Power privatisation: How solution became problem

While expressing doubt over the possibility of achieving the target, Ikele wondered how Nigeria will achieve 11,000 MW by 2023, which is just three years from now, when the same feat could not be achieved seven years after the privatisation of the power sector.

He also said the minister failed to articulate concrete plans on how the new target will be met this time. “You are talking about the next three years, isn’t it?” he asked, noting that, “It is good to make permutations, but such should be factual; there should be some indices to indicate how to attain it.

“Since we have not been able to achieve it in seven years, what were the problems? Have we been able to solve them? Have we looked at the fundamental issues responsible for the lingering crisis in the electricity supply industry with a view to addressing them?”

Ikele and indeed, other concerned industry stakeholders could not fathom how, despite the privatisation, electricity generation capacity still stands at a paltry 3,400 MW, even after Nigeria had spent N1.8 trillion on the power sector since 2015, and has continued to lose a staggering $29 billion to epileptic power supply yearly.

The Federal Government had 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. This was to help bring about efficient service delivery in the Nigerian Electricity Supply Industry (NESI).

The exercise was expected to set the stage for a major transformation of the power sector to guarantee uninterrupted electricity supply to the manufacturing sector and Nigerians in general.

The Bureau of Public Enterprises (BPE), which midwifed the privatisation exercise, 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, and 40, 000MW by 2020.

It was also 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 eleven (11) power Distribution Companies (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 system.

On their part, the power Generation Companies (GenCos) committed themselves to turning around the nation’s three hydro power plants and other gas-fired plants and expand their capacity to generate more power supply above 5, 000 MW.

The industry regulator, Nigerian Electricity Regulatory Commission (NERC), also 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 new core investors.

Sadly, however, none of these has happened, seven years after, thereby putting on hold the collective aspirations of Nigerians to leverage a robust power sector to achieve full industrialization, global competitiveness and more importantly, reboot an economy severely battered by the COVID-19 pandemic.

Rather than see any significant improvement in electricity supply, Nigerians have continued to agonise over persistent power outages, as electricity generation capacity worsened. From over 4,000 MW of electricity Nigeria was generating before privatisation in 2013, the capacity currently stands at 3,400 MW.

This is considered a drop in the ocean by energy experts, considering the fact that about 150, 000 MW, according to them, is required to power Africa’s largest economy with a population of 200 million.

Experts at professional services company PricewaterhouseCoopers (PwC Nigeria) were emphatic that “Nigeria will only have the kind of power that will support full industrialisation when the country is capable of generating at least 150,000MW of electricity.”

PwC’s team of experts led by Partner and Leader, Power & Utilities, Mr. Pedro Omontuemhen, said rule of thumb estimation postulates that approximately 1,000MW serves around a million people in a population.

Nigeria lags behind peers

While Nigeria is still struggling to reach 11,000 MW by 2023, South Africa currently has a total domestic electricity generation capacity of 51,309 MW from all energy sources, according to its Ministry of Energy.

The Nation learnt that electricity in the Rainbow Nation is mainly produced using coal-fired power stations,  with approximately 91.2 per cent, or 46,776 MW coming from thermal power stations, while 4,533 MW, or 8.8 per cent is generated from renewable energy sources.

South Africa’s electricity generation is dominated by state-owned power company Eskom, which currently produces over 96.7 per cent of the power used in the country, with a population of about 59 million.

Ethiopia is also said to be building for export 10,000 MW of hydropower as opposed to 4,700MW by Nigeria’s National Integrated Power Project (NIPP), while the Democratic Republic of Congo is undertaking a 40,000 MW Grand Inga for Africa.

Ghana, with a population of about 28 million (about the size of Lagos), currently has over 4,000MW of installed generation capacity, though actual availability is around 2,400 MW due to changing hydrological conditions, inadequate fuel supplies and dilapidated infrastructure.

However, with a significant endowment of natural gas and renewable energy to generate electricity, the Ghanaian authorities are poised to overcome these constraints to the country’s aspiration to industrialize, modernize its agriculture, and provide economic opportunities for its citizens.

Why privatisation failed

Why did the privatisation of Nigeria’s power sector fail woefully when the same approach to driving efficiency in service delivery literarily worked magic in other countries? Why did the exercise, which promised to offer solution to the country’s perennial power crisis, become the problem?

Also, why has it been practically impossible to improve power delivery across the generation, transmission and distribution value chain despite the sector gulping billions of naira and subjecting electricity consumers to endless upward review of electricity tariff without a commensurate increase in supply?

There have been several reasons adduced for the perennial crisis in the power sector. From alleged private 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 has continued to gasp for breath.

The Nation learnt, for instance, that apart from the investment the Federal Government made in the sector prior to the privatisation, the investors have not made any significant investment in the growth and development of the power sector particularly in smart metering technology, upgrade of their networks and other power infrastructure.

Reliable industry sources told The Nation that the dearth of investment contributed to the incessant power outages and the regime of estimated bills that has continued to pitch consumers against the power firms.

The activities of vandals who compromise gas pipelines have also been identified as another challenge. The gas sub-sector 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.

The Executive Secretary, Association of Power Generation Companies (APGC), Dr. Joy Ogaji, said shortage of gas remained the bane of the power generation sub-sector. She, therefore, urged the government to improve on the provision of gas.

