EAST AFRICA’S INFRASTRUCTURE: A REGIONAL PERSPECTIVE face an increase in long-run marginal costs owing to the need to develop a much larger amount of power from larger schemes that are more expensive than those that would be built to meet domestic demands alone.

Hydropower is more expensive in EAPP/NB than in SAPP, where the Democratic Republic of Congo can provide inexpensive hydropower. As a result, the difference in long-run marginal costs under trade expansion and trade stagnation is narrower in EAPP/NB than in SAPP. Even with trade stagnation, in which no interconnectors are built, generation costs in Ethiopia (the cheapest source of **Table 3.6 . Long-run marginal costs of power in EAPP** hydropower in EAPP/NB) are four times higher than in the Democratic Republic of Congo (the (US Trade Trade cents/kWh) expansion stagnation Difference cheapest source of hydropower in SAPP).

|(US<br>cents/kWh)|Trade<br>expansion|Trade<br>stagnation|Difference|
|---|---|---|---|
|CAPP|7|9|–2|
|**EAPP/NB**|**12**|**12**|**0**|
|SAPP|6|7|–1|
|WAPP|18|19|–1|
|Burundi|11|15|–4|
|Egypt|9|9|<1|
|Ethiopia|19|16|3|
|Kenya|12|13|–1|
|Rwanda|12|12|<1|
|Sudan|13|13|<1|
|Tanzania|10|8|–2|
|Uganda|12|11|–1|

Indeed, under either trading scenario the long-run marginal cost of power in the EAPP/NB area, at $0.12 per kilowatt-hour, is substantially higher than the cost of $0.06 to $0.09 per kilowatt-hour in SAPP and CAPP. Thus, from a competitiveness perspective, East Africa will never be able to compete as effectively in energy-intensive industry as central and southern Africa, both of which have access to lower-cost hydropower resources.

For EAPP, regional power trade could result in gains of more than 20 percent annually accruing to the power pool members. However, individual countries stand to earn higher returns. For power importers, the trading decision can be thought of as an investment in cross-border Source: Derived from Rosnes and Vennemo 2009 Note: The East African Power Pool is expanded to include key Nile Basin trading partners Egypt, Ethiopia, and Sudan. CAPP = Central Africa Power Pool; SAPP = Southern African Power Pool; WAPP = West African Power Pool.

interconnection that yields an annual return in terms of access to lower-cost power. On this basis, it is possible to calculate returns to trade for individual importers. Limited evidence suggests that importers stand to gain significantly from trade because they obtain cheaper power for a nominal investment in interconnectors. For example, one-time investments of $10 million and $30 million in interconnectors by Burundi and Kenya, respectively, would yield returns of more than 200 percent for Burundi and more than 400 percent for Kenya. Power exporters also stand to make significant returns on the investment, ranging from 12 percent to 43 percent per year. Sudan, which would bear the heaviest burden of spending for regional trade, stands to earn a return of 12 percent per year for a one-time investment of $1 billion in regional power infrastructure. Ethiopia, with the second-largest burden of spending for regional power, would enjoy a rate of return of 22 percent from a one-time investment of $1 billion.

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