Monday, October 19, 2015

Improvement In Power Sector: Kudos To Obasanjo

By Desmond Orjiakor
Every well-informed Nigerian living in the country since the second coming of the military in December 1983 knows that very little investment was made in the power sector until the Olusegun Obasanjo administration came on board on May 29, 1999. For many, this is a misconception. Another misconception was the one peddled by the late political orator and former minister of power, and later Attorney General and Minister of Justice, Chief Bola Ige, that the sector could be fixed within six months. Those two misconceptions drove the thinking in the power sector. There were also very fundamental structural problems. Public utilities were run as a monopoly. Not just a monopoly, but also very top heavy and centralized in its administration, in the case of the power sector. And so, there were a number of things that had to be done. 
















*Obasanjo
There were the reforms, for instance, the 2005 Act, which provides for the unbundling of the utility into different entities which happened during the Obasanjo administration when Senator Liyel Imoke was minister. I think, Imoke worked closely with the Bureau of Public Enterprises, BPE, to make sure that the law was passed. In fact, the Power Reform Act was one of the most difficult laws to be passed in the National Assembly for obvious reasons. But it was passed, and that was the beginning of the reforms in earnest. With the passage of the law, Nigerians started seeing the unbundling of the utilities into smaller entities and this, in turn, saw them independently managed and being run more like business entities. This, of course, was a step in the right direction heading towards ultimately what we now see as the privatization of these utilities.

All the structural amendments that needed to happen, and all started during the Obasanjo administration. There was an attempt to re-bundle the utilities during the Umaru Musa Yar'Adua administration. This delayed for over two years the reforms and progress that had been made. Yet, the fact that the Goodluck Jonathan administration came back to that same blueprint of the Obasanjo era has led to some of the improvements we see in the sector today. We now see that the Federal Government budget for the power sector was very huge. Now, with the private sector buying in and taking some ownership through the privatization process, we are now seeing the Federal Government spending less and the private sector taking more responsibilities for investment in power supply. 

One of the crucial things that you will observe is that even the National Integrated Power Projects, NIPPs and the investments that were made there from the sale of utilities, the Federal Government has been able to recover a substantial portion of those investments. When those investments are paid for by their new owners, the Federal Government will also recover from the power plants and the distribution network. The only place that the Federal Government may not recover from is the transmission networks, because those ones were not privatized, the managements were outsourced. This means that with that outsourcing arrangement, the assets still belong to the Federal and State Governments.

























*Imoke
Another thing that was also very critical with the reform in the power sector by the Obasanjo administration was that, beyond the passage of the bill and its implementation, Nigerians saw that the greatest challenge of power which some people have continuously failed to appreciate is the availability of gas. Most Nigerians fail to appreciate that gas, which belongs to another ministry, is a completely separate investment being made by another entity. Even efforts were made right from the Obasanjo administration to make sure that everybody worked together to ensure the availability of gas for the new power plants. Ultimately, there was a disconnect. The power plants were often ready with the MDAs responsible for gas not being able to deliver gas to the power plants. The price of gas was also a big issue. Indeed, the pricing of gas is so low that the oil majors have refused to drill and supply gas to the power companies. Many also do not know that what we have now with the reform in the sector is new gas pricing which is inevitable. With the new gas pricing, maybe more people will invest in gas and we can now have enough gas to run the power plants. What this means is that there is a lot of factors that need to be addressed for you to have power.

Which is why it is extremely hazardous when over the years, you find in the reform programmes , the power probe which went on, people began to bandy imaginary figures- $16b, $10b, and so forth, without any evidence of any records that such amount was spent in actual figures. The NIPP had about two point something billion dollars allocated to it at the time. Up until today, nobody has been able to establish where the sixteen billion and ten billion being dropped here and there came about. But the truth is that what the Obasanjo administration started in terms of reform, which was interrupted at a point, is the same blueprint which is being implemented and is yielding tremendous results.

It all started with a technical committee under the Obasanjo administration before NIPP. That technical committee was responsible for delivering the first ever 4,000 Megawatts. At the time the technical committee resumed, power generation was down to 1,600 Megawatts, and that technical committee had about twenty months to deliver the 4,000 Megawatts. It was the difficulty to sustain it afterwards that necessitated the investment in NIPP. Today, we are going about some 5,000 Mw because a lot of what the technical committee did was to maintain old plants that were already down and had been used beyond their life span. Those plants the technical committee rehabilitated were installed in the sixties, seventies and eighties, and none in the nineties. We must note that the NIPP was about adding capacity with a view to selling or privatizing it. But private sector was not going to add that new capacity because the reform in the sector had not kicked in.


There is no way that private sector would build generator plants when they did not have gas supply and when gas was heavily subsidized. There is no way that the private sector would build generator plants when clearly they did not have laws and regulations that would guarantee them a return for their money. So the Obasanjo government at the time decided that the NIPP investments should be made and at the end, privatize. Now, the privatization that came at the back end under the Jonathan administration is what we see today. But if you did a study, you would see that there is a decline in investment in generators by the Federal Government; there is also a decline in investment in distribution network because of the investments that were made earlier. Now, if the administration of President Muhammadu Buhari sustains the reforms, it is just a matter of time for all that had happened over the years to begin to yield very visible fruits in spite of interruptions by various probes and allegations. 

In spite of the near reversal of the policies under the Yar'Adua administration; in spite of the challenges of the bureaucracy of government, the reforms have kicked in and they are sustained. A lot of people are now talking about power being available and attributing it to the President's body language. I think it goes beyond body language, especially if you understand how the power sector works. There are long lead times for these investments to be made and there are long lead times for equipment to be ordered. There are long construction periods within which all these will happen. They just don't happen within a few months of an administration coming into the office.

In fact, there is a need for some credit to be given for the vision of the Obasanjo administration. Someone that must also be given credit is His Excellency Nasir el-Rufai, the current governor of Kaduna State, who was the Director General of Bureau of Public Enterprises. It was he who led the process of reforms, including the drafting of the law at the time the Ministry of Power and Steel was under the watch of Senator Imoke who worked with the BPE and the National Council on Privatization to make sure that everything that was needed was put in place. It is hoped, therefore, that the present administration of President Buhari will sustain those reforms and create a conducive environment for the private sector to invest in power. The problem with power is that a lot of it is social service. 

It is not a very profitable venture per se, but it is an area that there is significant demand; and if the private sector meet that demand, it would certainly make a return on investment. But if the public sector wants to meet that demand, it is very unlikely that we are going to meet the expectations of our people. Yet, for the private sector to meet that demand, it will need support from government in terms of regulatory environment and making the business attractive. The Federal Government can continue to subsidize tariffs to the down trodden but the tariffs must be cost reflective if power must be delivered. Private investors, on the other hand, must also work in a regulated environment so that their inefficiencies are not transferred to the consumers. Above all, the gas sub-sector must be revitalized to feed the power sector. 

*Orjiakor, an Abuja-based public affairs commentator contributed this piece to SCRUPLES.

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