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Friday, 9 December 2016

Fashola’s missteps in power sector


December 7, 2016

#Punch Editorial Board

THE crisis in the power sector will simply not go away. Across the country, darkness reigns and factories and other businesses are in dire straits. Unprepared for a sophisticated business like power, the generating and distribution companies are weighed down by debts, dilapidated equipment and their own glaring incompetence. Amid all this, the Power Minister, Babatunde Fashola, is sounding like a cracked record, repeating his untenable mantra that the fatally flawed power privatisation would not be reviewed. Who will save Nigerians from the tyranny of a dysfunctional power system?

Power supply in the country is beyond pathetic. Last week, power supplied reached 3,927 megawatts at its peak, but averaged slightly less than 3,000MW, according to the Nigerian Electricity Regulatory Commission. For a country with a population of 170 million and Gross Domestic Product estimated at $481.1 billion in 2015 by the World Bank, this is miserable. In a presentation by Funke Osibodu, CEO of the Benin Electricity Distribution Company, at the PwC power forum in 2015, it was revealed that, of the total installed capacity of 12,522MW, some 5,381MW was not available; another 3,626MW was classified as “non-operational”, leaving only 3,789MW operational.

Guesstimates of actual requirements range from 25,000MW to 150,000MW. There is however general agreement that less than 20 per cent of the Nigerian population have continuous access to power and only four million out of the country’s enumerated 32 million households have access to electricity.

Without resolving the mountain of debt afflicting operators, there is no hope in sight for a resolution of the crisis. The DisCos claim that government agencies owe N156 billion. They in turn owe the GenCos over N300 billion. According to the Central Bank of Nigeria, the GenCos also owed the banks about N357 billion by March end, this year. They owe gas companies a further N110 billion for gas supplied to their turbines, while some N402 billion in bank credit to electricity companies is said to have become toxic.

It was never meant to be like this. But three years after the unbundled assets of the former state-owned power monopoly were privatised, Nigeria is no better off than it was in 2013. The hope that privatisation would bring in foreign investment has been dashed; the dream of local banks reaping from an unleashed strategic sector has been drowned in an ocean of bad debts as loans provided to the incompetent local consortia that won the bids have gone bad. Private capital was expected to drive production, reduce the costs of doing business in a country where businesses provide 80 per cent of their power through expensive private arrangements and stimulate job creation.

Unlike Fashola and President Muhammadu Buhari, who unwisely refuse to review the power assets sale of 2013, the organised private sector that bears the brunt of inadequate power supply, has called for a review. This newspaper has consistently called for intelligent policy measures that will evict some of the hopelessly incompetent domestic investors that cornered some of the GenCos and DisCos through official chicanery. They can neither attract the necessary foreign funding, nor do they have the technical savvy to reverse what Fashola identified as over three decades of lack of investment in our power sector. The minister has also exposed the hypocrisy of the DisCos in their repeated claims of being owed without providing documentation.

Apart from the Manufacturers Association of Nigeria, leading industrialist, Aliko Dangote, and committees of the National Assembly have aligned with this progressive view, labelling the privatisation a colossal failure. We reject Fashola’s inference that a sovereign state can become so helpless within its own domain when its vital interests are threatened. The United States and European countries have on several occasions blocked the sale of companies to certain foreign entities when over-riding national interests are deemed to be at stake. The British government, through the UK Competition Commission, compelled the Spanish consortium, Ferrovial, which had purchased British Airports Authority, to give up Gatwick, Stansted and Edinburgh airports, citing possible “adverse effects for both passengers and airlines.” The same UK government that triggered modern privatisation has, on occasions, had to step into the rail and water privatisations to protect national interest, the preeminent responsibility of any government. We oppose the continued release of public funds to non-performers such as the N213 billion intervention provided by the CBN for gas issues.

The only realistic way to attract the $10 billion investment that the IMF says the country needs every year for 10 years to reverse the power supply deficit is to review and properly, transparently privatise the power assets. Contrary to Fashola’s erroneous assertion that reversing the flawed sale would scare foreign investors, we assert that it would rather reinvigorate investor confidence. We recall how global enthusiasm for Nigeria’s power sales was scorched by the corruption-fuelled process that eventually had all the 17 unbundled assets acquired by local consortia, save for one that had Kepco, the Korean operator, as technical partner. Genuine investors were simply scared off to pave the way for local misfits.

Since it still holds substantial minority stakes in the privatised entities, the government should creatively apply pressure on the chronically inadequate investors – through aggressive debt recovery, performance targets and regulatory measures – with a view to compelling them to sell or give up their stake. Though some criticised the motive and method, official hostility made Sadiq Petroleum to give up its majority equity purchase in African Petroleum Plc shares in 2005.  The country will remain for long economically shackled unless we are able to evict these interlopers in the power sector.

To resolve the power crisis, the government should urgently and wisely sell the 10 power plants developed under the National Independent Power Projects to major foreign players. No indigenous operator has the track record, technical or financial capacity to deploy and reverse our power predicament. Resolving the 80 per cent dependence on gas-fired plants and harnessing coal, solar, wind and water are crucial. We need a second national power grid in addition to regional grids, instead of the folly of relying on only one.

The first order of business, however, is for Fashola to climb down from his high horse and commence an immediate review of the privatisation or Buhari should compel him to do so.

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