Operational Capital Stalls Reversal of Power Sector Sale

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The federal government is considering a reversal of the privatisation in the Nigerian power sector, LEADERSHIP has learnt.

Sources close to the Presidency said the federal government was considering a complete reversal of the privatisation exercise and would have carried out its intention but for the lean resources available to the government at the moment.

The current administration of President Muhammadu Buhari is said to be dissatisfied with the performance of most of the private companies that were handed licenses to operate as Distribution Companies (DisCos) and Generation Companies (GenCos) in the nation’s power sector in 2013, under the administration of former President Goodluck Jonathan.

 One other factor said to be hampering the reversal is the volume of debts owed the DisCos by ministries, departments and agencies (MDAs) of the federal government, as well as state and local governments.

According to the Association of Nigerian Electricity Distributors (ANED), the debts owed its members by the MDAs had risen to N78.7 billion as at the end of April 2016.

ANED statistics showed that the Nigerian Army owed N38.75 billion, making it the highest single debtor of the DisCos. The Nigerian Airforce owes N3.09 billion, Navy, 3.3 billion, Police, N4.66 billion, Customs, N528.78 million, Prisons, N895.6 million and Immigration, N47.8 million.

A breakdown indicated that federal MDAs owed the DisCos N9.98 billion while state governments owed N16.21 billion and local governments N1.16 billion. The record also showed that of the 11 Discos, Abuja Electricity Distribution Company is owed N18.6 billion, Benin, N5.9 billion, Eko, N8.6 billion, Enugu, N7.2 billion, Ibadan, N6.8 billion, Ikeja, N5.9 billion, Jos, N6.5 billion, Kaduna, N8.2 billion, Kano, N1.2 billion, Port Harcourt, N6.88 billion and Yola N2.46 billion.

The Buhari administration, it was gathered, believes the privatisation was done to favour party loyalists who lack the requisite capacity to perform, hence the poor power supply in the country.

A senior Presidency official, who confirmed the development, told LEADERSHIP that, “It is true that government is tinkering with the reversal of that privatisation because what was done was no privatisation. But government can’t do much right now because we do not even have the resources.”

The Presidency official said when the current administration came on board, it identified power as one of the critical areas that needed to be fixed for speedy development to take place but the situation in the sector necessitated going back to the drawing board.

LEADERSHIP recalls that 10 Distribution Companies (DisCos) and five Generation Companies (GenCos) were the successor companies that rose from the unbundling of the defunct Power Holding Company of Nigeria (PHCN).

The consortia paid the sum of $2.238 billion in 2013 to secure licenses for the power company. These companies include: West Power and Gas, the preferred bidder for the Eko Distribution Company; NEDC/KEPCO, Ikeja Distribution Company; 4power Consortium, Port Harcourt Distribution Company; Vigeo Consortium, Benin Distribution Company; Aura Energy, Jos Distribution Company; Kann Consortium, Abuja Distribution Company.

Others include: Integrated Energy Distribution and marketing Company, the preferred bidder for the Ibadan and Yola Distribution Companies; Sahelian Power, Kano Distribution Company; Trancorp/Woodrock Consortium, Ughelli Power Plc; Mainstream Energy Limited, Kanji Power Plc; and CMEC/EUAFRIC Energy JV, which made the part-payment for the acquisition of Sapele Power Plc.

It was also learnt that in order to ensure that all the necessary legal implications are adhered to before commencing the reversal, the federal government is said to be making efforts to set aside funds to pay off the current owners as a gesture of its commitment to ethical business practice.

The move by the federal government has been lauded by some stakeholders in the sector who have continued to demand a revocation of the licenses granted the new owners of the power company, describing it as a step in the right direction, just as it may not go down well with others.

Former minister of petroleum, Prof. Tam David-West, described the power privatisation exercise as fraudulent, hence the need for the licenses of the present operators to be revoked.

He told LEADERSHIP in a telephone interview that Nigerians had got nothing but darkness from the privatisation exercise.

“We are paying for darkness, which means the whole exercise was a fraud from the inception,” he said.

Calling for the cancellation of the privatisation, he said, “I believe that the sector was sold to the cronies of the previous government. Therefore, it should be nullified and new investors who have the financial and technical competence to do the job be invited to take over the sector.

“In my view, the previous exercise was fraudulent so it should be cancelled. The present government should look for foreign investors from places like Canada and the United States of America to come and participate in the bidding process. I insist that we get foreign investors who have the technical know-how to take over the industry,” the former minister said.

H described the current situation in the sector as rot that must be stopped and advised government to make haste to halt the rot.

According to him, the government must give prospective new investors the time frame to achieve certain goals, such as the number of megawatts to be generated within the specified period. He added that a clause that specifies what penalty will follow if they fail to meet the set targets must be included in the agreement to be entered into with such investors.

Speaking on why the government must take the initiative to revoke the license, Prof David-West said the talk about industrialization of the country will not amount to anything except the nation gets it right with the power sector.

Nigeria, he said, is a great country with a lot of intelligent people but that they need power to actualise their ideas.

But Prof. Adiola Adenikinju, director, Centre for Petroleum Energy Economics & Law, University of Ibadan, and past president, Association of Energy Economist, is opposed to the concept of cancelling the issued licenses, as doing so will not solve the problems in the industry.

