New investors can only be attracted when the operating business environment is right
The new plan of the federal government to tackle the challenge of electricity in Nigeria is unclear and mirrors the poor management approach that has defined the power sector since its privatisation in 2013. Yet investments do not thrive in uncertainty, just as money is discriminatory and goes only to where it is guaranteed to work efficiently. While the federal government sounds confident, stakeholders would still want to know what happened to the existing service level agreements it had with the 11 electricity distribution companies (Discos) consummated by the Bureau of Public Enterprises (BPE) during the power privatisation exercise.
The announcement of a new policy thrust came recently from Vice President Yemi Osinbajo who explained that the current structure of the market could not deliver on improving the country’s power sector to support domestic and industrial uses. He specifically declared that a substantial change in how the sector operates is being pursued, thus suggesting a new layer of reform. At the heart of the new approach, he said, is the Nigeria Electrification Road map which is aimed at deploying finance and technology on commercial terms agreed with the transmission and distribution companies in partnership with the German government and Siemens.
Osinbajo’s declaration also followed the government’s formal agreement with Siemens on 22nd July 2019 to activate a three-phase project designed to achieve 25,000MW of electricity in the country by 2025. In that service level agreements, both parties settled to meet up with certain key performance indicators such as reducing the level of technical and commercial losses at the distribution levels as well as creating conditions for the market and new investments to flow in and thrive.
As of today, data from the advisory power team in Osinbajo’s office reveal that the country’s power sector is in a terrible shape and understandably so. First, it took this government more than two years to reconstitute the regulatory commission. This, amongst others, ensured the market ran on uncertainty for years. And even when the installed generation capacity is put at about 12,000 megawatts (MW) and the available production capacity at 7000MW, the transmission network can hardly deliver up to 4,000MW.
These current conditions in the power sector are impediments to genuine investments which the sector urgently needs. They are red flags that should be tackled squarely rather than fresh reforms as suggested by Osinbajo because few investors will come to an environment where there is no consistency of policies. The Discos are inefficient. The TCN on its part has, despite some modest progress made recently, relapsed. This year alone recorded multiples of system collapses.
We welcome Osinbajo’s declared strategy of getting new investors into Nigeria’s troubled electricity market. But the federal government must understand that you cannot put the cart before the horse and expect to move. No investor, not even Siemens, will put its money in an unstable market. Nigeria’s electricity market needs to be cleared of all the man-made uncertainties that bedevil it before any serious investor would look in and want to play in it for a long time.
The business of power is capital intensive and long-term. The operating business environment in the country does not offer comfort to rational investors that they can recoup their investments or that they can get justice in case of default. The earlier the authorities recognise this and learn to stop behaving like the rest of world will fit into our warped standards, the better. While we endorse fresh thinking that would make the power sector in our country work, we will also like to remind the government that if we fail to plan well, we are only planning to fail again in the sector.