consider capacity expansion. A further 18 countries cover opex but do not collect sufficient revenues to cover capex on the new replacement value of existing assets (level two on the financial viability ladder). Six countries have financial losses in excess of US$0.20 per kWh billed of which two are in excess of US$0.30/kWh (Comoros and São Tomé and Príncipe).

These financial losses translate into QFDs of 1.5 percent of GDP on average, and more than 5 percent of GDP in The Gambia, São Tomé and Príncipe, and Zimbabwe. QFDs represent a fiscal burden on the government through direct subsidy transfers, capital investments, bailouts, tax breaks, and other means. The QFD in South Africa stands out in the region, accounting for almost US$11 billion per year. Indeed the national utility Eskom has been severely financially strained in recent years, driven by a dilapidated and aging generation fleet, delays in new capacity coming online, and repeated requests for tariff increases being only partially met by the regulator. The persistent revenue-expenditure gap has led to several bailouts from the government, including debt forgiveness in the form of the Subordinated Loan Special Appropriation Amendment Bill passed by the South African parliament in June 2015, converting the 60-billion-rand loan granted in 2008 (worth US$7.3 billion at the time) to the national power utility Eskom to equity. The QFD in Ethiopia is dominated by capex costs that reflect the major capital expansion undertaken by the government over the last 15 years. As Ethiopia tries to position itself strategically as a supplier of low-cost and clean energy in the sub-region, the government has financed significant increases in hydropower capacity and associated T&D infrastructure.

There may be valid reasons for large QFDs, such as state funding for capital expansion programs as in Ethiopia. It is important for such expenditures to be deliberate and transparent. Where this is not the case, “hidden” costs and thus the “hidden” (but quite real) contingent fiscal liabilities can become a problem because these are not sufficiently openly and explicitly presented for policy debates and decisions. In addition to the large fiscal burden that QFDs may impose, another consequence of large QFDs is an undercapitalized sector in a state of disrepair. Frequent blackouts that result force businesses to rely on expensive diesel generators and factories to shut down, with serious negative macroeconomic consequences. South Africa is a good illustration, with rolling blackouts taking a toll on the economy and harming economic growth. The adverse macroeconomic effects of power outages are discussed in Bacon and Kojima (2016, chapter 4).

The data set built through this study provides a view on long-term trends through comparison with AICD results. Substantial improvements are apparent in several countries. QFDs in Tanzania fell sharply in 2014 following tariff increases, helped further by a steady reduction in T&D losses. The QFD in Nigeria was very large in the AICD and remains large in the present study but has fallen following privatization and continuing power sector reforms. On the other hand, some countries appear to have slipped in the financial performance of the sector. Botswana is one example where the QFD was almost zero in the AICD, but has increased due to delays in the commissioning of new power plants, forcing reliance on emergency power rentals.

The results in this paper are sensitive to oil prices and hydrology risk. One concern is whether the reference year could have been an outlier—for example whether the reference year was a year of abundant rainfall or severe drought in a country that depends significantly on hydropower. For the 23 countries with three or more years of data available, the multiyear analysis suggests that the reference years selected for each country do not appear to be outliers.

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