Has the Power Sector Privatisation Finally Failed?

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Emmanuel Addeh writes that the takeover of three out of the 11 Distribution Companies (Discos) by creditor banks and the federal government, roughly nine years after their privatisation signals a deeper problem in the power sector than may have been envisaged.

Undeniably, for decades there has been no respite for the Nigerian Electricity Supply Industry (NESI), with the seeming intractable problems besetting the entire value chain, from generation to transmission and then distribution.

There’s hardly any of the three tripods that is free from these worsening challenges, although the power generation leg of the sector appears to have fared better than both transmission and distribution, the latter being the most impaired.

As it is, the biggest problem in the sector today, experts say, would be lack of investment as well as the consequent illiquidity.

Many businessmen, both foreign and local, express fears of not being able to recoup their investment, mostly due to “low” tariffs, operational bottlenecks and government’s incessant interference in the sector.

While the industry has always struggled, even in the best of times, the recent takeover (now being sorted out) of the Ibadan Electricity Distribution Company (IBEDC) ,the Abuja Electricity Distribution Company (AEDC) and the earlier retrieval of the Yola Distribution Company (YEDC), although for unrelated reasons, has brought to the fore the depths of headwinds confronting the sector.

PRIVATISATION AND DASHED HOPES

Though many Nigerians were upbeat on the “successful” privatisation of the Power Holding Company of Nigeria (PHCN) in September 2013, after years of dilly-dallying on the matter, that hope has since waned.

On the 30th of that month about nine years ago, the federal government formally presented certificates and legal papers to the new owners of the power generation and distribution companies.

However, the new owners were to wait until 1st January 2014 before they could assume full ownership of the privatised companies due to labour-related issues that were expected to be resolved before the end of 2013.

Described as a significant milestone at the time, expectations of a significant improvement in power supply has since become a pipe dream for many Nigerians.

Indeed at the time, it was thought that the transfer of ownership of the electricity companies from the government to the private sector would mark the end of a tortuous journey that started in 1999 when the National Council on Privatisation (NCP), embarked on the exercise.

The reason for the handing over of the assets to the new “businessmen” were simple: drop in generation to sometimes as low as 2,500 megawatts, frequent system collapses, low levels of investment in repairs, maintenance and manpower development, as well as high energy losses.

In addition, were the issues of inefficiency in terms of revenue collection. As an estimated 50 per cent of revenue collected was lost.

Although government still holds substantial equity in the successor companies, the new private sector owners were further expected to block the leakages and improve on revenue collection when they took charge.

The Bureau of Public Enterprises (BPE), which oversaw the programme, put the total sale figure of the Gencos and Discos at $1.27 billion and $1.26 billion, respectively, bringing the total to $2.53 billion.

The then Minister of Power, Prof. Chinedu Nebo, said that being highly capital intensive, a lot of investment was required in the sector, reason the initiative was important.

“Government alone cannot afford these huge costs. This is at the core of the government decision to privatise the industry and in so doing, get the critical mass of private investment and expertise to resuscitate the comatose power sector,” he told his excited audience
Nebo advised the new owners to consider listing their companies on the then called Nigerian Stock Exchange (NSE), where they could access long-term funds for growth and expansion.

LONG-TERM PROJECTS

But experts like a one-time Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Sam Amadi, have always argued that the use of short term borrowing to execute projects with long term returns was the first mistake made by the Discos.

On several occasions, he has posited that it was wrong for the investors who bought over the assets to borrow from commercial banks that would make demands for their funds in a short time. That decision, he said remains one of the problems in the sector.

In addition, the lawyer had said that moving to full private sector market in utilities like electricity in a state of acute scarcity in one fell swoop was a miscalculation.

“ This is the singular mistake Nigeria made. We should have fully commercialised and corporatised our electricity sector under effective regulation. Privatisation would have come down the line when the sector would have gained efficiency through effective regulatory and good corporate governance.

“We erred by privatising so quickly when we were yet to set up a proper regime of corporate governance and when we are suffering from gross incapacity,” he had argued.

Describing it as a modelling error, he maintained that sighting power plants far from the gas supply sources, resulting in high cost of transmitting across a large expanse, was adding to overall costs.

TROUBLE IN THE DISCOS

The Discos have mostly been the weakest link in the value chain, closely followed by the Transmission Company of Nigeria (TCN), a fully government-owned entity, which in operational terms is the intermediary between power generation and distribution.

Eleven in all, the distribution companies also bear the natural burden of shouldering all the blames in the sector, being the interface between the customer or end-user and the power value chain.

THE YOLA REPOSSESSION

Although unrelated to a major loan default, Yola Disco was the first to be retrieved by the federal government after the declaration of force majeure by Integrated Energy Distribution and Marketing Company, the core investor in the firm.

Consequently, the federal ministry of power took over the management and control of the electricity distribution company and appointed Mr. Baba Mustapha, an engineer, to lead the company.

Before the final relinquishment, the company had on six occasions on November 10, 2013, August 27, 2014, October 15, 2014, April 9, 2015, April 30, 2015 and May 13, 2015 reported that it wasn’t able to perform its functions due to insecurity.

However, after some years, Quest Electricity Nigeria Limited had recently acquired YEDC with a bid price of N19 billion.

In addition to paying the purchase fee of N19 billion, the new investor has committed to a Performance Improvement Programme (PIP), which would involve an investment of N28 billion, over a period of two years.

AEDC LOAN DEFAULT

Although there had been some internal wrangling with the displaced board of the Abuja Electricity Distribution Company (AEDC), it came as a shock when the federal government announced that that the lending bank (UBA), had exercised its rights over the shares of KANN consortium, part owners of AEDC.

