Nigeria’s power privatization: The journey so far

Despite making substantial progress in its power privatization bid in recent months, there are still fears that the effort made so far by the federal government may not offer a lasting solution to electricity crisis in the country due to poor implementation of the programme, reports OLISEMEKA OBECHE

Privatization milestone:
WITH the recent reports that successful bidders for the Power Holding Company of Nigeria (PHCN) and its successor companies have already provided all necessary guarantees in payments worth over $335.85million, the dark cloud hovering over the power privatization process appears to have been lifted. Vice President and Chairman of the National Council on Privatization (NCP), Namadi Sambo recently assured that the fledging privatization of state-owned power companies would be completed on scheduled.

“We are hoping that we will meet the target plan for the privatisation of the power sector in Nigeria successfully,” Sambo had assured while speaking at the opening of the 13th Session of the Baroness Lynda Chalker-led Honorary International Investment Council in London.

Sambo, who allayed fears over the negative impact of the sudden resignation of the former Minister of Power, Prof. Barth Nnaji; and the recent sacking of the Director-General, Bureau of Public Enterprises (BPE), Ms. Bolanle Onagoruwa, assured that an end to the country’s decade-long power crisis is near.

“I can confirm to you as the chairman of the NIPP projects that for the new 10 thermal power plants we are building, three plants are already adding power to the national grid, and each one is over 90 per cent completed. In each and every city of Nigeria, we are constructing sub-stations. So, there is a lot of progress in that direction,” he assured.

President Goodluck Jonathan had earlier at an interactive session on the sidelines of the D-8 Summit in Islamabad, Pakistani capital, assured Nigerians of stable electricity in major cities across the country by the end of second quarters of 2013.

“We have over 1000 megawatts of power that we cannot evacuate due to the weak transmission infrastructure over the years and it was only recently that government started the intervention. But, we have projects that are going on, so before the end of the second quarter, almost middle of next year, most of these projects would have been inaugurated and we will be evacuating power generated. At that time, quite a number of cities will begin to have 24-hour of light”, declared the President.

A recent privatization schedule released by the Bureau of Public Enterprises (BPE), shows that negotiations with the preferred bidders for the nation’s power generation companies and distribution companies would hold between December 2012 and January 2013, culminating in the transfer of the power firms to the private sector in July.  “Our intent is to conclude the execution of the legal documents by mid next year (2013). So, around June and July, the bidders will take over. Prior to that, we are trying to put up transitional arrangements in collaboration with the preferred bidders and the managers of the companies so that when we conclude and they make payment in full; thereafter, they will take over seamlessly without any problem,” Mr. Ibrahim Babagana, Acting Director, Electric Power Department of the BPE said.

Fault lines:
With the unbundling and sales of the PHCN successor companies now at advanced stage, analysts are already taking stock of the impact of the privatization exercise on the country’s power sector. However, there are growing fears that a number of faults encountered in the process could undermine the success of the entire programme.

First is the contentious belief in many quarters that the bidding process leading to the selection of the preferred bidders for 10 power distribution and five power generation companies was fraught with malpractices. Indications that the issue of credibility could mar the privatization process emerged in October last year when Governors of Delta, Edo and Ekiti states publicly criticized the choice of Vigeo Power Consortium as the preferred bidder for the Benin Electricity Distribution Company.

Governor Adams Oshiomhole of Edo State questioned the rationale for chosing Viego as the preferred bidder at the expense of the aforementioned states. “The technical qualification criteria also failed to take into consideration the peculiarities of the various distribution companies, otherwise, why would a company whose current service territory is 500 square kilometers be technically qualified to operate a 57,000 square kilometer service territory in an area like the Niger Delta region without any local knowledge of this troubled area?,” he said.

Governor Emmanuel Uduaghan of Delta State added: “Our states have invested heavily in power generation, transmission and distribution across the length and breadth of our respective states as we recognised the importance of power as the precondition for socio-economic growth and industrialisation of our states”. Their Ekiti State counterpart, Dr Kayode Fayemi said: “we are disappointed with the outcome of the bidding process because it lacked credibility.”

But the BPE dismissed the allegations of manipulation of the bidding process in a statement by its spokesman, Chukwumah Nwokoh.  The BPE insists that the process is credible, transparent and process-led. “We religiously followed the process; we did not deviate a bit. They were aware from the outset that a new strategy would be used to announce the would-be winners. And this was what we followed”, Nwokoh declared.

Despite its defence against allegations of malpractice in the emergence of the preferred bidders for the privatized power firms, critics insist the whole process was designed to favour certain people.

“From the outset, it was obvious that certain key individuals are being propped to take over the power sector and so it was not surprising in the end that some credible investors were complaining of being schemed out”, declared Comrade Debo Adeniran, National Chairman, Coalition Against Corrupt Leaders (CACOL).

According to him, with the power firms on the verge of being transferred to the so-called preferred bidders, Nigerians should not expect much from the new regime. “What is actually taking place is like pouring old wine in a new wineskin; there is nothing spectacular these set of investors are going to do to transform the country’s power sector”, he argued.

Apart from the alleged manipulation, experts have equally identified the creation of a Bulk Electricity Trading Company (BETraC), the decision to outsource the management of the national power transmission backbone to Manitoba, and the empowerment of states and local governments to invest in production and distribution without removing constitutional landmines as other challenges in the power privatisation process.

Also causing ripples is the empowerment of states and local government areas to generate and distribute electricity for their exclusive consumption using facilities of existing electricity distribution companies under the “NERC Regulation on Embedded Generation 2012.” Analysts fault the Embedded Generation regulation on the ground that it fails to remove the legal impediments imposed by Section 14(b), Part II of the Second Schedule (Concurrent Legislative List) of the Nigerian Constitution of 1999 which restricts state’s investment to areas not covered by a national grid system within that state. “This new guideline, though received with heart-warming by many stakeholders, would not lead to desired outcome of making states and local governments co-owners in electricity generation and distribution unless there is a constitutional amendment to remove the constitutional landmines”, disclosed Ahmed Lawal, a public affairs analyst. According to him, implementing the guideline as it were would breed conflicts and corruption.

Similarly, the decision by the federal government to outsource the management of the entire National Power Transmission backbone to a single monopoly- Manitoba Hydro International is also viewed as another major pitfall in the privatization process. According to Mr Julius Egwuoba, apart from the doubts created by the poor handling of the $23million deal with the Canadian energy firm for managing the Transmission Company of Nigeria (TCN) over two years, the decision may in the long-run work against the country’s interest. “From the look of things, it appears the over-all objective of the power reform which is to act as stimulant for massive job creation, widespread private sector growth and knowledge transfer along the transmission corridor is already being eroded through the creation of such government sanctioned monopoly for a private company”, he argued.

The Union of Electricity Employees (NUEE) also faulted the offer of N197 billion for the acquisition of 60 percent equity in each of the 10 electricity distribution firms, describing the entire exercise as fraudulent.
NUEE, General Secretary, Comrade Joe Ajaero insists that Nigerians are frequently ripped off through the sale of public power firms. “How can you have a company that makes N300 billion in a year and you sell it N200 billion forever? The poor will not benefit; no foreign investment coming in or managerial abilities and even the financial muscle is not there. It’s just money from banks. If you now sell it for N200 billion and my entitlement is N500 billion, you have to go and borrow money and pay me because the asset is worth N3 trillion and if sold at the appropriate rate, you would have saved N1 trillion in the nation’s coffers.”

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