More than three years after the privatisation of the power sector, consumers are yet to enjoy improved electricity supply. This has prompted renewed calls for the review of the exercise. Will the government bow to pressure and reverse the deal? Assistant Editor CHIKODI OKEREOCHA looks at the lingering crisis in the power sector, which appears to have put the government and private investors on the spot.
The Federal Government appears overwhelmed by the crisis in the power sector. The Minister of Power, Works and Housing, Babatunde Fashola, personifiedthe government’s seeming helplessness when in last November, he said the privatisation of the power sector was not up for review.
This followed persistent calls by aggrieved consumers for a review of the sector’s privatisation, which, according to them, was not only flawed, but has evidently failed to yield the desired result more than three years after.
However, beyond harping on the need to open up opportunities for more investment in electricity Generation and Distribution Companies (GenCos) and (DisCos), the minister’s clarification failed to provide a clear roadmap on how to turn things around.
Fashola, who spoke at the Fifth European Union (EU)-Nigeria Business Forum in Lagos, with the theme: “Harnessing Nigeria’s potential for economic growth”, insisted that his ministry would remain committed to the terms of power generation and distribution contracts it inherited.
“If revisiting the agreement means cancelling it, I won’t support. The investors who took the risk must have the assurance that government will not flip-flop. A contract that fails has consequences not only for the investors, but on both sides. This government will respect and uphold the contracts it has committed to and inherited. If there are issues with the contracts, the umpire is the judiciary,” the Minister said.
Although Fashola’s position that a review or reversal of the privatisation was not on the table may have been prompted by fears that a reversal would scare foreign investors, aggrieved consumers and other critical stakeholders have refused to be swayed. They have continued to mount pressure for a review, insisting that Nigerians have been short-changed by the investors.
To bring about efficient service delivery, the Federal Government in November 2013 unbundled the defunct state-owned Power Holding Company of Nigeria (PHCN) into 18 successor companies and subsequently handed them over to private investors.
The Bureau of Public Enterprises (BPE), which midwifed the process, projected that the private investors who bought 60 per cent shares in the power assets would increase electricity generation capacity to 20,000 megawatts by 2018.
It was envisaged that the sales would reduce the losses of Aggregate Technical, Commercial and Collection (ATC&C) caused by poor maintenance of the network and poor revenue generation.
This was why the 11 DisCos in a Service Level Agreement (SLA) with the BPE agreed to reduce losses significantly within five years. They also promised to roll out meters to ensure that customers are no longer exploited under the estimated billing methodology.
On their part,the GenCos said they wouldl turn around the three hydro power plants and other gas-fired plants and expand their capacity to generate more power supply above 5, 000 megawatts (mw).
The Nigerian Electricity Regulatory Commission (NERC), the electricity industry regulator, rolled out the interim rules and other electricity market code to guide the private operators in doing business as well as setting Key Performance Indicators (KPI) for the investors.
But none of these has happened more than three years after. Rather than enjoy a significant improvement in electricity supply, Nigeria’s electricity generation capacity has worsened in recent years, setting the authorities and the investors on the war path with angry consumers.
For instance, the immediate past president of National Union of Textile Garment and Tailoring Workers of Nigeria, Comrade Oladele Hunsu, observed that while Nigeria was generating more than 4,000 megawatts (Mw) of electricity before privatisation in 2013, electricity generation capacity is currently wobbling between 2,000Mw and 3,500 Mw.
He lamented that several electricity consumers were yet to be metered years after the privatisation, adding that this underscored the abysmal performance of the sector.
While describing the private investors’ failure to meter all consumers as illegal, he accused the NERC of failing to properly regulate the industry.
Hunsu, therefore, advised President Muhammadu Buhari to review the privatisation, noting that only a transparent review to unmask those who bought the PHCN’s unbundled assets and their capacities would resolve the crisis in the sector. “We need to investigate how those DisCos and GenCos were sold and who bought them,” he insisted.
The unionist said reviewing the process would not only save Nigerians the agony of paying for darkness, but also incentivise the real sector, which comprises manufacturing and agriculture. According to him, real sector operators bear the brunt of inadequate electricity supply, which has continued to stunt the growth of the nation’s Gross Domestic Product (GDP).
However, the alleged failure of the exercise to set the stage for a major transformation of the sector to guarantee uninterrupted electricity supply to the manufacturing sector and Nigerians in general is not the only knotty issue prompting Hunsu’s call for a review.
He expressed surprise that despite the investors’ obvious failure to turn things around, thegovernment is still determined to continue dolling out public funds to the investors as soft loans or bailouts to enable them run supposedly privatised entities.
