In these times of playing games with facts, an opinion piece titled “As Discos throw in the towel” by Sunday Onyemachi Eze which appeared in various media outlets deserves scrutiny. Nigeria deserves robust debate on how to address the challenges of the power sector.
The author correctly asserts that at the point of sale of the power assets, they were technically insolvent but argues that privatisation was a flawed solution to their malaise.
That government has no business in business is a settled debate. That realisation has been premised on the failure of public enterprises worldwide to meet expectations. Their outcomes in Nigeria have been one of spectacular failure. Estimates of the Vision 2010 Committee indicate that federal government investments in state-owned enterprises stood at over US $100 billion in 1996. The return on these investments averaged less than 0.5% per annum.
One only needs to review the level of coverage of the National Electricity Power Authority (NEPA) and its successor, the Power Holding Company of Nigeria (PHCN) and its inefficiency in providing electricity balanced against what NEPA drew from the treasury for this point to be settled. Statistics from national budgets show that the Generating companies (Gencos) were allocated N35 billion in 2005; N13.8 billion in 2010; and in 2012, N51 billion was allocated to Gencos and Discos under the Ministry of Power prior to the sale of the successor companies created from PHCN in 2013. In 2015, the gross budgetary allocation to the entire ministry was N9.6 billion with zero allocation to the sold power companies.
In July 2012, the federal government contracted the Canadian firm, Manitoba Hydro International (MHI), to run the affairs of Transmission Company of Nigeria (TCN), one of the 18 successor companies unbundled from PHCN. The management contact was for three years in the first instance. MHI made significant contributions towards improving the overall performance of TCN. One of them being the reduction of transmission losses from 12% to 6.45%, thereby making a savings of 5.5%.Given that the annual commercial value of 1% of the power wheeled by TCN amounts to about N5 billion, a savings of 5.5% provides the industry opportunity to earn an additional income of about N27 billion per annum.
Before MHI came on board (2009—July 2012), partial collapse of the national grid was 51 and total collapse was 61 during the review period. After MHI commenced work (August 2012 to 2016), partial collapse was 13 and total collapse was 42. This fact shows that MHI reduced system collapses by over 50%. The Canadian firm was driven away for ministry officials to run TCN. And the results are not good.
The crowing that Discos are distressed is misplaced given that the alternative is nationalisation of the power assets with the bureaucrats that mismanaged NEPA and PHCN for decades back in charge. Let us remember that 47,000 PHCN workers were producing and distributing 2,000 megawatts of electricity. Nigerians like quick-fixes. Lost on us is that the private sector took over the running of the Discos and Gencos on November 1, 2013.
Let’s not forget that government is a continuum. It was before our eyes that the Nigerian government deployed soldiers to safeguard its power assets from threatened vandalisation and arson by electricity workers before the privatisation exercise. Let’s also not forget that trade union leaders took adverts in national dailies asking investors not to come to Nigeria. So, if the Discos and Gencos explain that they were not able to undertake proper physical due diligence, they should not be mocked.
A recent editorial by a national newspaper joined in the mockery by labelling the contention by Tukur Modibbo, an investor in Jos Electricity Distribution Company, that he is willing to sell his company at a discount as “an open admission of failure”. The newspaper urged the federal government to accept the offer and reclaim the companies. It added: “The power firms have to be properly privatised, this time, to the right companies that have the technical competence and financial wherewithal to breathe a new life into them.”
Punditry is a nice occupation. It is over one year since the Nigerian government agreed to pay $87 million to Integrated Energy and Distribution Company, the core investor for Yola Disco, as recompense for the $59 million it paid for 60 percent equity in the power firm. The government has met the agreement in breach.
It is also apt to point out that the core investors paid $1.4 billion for their equity and inoculated their investments by signing contracts with the government. And the courts are there to arbitrate. So, let nobody have the illusion that nationalisation of the power assets would not be challenged by the core investors in courts.
The lack of government support and understanding of the power reform process is the bane of Nigeria’s electricity challenge. Take for instance, the House of Representatives asking customers not to pay for electricity consumed.
And the Majority Leader of the House of Representatives has gone further by sponsoring a Bill on estimated billing—which will criminalise the practice. Already, the industry regulator, Nigerian Electricity Regulatory Commission (NERC), has regulations on estimated billing. That’s insufficient in their eyes. Yet, crying to be addressed is electricity theft— that should be a priority for either the executive or the legislative arms of government. No country has had a successful power privatisation without addressing power theft.
Let us not forget that there has been no major transmission infrastructure investment in the past 40 years. TCN needs over $400 million investment to resolve transmission constraints. MHI identified what needed to be done between 2016 and 2018 to address initial constraints; yet the Ministry of Power is trading blames with the Discos. Are the Discos responsible for the lack of investment in the transmission infrastructure?
It is necessary to point out that in the Nigerian Electricity Supply Industry (NESI), it is not only the Discos that are illiquid. The Nigerian Bulk Electricity Trading (NBET) Plc, which secures payment across the electricity value chain, is also not liquid. In other words, it is not sufficiently capitalized to pay for the shortfall in the value chain.
We must understand that electric power is the key to the survival of Nigeria. The sector needs the desired political will to put a handle on its challenges. The way forward is to re-set the entire industry by faithfully implementing the Nigerian Power Sector Recovery Plan (PSRP) which was approved by the Federal Executive Council in March 2017 and the World Bank in April 2017.
The major components of the plan include the elimination of market deficits of 2015 and 2016 that were created by non-cost reflective tariffs; estimate and commit the Nigerian Government to fund future power sector deficits (2017 – 2021); ensure Disco performance and removal of operators who fail to perform in line with the Performance Agreements; establish data-driven process for decision making across the sector; implement an end-user tariff trajectory that ensures that cost reflective tariffs are achieved over five years and put measures in place to guarantee a minimum of 4000 MWH/H of average daily energy.
Others are develop and implement a robust Aggregate Technical, Commercial and Collection (ATC&C) loss reduction programme including a comprehensive metering programme; ensure that outstanding MDA bills are paid and implement payment mechanism for future bills; make all electricity market contracts active; develop and implement a communication strategy for the implementation programme; and restore sector corporate governance by putting all boards in place including the Nigerian Bulk Electricity Trading Plc (NBET), Transmission Company of Nigeria, the Nigeria Electricity Liability Management Limited, Niger Delta Power Holding Company Limited, Rural Electrification Agency and Bureau of Public Enterprises.
The estimation of the plan is that about N500 billion will be required to settle market deficits for 2015 and 2016. It further projects that about US1.5 billion will be required to support the power sector in the next five years. The amount required to turn around the power sector is quite huge but it pales into insignificance when it is compared to the annual GDP loss of US$29 billion attributed to power shortage in Nigeria.
The plan which was well-received plan by industry operators and observers pointed out that the funding to implement the plan would come from World Bank loans, proceeds from the sale of Niger Delta Power Holding Company power plants, AfDB loans, the budgets of the Nigerian government, and Central Bank of Nigeria (CBN) loans.
- Mr. Asuquo is a power sector expert based in Lagos.