The privatisation of the power sector was meant to break the control of electricity generation and distribution from government, to ensure adequate, regular and stable supply of electricity to the consumer at a reasonable cost.
But, since the unbundling of the sector and transfer of ownership to private sector operators, not much difference seems to have been achieved. The Director General, Bureau of Public Enterprises (BPE), Alex Okoh, spoke with Business Editor, Bassey Udo, in Abuja on why the power sector privatisation has not achieved its full objective. EXCERPTS:
Q: Illiquidity has been identified as reason why the country’s economy went into recession in 2016. Experts say one way to address the challenge of illiquidity in the economy is government to privatize its redundant assets. What’s your take on this?
Obviously, privatisation is the way to go. Naturally, when you run into a family recession, what to do is to see how to transfer or convert some redundant assets into cash to get out of that financial difficulty, rather than borrow.
Borrowing should be second or the last option to resolving any financial gap or challenge an individual or corporate citizen has. The same case should apply to a country, which should be run the same way a corporation is run.
When there is a shortfall in liquidity to fund developmental activities, the natural fallback situation should be the assets that are no longer yielding any benefits to the country as a whole.
One can privatize these companies and raise liquidity to fund the gap you have. Borrowing a debt should be second or the last option, not the primary option, because there is a cost to borrowing that debt.
This comes back in terms of the budgetary provision to make to service the debt. So, the principle of realizing the value of asset that has accumulated in the period of boom should drive a government policy in terms of bridging its cash fall in the time of gloom.
Q: From the privatisation proceeds we have so far, how confident are you that this can fill the huge liquidity gap you are talking about in the economy?
privatisation is not only in terms of the current assets that are listed either in the schedule of the BPE for privatisation. The whole assets the government has as a sovereign state is available for privatisation, which does not actually mean the sale of the asset itself.
You can equally privatize by concession, which means you still retains the ownership in case those assets are critical and strategic, like was done with the hydro power plants. You can also retain the ownership of the asset and then transfer the economic rights to private sector investors who would improve the infrastructure and pay concession fees to the federal government.
So, it is a way of realizing revenues and optimizing the value of those assets, which are otherwise totally redundant.
For instance, there are security agencies’ barracks, like police barracks, situated in very prime locations in the country. Nothing says that one cannot redevelop those sites to attract commercial value and take those barracks to more remote locations where the critical need for that location is not as dire, and realize value from that land by developing it.
So, we have to be creative, in terms of how we unlock the hidden values in government assets in sovereign assets, so that we can generate the necessary liquidity to bridge the necessary budgetary shortfalls.
Q: On the argument about illiquidity as one of the reasons privatized entities don’t do well, if you look at the power sector today and the recent faceoff between the minister of Power and the electricity distribution companies, it appears privatizing the power sector is not going the right way. What’s your take on this?
Well the privatisation of the power sector has not achieved its full objective. I’ll be the first to admit that. And there are several reasons.
There are industry issues, some of which are related to the price of electricity (the tariff). Others have to do with the efficiencies of the current operators of the electricity distribution companies (DISCOs), in terms of how they enumerate the customers based on their franchise areas, or how they are able to meter the customers for people to pay for their use of electricity, rather than estimated billing.
There are also infrastructural issues around availability of transformers and electricity distribution infrastructures, which need to be upgraded and expanded.
So, until we are able to pull together all these various aspects that contribute to the efficiency of the power sector, especially at the distribution end of the value chain, it will be very difficult to determine what the appropriate pricing of the tariff should be.
At the moment, tariff is not at the level it should be to compensate for the cost of delivering that service now.
But, the issue is: have we been able to properly assess what the actual cost should be, if we factor in the efficiency of the DISCOs into the system?
It is only after you have done that empirically that you will be able to determine the shortfall and how it is going to be bridged, either through the increase in tariff or through subsidy by government if it can afford the social implication of the present tariff.
Q: What discussions are you having with the DISCOs on the issue of tariffs to ensure these and other issues are resolved?
We are having a very robust engagement with the DISCOs, especially we (BPE) that sold these assets and hold federal government’s 40 per cent equity of the distribution companies currently.
So, the role we are playing is collaborative. We are not the regulator. We also engage the government counterparts who are in the area of regulation (NERC – Nigerian Electricity Regulatory Commission – for example) for them to see the reality of the business of the DISCOs, and perhaps be able to accommodate the consideration of appropriate policies or tariff for power.