Peeved by such largesse, members of the Senior Staff Association of Electricity and Allied Companies (SSAEAC) urged the Federal Government to shelve its plan to issue a N309 billion bond to finance the power sector.
“Issuance of bond will amount to spoon-feeding the operators for their inefficiency. The bond will be at a cost to Nigerians, as the risk of default will affect the government sovereign guarantee and lead to energy crisis in future,’’ its President Chris Okonkwo said.
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Speaking to reporters in Lagos, last week, Okonkwo asked the government to assess the investors’ performance in the past three years in relation to the terms and conditions of the privatisation exercise that handed over the power assets to them.
He emphasised that the anticipated efficiency in service delivery from the private power firms by Nigerians has been met with deception and failed promises, pointing out, for instance, that the investors have failed to provide prepaid meters to consumers within 18 months as agreed.
Okwonkwo described as sad a situation where consumers were not metered, even as tariffs had been increased twice since 2013. “The government should come in, apply the terms and conditions of the sale and see if we can correct the mistake,” he said.
He also said the power distribution companies have displayed inefficiency in revenue collection with 30 per cent collection rate as against 60 per cent that the sector recorded before the privatisation.
The SSAEAC chief said the financial and technical inefficiencies of the power firms were evident in the shortfall of funds they were reporting despite enjoying series of interventions from the government.
He said the Federal Government through the Central Bank of Nigeria (CBN) prepared a bail-out of N2013 billion as part of the Nigeria Electricity Sector Intervention last March , but the shortfall in revenue collections had continued to escalate.
“We think it is time to re-appraise the content of the agreement that handed over PHCN to the private sector and its implementation. It is time to hold those who bought the power sector down for what they had signed that they will do. We want to know if they are doing well or not,” Okonkwo said, insisting that if the private sector could not manage the sector, the government should take it over.
Why power crisis remains
There have been several reasons adduced for the perennial crisis in the power sector. From alleged investors’ lack of technical know-how and financial capacity to run the sector efficiently to the challenge of gas supply caused by vandals and consumers’ reluctance to pay their electricity bills, the sector is indeed, gasping for breath.
For instance, The Nation learnt that apart from the investment Federal Government made in the sector prior to the privatisation, the investors have not made significant investment in the growth and development of the power sector particularly in smart metering technology, upgrade of their networks and other power infrastructure.
According to a reliable industry source, the dearth of investment contributed to the incessant power outages and the regime of estimated bills that has pitched consumers against the power firms.
The source, which declined to be mentioned, said that because of paucity of funds, DisCos refuse to take their total power allocation from the market operator (MO), preferring to take little, which they serve industries and commercial entities considered as paying customers. This arrangement, however, leaves most residential areas across the country in darkness.
The activities of vandals who compromise gas pipelines have also been identified as another challenge. Vice President Yemi Osinbajo admitted this much when he recently said getting gas to the power plants remained one of the major hurdles before the administration’s commitment to stabilise power supply.
Indeed, the gas sub-sector, The Nation learnt, produces the raw material for production of electricity. But because the sub-sector has not been privatised, the supply of gas to GenCos and by extension, the supply of power by DisCos remains a pain in the neck. But the activities of vandals are said to have compounded the problem.
The situation is said to have put the DisCos under severe pressure by electricity consumers since they (DisCos) can hardly wheel power to them as they can only give what they get from the GenCos and transmission value chain.
Osinbajo said while the privatisation process had taken place for power generation and distribution, transmission was still in the hands of the government, managed by Canadian firm Manitoba.
Huge debt as an issue
In fairness to DisCos, many Nigerians do not pay for electricity consumed. The Association of Nigerian Electricity Distributors (ANED) recently said DisCos revenue shortfall in Nigeria has hit over N300 billion. It, therefore, urged all power consumers, including government agencies to pay up their debts.
The association’s Executive Director, Sunday Oduntan, said that the revenue shortfalls adversely impacted on the ability of its members to make capital investment in metering, network expansion, equipment rehabilitation and replacement that are critical for service delivery improvement.
“This is a cash liquidity crisis that threatens to completely undermine the electricity value chain and its ability to continue to serve its consumers,” Oduntan said.
Service providers also complain of energy theft. For instance, a Director in Eko Electricity Distribution Company (EKEDC), George Etomi, a lawyer, said energy theft by all categories of consumers was the greatest threat to private investors and the reform in the power sector.
However, it remains to be seen how the government intends to handle these issues. But one thismg is sure: unless there is improved electricity supply, the hope of salvaging the economy from the grip of recession may not be achieved.
