RE: Collapse of Nigeria’s Power Privatisation
I found Timi Soleye’s piece in the Financial Times interesting. The Financial Times and its editors would have a lot to lose by reputation if Soleye produced a story of the privatisation of the electric power sector in Nigeria without facts. And one which could we can readily debunk with counter-facts. Newspaper often restrain articles they publish by word count limits, causing summarisation and missing details. Does one have to represent hidden vested interests to write what they think or observe?
Well, let us stick to the claims in Eyo Ekpo’s response. First, is that Nigeria’s privatisation has universal acclaim as the most transparent and comprehensive of its kind? That is, ever to take place anywhere in the world, despite its size and complexity, is most inaccurate. Privatising a dysfunctional few thousand megawatts of electric capacity for a nation is derisory. Especially, regarding Nigeria’s income history, massive population and perniciously underestimated electric demand do not make for significant size.
In fact, a country with a population of 60 million people should have an installed operational electric power capacity 100,000MW. In complex electric networks, electricity transmission is by pooling via “loop systems.” Nigeria’s network is an archaic “radial system” causing endless shedding of electricity. It is essential to note Nigeria has one of the very lowest electricity consumption per capita figures in the entire world. In essence, Nigeria privatised power cuts, blackouts.
Second, I presented a document to NEPA/PHCN when J O Makanju was the managing director. It contained detailed facts that the Nigerian power sector was operating at less than 10% efficiency. France has the most efficient industry in the world and operates at 35% efficiency under conditions of constant electricity. It was a document I also showed two NEPA / PHCN directors and a minister and former minister of state. They were stunned by the facts and even got senior engineers to the sector to evaluate the facts, but assured me the privatisation would go ahead back then. No audit of efficiency or asset conditions of the electric power sector in Nigeria has ever have been conducted since. If it has, can we please have details?
Third, the “steady state of NESI” is fancy talk. Where is the steady-state constant electricity the sector is supposed supplying to consumers? Is that not what the privatisation is all about? I guess it is a case of “we are getting there”, hope.
Fourth, since when has Nigeria been a bastion of rule enforcement? Due diligence and preparatory procedures, especially as meetings and documentation, have never failed to impress observers in any sector in Nigeria. It is in realisation and operations that the disappointment and failure begin. Market transition rules are primarily legal reform requirements. They are not a measure or indicator of performance or efficiency of any sector.
Fifth, the most significant stakeholder in the electric power sector is the consumer. The stakeholders highlighted as necessary to the industry are distinctly “elite”, owners and regulators (and “facilitators”). Dr Lanre Babalola, as a minister, was furious (NERC tasted pepper) with the poor strategies and levels of revenue collection from electricity consumers. While the “electricity elite” were mis-forecasting and perniciously underestimating daily electricity demand, marketing privatisation as a panacea, promising constant electricity and selling hope.
No one took out time to evaluate the affordability of electricity for the customer. Or the incidence and impact of power theft on revenues. And the potential debt burden of non-payment on the sector. Articulated rules are not action(s). Prepayment metering has not provided the magic. Nowhere near what its beneficiaries promised. And no initiatives for alternative methods seem to be considered. $1 billion unpaid is a lot of money to be owed to any sector anywhere in the world.
Sixth, the term “discerning investor” is sometimes another name for project finance participants. It is a consortium of investors who share and spread the risks of investing in financing privatised sector assets. Say, with concessionaire BOT (Build-Operate-Transfer) projects. Investors dislike losing money, and Nigeria has many country risks. The most eager foreign interests in the Nigerian electric power sector are electric turbine sellers like GE and Siemens; they do strictly turnkey business.
Furthermore, operations investors are wary of the Nigerian electric power sector. Enron-AES IPP in Lagos State even has its turbines on barges that it can tug away when necessary. Senior executives Bureau of Public Enterprises were in unison in the claim that foreign investors did not undertake the purchase of Nigerian assets. Nigerians bought the assets often using foreign fronts. The NIPP scandal on participation, scale and scope were utterly disastrous for foreign interest in Nigerian electric power sector investment.
Seventh, is it true that they imported $4 billion worth of turbines into Lagos port? Then left there to accrue huge demurrage. Because the project principals of the NIPP had not considered the difficulty of transporting them to their riverine destinations? No delivery feasibility studies. Moreover, they then auctioned these turbines for peanuts to non-existent buyers because of the unsustainable demurrage accrued. The recovery of the turbines by the government was a good thing, though. I can see the link between ports and the electric power sector slightly in this case.
Nevertheless, if see no evil, hear no evil, speak no evil is the motto of NERC, we have to wish it the very best.