According to him, the issues in the power sector are multifarious and must be tackled holistically. He submitted that though some people think the privatisation process was not transparent enough, the deal must be allowed to stay.

He added that even when it is obvious that those who bought some of the assets do not have the financial and technical ability to manage them efficiently, they should be allowed to improve on the job.

Adenikinju stated that most of the money that the investors used to buy those assets was sourced locally from local banks, a situation, he stated, had exposed those local banks to some of the crisis in the power sector now.

He added that the country cannot go back to the pre-privatisation era.

“If we go back on the privatisation, the government will face a lot of credibility crisis. So I think what they need to do now is to ensure that the DisCOs and GenCos keep to the contractual agreement terms that they signed,” he stated.

He also faulted government agencies, noting that a number of them owe the operators huge sums of money.

“With the amount they say government agencies own, it will be wise for the government to prevail on the agencies to work out a debt payment schedule. That way, they will help the operators increase their income level and save the industry from collapse.”

Although the professor agreed that the government made a mistake from inception, he said the way out is for the government to call the operators to order and make sure that they abide by the contractual agreement.

“You can force them to comply with what they signed. If they refuse to comply, then you can sanction them based on the contractual agreement; that is what government can do,” he emphasised.

On his part, an Ilorin-based entrepreneur, Alhaji Yakub Gobir, said most of the electricity generating companies were indebted to the banks and hence could not guarantee effectiveness in proving stable electricity.

Speaking as an entrepreneur, Gobar noted that stable electricity and quality infrastructure were the key ingredients that will stimulate the nation’s economic growth and consequently bring the country out of recession.

Gobir therefore called for the revocation of the licenses of the current operators to give room to those with the technical and financial capacity to manage the sector to take it over.

He warned that except electricity and infrastructural development are given priority in the ongoing efforts to revive the nation’s economy, such effort will be futile.

The executive director, Centre for Social Justice, Eze Onyekwere, also concurred that those who participated in the bidding during the privatisation process were fraudulent. He noted that though the winners did not have the technical, financial or managerial competence to run a power company, they won the bid ahead of those with such expertise.

Some of the current owners of the privatised companies, he said, hurriedly entered into partnership arrangements with foreign operators with the intent of winning the bids and, after that, they parted ways with these partners.

He stated that government agencies responsible for the transition processes failed in their duty to monitor them.

“However, I am not in support of the idea of truncating the whole process. I do not agree with those calling for the revocation of the licenses issued to the present owners of the generation and distribution companies.

“The implication of doing that will be very negative both in the home front and in the international market. It will make the world see Nigeria as a place where government does not keep to terms of contract,” he stated.

On the way forward, Onyekwere told LEADERSHIP in a telephone chat that, first, the current owners can enter into partnership with foreign companies that have the know-how to turn around the sector. Secondly, the agency or agencies of government charged with the responsibility of monitoring the roadmap must make sure that sanctions are applied for failure.”

As for raising funds, Eze insisted that the Nigerian capital market had the capacity to raise any amount required to stabilise the sector, pointing out that raising funds through the capital market proved critics wrong in 2004 when the then CBN asked commercial banks to raise their capital base to N25 billion. He noted that even when the bankers themselves were afraid of how to achieve the set target, some banks, including First Bank and Access Bank, had to return funds to subscribers as their offers were over-subscribed.

Interim president, Nigeria Electricity Consumers Advocacy Network (NECAN), Mr Tomi Akingbogun, also said he did not subscribe to the idea of revoking the licenses of operators.

He said, “You don’t throw away the baby with the bath water because it is dirty. So I don’t support the idea of revoking the licenses of the current owners because they are perceived to be under-performing.

“Rather, what we expect is that the laws that set up the privatisation process, which demands that the companies meet some specific targets in specific time, should be looked into and be enforced properly.”

He blamed the Nigerians Electricity Regulatory Commission (NERC) for failing in its regulatory duties.

Responding to the allegations, acting chairman/CEO, NERC, Dr Anthony Akah, said, “Allegations that the privatisation of the power sector was a fraud can only be established if specific claims are made and subsequent investigations confirm the allegations.”

He added that the privatisation of the power sector was driven by the Bureau of Public Enterprise  (BPE) with NERC providing the regulatory framework and as such, the review was not within the purview of his office.

Akah said the Commission is responsible for promulgating necessary regulations and monitoring the activities of its licensees to ensure that they operate strictly within the ambit of its regulations so as to prevent the abuse of market power and electricity customers’ rights.

Meanwhile, efforts to reach the CEO, Eko DisCo, Engr Oladele Amoda failed as he neither answered calls put through to him nor responded to questions sent via SMS.

However, the spokesperson of Ibadan DISCO, Angela Olanrewaju, told LEADERSHIP that the issues had been over thrashed.

According to her, the DisCos realised after the purchase of the companies that they were sold a dummy.

She stressed that the DisCos discovered after making purchase that the state of the companies offered to them at the point of sale was different from the true situation.

According to her, there had been situations when their customers encouraged them to return the licenses to government, having found the true state of the companies they bought into.

Source: Independent Energy Watch Initiative

 

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