She also pointed out that levies, including the Federal Government’s imposition of Value Added Tax (VAT) of 7.5 per cent on gas sold to GenCos were affecting the availability of the product in the sector.

A sector weighed down by debts

In fairness to DisCos, many Nigerians do not pay for electricity consumed. The Association of Nigerian Electricity Distributors (ANED) has since been screaming blue murder over massive revenue shortfall running into billions of naira. It, therefore, urged all power consumers, including government agencies to pay up their debts.

The Association’s Executive Director, Research and Advocacy, Sunday Oduntan, has never stopped lamenting that the revenue shortfalls was adversely impacting 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.

Paying more for less?

While Nigerians, particularly real sector operators, are agonizing over the failure of the privatisation exercise to guarantee steady electricity supply, alleged arbitrary and startling increases in tariff and other discomforting developments such as unwarranted disconnections by DisCos appear to rob salt to injury.

Already, the Minister of Power, Sale Mamman, has announced that the proposed electricity tariff increase by the Federal Government will kick off in July.

The NERC had in January announced an upward review of electricity tariff across the country from April 1, but the exercise was later suspended in March due to the COVID-19 pandemic.

However, on Tuesday, June 16, the minister, while speaking at the investigative public hearing on the power sector recovery plan and the impact on COVID-19 pandemic at the Senate, said the subsidy incurred in order to maintain the current tariff level was unsustainable.

Listen to Mamman: “The impact of the COVID-19 pandemic has also affected our laid-out plan for the repositioning of the electricity market towards financial sustainability under the power sector recovery programme (PSRP).

“Initially, the regulator, following the completion of public consultation on tariff review, planned on conducting a tariff review in April 2020. However, due to COVID-19 and customer apathy, the proposed tariff review was delayed by three months.

“The impact of this means the subsidy being incurred in maintaining the current tariff level had to be maintained until July 2020 when the proposed tariff review will be implemented.

“The current situation in the Nigerian power sector is that a lot of capital investment is being made, most of which is dependent on donor funding, loans and budgetary allocation. For projects that we have already secured their funding, we do not expect any adverse effect.”

Oduntan insists that the supply of electricity would improve as soon as there is increased revenue from the tariffs.

“While I understand the frustrations of Nigerians that they are not getting enough supply of electricity, it is pertinent to say that the poor funding of the sector, in recent times, caused the problem. For the sector to be efficiently run, the price of electricity must increase,” he said.

OPS disagrees

To members of the Organised Private Sector (OPS), any upward review of electricity is not only unjustifiable and unacceptable, but tantamount to overkill.

This was why since the NERC released its March 31 “Order on the Transition to Cost Reflective Tariffs in the Nigerian Electricity Supply Industry,” which set the tone for the proposed tariff increase next month July, the OPS has been spoiling for war.

The OPS, particularly manufacturers, in a statement, insisted that an upward review of tariff will be counterproductive on consumption and productivity, adding that any form of increase in tariff in the face of inadequate electricity supply, high electricity tariff and exorbitant cost of self-generated electricity, will further spike the cost of doing business with consequential upward spiral effects on unemployment rate.

“Most worrisome is the fact that private sector operators, especially manufacturers bear the burden of commercial and technical losses through very high monthly electricity bill that is largely estimated,” they said.

The statement, which was made available to The Nation, said private operators are already plagued by high cost operating environment arising from poor regulatory environment, macroeconomic asymmetries and high cost of energy, adding that this was responsible for the oscillatory performance of the sector in the past few years.

That is not all. The private operators argued that the trajectory of continuous increase in electricity tariff without commensurate improvement in electricity generation, transmission and distribution is not sustainable and would have catastrophic impact on the real sector.

“The proposed increase in electricity tariff is coming also at a time that the NESI is pervaded with high level of inefficiency, low investment in strategic electricity infrastructure; majority of consumers are not metered and the billing system is still largely estimated,” they added.

The President, Manufacturers Association of Nigeria (MAN),  Mansur Ahmed, said modern industry competitiveness depends to a great extent on provision of adequate and efficient infrastructure especially electricity supply, adding that electricity is a vital input for manufacturing process to the extent that it constitutes up to 40 per cent of the cost of production.

Instead of contemplating an increase in electricity tariff, the OPS suggested that government, being a major stakeholder in the electricity industry, should concentrate on developing processes and polices to attract significant investment to encourage scale generation with improved transmission and distribution infrastructure in the industry.

Pressure for review of privatisation mounts

Apparently frustrated by the crisis in the NESI, members of the OPS said “Government should review the privatisation/unbundling of the electricity industry in the best interest of the over 200 million Nigerians.”

The United Labour Congress of Nigeria (ULC) has also weighed in on the matter, renewing its call for the review of the privatisation. It’s President, Comrade Joe Ajaero, in a statement, said privatisation has encouraged rent-seeking in an economy that is already traumatized.

He added that it has also crippled the capacity of the commandeered utilities to deliver services critical for national development to the masses. “With power sector privatisation, electricity ceased to be social and became commercial,” Ajaero said.

Dr. Ikele also described the power sector privatisation as “a complete failure”.

As things stand, the Federal Government and Nigerians are caught between the rock and the hard place as far as the crisis in the power sector is concerned.

Reviewing or tinkering with the privatisation, according to experts, has legal implications, including the possibility of sending a wrong signal to existing and prospective investors.

(The Nation)