Monday, April 21, 2014

Nigeria Power Sector Reform: Of pyrrhic victory and programmed failure (Part 1), By Tunji Ariyomo

Published:

Tunji Ariyomo

Ariyomo x-rays Nigeria power sector reform and declared that with the fault line inherent in the process, the reform is bound to fail 

Very shortly, all things being equal, several rich and highly privileged Nigerians, directly or through carefully positioned surrogates, would buy up the successor companies of the unbundled Power Holding Company of Nigeria (PHCN). As a matter for the records, I have actively joined others to identify the inherent flaws in the strategy adopted as well as made representation to the previous minister of power on the mighty importance and need for strategy review and the adoption of a different path to reform. This was critical in order not to compound the suffering of the people or drive an inefficient and non cost effective reform in the power sector.

Granted that the recent announcement of winners of the bid round has made the preferred path to reform a fait accompli, again, for the record, and if only to serve as future reference that Nigerians did warn those charged with the reform of the power sector under the Yar’Adua-Jonathan and later Jonathan-Sambo governments of the avoidable flaws in the strategies adopted, I will do a recap of some of my previous thoughts on this subject matter.

A distressing fact about Nigeria’s repeated attempts to get electricity production and distribution right is that such attempts have failed miserably. This is despite the infusion of several billion dollars thus implying that government’s will to fund and get result has not been the problem but the capacity of sector leadership to know the right thing to do. Put differently, what is lacking is the capacity of sector leadership to know the right strategy and path that will most efficiently produce the required results as the usual paths have significantly failed to generate envisaged results. From the commencement of the National Independent Power Project (NIPP) initiative till date, it is estimated that the country has expended over $25billion (USD) on her electricity subsector of the energy industry yet production alone hovered between 2,500MW and 4,400MW at any time during this period with citizens even willing to commend government if they noticed stable electricity supply beyond 3 hours in a single day. Some have described this as an unprecedented and extraordinary expenditure to procure darkness.

Sector leadership in the context of this essay refers to the authority of the Minister of Power of the federation and any such sub-authority that derives its power directly or indirectly from the federal minister or allied institutions involved in the national power reform project. Will current effort and adopted path to the reform of the electricity subsector lead to the end of age-long epileptic electricity supply? It would take a pyrrhic victory to achieve success based upon the path adopted. Time they say discovers the truth. Prior to the sales of the unbundled PHCN, Nigeria had an excellent chance to fix the sector once and for all time with little complications. The only challenge that government would confront would be the workers. That advantage has now been lost. Future effort to fix the sector would now have to contend with powerful individuals that have invested in that sector in addition to powerful workers’ unions.

The fault line

A major fault line in the ongoing reform lies in the decision to make the unbundling of PHCN the core of the policy thrust of government when it should ordinarily have been the reform’s obiter dictum ­– important, but not critical enough to derail or define a negative outcome for the entire agenda. That strategy placed privatization before sector liberalization, a situation akin to putting the cart before the horse. It also suggested that reform drivers exhibited utter confusion in terms of sector deregulation, meaning of deregulation, purpose of deregulation and the role of government vis-à-vis the incoming private sector players. Listening to representatives of government speak has shown that they are even unaware of this contradiction. Also, the adopted path is the equivalent of making NITEL privatization the core of the policy thrust of government during the reform of the telecommunication sector. That singular error by power sector reform drivers succeeded in creating unlimited opportunity for corruption as the handlers embarked upon a frenzy of avoidable and needless pumping of taxpayers’ money into the unbundled PHCN even when they were candidates listed for privatization in the guise of making them attractive and ended up fortifying the position of PHCN workers and enhancing their capacity to slow down the reform. It was a tactical blunder that was avoidable from a strategy point of view and in practice.

This strategic error draws strength from another technical and tactical misconception which appears to punctuate some of the responses from government’s team – that the electricity reform matrix does not perfectly mirror the telecommunication sector scenario because of the pervasive nature and present ownership structure of the national power distribution and transmission backbone required by the former or because of what they consider the difficulty in mitigating risks in the power sector. This is erroneous and only gains currency when the crucial nexus that connects both and the parallels that define the core elements that qualify as critical success factors are overlooked even when it is easy to recollect that the participating private investors at the time of telecom sector liberalization initially relied on an equally pervasive national telecommunication backbone exclusively owned by NITEL for the bulk of their call terminations which gave NITEL some business edge and cost termination advantage in those early days. The question of differential risk mitigation (relative to the NITEL experience) could only have been advanced in direct admission of lack of technical knowhow and a mindset that contends that present national transmission and distribution schemes would continue to be in place and in use even after sector liberalization and modernization. It should not. If it is, Nigeria is in trouble.

Essentially therefore, current electricity sustainability strategy suggests a flagrant disregard of the knowledge curve gained from the successful liberalization of the telecommunication sector. Again put differently, Nigeria is today experiencing energy growth penalties from lack of inherent capacity to see a nexus between her telecommunication industry and the electricity sub-sector of the energy industry which is chiefly the result of not being able to view her entire electricity sub-sector as a value system, that is, see the mobility and dynamics of the value chain inherent in the totality of electricity generation, transmission, distribution and management stream. Present resistance by sector unions and workers as well as the strategic delays purportedly engineered by entrenched ‘interests’, the legitimate resistance and insistence of some governors to be able to invest in the power distribution systems crisscrossing their states and the herculean tasks and politics of aggregating, positioning and empanelling new leadership for various companies so created from the unbundled PHCN were self-imposed burdens that should never have been the primary duty or concern of the government’s core reform team. One can only imagine with pity the quantum of effort, resources and energy being devoted to the management of these avoidable distractions as well as the associated cost to the Nigerian people!

The huge expenses sunk into schemes aimed at fattening and conferring the status of ‘juicy investments’ upon the 18 successor companies of PHCN to make them appealing so that they could qualify as most sought after brides on the international market could have served a better purpose if deployed as counterpart funds with reputable Greenfield investors to address the same layers of national challenge portfolio. By the time the actual dollar value pushed into the sector is factored into consideration (estimated at $16billion as at May 2007 and presently approximately put at close to $25billion), it is doubtful that returns (based on actual sales) from bids by winners of the 17 successor companies would fetch the Nigerian people a quarter of what has been expended so far. It is also noteworthy that successful buyers of each of those distribution companies would be inheriting, not only its assets, but its liabilities and manpower which is unlikely to be suitable in the operation of modern power companies.

Hence, as it is today, the myriads of explanations lobbed at the public in explaining the rationale for increased salaries and tariffs when the target companies were candidates for privatization would have been unnecessary even as an informed public would easily identify them as executive spins and a way to ensure that the new high tariffs make takeover more profitable for the new owners at the expense of the Nigerian people. Such that, rather than being a regulator, whose primary role is to drive industry efficiency and service delivery to its people, protect those people from exploitation while maintaining fair price regime for investors, government immediately becomes a biased institution that takes side with investors even before those investors were known thus suggesting to the public it was merely choreographing the entire process to arrive at a predefined goal.

The concluding part of this essay will examine the faulty premises advanced by those who argued wrongly that the scenario presented by the power sector is so different from the state of the Nigerian telecommunication sector prior to the NCC led reform of 2001 as to take advantage of its knowledge curve. That second part will also examine some of the positive steps taken so far by the government in the course of Nigeria power sector reform and highlight certain landmines that I have identified.

Tunji Ariyomo is a Policy Chair of the NDi. The NDi project can be accessed at www.nd-i.org

Phone: +447532127503. Email: oariyomo@nd-i.org

 

 

 

 

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