shortages, which in turn have exacerbated power shortages. Beyond known cases such as Côte d’Ivoire, estimating underpricing of natural gas, however, is considered outside the scope of this study.

# 2.4 Limitations due to approach and data gaps

While following the basic framework employed in the AICD with some modifications for improvement, the approach in this study has a number of limitations for the benchmark cost of service, which is needed to estimate underpricing:

- The procedure does not calculate the cost of service based on the least-cost expansion plan. Estimates of supply costs are limited to existing assets, and future capacity expansion, which can be considerable, is not considered. The computed average unit capex cost for power generation in this study and in the AICD (“historical cost”) would be comparable to the unit cost that should have been calculated if the power mix remains broadly the same in the least-cost expansion plan. An increasing shift away from oil to other forms of power generation, addition of substantial non-hydropower renewable energy (which is largely missing from the present analysis, which is based on the existing assets as of mostly 2013 and 2014), and any other marked changes in the power mix could make the calculations depart measurably from that for the least-cost expansion plan.

- Hidden-cost analysis is subject to the typical limitations of top-down benchmarking analysis, which relies on comparing reported values against reference values. Estimating benchmark performance for each utility is beyond the scope of this regional study. This one-size-fits-all approach has obvious limitations and cannot substitute for a detailed utility-specific analysis. Efforts were made in this study to break down benchmarking of staffing into generation, transmission, and distribution, but vastly simplifying assumptions had to be made about capex. Further limitations of the overstaffing analysis are described in section A1.6 in annex 1.

- While capex is calculated, opex is taken from utility financial statements, except for the addition to reported opex of the calculated fuel price subsidy in Côte d’Ivoire, discussed in section 2.3. Opex should be based on benchmark performance in the least-cost expansion plan, but is not and is different from that under optimal performance. On the one hand, often less than optimal opex is actually spent on maintenance and repair due to cash flow and other financial limitations (see the next bullet). On the other hand, unit opex may be markedly higher if sub-optimal planning leads to greater reliance on diesel-powered generation and other expensive forms of coping.

- Expenditures not incurred by the utility are almost never reported in financial statements. Utilities facing financial difficulties—which is the case with most in SSA—have been known to cut costs by not carrying out necessary maintenance and other services. Underspending on maintenance and refurbishment is virtually impossible to capture by studying utility financial statements and annual reports, yet years of underspending on maintenance could lead to the need for a large bailout from the state at some point. South Africa’s recent power outages, for example, have been exacerbated by breakdowns and declining availability of Eskom’s power generation capacity. Quantification of poor maintenance, a chronic problem in SSA, is not possible without doing much more detailed analysis, which is beyond the scope of this study. Tax expenditures (tax reductions or waivers) are almost certain not to be reported. Where there are budgetary transfers to the utility, such transfers may be reported in financial statements. But if transfers go to other parties—such as the government’s paying for emergency power rentals or paying fuel suppliers directly—such input subsidies are usually not reported.

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