NERC and BPE in release jointly signed by the Chairman of the power sector regulator, Sanusi Garba and the Director General of the BPE, Alex Okoh, stated that there had been a dispute amongst competing factions of AEDC’s majority shareholder/core investor, stressing that the disagreement eventually spilled over to a dispute with the lender that provided the acquisition loan to KANN.

According to NERC and BPE, the matter later deteriorated over KANN ‘s inability to service its debt to the bank.

During the course of the intractable crisis, the statement said that the AEDC not only struggled to meet its obligations to the market under the terms and conditions of its licence but was also unable to meet its obligations to key stakeholders in the organisation, including staff.

The NERC and BPE explained that this culminated in the industrial action by members of the Nigerian Union of Electricity Employees (NUEE).

“The general public should note that arising from KANN’s inability to service its acquisition loan and the ensuing dispute over the servicing of the loan from UBA Plc., the lender exercised its rights by appointing a receiver/manager over KANN,” it noted.

According to the statement, it then became apparent that decisive steps were required to address the matter wherein the BPE agreed with the lender’s request to exercise its powers as receiver/manager.

It explained that this development included exercising its powers over the 60 per cent equity in AEDC as a means to recovering the acquisition loan it granted. AEDC oversees Kogi, Nasarawa, Niger and the Federal Capital Territory (FCT).

And IBADAN TOO

In another shocking development, the Asset Management Corporation of Nigeria (AMCON) last week announced that it had taken over the assets of the core investor in the Ibadan Electricity Distribution Company (IBEDC).

In a public notice, AMCON stated that it had appointed Mr Osayaba Giwa-Osagie (SAN) to take over the entire undertakings, assets of the company, including shares and interests in related companies and entities, and also monies kept in of the 25 banks in Nigeria.

AMCON, it was learnt, executed the takeover of IEDM, the core investor, following a default in a Loan Servicing Agreement (LSA) executed with Polaris Bank.

”AMCON has pursuant to Section 48 and 61 of AMCON Act 2010 been appointed Receiver/Manager over all the Assets of Integrated Energy Distribution and Marketing Limited as stipulated in the instruments executed in favour of AMCON.

“This is by by virtue of the Loan Purchase and Limited Servicing Agreement executed with Polaris Bank Limited dated 30th November 2018 and a notice of appointment of the receiver/manager dated August 6th, 2021, which was duly stamped by the commissioner for stamp duties” the statement read.

It was gathered that NERC had previously fined IBEDC N50 million for its failure to secure a refund of an interest free loan the board of IBEDC granted to its core investor group.
But late Saturday, there was an indication that billionaire businessman, Mr. Tunde Ayeni, who owns the company had taken back the control of the IBEDC from AMCON.

Chief Operating Officer of IBEDC, Engr. John Ayodele, in a memo to the staff, confirmed that after the negotiations, status quo ante was maintained.

“Further to the communication earlier sent on 20th January 2022, in respect of the above, kindly note that the investors have resolved on way forward with AMCON and status quo ante maintained,” he stated.

But whatever further action will be taken on the matter, one thing is sure: That there’s trouble within the Discos.

LAMENTATIONS YEARS AFTER

A few weeks ago, President Muhammadu Buhari accused his predecessors of mortgaging the sector by selling off the country’s power assets to their cronies who neither had the financial muscles nor the technical know-how to revamp the sector.

According to him, Nigerians are facing epileptic power supply because those who bought the various electricity distribution companies got them based on political favouritism and geopolitical consideration rather than on merit.

He argued that those who bought the Discos were not electrical engineers neither did they have the financial muscle, and thus, could not understand the intricacies of the power system in the country.

“The owners of Discos bought them based on geopolitical zones rather than merit. The people that own them, who are they? They are not electrical engineers, they don’t have money, it is just a political favour,” he argued.

At its peak, Nigeria’s power sector is only able to generate just about 15 per cent of the total projected national daily requirement of 28.880MW, a recent check by THISDAY showed.

A trend analysis of data released by the system operator , indicated that despite the various financial interventions by the federal government in the last six to seven years, only a paltry average of 4,500MW is actually generated every day.

Although, Nigeria’s almost seemingly insurmountable electricity problem did not start under Buhari, close industry watchers are of the view that seven years should be enough to overhaul the sector.

N1.7TN DOWN THE DRAIN

Sometime ago, Governor Nasir el-Rufai of Kaduna state, said that the federal government had in the past three years, at the time, spent N1.7 trillion on Nigeria’s electricity sector.

Speaking after a National Economic Council (NEC) meeting in Abuja, the governor described the entire electricity sector as broken, saying that such expenditure by the current 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 issues. What we have agreed on is that there are fundamental problems in the electric supply industry.

“You cannot privatise an industry and then over three years since privatisation, you pump in N1.7 trillion of government into it, that is not privatisation.

“The federal government has supported the electricity sector with N1.7 trillion in the last three years and this is not sustainable,” he noted.

COST OF DARKNESS

Last year, the World Bank reported that annually, Nigeria’s economy was losing between N7 trillion and N10 trillion to epileptic power supply. It said the total sum represents 5-7 per cent of the country’s Gross Domestic Product (GDP).

In the report titled ‘Resilience through Reforms’, the World Bank stated that due to unreliable and insufficient electricity supply, businesses and wealthy homes depend mostly on generating sets.

It said the over 22 million gasoline generators in Nigeria power about 26 per cent of all households and 30 per cent of Micro, Small, and Medium Enterprises (MSMEs) while their net capacity is eight times more than the national grid.

These challenges, according to the report, are due to substandard infrastructure, stressing the urgent need to improve and expand the network to improve the quality of supply.