• Thursday, March 28, 2024
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Power sector privatisation was designed to fail – former NERC chairman

power sector

Former chairman of the Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, says the privatisation of the power sector was designed to fail.

In a telephone interview with BusinessDay, Amadi states that even though the exercise was transparent, the privatisation process could not produce the desired results because the power assets were sold to investors who lacked the financial and technical capacities.

He says when NERC conducted “Fit and Proper’ test on all the preferred bidders, only one (or none) had the requisite financial and technical competence to effectively manage the network.

Among the bidders consulted non had technical competence to managed the power sector.

The process and evaluation were transparent but threshold on which those who won were qualified was low, he says, as “The Original Terms of Reference (ToRs) set up for privatisation was unilaterally jettisoned and the standards/benchmarks were lowered.”

The sector was privatised after the unbundling of the Power Holding Company of Nigeria (PHCN) in November 2013, as private investors took over distribution and generation firms “to ensure adequate, regular and stable supply of electricity to the consumer at a reasonable cost.
“We failed to corporatise and commercialise before privatising; we privatise senselessly without paying attention to context and corporate governance and regulatory regime; we sold to investors who lacked capacity,” he states.

He asks: “We had conducted three tariff hikes before December 2015. Did any of these hikes resulted in any significant improvement in revenue or service quality? No. Why because the problem of the sector is not mainly tariff.”

The challenges in the sector go beyond tariff increase; as such move would force manufacturers off the grid. Excess high tariff will discourage Manufacturers Association of Nigeria, he states.
“Cost reflective is important. But excessive tariff hike is problematic because it cannot be collected, and in a country with poor supply the propensity to pay is low,” he says.

Those whose acquired the Licences of Electricity Distribution Companies wholly with 100 percent bank loan are the one performing badly because the bank loans and exchange rates and other variables attached to the loans had made it difficult for them to break even.

There is nowhere in the world where a business of this nature is managed solely and financed 100 percent with bank loans.

Virgin companies that have never been in the business of management and investment in power sector in anywhere or any part of the world were the ones that won the bids.

Most of the technical partners whose banks’ statements were attached and used as a basis for qualification in acquiring the licences have either been divorced and shown the way out, or have their insignificant equity stakeholding diluted to near zero.

 

Olusola Bello