So, cross sectorally, all the agencies involved in supervising the power sector are discussing with us to ensure that we are able to build a framework that allows efficient service delivery and cost recovery for the investors in the sector.
We have proposed that there should be a coordinating body for all those agencies in government responsible for power sector reform, which should be in constant dialogue with the key private sector players in the power sector – the DISCOs, electricity generation companies (GENCOs), Transmission Company of Nigeria (TCN) and all the other operators.
Q: At some point, government was contemplating asking the DISCOs to give up part of its equity for new investors to come in with fresh capital to make the industry more efficient. Where are we now on those discussions?
Well, not formally. But, we are not taking any option off the table. If the DISCOs currently in place, because of the way their balance sheet is compromised, are not able to raise sufficient investment capital, to recoup the distribution network and improve the provision of meters.
Then we have to look at the possibility of admitting other investors who may have the capacity, financially and in terms of the technical expertise, to improve the distribution infrastructure.
We cannot continue to have a situation where the general populace is at the wrong end of the stick all the time. What the public wants is power supply delivered at a reasonable cost.
All these talks going on between government, DISCOs and GENCOs, they don’t give a hoot about that. All they want is for all to put their acts together and give us electricity.
In meeting the expectation of the people, government is not taking any of the options off the table, including admitting new investors who have the capacity to deliver.
Q: There are several expectations by Nigerians that have not been met through these privatisation exercises, name them – Steyr, ANAMCO, etc. Are you not worried that these people that have been handed these assets have failed to deliver?
That’s the essential purpose of holding the Enterprise Stakeholders’/Investors’ Forum. The Bureau is taking the initiative to say it is irresponsible not to take a position that we sold these enterprises and whatever challenges are there they are left to them.
All the 37 per cent of the enterprises we have identified that are not performing, or performing sub-optimally, the government does not own one stake in those enterprises anymore.
BPE could have left them to their own fate. But, we said no. The responsibility and integrity demands that we bring these core investors and the businesses into an arrangement that would help to dimension what the issues are.
From policy side, are there issues around taxes, tariffs, etc? On the macro-economic side, are there issues around foreign exchange, access to capital or credits at a decent interest rate per annum at single digit?
Or are there infrastructural issues, in terms of power or roads for evacuating finished products?
We want to have a multi-sectoral approach to these issues. All ministries, departments and agencies responsible for various aspects of the policies that may be affecting the non-performance of these enterprises were brought to sit together and articulate a solution framework that would put them back on track.
It’s counter-intuitive and counter-productive if six or seven motor vehicle assembly plants are privatized across the country and then tariffs on the importation of vehicles are lowered. This does not provide the enabling environment for these privatized enterprises to thrive.
Also, one cannot make credits unaffordable as a result of huge interest rate to these businesses. If this happens, then they will soon run out of cash and would not be able to operate optimally. These are all the issues the forum dealt with. The diagnosis were done before the solutions.
Q: Is selling part of the equity of the assets to new investors part of the solution?
No, no no! Re-privatisation is not part of it. The place is already owned by the core investors. But, if they make that strategic decision to admit additional investors to inject fresh capital, that will be fine.
So, if they identify that liquidity is a challenge, and the way they want to solve the liquidity issue is through equity and not debt, then they can admit new investors. But, if it’s a debt solution they are looking at for the liquidity challenge, then they can approach the banks, like the Bank of Industry (BOI).
Q: But, in the power sector, why is the government still holding on to the 40 per cent equity in the power distribution companies (DISCOs)? Why not let go part of it to new investors who would inject fresh capital needed to make the system work?
No! You see power is a strategic utility. And government at this time is not comfortable with the arrangement to totally divest its interest in such an essential core utility.
BPE had proposed that over time, as we will see the performance and commitment of these private sector investors holding 60 per cent equity in the distribution companies, to provide this key public utility over time, then government can gradually and systematically divest its 40 per cent.
But, we have to be in a position that we are comfortable without this key public utility being run without government involvement.
If not, there is a potential that the government would be held hostage by the private sector people as far as that key public utility is concerned.
A responsible government cannot wake up tomorrow and say there is total blackout in the country and can neither explain why, nor have any control over the process of electricity generation and supply.