Abstract
Guinea has various sectors, which contribute significantly to the economic GDP in the country. There are various major contributors to the country’s economy including the mining sector and agriculture. Production of commodities and services in the area has a major effect on the growth and development of the economy, in Guinea. Electricity generation presents an imperative sector in the country’s economic system as it is a major driver of production in the economy. Generally, the production of electricity is generated through a combination of thermal and hydroelectric plants. Equatorial Guinea has an estimated generation of 11,000MW of hydro power potential and a 50% of it is economically recoverable. In the recent years, Alba field has come up with an expansion strategy, which is aimed at increasing the production of power in Equatorial Guinea.
Introduction
The Punta Europa plant is usually known for the production of natural gas in Equatorial Guinea. After its initiation in 1999, the plant transmits electricity to Bioko Island and its environs. The Punta plant had capacity expanded in 2000 to 28MW, though the output remained constrained. Equatorial Guinea electricity is owned and produced by the government through a government corporation. However, the government had interests in privatizing the company though no investors have shown interest in the venture. The company has experienced numerous challenges resulting from aging and poor management. Additionally, there has been numerous complaints from consumers regarding prolonged blackouts experienced in the country. According to statistics, Equatorial Guinea generation of electricity was 15.4 megawatts and 30 million kilowatt-hours of electrical generation in 2003 (LLC Books, 2010).
Production of electricity in Guinea is solely done by Sociedad de Electricidad de Guinea Ecuatorial (SEGESA) Company. The electricity company exhibits a monopoly type of market structure. A monopoly market structure has various features, which comprise of a single producer of a certain commodity or utility. In this case, SEGESA Company is a governmental monopoly, which produces electricity for Equatorial Guinea citizens. The company has experienced numerous challenges in its operations, in the region (International Monetary Fund, 2002).
The government of Equatorial Guinea has full control and management over the company in terms of production and pricing of electricity. Electricity production in Equatorial Guinea has, over the years, fluctuated due to poor management in the company and demand for electricity. The company has alternatively contributed to the government revenue and thus helped in the economic growth of the country. The economic situation in the country significantly influences the performance of the company. Apart from SEGESA Company there are other companies like Sonagas, which is responsible for the production of natural gas in the region. GE Petrol is the national oil producing company while the EN LNG Company is renowned for production of liquid natural gas (USA International Business Publications, 2003).
SEGESA Company exhibits all the features of a state run monopoly since it’s the only company producing electricity in the region. The company operates under the objective of maximizing profits for the entity. Additionally, it is responsible for making its own prices since there is no competition for the production of electricity. SEGESA Company is thus a price maker, and it exhibits price making power. The company determines prices to offer through the quantity supplied for electricity. Therefore, the quantity of electricity thus dictates the prices to be set by the company for electricity.
High barriers to entry exhibited by the industry, clearly, shows that SEGESA is a monopoly company. Other players in the market find it hard to enter the market due to high restrictions and conditions in the market structure. The company also shows a feature of price discrimination within the industry. In this case, the company can raise or lower its prices depending on the elasticity of the market. It derives its monopoly powers from the barriers to entry imposed by the industry. Barriers to exit also offer a considerable power for the monopoly market structure (International Business Publications, 2004).
The elasticity of the utility is determined by the demand and supply of electricity, in the region. Electricity is a commodity that is commonly used by the citizens of guinea thus makes it a necessary commodity especially to people living in the urban areas. The higher a commodity is demanded; the high prices and thus have a low elasticity. A commodity with low elasticity usually has no substitutes and thus makes it the only commodity available in the market. A commodity with high elasticity, on the other hand, has a lot of substitutes and thus the prices are low for such commodity. From this perspective, electricity production is solely by SEGESA Company and thus the product has no available substitutes. The production of electricity by SEGESA Company is controlled by the state and thus makes it a monopoly company.
