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Should Nigeria reverse nine-year power privatisation?

With N2.9trn intervention fund pumped into the power sector by the Federal Government and World Bank to resolve decades of rot, analysis shows that there is still no relief to the crises, especially as the country approaches the election year, 2023.

While the year 2023 will see new presidential and governorship candidates elected into offices with grand promises to fix the power sector woes, a flashback into what almost nine years of privatisation have fetched the country, will, perhaps, not only assist in shaping minds towards 2023, but also provide an overall assessment of the sector.

In November 2013, the Federal Government unbundled the Power Holding Company of Nigeria, PHCN, and sold 18 utility firms to private investors.

A breakdown of the transaction showed that the Federal Government earned a whopping $2.5 billion – involving six generation companies, GenCos, and 11 distribution companies, Discos.

The Bureau of Public Enterprises’ data revealed that the government sold stakes and concessioned the six GenCos for $1.269bn (N460.7bn).

The 10 DisCos (the sale of Kaduna Electric held later) were sold at $1.256bn (about N455.9bn). The government sold 60 per cent shares and retained 40 per cent.

Each DisCo also paid N1m as licence application fee to the Nigerian Electricity Regulatory Commission, NERC, of $75,000 (about N27.1m) for a 10-year licence fee. This totalled N298.3m paid as licence fees to the NERC by the DisCos, in addition to N11m application fees.

From 2017 to 2020, the Buhari government said it spent a total of N1.7 trillion on the sector. The World Bank in May provided a $500m funding to improve its electricity distribution sector. Similarly, the Director-General, Bureau of Public Enterprise, Alex Okoh, in an interview, said there was an approval of a fresh 2.3 billion Euro loan for the transmission and distribution arms of the sector. This brings total intervention to the sector to almost N3trn despite privatisation.

The Nigerian Bulk Electricity Trading, NBET, also has said it produces electricity worth N720bn yearly, making it about N6trn paid by Nigerians for unstable power supply from 2013 to 2020.

The DisCos currently owe Nigerian banks the sum of N861 billion, which recently led to takeover of four of the utility firms.

The DisCos also said they had invested N1.4 trillion in the sector since privatisation.

According to the performance agreements, while the GenCos were to have added 5,000 MW of electricity to the national grid after five years of privatisation, which was 2018, the DisCos were also to have metered their customers and reduced their Aggregate Technical Commercial and Collection, ATC&C, losses in the first five years.

However, currently, while consumers still get epileptic supply, buy meters, transformers and other electrical materials across the 11 privatised DisCos, the GenCos have been unable to generate more than 13000MW, with just 4000MW being wheeled by the TCN due to lack of capacity.

Experts say Nigeria needs at least 30 000MW of electricity to reach power sufficiency.

The NERC said a total of 1, 092,399 out of 8 million registered electricity users have so far been metered despite the introduction of the Meter Asset Providers, MAP, regulation and the Federal Government’s mass metering programmes.

Energy theft and debt

A document from the Association of Electricity Distributors, ANED, representing the interest of 10 DisCos says losses as a result of energy theft and poor payment are estimated at about N155.89bn in 2018.

According to them, energy loss affected the revenue and raised tariffs paid by customers.

The NERC, in a report, said for every N10 worth of electricity received by DisCos, N2.00 was lost to theft and poor distribution infrastructure.

The electricity debts owed by Ministries Departments and Agencies, MDAs, as of October 2019, was N120bn, with the military and security forces owing the highest portion.

The Kaduna State governor, Masir El-Rufai, had described the entire electricity sector as “broken,” saying expenditure by the Muhammadu Buhari administration on a privatised sector was “unsustainable.”

“The entire sector is broken, the tariff is an issue. The way the privatisation was done is an issue to many. So, there are many many issues. What we have agreed on is that there are fundamental problems in the electricity supply industry. And that you cannot privatise an industry and then over three years after privatisation, you pump in N1.7tn of government funds into it. That is not privatisation.

“The Federal Government has supported the electricity sector with N1.7tn in the last three years and this is not sustainable,” he was quoted to have said after a NEC meeting in Abuja.

Power plants nosedive, grid collapses

Between the months of February and March this year, investigation showed that 14 gas-powered generating stations did not either generate any megawatt of electricity or generated just low megawatts at various times within the period due to gas pipeline pigging, gas constraints and technical problems within generating plants. These caused persistent low generation and consequently low load allocation to distribution companies nationwide.

The national grid has also witnessed six total collapses this year alone.

Chris Akamnonu, who served as managing director in three Discos in the South-East and South-West for about 13 years, told The PUNCH, “The situation is more complex than the ordinary person sees. The entire experiment may not be yielding the desired results; that is the frank truth.”

