Nigeria Power Sector Reform: Of Pyrrhic victory and programmed failure (Part 2), By Tunji Ariyomo

Tunji Ariyomo
Tunji Ariyomo

In the first part of this essay, I attempted to bring a closure to the arguments advanced by some of us that were opposed to the reform path adopted in the nation’s quest for sustainable electricity in order to place on record some of the things we said and why we said them hinting that, based on the path followed, it would take a pyrrhic victory to attain reform objective. Since the publication of that first essay and now, a lot has happened. Reuben Abati announced that the Manitoba power contract had been cancelled. The President’s explanation to the nation shortly afterward however showed that Abati was on his own.

Three good steps laden with landmines

In a previous review of the power sector, I identified three good steps that were taken by the present sector leadership. These are listed below:

  1. Creation of a bulk electricity trading company (BETraC)
  2. The decision to outsource the management of the national power transmission backbone to a reputable Canadian firm (Nigeria will pay agreed fees to this firm for this role).
  3. Reported empowerment of states and local governments (LGAs) to invest in production and distribution (this was announced with fanfare by the Ministry of Power under the leadership of the previous minister).

These could be described as the three best things that have happened since the commencement of the reform. It is however pertinent to observe that these three were again laden with the usual in-built ‘landmines’ and ‘reform viruses’ that have come to define reform processes in Africa.

Highlights of the landmines
Available reports on the bulk electricity trading company (BETraC), the contract for the management of the national power transmission backbone and the involvement of the second and third tiers of government in the sector point to the following as facts:

  1. BETraC is a government bureaucracy rather than a system driven or institution propelled initiative empowered with robust legislation to utilize transparent accounting system, settlement capabilities, and self governance structures using bilateral cooperation involving limited government but sizable private sector involvement. Unending bureaucracy with its attendant road-blocks is a crucial problem previously identified by this writer as an impediment to sustainable energy growth in Africa and a direct inhibitor of real private sector involvement in the power sector. Maintaining this structure as part of the current reform path makes it sure booby-trap and a potential landmine capable of creating a cesspool of corruption that would match or outdo what the nation has experienced in its oil and gas industry.
  2. The responsibility for the management of the entire national power transmission backbone covering the 910,768 sq km of the nation’s land space is being outsourced to one single monopoly. It is difficult to conclude that this is the most efficient decision among competing alternatives with similar success and risk factors. A critical point is being missed here – corresponding impact of decision on the reform’s capacity to act as stimulant for massive job creation, widespread private sector growth and knowledge transfer along the transmission corridor as well as the potential to impede the promotion of fair consumer price. Paul K. Ogden (2009) described this as “creating a government sanctioned monopoly for a private company”. It also does appear that rather than receiving payments from this contract, government of Nigeria would be paying the platform operator. This is awkward. It directly negates the entire narrative behind a private sector led electricity sub-sector while potentially leaving room for collusion and ultimately corruption.
  3. Reported empowerment of states and LGAs is superficial as it is solely within the limitation imposed by Section 14(b), Part II of the Second Schedule (Concurrent Legislative List) of the Nigerian Constitution which restricts state’s investment to “areas not covered by a national grid system within that State”.  Any strategic maneuvering beyond this constitutional intendment without actually amending the constitution to remove restrictions imposed upon states and local governments would limit the capacity of states to be real part-owners of sector investments, promote conflicts and open up future avenues for possible abuse which could result from socio-political differences in a nation as diverse as Nigeria. An improvement would be a model that would guarantee stronger legislative protection, fairness and sustainability for states and local governments as well as private investors. This can be accomplished by way of amendment of the extant regulation. My position on this has been vindicated with the attempt to shut out some states while allowing some even when it is obvious that there would be no way to justify any technical or financial superiority since the states are peers anyway.

Suggestions
What is the guiding philosophy of the reform? Shouldn’t sector liberalization precede privatization? If yes, do we have evidence of nations that followed similar direction to success? Can Nigeria learn any lesson from Ghana’s success despite retaining state-owned public electric utilities such as the Volta River Authority (VRA), Ghana Grid Company (GRIDCo) and the Electricity Company of Ghana (ECG)? What has Ghana been doing right?

What the Nigeria power sector reform intends achieving must be clear – for instance, would adding more government money qualify as privatization? If it is ultimately necessary for the reform to receive the injection of public funds in order to jump start the process, would that not be better infused as joint venture funds into enterprises sponsored wholly and primarily by internationally acclaimed Greenfield investors thereby bypassing the politics of PHCN altogether? Ordinarily the reform should be aiming at ultimately eliminating government fund while bringing in private fund, eliminating government control while promoting system driven control mechanisms, eliminating secrecy while bringing in transparency, eliminating established interest and pre-determination in order to bring in equity, fairness and spontaneity.

This writer empirically estimated Nigeria’s urgent electricity requirement to be a minimum of 55,694.50MW in order to merely get by. The nation needs more for optimum power stability. Putting the arrays of complex options required to properly govern the sector in context requires thinking outside the box as well as looking back to take advantage of what we did right in the past.

Among other considerations, the focus of government’s reform should include:

  1. Strategy for jumpstarting attainment of reform objectives. It is baloney to advance that because Nigeria has suffered electricity deprivation for 50 years, it must ultimately take another 50 years to get it right. No. A good sector reform strategy will lead to sustainable electricity that the people can begin to tangibly experience in the cities and villages within 2 years.
  2. Strategy for technology transfer and knowledge enhancement
  3. Strategy for massive job creation (taking advantage of item number 2)
  4. Strategy for sustainability and ensuring reform cannot be truncated (robust legislation, quality sector leadership and masses’ support)
  5. Strategy for massive revenue generation for the people of Nigeria (government should earn payments – taxes, levies, rents etc – and not the other way round). My idea of government ownership (federal, state or local) here is NOT for government to be involved in any way other than as regulators and investors (equity holders) thereby allowing private businesses to do their work.
  6. Strategies for correcting the identified ‘landmines’ earlier enumerated. For instance, ending the era of treating the entire transmission system as a monolithic structure by dividing the transmission backbone into clusters. This would promote efficiency and mitigate (as well as isolate, limit and curtail) risks. The implication of this is that instead of a single transmission backbone operator called Manitoba, there would be many (at least 6) such companies managing different regional transmission corridors or regional clusters.
  7. Strategy that would lead to the reform benefiting from contributions of professional bodies and other sector stakeholders. Sector leadership cannot be an island of knowledge. As part of wide consultation (before decisions are taken) the reform would benefit more if subject matter experts from the various professional organizations are allowed to make input. This is the tradition in the United Kingdom and the United States.

Getting Nigeria’s quest for steady electricity right requires the appropriate strategy, thorough industry expertise and objectivity. There is no such place where Nigeria’s current model of financially fattening up a moribund and non-performing government agency in order to sell it to private sector handlers does have a successful precedent as a cost effective model. It could only further promote corruption as well as serve as an opportunity for local elites to apportion national utilities among themselves under the guise of privatization.

In conclusion, Nigeria can get it right with sustainable electricity, put the years of epileptic electricity supply behind her and join the rest of the world in the pursuit of renewable energy alternative. This is however only possible if the nation is doing the right things.

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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