Power is a critical infrastructure that can boost and sustain the economy of any nation. But it is disheartening and mindboggling that in the 21st Century, Nigeria is still lagging behind in power supply. Perhaps it is a matter of conception that we have not been able to get the right mix of how to attract quality investments.
What Nigerians are very certain of is that in many sectors that government has intervened, there has been a lack of sincerity in terms of how those sectors have been managed or handled. That’s one of the reasons people are advocating for either privatisation or liberalisation as we have in the case of telecommunications.
The Electricity Reform Act of 2005 had an underlying restructuring component to correct observed anomalies in the power sector. But there are huge questions surrounding it. No doubt, this attempt by government to translate power policy into concrete deliverables witnessed implementation challenges. This, to a large extent, was attributed to the claim that the Reform Act was not authored by Nigerians, having originated from the International Monetary Fund (IMF) and World Bank.
The bid criteria for the privatisation exercise were defined, and they were modest, as contained in the Act. But certain concerns were raised in the Bureau for Public Enterprises (BPE) during the bid process. Expression of Interest (EOI) was called; companies were pre-qualified, and after pre-qualification, the bid process proper commenced. Surprisingly, the number of bidders that picked up EOI forms and those that actually bid did not tally. Along the line when political interest began to rise, most of the original bidders began to attach themselves to one political group or another.
The same scenario played out during the sale of Afam Power Station. A faction of the Nigeria Labour Congress (NLC) followed the bid process and the faction was among the two listed. At the last minute, it was reported that BPE transferred the bid to the owners of the Transnational Corporation of Nigeria (Transcorp). NLC cried foul but ended up as the reserve bidder.
The first document of the power sector reforms, reviews and privatisation under the National Council of Privatisation (NCP) recommended the privatisation of the Gencos only. The reason was that, based on the GDP pricing at that time, there were not enough resources to carry along other companies in the privatisation exercise.
However, because politics always drives the economy, privatisation became politicised. Some adjustments were made that eventually incorporated the Discos. This created its own problems. The first recommendation was thrown out. That’s why there’s a difference between the first contract agreement and the one that was eventually signed.
The first document highlighted the need to set aside proceeds of privatisation and domicile same in escrow account because of the expected concern that organisations that were acquired must have exceeded their borrowing capacities. The account was meant to provide alternative funding if the organisations ran into financial difficulties. The money was to be borrowed from the Central Bank of Nigeria (CBN) at a single digit, thereby foreclosing the option of a bailout by the federal government. But this idea was dropped for no clear reason.
It is worthy to note that for about 15 years that the industry has been in existence, there was no bailout of up to N1.2trn. Today, the power sector, faced with a bailout of N1.2trn, is desperate for a solution. The corresponding reality is the difficulty to list the sector on the Nigerian Stock Exchange to raise funds. The sector does not seem to have revenues that are positive or cash flows that indicate positivity. There is no attraction in listing seemingly debt-related companies in the stock market whose shares no one may buy.
There have been accusations and counter-accusations regarding the massive failure recorded in the power sector. For the Discos, the Reform Act did not give them a free hand to fix electricity prices which they claim are due for review even though consumers think otherwise. Electricity users are yet to see any serious commitment by the Discos to ensure that they have meters and pay for only what they consume.
It is time to investigate the level of asset investment and expansion by the Discos. It is their responsibility to expand their business by being innovative and creative. This approach will give them the needed mileage to take electricity to more neighbourhoods.
The way the Metering Assets Providers still operate does not give the Discos the leeway to function effectively. There should be a unified metering system for the country so that consumers can purchase their meters from any part of the country and install same anywhere they so desire. This will give the Discos the needed justification for their billing system even though there is a huge clamour for government intervention.
However, given the bad state of the economy, government’s presence in the sector may not be sustainable. It is argued that government needs to sell its equity in the Discos, and stop subsidising the cost at which electricity is sold to consumers. It is believed that this is a cap deliberately put in place by government to avoid unnecessary maximisation of profit by investors.
With the proposed bailout of N1.2trn, there is no guarantee that the sector will not demand another bailout in no time because of perceived laws of dislocation in the entire privatisation chain. With the current electricity price, the burden to make up the shortfall still lies on the federal government. These resources may prove an uphill task for government, and any reason to the contrary amounts to a bizarre obliviousness to reality.
The power sector which has been split into about eighteen companies, seems not to have the resources to manage it. In other words, the privatisation process is not sustainable. About six years down the line, records show that there is no power plant constructed by the new investors. Most of the assets at their disposal were handed over to them by the government, just as the NLC is accusing the Gencos of illegally inheriting its machinery and schools.
In 2002, Chairman Technical Committee on Power, Lil Imoke, brought power generation to about 4,000 megawatts, and there is no evidence that it has significantly moved beyond 4,000 megawatts between that time and now. Within that time, maintenance work was carried out on the existing power plants, and other power stations were constructed by the Obasanjo Administration namely Deregu station, Omotoso power plant, Papalanto power plant, among others. All these were handed over to the private sector.
Yet there has not been an improvement in terms of power availability. Nigerians are making demands on electricity on a daily basis but supply has been hovering around 4,000 megawatts. It means supply does not match demand.
Since privatisation, available information shows that at no point has profit been declared to the government by the new investors in the past six years. Instead, there have been series of tariff increases, and new plans for another increase.
According to experts, a power plant takes a minimum of 3-4 years to construct and return on investment takes about 20 years. It is doubtful whether the Nigerian investor will go into such venture when they are investing today to recoup tomorrow.
The electricity problem has become a recurring decimal. Countries like Iran, Iraq, Palestine, among others, had devastating war experiences but they rebuilt their power infrastructure, everything happening in a short space of time. However, in Nigeria, it is typical lamentation; millions of people still do not have access to electricity.
The capacity of the Nigerian state to mobilise resources, instill discipline and abide by the laws and regulations is lacking. The discipline required to allocate resources, follow up on the utilisation of the resources and ensure that the end result is attained, has been the critical factor that is missing.
Successive administrations voted huge amounts of money in the power sector but the public has no way of monitoring and knowing how the funds were used. There are many power institutions in the country, with each having budgetary allocation. But the impact of each of them is not felt. The discipline and capacity of the state to mobilise and deliver has been weakened. The banks don’t have the capacity to pool enough resources that will revive the power sector. They are struggling to play their role in terms of counterpart funding.
Part of the way forward is to revisit the Reform Act, build institutional capacity and strategise to tap into various investment platforms. For instance, Russia offered nuclear energy to Africa. According to experts, Nigeria has about 184 trillion cubic feet of gas. All that is required is to harness these resources to provide the required power supply.
Targets should be set for the investors, and measures that will encourage sanctions and rewards put in place like in Israel, where a road contractor that fails to deliver on due date is penalised but rewarded with incentives by way of bonuses if he performs before due date.
Moses, Publisher, Researcher, Biographer, Phonetics Instructor, Managing Consultant, Legacy BookMedia, Lagos
