Despite heightening calls for a resale of Nigeria’s power distribution assets on the back of poor performance, experts say a new dilemma is being thrown up, including that the move could lead Federal Government paying Distribution Companies (Discos) as much as 200% initial sum it sold the power assets during the privatisation exercise.
The Nigerian power sector has been hard hit with perennial problems of liquidity and inefficiency that has worsened adequate power supply post-privatization, with the market governance very weak and poorly enforced.
Apart from worries that privatisation has created an inefficient private electricity market with the added crisis of higher costs and low accountability, industry analysts are further worried that the government continues to invest in forms of a bailout and concessionary loans with no right governance structure to ensure delivery.
Experts, who spoke with BusinessDay, are of the view that should the government attempt to reverse the ownership of the Discos and resell the power assets, it will have to invoke the ‘Put and Call Option Agreement’ it entered with the PHCN on behalf of the Discos.
The Put and Call Option Agreement requires that the government will have to repay the Discos 100% they acquired the assets, in addition to some 20% of the total sum for 5 consecutive years to take care of the investments and other ancillary services and gains of the Discos for the past five years post-privatisation.
The Discos had paid the Federal Government a total of $1.4 trillion to acquire 60% shares held for them by the Power Holding Company of Nigeria.
Chuks Nwani, an energy lawyer and power sector governance expert, says if the government wants to reverse Discos ownership of the assets, they would resort to the act they gave a ‘transfer order’ for the PHCN to relinquish its assets and shares.
“This was what enabled them to sell 60% of their shares to the Discos and private investors. The sale was underscored by various agreements such as the shareholders’ agreements between the investors and the distribution companies.
“The performance was signed before the investors, Discos and the Bureau for Public Enterprise. Improvement in service delivery, addressing aggregate commercial losses were also factored in agreement as well as how much the government should invest each year within five years of post-privatisation and service level agreements in the sector,” Nwani explains.
Experts say the government now faces a dilemma even if it decides to re-nationalise the assets amid persistent clamor for the possible recapitalisation of the Discos.
Vice President Yemi Osinbajo had on several occasions signaled intentions of the government revisiting power sector privatisation over distribution companies’ poor performance.
Already, the Governor Nasir el-Rufai-led committee has commenced review on the ownership of the distribution companies with a view to seeking solutions to the problem confronting them, albeit the power sector in general.
According to the governor, “The problems in electricity are many; capacity is one of them perhaps.”
But analysts, including the Bureau for Public Enterprises (BPE), say reversing Discos ownership may not be the best option, but what is needed is effective market governance and ensuring a cost-reflective tariff and enforcement of prompt and appropriate payment for the cost of power consumed by Nigerians.
Maman Sale, minister of power, speaking at the recent meeting of the Federal Cabinet members in Abuja, said the government was worried about non-alignment of various power value chains, which had impacted negatively on the sector.
“For instance, if we generate 13,000 megawatts, we should be able to transmit the same. But even when the Discos receive 3,000 megawatts, they short-change the system by paying for only 1,000 megawatts. The government could no longer subsidise their inefficiency,” he said.
Industry analysts say both the government who owns the 40% share and the Discos with 60% shareholding in the unbundled power assets together share the blame for failures of playing own parts effectively.
Sam Amadi, former chairman, Nigerian Electricity Regulatory Commission (NERC), told BusinessDay that the failure of electricity reforms was that the government could not conclude the necessary reforms before privatisation.
“Evidence shows that what makes electricity market efficiency is not privatisation but the quality of reform, particularly liberalisation and competitions.
“We need to go back to some of the provision of the Electricity Power Sector Reform Act of 2005.
“We need more liberalisation in terms of increasing the threshold for unlicensed generation. Firms should be free to generate up to 5mw without NERC licence,” he said.
He stated further that there might be need to regionalise the grid to the extent that TCN can be broken and decentralised, saying, “This can ensure more efficiency although if badly an aged it could throw some part of Nigeria into darkness.”
Also, Nwani told BusinessDay that the El-Rufai Committee should work with the Ministry of Finance to deduct from the source of various Ministries, Departments and Agencies of government owing the Discos, as another way of addressing liquidity issues in the sector. (BusinessDay)