The debt owed to Nigerian banks by operators in the power sector rose by 12.83 per cent in one year to N861.14bn in December 2021.

Power generation firms and independent power producers increased their total debt to N522.2bn in December 2021 from N443.37bn in December 2020, according to figures obtained from the Central Bank of Nigeria, CBN.

Transmission and distribution firms owe banks N338.94bn as of December 2021, up from N319.85bn a year earlier.

Chairman, Nigeria Governors’ Forum, NGF, Governor Kayode Fayemi of Ekiti State, was quoted to have said that Nigerian citizens and governments would have saved up to N17 trillion in 2021 if the 40,000MW of electrical back-up capacity owned and operated by Nigerians were to be delivered to them by licensed private IPPs and distribution companies through organised public electricity markets.

Governor Fayemi stated this via a letter titled, ‘Re: The Senate Electricity Bill’, addressed to the Senate President, Senator Ahmad Lawan; Speaker of the House of Representatives, Hon. Femi Gbajabiamila and Chairman, Senate Committee on Power, dated 22nd February, 2022.

Power sector shortfall hits N1.6trn in 8 years

Total power shortfall in the power sector went as high as N1.6trn in eight years, according to a recent report by The PUNCH.

The Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors, ANED, Sunday Oduntan, said the shortfall was recorded in the fourth quarter of last year.

“As at the last quarter of 2021, the total shortfall in the power sector is about N1.6 trillion,” he said.

Communications specialist and analyst, Dr Austin Nweze, on his part, said the power sector was holding down Nigeria’s industrialisation.

“The thing is that power is holding down industrialisation of Nigeria because the power component of manufacturing is between 75-80 per cent. When NEPA was unbundled, the people that bought over the power sector didn’t have the technical, business knowledge and financial muscle to drive development in the sector. So, the government ended up giving them some grants. Although some of them are still greedy, thinking that by not giving customers prepaid meters and using touts to recoup tariffs they will make more money. But they are short-sighted. Using touts to recoup tariffs is not sustainable.

“My friend in Enugu had two tenants who abandoned a bill of over N1 million on her. The EEDC asked her to pay but she refused because she said she’d applied for a prepaid meter but got nothing. DisCos use touts on customers who end up bribing them and the money ends up in private pockets. But with prepaid meters, the money may not be much, but it is sustainable. That’s why they have the shortfa.

That’s why I said they don’t know the business side of the sector. You may know the technical side, but you also have to learn the business side, especially the DisCos. They haven’t understood how to make money on a sustainable basis in the sector.”

He advised the DisCos to stop increasing tariffs and focus on giving prepaid meters to customers.

“If I were them, I would know that increasing income is not by increasing tariffs. They increase tariffs every year, yet, they can’t run the sector smoothly. Any business that can’t manage its cost is bound to fail. If I were the DisCos, I would provide prepaid meters so that they could plan”, he said.

40 million Nigerians use charcoal

Forty million Nigerians are engaged directly in fuelwood collection and charcoal production, says a report launched by the Food and Agriculture Organisation, FAO, of the United Nation.

This is contained in a report entitled, “2022 State of the World’s Forests,” released at the ongoing 15th World Forestry Congress, WFC, in Seoul, South Korea.

Communication strategist, marketer and scholar with the School of Media, Pan Atlantic University, Lagos, Chido Nwakama, described the challenges in the power sector as “foundational.”

“The privatisation was wrong-headed ab initio, unlike what we saw in the communications sector. The DisCos thought the sector was a money-spinning sector, and rather than do it the way the NCC did the telecom’s privatisation by looking for the best players wherever they could be found, the PDP in power then handed it over to friends and families. So, from day-1, you had a situation where the government was still subsidising the power companies that were supposed to be operating outside of government. What then shocked Nigerians is that when Fashola was power minister, he saw through all of this and said it was going to be changed, but nothing changed eventually. All that changed were those in charge of them. So, the government failed to do the right thing.”

According to him, the incoming government should cancel the privatisation and start all over again.

“How can a privatised sector still be dependent on the Federal Government? What kind of privatisation is that? Did you hear of the government giving loans or interventions to the telecoms sector? No.  This simply means that we don’t have a power sector that can stand on its own. All over the country, people are now looking at IPPs, or how to follow the Magodo-Ikeja-Electric model whereby they pay more to get stable power.”

We now have modifications to the power sector arrangements.

But Ike Ibeabuchi, an economic expert, disagreed, saying that reversing the power privatisation would worsen the problem.

“There will be court cases too,” he said.

“The best thing is to bring in new investors to partner the old ones. These must be big-ticket investors who will be ready to pump in funds and run the electricity sector as a business.”

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