Nnaji: Govt and Discos Should Deliver on Privatisation Agreement

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A former Minister of Power and Chairman of Geometric Power, Prof. Bart Nnaji spoke to journalists on the challenges of the power sector privatisation, contending that as the distribution companies are being held accountable for not meeting the terms of the agreement, the government on its part should implement cost-reflective tariffs and liberalise gas supply. Ejiofor Alike presents excerpts:

The power assets were handed over to the investors in 2013. More than three years down the line, what is your take in result of the privatisation, so far?

I think that the intention of privatisation is really to take distribution and generation out of government’s hands and that is very clear. But it is intended that those who have taken the assets should be able to invest in the assets. Of course, the government should do its own part, which is to have the will to ensure that what it promised the distribution companies get done, so that the distribution companies can be held accountable to the agreement so made. The agreement made is very simple. It stated that the government will give you these assets for certain specific value, not a bidded value but you should reduce losses – Average Technical Collection and Commercial losses.

You should reduce it to a certain number that you bidded for. That is the actual bid. But to do that requires a lot of cash to invest in the network, to invest in the commercial aspect of the business, including metering. Now, if it is not being done, then it is not being done. That is really the problem. But there is need on the side of government to ensure cost reflective tariffs, which means that the cost associated with the business is what is paid. Nigeria should not hold back on cost. We recognise that government should be sensitive about the business of power.

But then, when you look at Africa, Nigeria pays low value in comparison to other parts of Africa, in terms of power. We have to say: do we want power or do we want darkness? I said that the cost of darkness is infinite; the cost of power is finite and we should have the will to do something about cost-reflective tariffs, otherwise, nobody is coming here to invest and is not just a talk. People will come here to invest in the power sector if cost-reflective tariff is there. I tell you distribution companies, on their side – that is where you can say that they have something that they are asking government to do. But after that, then they have to be held to deliver. They must deliver on all aspects of the business to improve the network and have all aspects of the business metered.

A lot of things are happening; it is like chicken and egg, which one comes first? What is really the missing link, considering the fact that NERC does not actually fix tariffs? When you consider other variables like gas challenges, gas utilisation, which comes first actually because they have acquired these assets and they have a role to play and government also has a role to play but NERC does not fix tariffs?

The only way you can resolve the chicken and egg situation in favour of consumers is if government subsidises. That is the only way; otherwise the public have to pay so that they will be able to get power. The other aspects of gas supplies – we have to have a situation where gas supply is liberalised, so that producers can be free to produce and charge the correct market price. I do not think that people are unwilling to pay for gas. Of course, this is passed on to the consumers but it is reasonable that reasonable price get charged for gas because actually, in Lagos area, you will find a commercial consumer of gas paying up to $8. This is outrageous for gas but at the low end of it, the price is between $2 and $2.50. So, there must be a solution.

What did you do differently when you were the power minister to ensure better supply that we had in those days?
Well, we were improving the actual assets, ensuring that the units are running. If a unit is out, we want to bring the unit back; we want to ensure that the network is there; we want to make sure that you do your job if you are part of the operation and if you don’t do your job, we sack you. So, I have to bring the will to ensure that all the aspects work, while you do reforms, while you try to build power plants; while you do all these other things to improve the power sector.

But you have to deliver power and people have to see that power is actually improving. They have to see that power is improving and that is where they have willingness to pay. People are talking about tariffs as if we should be afraid to increase tariffs. Keep the urban poor and rural dwellers low and that was what we did. When we increased price of power, there was no quarrel, anywhere. We actually quadrupled the price of power but we kept the urban poor and rural dwellers the same- actually a little lower because these are the people who find it difficult to pay; others can pay for power so that the country can move forward. So, that is what we did.

The federal government had initially given out N270 billion power intervention fund and now, they are giving out another N701 billion, all in an effort to support the Discos but we kept on hearing that government is not playing its own part. What else do we expect the government to do?

You are quite right about that. Now, government has to sit down with the distribution companies and set out what Discos must do when they get the money and rigorously ensure that the Discos actually deliver. That is very straightforward. I give you money – what we use to do was: if I have a CEO of one of the PHCN companies and I say okay, what do you need to deliver this amount of supply to me? And he says: this is what I need. And I say, okay, I am going to give you what you need but at this particular time, you must deliver what you have promised me. You must deliver; otherwise we won’t be working together.

The power privatisation, which you championed, will be four years old in few months’ time and we are still talking about metering and all these challenges. How do you feel that we are still at this point almost four years after the privatisation?
Well, what we did was that we said that every single company must have two capacities – that is, a company that is acquiring an asset. One of the capacities is financial capacity; the second is technical capacity – if you don’t have any of those, you don’t qualify. But if you have both, you shouldn’t have problem either as a generation company not being able to improve generation because you have to understand why generation was privatised.

Some of the generation companies – may be, with 600 megawatts capacity, was generating 100MW. We want you to generate the 600MW but the only way you can generate 600MW is to invest. So, if you don’t have the financial capacity, you cannot do it. If you don’t have the technical capacity, you can’t do it. The distribution companies are even worse because distribution is more technical.

So, you need to have money to invest in distribution and technical capacity to upgrade distribution. So, these two capacities needed to be there. As you know, I Ieft the system in the middle of the exercise and in some cases, it did go to correct people; in some others, it did not.
The Discos just have two more years to go, according to the terms of the privatisation agreement and in the event of them not meeting up; don’t you think it is right that the government is going to do something because of all these crisis? What is your view?

Well, the government will have to do something but even before then, I think that the distribution companies will need to give themselves the capacities that I am talking about by bringing co-investors to be part of the business. You know that sometimes, people like to control things. You don’t have to be controlling. Ten per cent of something that works is better than 100 per cent of something that doesn’t work. So, they have to get investors, so that they can improve the business; so that the business won’t be taken away from them by the government. It is very simple.

With the present confusion, how do you think this metering crisis can be resolved? The Discos want to get money from the banks but the banks want to bankable guarantees on how the money will be paid back, considering the fact the sector is not also properly metered and there is energy theft. What do you think should be the model to resolve this metering gap?

Meters have to be delivered; consumers should have meters. The government and distribution companies should sit down and work out a sort of back-to-back guarantees that will make those things work. The distribution companies should be able to collect and the government needs to supply adequate guarantees that would ensure that the business works value-chain wise.

You had personal battle with the labour in the course of privatisation. The labour unions opposed the privatisation, insisting that the sector was not ready for privatisation and that the private sector should rather build their own assets, rather than buying government assets. At the end of the day, you had your way. Now, that you have gone to the other side, can you say that the privatisation was done at the right time, considering that when you were there in 2012, that was the time the country hit 4,500MW but today we are generating below 4,000MW. So, do you still think that 2013 was the right time for privatisation?

I think there is no exact right time for privatisation. You cannot say that it is today or next year or 10 years from now. No! The time was right for us to do privatisation because the level of corruption in the system was just too much and what people did not know was that government generation was around 2,500MW. It has not changed; the rest generation came from the private sector and the only increases will have to come largely from the private sector.

So, if you have 50,000 people working to supply 2,500MW; if you talk to people from the developed economies, they say you are insane. You cannot have 50, 000 people running 2,500MW power system. So, it needed to be privatised and what I had promised the labour people was that they would have their jobs if they wanted it because the sector would not go to China or India to get labour; labour will have to come from within and that is what has happened. I think everybody has seen that even when they were paid off, some of them still had work.