Transparency is the Swiss Army Knife of development
Advocacy is hard when you have too many arguments in your favor
Not long ago, many governments signed secret contracts for loans, oil, and mining. The terms, ownerships, and revenues were all kept hidden from their own populations. That’s much rarer today and in many countries is now unthinkable. One lesson: norms can change.
The same thing is happening in electricity contracts. Here are a few green shoots that happened just in the past few weeks:
Ghana’s energy minister announced that all future power purchase agreements would be published on the ministry website.
South Africa’s courts ruled that its utility can no longer shield its diesel and coal contracts from the public, removing any excuse not to disclose power contracts too.
The Asian Development Bank quietly launched a facility to support countries taking steps toward electricity contract disclosure.
Contract transparency in the power sector is approaching a turning point.
All these little steps add up, in my view, to a trend. We’re moving to a place where power contracts – especially those by public utilities with public guarantees – will be routinely disclosed. A small band of energy pirates, led by Rushaiya Ibrahim-Tanko and Mohamed Badissy, have been methodically making this case and quietly supporting steps toward openness wherever we see opportunities.
Yet, here’s one of the ironies of our campaign that has made it so difficult: power contract transparency has too many arguments in its favor.
For consumers, it can reduce prices.
For investors, it gives better insight into the market to help price offtaker risk.
For planners, it can give a fuller picture of the whole power system.
For governments, it provides greater clarity on options to grow your economy.
For finance ministers and central bankers, it can mitigate debt risk.
For governance advocates, it can reduce corruption.
For clean energy advocates, it can speed up deployment.
For national security types, it can shed light on who’s using energy as a geostrategic lever.
That’s why transparency is the Swiss Army knife of development.
So if it’s such a good idea, why isn’t transparency happening naturally?
Excellent question. I think a lot about the barriers we face.
Two common objections to transparency I hear are pure rubbish.
Confidentiality clauses. Some claim contracts like PPAs are commercially confidential so cannot legally be disclosed. Yet old contracts can be redacted of private info while disclosure timelines can be baked into future contracts. Solved.
Legal intellectual property. Some law firms apparently claim power contracts are their proprietary IP. Complete hogwash. These contracts are mostly the same. So why would anyone (except the lawyers) need to rewrite them from scratch? Regardless, countries should move to standard contracts for speed and efficiency. Be like Google.
Some genuine objections exist that need to be confronted – or designed around.
Inertia. Changing any status quo is always hard. “We’ve always done it this way” is a really dumb answer, but often is the real explanation. Changing requires someone to get out of their chair and take positive action. It’s easier to do nothing. So government leaders can force disclosure. Or private developers can collectively push for it. Or, perhaps, the IMF can set a new standard by requiring PPAs and related liabilities be included in risk reporting.
Myopic dealmaking. Some hold a concern that switching from secret contracts to open ones will disrupt any negotiation that is currently underway. For instance, the World Bank mothership might like the idea of open contracting as a policy, but the bank’s private sector deal teams object because they have live projects that they think (probably rightly) will get scuttled. Too bad. Your individual deal is not as important as the future of a country.
Interest group siloes. This one is on my mind a lot these days (and is what sparked this post). When we make the wrong argument to an audience, we lose them. If we’re pitching a finance minister, they might care about debt risk but not much about consumer cost or the generation technology. A climate advocate will care a lot about clean energy competing fairly with fossil fuels but not about investor risk, etc. I’ve found that the best way to get someone to accept your idea is to connect it to an existing priority. Help people solve their immediate problems. Yet if we don’t know what their real priority is, our chance of making a winning argument is low. Asking does not work. We have to build relationships and watch for revealed preferences.
So contract transparency is making headway. We’ll continue to make our case, deploying our Swiss Army Knife approach to different audiences.
I’m confident that open contracting for power will one day be the norm. We’ll forget how we got there, and wonder how it could have ever been another way. The path is yet to be blazed to a world of open power contracts delivering cheap, reliable electrons for everyone. But that path is now running through Accra, Pretoria, and Manila.
We need transparency of electricity costs here in the US, as well. It's impossible to find out how much utilities actually spend to build batteries, wind turbines, and solar farms. All we see are amounts of subsidies, technology price forecasts, etc. Utilities and vendors claim NDAs required for competitive reasons. State governments pushing green sources also keep the secrets. Utilities don't want the public to know just how much 8% ROI money they are getting from wind/solar/battery capital expenditures. All these get debated at PUC meetings, and commissioners protest price rises, but ultimately utilities get their traditional 8% ROI. I can't but bonds for that.
I suppose there is some (not much) risk. WPPS and Seabrook went bankrupt, BUT the creditors were eventually paid by surcharges on electric bills. Payments to Seabrook creditors only stopped a few years ago. That risk does not justify 8% ROI.
I understand why contract transparency sounds like a good idea but it comes with unintended consequences such as reduction of competition and innovation, increased value of political favoritism, and higher costs due to administrative burdens. The only Swiss Army knife to any economic problem is a free and open market. Free and open markets largely solved global poverty and if they can do that, any problem with electricity is trivial in comparison.