An article titled, “As Discos throw in the towel”, by one Sunday Onyemachi Eze published in a national newspaper recently deserves a closer scrutiny. Nigeria deserves robust debate on how to address the challenges of the power sector. But the said article crows about the difficulties of the electricity distribution companies (Discos) – a stakeholder in the electricity value chain. It is also a diatribe against the privatisation of power assets and a weak effort to present the government, especially the Federal Ministry of Power, Works and Housing, as blameless in the problems of the power sector.
The author correctly asserts that at the point of sale of the power assets, the Discos were technically insolvent but argues that privatisation was a flawed solution to their malaise. Though muted, one suspects that Eze would have been comfortable if the Federal Government had continued spending endlessly on the drain pipe. That government has no business in business is a settled debate. That realisation has been premised on the failure of public enterprises worldwide to meet expectations. Their outcomes in Nigeria have been one of spectacular failure. Estimates of the Vision 2010 Committee indicate that the Federal Government investments in State-owned Enterprises stood at over $100bn in 1996. The return on these investments averaged less than 0.5 per cent per annum.
But one aspect of privatisation that has been largely ignored is its impact on the treasury. The privatisation of public enterprises in Nigeria between 2000 and date has significantly reduced the financial burden on government because it is increasingly shouldered by the private sector. Since public enterprises prior to privatisation depended solely on government treasury for funding, their privatisation greatly reduced the dependence on the treasury funding. This, together with transfers to these enterprises which hitherto were inefficient, is channelled to enable the discharge of the social responsibility of the government.
One only needs to review the level of coverage of the National Electricity Power Authority and its successor, the Power Holding Company of Nigeria, and its inefficiency in providing electricity balanced against what NEPA drew from the federal treasury for this point to be settled. Statistics from national budgets show that the generating companies (Gencos) were allocated N35bn in 2005; N13.8bn in 2010; and in 2012, N51bn was allocated to Gencos and Discos under the Ministry of Power prior to the sale of the successor companies created from the PHCN in 2013. In 2015, the gross budgetary allocation to the entire ministry was N9.6bn with zero allocation to the sold power companies.
In July 2012, the Federal Government contracted the Canadian firm, Manitoba Hydro International, to run the affairs of Transmission Company of Nigeria, one of the 18 successor companies unbundled from the PHCN. The management contact was for three years in the first instance. Manitoba made significant contributions towards improving the overall performance of the TCN, one of them being the reduction of transmission losses from 12 per cent to 6.45 per cent, thereby making a savings of 5.5 per cent. Given that the annual commercial value of one per cent of the power wheeled by the TCN amounts to about N5bn, a savings of 5.5 per cent provides the industry an opportunity to earn an additional income of about N27bn per annum.
Before Manitoba came on board (2009-July 2012), partial collapse of the national grid was 51 and total collapse was 61during the review period. After it commenced work (August 2012 to 2016), partial collapse was 13 and total collapse was 42. This fact shows that the company reduced system collapses by over 50 per cent. And the Canadian firm was driven away for ministry officials to run the TCN. And the results are not good.
So, if the Discos and Gencos explain that they were not able to undertake proper physical due diligence, they should not be mocked by the Minister of Power, Babatunde Fashola, who always retorts that they bought the assets with their eyes wide open.
A recent editorial by a national publication joined in the mockery by labelling the contention by Tukur Modibbo, an investor in Jos Electricity Distribution Company, that he is willing to sell his company at a discount as “an open admission of failure”. The newspaper urged the Federal Government to accept the offer and reclaim the companies. It added: “The power firms have to be properly privatised, this time, to the right companies that have the technical competence and financial wherewithal to breathe a new life into them.”
Punditry is a nice occupation. It is over one year since the Nigerian government agreed to pay $87m to Integrated Energy and Distribution Company, the core investor for Yola Disco, as recompense for the $59m it paid for 60 per cent equity in the power firm. The government has met the agreement in breach.
It is also apt to point out that the core investors paid $1.4bn for their equity and inoculated their investments by signing contracts with the Nigerian government. And the courts are there to arbitrate. So, let nobody have the illusion that nationalisation of the power assets would not be challenged by the core investors in courts.
Moreover, we need to interrogate ourselves why Foreign Direct Investment is going to Ghana, Rwanda and other climes in the developing world and eluding us. One is our disregard for contracts; another is that the investment climate in Nigeria is hostile. The so-called “right companies” will not patronise the re-privatisation given the country’s antecedents.
Nigeria is ranked 145 among 190 economies in the Ease of Doing Business, according to the latest World Bank annual ratings. A reality check is due here. According to the ratings, the rank of Nigeria improved to 145 in 2017 from 169 in 2016.
The article in review points out that “distribution companies are now private ventures which must contend with the usual vagaries associated with businesses to survive. It is laughable that a business owner would want an official of government to ask him why he is not investing appropriately to boost his business”. It is safe to assume that the writer does not know that the Federal Government still owns 40 per cent equity in each of the 10 Discos. So, for the past five years, what investments has it put in place to back its equity?
It was only recently that the Federal Government announced that it had appointed the TCN to manage N72bn investments it planned to invest in the 11 Discos in order to upgrade their distribution infrastructure and networks. It will be interesting to know to what extent the TCN has been able to efficiently manage its mandate, let alone manage distribution infrastructure.
Let us not forget that there has been no major transmission infrastructure investment in the past 40 years. The TCN needs over $400m investment to resolve transmission constraints. Manitoba identified what needed to be done between 2016 and 2018 to address initial constraints; yet the Ministry of Power is trading blame with the Discos. Are the Discos responsible for the lack of investment in the transmission infrastructure?
May we inform Mr. Eze that seeking incentives is not alien to business. That’s why Governments court investors with incentives like pioneer status (tax) holidays, repatriation of investors’ profits, fuel pricing incentives.
It is necessary to point out that in the Nigerian Electricity Supply Industry, it is not only the Discos that are illiquid. The Nigerian Bulk Electricity Trading Plc, which secures payment across the electricity value chain, is also not liquid. In other words, it is not sufficiently capitalised to pay for the shortfall in the value chain.
We must understand that electric power is the key to the survival of Nigeria. The sector needs the desired political will to put a handle on its challenges. The way forward is to re-set the entire industry by faithfully implementing the Nigerian Power Sector Recovery Plan which was approved by the Federal Executive Council in March 2017 and the World Bank in April 2017.
Others are to develop and implement a robust Aggregate Technical, Commercial and Collection loss reduction programme including a comprehensive metering programme; ensure that outstanding MDA bills are paid and implement payment mechanism for future bills; make all electricity market contracts active; develop and implement a communication strategy for the implementation programme; and restore sector corporate governance by putting all boards in place including the Nigerian Bulk Electricity Trading Plc, Transmission Company of Nigeria, the Nigeria Electricity Liability Management Limited, Niger Delta Power Holding Company Limited, Rural Electrification Agency and Bureau of Public Enterprises.
Another reality check: Save for the constitution of the National Council on Privatisation on June 22, 2017 and NBET Board on August 15, 2018, none of the boards of the afore-mentioned agencies has been re-constituted over 18 months after FEC approved the PSRP.
- Asuquo, an energy policy analyst, wrote in from Lagos