Electricity supply – Beyond apologies

Reforms and improvements in the electricity industry are so fundamental to economic growth and development. The idea of reforms makes sense if there is a societal agreement on the direction of the reforms, especially if they will ultimately improve lives and livelihoods. Upon the return to civil rule in 1999, improving electricity supply was one of the core issues that confronted the Obasanjo administration and formed the basis of a number of promises. The promises centred mainly on uninterrupted power supply; generation, transmission and distribution of 10,000 megawatts of electricity by 2007 and all manner of words very sweet to the ears.

The National Economic Empowerment and Development Strategy identified the challenges and binding constraints on the growth of the electricity industry while outlining a plan of action for positive change. The Federal Government appropriated money and started the construction of new power generation plants and several investments in transmission and distribution. Even state governments started investments in independent power generating plants. The Electric Power Sector Reform Act 2005 was enacted and the chosen reform path was the unbundling and privatisation strategy. The sector regulator, the Nigerian Electricity Regulatory Commission, came on board and has since been rolling out beautiful regulations upon regulations and getting all the nice sound-bites. The monolithic NEPA was unbundled and the PHCN emerged whilst the generation and distribution components were later privatised. The transmission component is still government owned but has been let to a technical manager to run on a day to day basis.

Nigerians expected that as the new power generating plants were completed and started contributing to the national grid that the power situation will improve. But when their completion dates drew near and indeed, some were completed, a new story line merged. Nigerians got to know that power plants were designed and constructed without a thought as to their source of fuel which is gas. So, we have to wait until the gas pipelines have been constructed and connected to the power plants. The waiting game continued until the story changed to the fact we have not made enough gas gathering investments to guarantee enough supply of gas. Investors did not want to commit funds in gas gathering when the price of gas was not cost-reflective. To stem the tide, the price of gas was increased. The latest story is that of vandalising of gas pipelines and supply systems. Beyond this story line is another that the transmission grid does not have sufficient capacity to wheel up to 6000MW of electricity. So, even if the power plants have adequate gas to supply 15,000 MW, the remaining after the wheeling capacity of the grid may not be available to Nigerians or may be difficult to transmit.

The privatisation law and policy had defined the capacity of private sector investors who qualified as core investors to take over the assets in generation and distribution. They should possess technical, financial and managerial capacities. The technical capacity focuses on an understanding of the industry and its requirements in terms of what is needed to improve the specific company being taken over. The core investor should be able to demonstrate a track record of competence in running similar firms in the past. It should not just be a special purpose vehicle of strange bed fellows collaborating to acquire an asset. The financial capacity demands that the investor has enough funds or will be able to raise enough funds to turn around the fortunes of the privatised firm. Thus, the core investor should not be a brief case company or a straw man. Managerial capacity refers to the ability of the core investor to manage human and other resources to turn around the fortunes of the privatised firm.

A critical review of the companies (with the exception of one or two) that took over the unbundled firms as core investors and the new owners shows a lack of capacity on all three fronts. There is no evidence of in-depth technical capacity. The coming together of strange bedfellows with the intent of making the cut off point -partners that had never worked together and had no track record as a united front does not imbue technical capacity. The mere amalgamation of the parts of an entity cannot make a whole. The most irritating part is that straw companies that went to banks to borrow money for the acquisition of the privatised firms were pre-qualified and stated to have financial capacity. A company that borrows to fund an acquisition when the bigger financial requirement is needed in the turn-around needs of the firm cannot in all sense of honesty qualify as having the financial capacity. Some cannot even pay back the money borrowed to acquire the firms and the banks of course are in no position to lend more when the initial debts have not been repaid.

This accounts for the lack of new investments over a year after the core investors took over. We are now in a situation where the Central Bank of Nigeria has started raising soft loans for the new owners as if to say they are still government parastatals because banks are in no mood to lend any further sums to them. Greedy as the core investors are, they are not even ready to look for equity funds from the stock exchange. They dream of keeping everything to themselves when they do not have the resources to invest and grow the privatised companies. The need for equity is straightforward; you do not pay interest on them until you break even and make profits and be in a position to pay dividends. This is essentially long term investment which is needed in a sector like the electricity industry. The sector does not need short term double digit interest loans as this will result in a mismatch between the financing and the long term nature of the industry. The managerial capacity to make available ordinary electricity meters which will even aid their collection of the bills is not even a priority item of their agenda. The mindset is that of reaping where they did not sow; and short term gains for investing little or nothing.

On the part of Nigerians, we have done all that the authorities and the regulatory agency have told us to do. They told us to wait patiently and hope for improvements; we have been patient enough. They increased tariffs and we have been paying without complaints. They appropriated our money and spent the same as if money was going out of fashion with the attendant fraud and we kept silent if that will guarantee us improved power supply. What more will the government, NERC and the captains of the electricity industry request of Nigerians? Nothing more, as we have kept our part of the bargain and kept the peace. Apologies will no longer do. Now is the time to deliver or simply tell us the truth; that this is beyond your capacity and apologise for our endless waiting. Nothing has changed in the electricity industry over the years except that we are paying higher tariffs. This is not the way of reforms.


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