenges confronting it. Energy plays a decisive role in countries’ economies as all sectors use energy. Besides, Energy is one of the most crucial elements of modern daily life. Thus, trade-in energy constitutes, for every country, a major part of international trade.
There are various challenges and concerns surrounding the global energy trade. Such challenges comprise a mismatch between the growing demands and inert supply of energy, absence of distinction between energy products and energy services, and dependence of energy trade on fixed infrastructure. International trade in energy is regulated by general international trade frameworks like the WTO and specialized trade frameworks like the Energy Charter Treaty, other bilateral treaties, and domestic laws. The specialized regulatory frameworks set out comprehensive rules than the general ones.
Ethiopia is one of the few African countries gifted with various energy resources; in particular, the country’s hydro-power potential can be an important input to its economic development. The regulation of the energy sector was largely not centralized until recent times let alone its global energy trade. Although there are attempts to regulate regional energy trade through a specialized regional regulatory instrument like the draft market rules of East African Power Pool, the regulatory frameworks governing Ethiopia’s international trade in energy are largely domestic laws and energy sale contracts (i.e. power purchase agreements). The Energy proclamation no. 810/2013 and Regulation no. 447/2019 are the basic laws setting conditions for the exportation of electricity. The Ethiopian Energy Authority Establishment Regulation no. 308/2014 instituted the Ethiopian Energy Authority to be a mandated government organ to regulate cross border electricity trade. The authority is granted with the power to examine and approve essential cross border electricity trading instruments i.e. the electric power purchase agreements under article 4 (7) of Energy Proclamation no. 810/2013 and Article 77 (3) of Regulation no. 447/2019. It is also conferred with the power to regulate Ethiopian international trade of electricity through the conditions set for importation or exportation of electricity under the regulation. The conditions reflect the regulatory mechanisms envisaged to control the cross border power trade. These mechanisms can be categorized into Legal mechanisms, Technical mechanisms, and Custom regulations. Any applicant who wants to engage into the export/import trade of electricity is required to produce a power purchase agreement, acceptable license issued by the appropriate authority to participate in the spot market, disclose the source and amount of desired export/import of power, assess the possible impact of the desired export/import on the existing customers and the economy and produce an applicable agreement with entities in the country where the electricity is to be exported. An exporter or importer who applied for a license has to also make its generation, transmission, and distribution compatible with the national grid code.
In another respect, the Ethiopian trade in Energy products is primarily conducted and regulated by a sole public Enterprise. The Ethiopian Petroleum Supply Enterprise is the exclusive importer of Energy products such as coal and petrol. The enterprise is authorized by Regulation no. 265/2012 with the functions of supplying petroleum to distribution companies by importing clean products and by importing and processing crude oil on the basis of an assessment of the country’s demand. It imports energy products through three modes i.e. open international tendering, restricted international tendering, and based on government to government dealings.
The economic development of the East African region in general and Ethiopia, in particular, is hindered by various factors; one of the reasons is the lack of adequate supply of energy to promote industrialization. So, in order to properly address the energy problem in the region and the country from all aspects, it is necessary to formulate comprehensive energy trade regulatory frameworks that guarantee the least-cost and standard monitoring. This depends on the level of the countries’ energy resource endowment and socio-economic policies. Actually there are encouraging prospects for Ethiopia in this regard. The development of an efficient energy market, the establishment of an independent national regulatory body, and the adoption of essential international trade principles in domestic law are promising steps towards creating a competent regulatory framework for the country’s international trade in Energy.
Conversely, there is a range of issues that are becoming a challenge to the regulation of Ethiopia’s international trade in energy. The lack of infrastructure to regulate the cross border energy trade, structural problem of regulatory institutions, and discriminatory import practices are among the major ones. Since Ethiopia is considering the energy sector to be a major source of foreign currency for the country, it should at any cost setup advanced infrastructure that enables effective cross border energy trade regulation. The country should also empower independent regulatory institutions to monitor its energy trade. Especially the mandate of the Ethiopian Energy Authority shall be enforced properly. For instance, any exporter or importer of electricity shall get approval of its power purchase agreement by EEA before exporting or importing power. Finally, the country can promote its economic development through the energy trade sector in a much-enhanced manner if it eliminates some discriminatory trade practices. Such operations are mostly observed in urgent purchases of petroleum products through restricted tendering by the Ethiopian Petroleum Supply Enterprise. Therefore this state trading enterprise should abandon such mode of purchases to comply with the international trade principle of non-discrimination.
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