Two years after the privatization, the country is still battling with same power supply problem . This calls for serious concern on why the situation has not changed even after privatization. Many are quick to question the integrity of the private operators and blame the Distribution Companies (Discos) for not improving power supply, some blame the generation companies while others blame it on the transmission which is still a government-owned entity.
Before one can go deep into the problem, a brief overview of the privatization will give a useful insight to where the country is now in addressing the power supply issue.
First the unbundling of the sector and subsequent privatization as provided in the EPSR Act 2005 was to improve performance and ensure transparency in the activities of the unbundled entities, the generation, transmission and distribution, and to attract participation of the private sector in the provision of power in the country.
The unbundled entities, comprising of six generation companies, and 11 distribution companies were privatized while Federal Government retained the Transmission Company as state owned. Government also retained 40% interest in the distribution companies, while the private sector is holding 60%. Also in the privatization of generation companies, government retained 20%, leaving 80% to the private sector.
This shareholding structure shows that the private sector is not the sole owners of the power sector as the public assumed. This shareholding structure imposed limitations on the operators of the sector. This is because the private operators who are the core investors are restricted in the utilization of the assets of the companies in raising the needed finances to invest in improving the inherited dilapidated assets.
The EPSR Act also empowered the regulator, the Nigerian Electricity Regulatory Commission (NERC) to regulate the activities of the operators including fixing of cost recovery tariff for the utilities. The regulator by the Act is supposed to be independent, protecting the interest of both the public and the private operators. The independence of the regulators is also important such that any sign of compromise can affect the effective operations of the private operator as the electricity market is very sensitive to the regulations.
Privatization normally has two major objectives, it is either output focus that is improving the quality of supply or additional investment in the sector.
In Nigeria, the focus was more on additional investment instead of quality of service; the Request for Proposal emphasized the financial worth of the bidders which resulted in selection of the highest bidders based on how much naira they bidded. Hundreds of billions of naira were realized from the deal. Unfortunately in the whole transaction , the participants were local companies who through the local commercial banks were able to acquire the utilities, no foreign investor with proven technical experience participated due to lack of confidence in privatization process.
They could not risk their long terms funds in uncertain environment, despite the road shows all over the world. The local companies were left to mobilize short term funds from local banks to finance the acquisition of these assets, overstretching the capacity of the local banks who are now putting pressure on the core investors to service their obligations. This has actually put the investors in a financial trouble between servicing the loans and providing the funds to effectively operate the facilities they acquire to provide quality supply of electricity to the public not to talk of any hope of getting returns yet for its investment.
The problem is particularly worse with the Discos who are most exposed to the public in the chain of electric sector. The Discos are the ones to be blamed anytime there is power cut, anytime there is low voltage, anytime there is tariff increase, anytime there is problem with power supply like the recent national blackout on March 31, between the hours of 12:35 and 15:00, the country’s power system crashed to zero MW due to system collapse that was linked to the tripping of a transmission line and poor gas supply. It is important to note that the transmission which is government owned is the weakest link in the chain of power supply that need serious investment to enable it evacuate power generated by the Gencos to the Discos effectively.
In the course of the privatization, there were series of agreements that were signed between BPE (Bureau of Public Enterprises ) representing government and the operators with specific obligations to the parties involved to guide effective performance of the agreements as Public-private partnership. These obligations include the following:
*Proper gas supply policy at the time of privatization. *Cost reflective tariff to operate optimally. The new tariff issued last February is still being contested by the public as Labour and the National Assembly has issued statement threatening court case.
Of course, the general perception that power is a public commodity, hence it should be given free or subsidized as was the practice before privatization. This makes revenue collection a huge problem as the public don’t normally want to pay; some practically steal the power making it difficult for Discos to collect up to 25% of energy consumed by the public leaving more than 75% as commercial and collection losses in the country.
All these problems require the collaboration of government and the private investor as partners to address, not singling only one to be blamed.
Reducing technical and non technical losses in the power sectors is a major issue that many countries in the developing world are still battling with. Briefly, losses in electricity supply refers to the amount of electricity injected into the transmission and distribution grids that are not paid for by users. The losses have two components, technical and non technical. Technical losses occur naturally and consist mainly of power dissipation in electricity system components such as transmission and distribution lines, transformers and measurement systems which should not be more than 10%. Non – technical losses are caused by actions external to the power system and consist primarily of electricity theft, non-payment by customers, and errors in accounting and records keeping. Technical losses represent an economic loss for the country.
Non-Technical losses represent an avoidable financial loss for the utility in the sense that it should be paid for by the consumers. Non-technical losses have several perverse effects in the society. Customers being billed for accurately measured consumption and regularly paying their bills are subsidizing those users who do not pay for electricity consumption; this include case of electricity theft through illegal connection to the grid or tampering with consumption meters; it also include unmetered consumption by utility customers who are not accurately metered for a variety of reasons, which in most cases is due to inefficiency of the operators to manage operations.
Distribution companies since takeover have been struggling with these problems without government support despite the fact of its shareholding in the utilities. Even the regulator has not favourably supported the Discos in its regulations. Frequent statements of the past leadership of the commission urging consumers not to pay for fixed charge if power outages is recorded for more than 15 days in a month, removal of collection losses from tariff though subsequently restored did not show consistency on the part of the regulator. The recent uproar over the new tariff is another issue of concern for the market, and government’s continued silence on the matter does not give confidence to the investors on the sustainability of the new tariff.
As it was the case in other countries especially India where Nigeria copied its privatization, government should be actively involved in supporting the utilities in improving collections. Here government can introduce such measures to address revenue collection problems faced by the Discos , particularly the huge accumulated bills owed by the MDAs which is over N60 billion. Some of these MDAs and security formations that cannot easily be disconnected from services are owing huge bills. The recognition of these debts and electricity theft by government and enacting a Law to try offenders through a tribunal will ensure speedy trial of defaulters including utility staff who collude with the public to perfect this criminal act. This will help the Discos in reducing collection losses.
The Discos have so many cases of meter bypass, vandalization of electric cables in regular courts which usually takes time to prosecute. A special tribunal will speedly prosecute and punish offenders to deter others from perpetrating in the act. This will result in increased revenue for the Discos who will invest in metering to stop estimated billing and equipment to improve power supply even at reduced rate.
- Tsavsar, a consultant on Public-Private Partnerships, writes from Abuja
