Tuesday, October 20, 2015

213 Billion Naira Bailout For Power Sector – Foolishness At Large!

By Idowu Oyebanjo 
Earlier in the year, the Nigerian Power Sector witnessed an unprecedented development wherein Government decided to give a whopping sum of 213 billion Naira as "bailout" to Privatised entities who now own and operate the Nigerian Power utilities in what was seen by many as another means of sharing the wealth of the nation by a few. Last week, after disbursing up to 58 million Naira, the Central Bank of Nigeria (CBN) governor suspended further disbursement to beneficiaries. Some of the pertinent questions include: What becomes of the already disbursed funds? Will disbursed funds still be recouped as intended via the 10 percent interest rate and repayment spread? How will this be tracked?

The lack of coordination and policy somersault from the Nigerian Power Sector reforms leaves no one in doubt that the lack of planning and deployment of square pegs in round holes in the execution of strategies contribute greatly to the problems of the electricity supply industry in Nigeria. Why do we not have the right kind of people in the right places so that thorough analysis and evaluations are carried out before jumping to execute a strategy only to realise half way that some issues needed to have been looked after before embarking on a journey that technocrats in power sector have warned us against? The answer lies in not involving power system engineers in the decision process plus the lack of knowledge of power systems in Nigeria. The most disturbing thing about the 213 billion Naira been shared is that it came at a time when quality of power supply is low or better put non-existent even as consumers face the ludicrous decision by NERC to start paying higher tariffs for electricity unused. Insult upon Injury!!! Why do we have many reversals of policies in the Nigerian Electricity Supply Industry especially when this does no more than infuse lack of confidence in investors who are the custodian of the much needed investment in the sector?

The Nigerian Electricity Regulatory Commission (NERC) in the very early days ruled out funding of Electricity Distribution Companies (DISCOs) beyond 2012. This was even against calls from Government to continue to fund the companies. Sound as the reasons for calls for continued funding may appear, let us ask ourselves what the rational and motives behind such call is. If you as an individual offer to sell your car as “scrap” – so cheap, will you want to maintain the car or fund the additional repair works required to put it right? In the first instance, if you are prepared to do just that, you may as well keep it and fix the car for keep.
The buyers of the Discos have definitely prepared to milk Nigerians dry. Their intention is to continue to eat fat from Nigeria’s oil wealth using a different disguise. 

The interesting thing is that they have for many years been eating fat from this same source. The main weapon to check mate such would have been a proper technical and commercial evaluation of interested bidders at the appropriate stage of the selection process. Technical and Commercial evaluation criteria should have been set ab-initio in such a manner that will preclude this barbaric idea of funding privatised entities. It is up to the owners of the privatised utilities to ensure they meet their obligations as required by law. I have in the past expressed concern about the quality of the companies that won the different bids as most of them have not been known to have demonstrable experience in this highly technical field. 

*Sam Amadi, NERC Chairman 

The idea of a foreign technical partner does no much good in Nigeria's favour in this instance. The commercial, political, and economic order of the Nigerian polity is too volatile hence it is no surprise that reputable companies in the business of electricity distribution worldwide did not express interest in our power network. The amount required to put it right is huge. The investment they will have to make cannot be guaranteed because the country is so unstable that one good policy today can be upturned within minutes tomorrow. This is why World Bank guarantee had to be sought for some investment. How did we get “learners” to win the bids in the first place? This showed me that the criteria for evaluation is flawed to the highest proportions right from the beginning. The idea that DISCOs cannot meet their obligations for whatever genuine reasons they may have is unacceptable. This is setting a precedence that is foreign to the principles of business or privatisation. The market rules must be made independent and enabled to sort such matters and more relating to this business on its own. For example, Discos cannot buy electricity if they cannot collect money from the customers. You simply do not supply that customer. You need to think of what you have to do to achieve this because it is not rocket science. If you do not know how to do it, you may have to pay consultants to help. There are too many ways to skin a cat!

NERC however has favoured pitching consumers and suppliers neck-to-neck and this will lead to disaster. Electricity consumers will disagree with distributors on tariff increment anytime, anyday, anywhere! It has taken several court orders and the 8th senate to persuade NERC not to rescind from its earlier promise regarding hike in tariffs. In reaction, the DISCOs and other benefactors took their case to the presidency where they secured a bid to increase tariffs. Says the vice-president: "Until there is stability in the power sector, electricity tariffs cannot remain at the levels they are right now". Put in another way, Nigerians should brace themselves up for increase in tariffs if they want stable electricity. 

Who caused the instability of the power sector? I have maintained this position for a long time now that Nigerians will pay for the wastages of others in the power sector and if possible, provide the funds for revamping the ailing network in what is seen as a shameful reversal of roles. This is a basic responsibility of government. Needless to say, the decision by NERC to hike electricity tariffs in the face of poor services to consumers will generate furore anytime.

To ask Nigerians to continue funding DISCOs is more or less saying the entire concept of Privatisation in Nigeria is again “Business as Usual” in which case, we will not see electricity in generations to come. With Nigeria supplying gas to Ghana so that they can continue to enjoy uninterrupted power supply, it is becoming clearer day after day that some sort of restarting of the process may have to be implemented. A holistic review of the power system is needed. Perhaps, the government may have to take ownership of the electricity assets again under the management of privatised entities. Any which way this goes, it will be unprecedented in the history of privatisation of power utilities. A word is enough for the wise!

*Idowu Oyebanjo, MNSE, CEng MIET, a Chartered Power System Engineer in the UK is a regular contributor to SCRUPLES

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