RE: The Imminent Collapse of Nigeria’s Power Privatisation

Posted: November 4, 2014 in Governance, Special Interest Groups
Tags: , , , , , , , , ,

http://eyoekpo.com/post/101658521484/the-imminent-collapse-of-nigerias-power-privatisation

I found Timi Soleye’s piece in the Financial Times interesting. The Financial Times and its editors have a lot to lose by way of reputation if Soleye produced a story on the privatisation of the electric power sector in Nigeria without facts and which could be readily debunked by counter-facts. Newspaper articles are often constrained by word count limits necessitating summaries. 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. Firstly, that Nigeria’s privatisation was universally acclaimed as the most transparent and comprehensive of its kind ever to take place anywhere in the world despite its size and complexity is highly inaccurate. Privatising a dysfunctional few thousand megawatts of electric capacity for a nation with Nigeria’s income history, massive population and perniciously underestimated electric demand does not make for significant size. A nation with population of 60 million people should have an installed operational electric power capacity 100,000MW. In complex electric networks electricity is transmitted and pooled by “loop systems”, Nigeria’s network is an archaic “radial system” necessitating endless shedding of electricity. It is important to note Nigeria has one of the very lowest electricity consumption per capita figures in the whole world. What was actually privatised was purely power cuts.

Secondly, I personally presented a document to NEPA/PHCN when J O Makanju was managing director with detailed facts that the Nigerian power sector was operating at less than 10%; France has the most efficient sector in the world and operates at 35% efficiency under conditions of constant electricity. It was a document I also showed to 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 will go ahead back then. No audit of efficiency or asset conditions of the electric power sector in Nigeria has ever have been conducted since then, if it has can we please have details?

Thirdly, 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.

Fourthly, since when has Nigeria been a bastion of rule enforcement? Due diligence and preparatory procedures especially in the form of meetings and documentation has never failed to impress observers in any sector in Nigeria. It is when it comes to realisation and operations that the disappointment and failure begins. Market transition rules are essentially legal reform requirements and they are not a measure or indicator of performance or efficiency of any sector.

Fifthly, the biggest stakeholder in the electric power sector is the consumer. The stakeholders highlighted as important to the sector are distinctly “elite”, owners and regulators (and “facilitators”). Dr Lanre Babalola as minister and former minister was furious (NERC tasted pepper) with the poor strategies and levels of revenue collection for electricity consumed. While the “electricity elite” were misforecasting 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, the incidence and impact of power theft on revenues or the potential debt burden of non-payment on the sector. Articulated rules are not action(s). Prepayment metering has not provided the magic its beneficiaries promised and no initiatives for alternative methods seem to be considered.  $1 billion unpaid is a lot of money to be owed for any sector anywhere in the world.

Sixthly, the term “discerning investor” is sometimes associated with project finance (participants) which is a consortium of investors who share and spread the risks of investing to finance privatised sector assets and concessionaire BOT (Build-Operate-Transfer) projects. Investors do not like to lose 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. Operations investors are wary of the Nigerian electric power sector. Enron-AES IPP in Lagos State even have their turbines on barges that can be tugged away when necessary. Senior executives Bureau of Public Enterprises were in unison in the claim that the purchase of Nigerian assets was not undertaken by foreign investors but by Nigerians often with foreign fronts. The NIPP scandal in participation, scale and scope was utterly disastrous for foreign interest in Nigerian electric power sector investment.

Seventhly, is it true that $4 billion dollars’ worth of turbines were imported in to Lagos port and left there to accrue colossal demurrage because the project principals of the NIPP had not considered the difficulty of transporting them to their riverine destinations? These turbines were then auctioned for peanuts to non-existent buyers because of the unsustainable demurrage accrued. The turbines were recovered though. I can see the link between ports and the electric power sector slightly in this case.

If see no evil, hear no evil, speak no evil is the motto of NERC, we have to wish it the very best.

Grimot Nane

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