African power utilities typically operate at a low level of efficiency. Almost a quarter of the power they produce is lost on the distribution network as a result of technical inefficiencies and various kinds of theft, compared with only 10 percent for a well-run utility. Less than 90 percent of charges billed to customers are actually collected by utilities, compared with 100 percent for a well-run utility. In countries such as Burkina Faso, Ghana, Niger, and Uganda, the value of uncollected power bills can run as high as 1 percent of GDP. Such inefficiencies lead to cash shortages that prevent utilities from maintaining networks, replacing parts, and investing in infrastructure improvements.
Reforms are the key to improving utility performance (see figure). Countries that have embraced the reform agenda, that have well-developed power regulatory frameworks, and that do a better job of managing their state-owned utilities suffer far less from inefficiency than those that have done little or nothing to fight waste. Measures that seem to have a substantial impact on reducing hidden costs are private participation in power distribution and (among state-owned utilities) performance contracts that offer clear incentives for managers to improve efficiency.
Reform measures have a material impact on hidden costs