Last April marked a major milestone for Nigeria’s power sector reform initiative as several critical projects and transactions covering gas, generation, transmission and distribution were inked during the presidential power reform transaction signing ceremony in Abuja.
As managers of the sector’s reform process, stakeholders and investors pat themselves on the back amidst the clinking of congratulatory flutes of champagne, industry watchers ask what next? Overtime, the reforms have suffered many setbacks and slippages currently blamed by government on “the unprecedented size and scope of the reform program.” Today, several key goals in the government’s power reform agenda have been achieved however they stand alongside quite a few challenges that remain to be dealt with.
President Goodluck Jonathan, acknowledging current realities, however insists that despite the challenges steady progress was being made each day. Promising not to rest until all Nigerians have stable power supply, Jonathan noted that sustained interest and investment in the sector from both local and international investors was an indication that government is moving in the right direction.
The divestment programme
In 2005, the Electric Power Sector Reform (EPSR) Act, which heralded an end to government monopoly in the sector, was ratified. This led to the unbundling of the Power Holding Company of Nigeria (PHCN) into 18 successor companies, consisting of 6 generation companies, 10 distribution companies and one transmission company (TCN). The plan was to have these successor companies privatized to ensure enhanced capacities, improved efficiency and ultimately stable electricity supply to Nigerian homes and industries.
Since 2010 with the launch of Power Sector Roadmap, various stages in the privatization process have advanced. In terms of order of process, government needed to first sell the PHCN legacy assets to convince the private sector that the reform was irreversible and that government possessed the political will. Also, the international financing institutions without whom the power supply target would fail all watched keenly how transparent and fair this wave of privatization will be handled.
“You probably already know that the reform agenda has two main phased components,” chairman of the presidential task force on power (PTFP) Beks Dagogo-Jack explains, “the first has to do with the transfer of the ownership and management of the utilities currently handled by government to the private sector.”
“The second dimension is to create the right market and regulatory environment for the private sector to enter the market space fully with their resources such that across the value-chain they will develop both Greenfield and Brownfield projects to match our power demand under viable commercial terms.”
As 15 preferred bidders received certificates from the president following their successful payment of the first 25 percent installment of the purchase price for the PHCN successor companies, there was universal praise for the privatization process with investors hailing it as transparent – from the reception of bids on the entities, the eventual selection of preferred bidders to conclusion of negotiations.
“I strongly believe that there shall be a second , if not a third wave in the realm of reform consolidation through mergers, acquisitions & initial public offers which shall lead to a stable power market in a reasonable time span. The process is somewhat sequential such that one sure foot forward leads to the taking of the next step,” Dagogo-Jack said.
Labour matters
Meanwhile, in this critical stage of things unresolved labour demands remains a real threat to the process, chief among this is the payment of severance benefits to PHCN workers who will be relieved of their duties following the handover of the entities to its new owners. Notably, investors have hinged their 75 percent balance payments of purchase price for the PHCN successor companies, on the government settling all labour issues.
Tony Elumelu Chairman of Transnational Corporation of Nigeria Plc (Trancorp), the preferred bidder for Ughelli Power Company in Delta state, speaking on behalf of the other investors said the balance 75 percent was ready, however government must settle “the little that is left which is the labour issue,” so that they (investors) can begin providing Nigerians the dream of reliable and sufficient power supply.
“We have been able to mobilize our foreign partners in the area of finance and technical expertise. We are willing partners,” Elumelu said, adding that the hope was to ensure that by December this year the GENCOs would have generated electricity beyond the government’s projections.
According to minister of power Chinedu Nebo the resolution of labour issues is at an advanced stage with a conclusion date on all severance settlement pegged for “the end of June” this year. Meanwhile, government recently approved N384 billon for pay-off for the workers. Though providing only N45billion, the balance is to be sourced from the monies realized from the sale of the PHCN successor companies.
“Already federal government has taken that bold step,” the minister noted, “The only unfortunate thing is that almost all the proceeds will go into paying off of workers and nothing or very little will be left for developing the transmission and distribution network.”
The transmission dilemma
Currently, the nation’s grid remains a weak link with a wheeling capacity of about 4,800 MW. According to government figures, installed available generation capacity is 6000 Mega Watts (MW) while generation capacity is 5,228 MW with peak generation slightly above 4,500 MW. By year-end, National Independent Power Projects (NIPPs) are expected to provide additional generation capacity of about 2,200 MW. With government objective to achieve 10,000 MW in 2014 and 20,000 MW in 2016, the urgent need to expand the transmission capability to evacuate the projected additions becomes all the more imminent. Clearly, if this gap is not bridged Nigerians will never benefit from the improvement in power generation.
Nebo says that a total capital outlay of $3.4 billion is required up to 2016, to upgrade the transmission grid to evacuate all the generated power. “Government is working out the funding of TCN long term expansion plan from a mix which will include the Transmission Development fund, International Development Banks and multilateral agencies.”
Meanwhile, the federal government says it would rely on its symbiotic relationship with Manitoba Hydro International, the Canadian management contractors for the Transmission Company of Nigeria (TCN) to attract investment into the transmission network. The expectation is that Manitoba’s reputation and the expected translation of the TCN into a viable commercial entity will pull in high profile long-term investment portfolios to help bridge gaps.
Conclusions
Moving forward, Nigerians have been charged to patiently wait for the expected benefits of the reform. “This Government cares about you and will not rest until you can sleep well at night without the irritating noise of generators. Let me reassure all Nigerians, that working in concert with our partners, we will continue to pursue the reform of the Power Sector with intensity, vigor and determination; there is no shortcut possible,” Jonathan assures.
However, while acknowledging the basis of Nigerians’ cynicism given the many broken promises and unattained targets of the past, Dagogo-Jack says that a basis of trust is the fact that none of the previous power reform exercises pursued by past administrations have come anywhere close to what has been achieved so far. “This level of transparency and political will deserve to be commended by Nigerians and its fair to do so because when you commend people for little things, they will be encouraged to do more.”
AMETO AKPE, Abuja