The forces of demand and supply affect the production and marketing of electricity in a significant way. Pricing of electricity is driven by the demand and supply forces within the region. As a result of high demand for electricity in the region, the prices relatively go up. The supply of electricity has also a significant effect on electricity prices in Guinea. As a result of low supply of electricity, the demand goes up, and thus prices increase. However, with a monopoly type of market, the forces of supply and demand do not significantly affect the price as the monopolist determines the quantity supplied, which in turn affects the product prices. A monopoly market structure has market power over prices and quantity produced. Therefore, electricity supply and demand do not significantly affect the prices. As a monopoly company, it can thus regulate its prices depending on the quantity produced (Global Investment and Business Center, 2004).
Growth of electricity, over the years, has been insignificant as a result of improvement in economic conditions in the region. Production of electricity in Guinea has a significant influence on the economic growth and development in the country. Guinea's government controls the operations and activities of the company. It is thus evident mismanagement and poor control associated with government entities are prevalent in the company. Therefore, electricity production and pricing is significantly affected by these practices. The company has over the last five years experienced a little growth in the economic aspect of electricity. Managerial practices and consumers can be associated with the low economic growth (Liniger-Goumaz, 2000).
Low growth in the production of electricity at SEGESA Company has affected the economy. Electricity is an important utility by consumers in the Equatorial Guinea. The government gets revenue from its production and thus uses the collections to implement long-term, as well as short-term plans. As a result of low economic growth for electricity in the region, the economy has been adversely affected. A significant economic growth in electricity production will in turn affect the general economy. Therefore, due to the low development and growth of electricity in Equatorial Guinea, the overall economy has not improved as much (OECD, African Development Bank and United Nations Economic Commission for Africa, 2007).
According to statistics, economic growth in 2012 expanded with a margin of 8 percent compared with a 9 percent from the previous year. The SEGESA Company had experienced an increase in electricity production during the period. As a result, country’s economic growth had increased by a small margin between the two successive years. It is thus important to note that the overall economy of the country is usually affected by the production of electricity.
The SEGESA Company has been the only company producing electricity in Equatorial Guinea. The company has been the producer of electricity around the region thus making it a monopoly company. Therefore, through government control and intervention, the company has exhibited monopoly features of a market. It has regulated its prices through its position to have monopoly powers. In the recent years, the company has been regulating the quantity of electricity produced without affecting prices. This feature allows the company to regulate its prices according to the quantity produced (World Bank, 2005).
In conclusion, SEGESA Company has been in full support of the government through funding and pricing of electricity. On the other hand, electricity consumers in the country have shown a continued support to the functioning and its operations. Electricity consumption has been considerably higher comparing to the amount of consumers available. Therefore, the presence of the SEGSESA Company as a monopoly company has been of significant to the overall economy in the region.
References
Global Investment and Business Center. (2004). Equatorial Guinea Business Opportunity Yearbook. California: Int'l Business Publications.
International Business Publications. (2004). Equatorial Guinea Company Laws and Regulations Handbook. Chicago: Int'l Business Publications.
International Monetary Fund. (2002). Republic of Equatorial Guinea. New York: International Monetary Fund.
Liniger-Goumaz, M. (2000). Historical dictionary of Equatorial Guinea. New York: Scarecrow Press.
LLC Books. (2010). Energy in Equatorial Guine: Oil and Gas Companies of Equatorial Guinea, Power Companies of Equatorial Guinea, Eg Lng, Sonagas, Gepetrol, Segesa. New York: General Books LLC.
OECD, African Development Bank, United Nations Economic Commission for Africa. (2007). African Economic Outlook 2009: Country Notes: Volumes 1 and 2. California: OECD Publishing.
USA International Business Publications. (2003). Doing Business and Investing in Equatorial Guinea Guide. Chicago: Int'l Business Publications.
World Bank. (2005). Doing Business 2012: Doing Business in a More Transparent World. New York: World Bank Publications.
