Issues On The Electricity privatisation


Nigerians are looking forward to the promises of improvements in electric power provisioning as we move towards the eventual handover of the privatised Distribution Companies and Generating Companies to the new operators. The National Council on Privatisation has promised that the handover will be done in October 2013. Money realised from the sale of the DISCOs and GENCOs will be used to clear the full severance payment of the Power Holding Company of Nigeria workers.  With the hurdles that had bedevilled the management contract of the Transmission Company of Nigeria fully cleared and the experts in place, the expectations are hitting the roofs. Nigerians have also played their own part by not opposing the introduction of a new tariff regime under the Multi Year Tariff Order since 2012. We have been paying more in anticipation of a better tomorrow despite the fact that services have not improved.

It is imperative to recall some of the promises of the post-government ownership and management era. They include the fact that the new owners and operators will be coming in with increased technical expertise, having successfully managed similar power sector businesses in other parts of the world. Implicit in this is the expected new leadership and managerial acumen that will bring innovation, greater staff commitment and the touted efficiency of the private sector to excel where the government would normally fail.  Like the telecommunications companies, they are expected to pay very good salaries to their staff which will motivate them to excel in service delivery. The companies will bring in boundless financial capacity to invest and improve the system with new platforms for tariff collection, new equipment and accessories and eventually lead to 24 hours of electricity every day.

But there are clear challenges on the horizon. Although the new companies are coming with technical partners, most of the companies do not have any iota of experience in the management of electricity concerns. Most of them are Special Purpose Vehicles packaged for the privatisation exercise. They are coming to learn on the job. And learning on the job is a process that may take some time thereby delaying the realisation of the anticipated benefits. The second is that the financial capacity to turn around the fortunes of the privatised companies seems to be in doubt if the first test these companies faced is anything to go by. Virtually, all the companies borrowed to pay the cost of acquisition. Even the last company to pay found it difficult to raise the money. The fact of borrowing does not seem to support the idea of financial capacity in these takeover companies unless we interpret financial capacity to mean the credit worthiness to borrow. It is admitted that a company needs to be credit worthy to be in business; even if that becomes the meaning of financial capacity, one would have expected the companies to come forward with a substantial part of the funds, say 50 per cent of the funding like Alhaji Aliko Dangote did in his new refinery project while the rest comes from financial institutions.

However, the cost of paying for the takeover is infinitesimal compared to the finances required to be invested to turn around the technical and operational components of the DISCOs and GENCOs. The companies will require more than 10 times the amounts they have so far paid to government to make any meaningful impact in improving electricity supply. So, where would they raise the money from? I assume they will all go back to the financial and capital markets. This recourse to borrowing to finance everything, it must be emphasised, has obvious implications. For every kobo borrowed comes with its interest and service charges which will then become part of the cost of electricity provisioning and this will be passed onto the consumer at the end of the day in the form of tariffs. In the prevailing high interest regime, this is not good news and will lead to requests for a tariff hike in the next couple of months.

It is in the interest of the new owners to explore the model of raising equity by opening up their companies to public ownership so that Nigerians who have the resources will be free to invest and provide them with long term funds that will not attract interests and service charges but only attract dividends when profits are declared. In this way, the cost of borrowed funds as a component of overall costs will reduce and give the management enough peace of mind to concentrate on improvements to service delivery.

    Another important issue is the need for the Nigerian Electricity Regulatory Commission not to remove its eye from the ball. Private sector operatives are adept at cutting corners based on the profit motive. The experience of Nigerians with the regulation of the telecommunications sector is still a virtual disaster. The regulator has been more concerned with the profits of the operators to the detriment of customers enjoying value for money. The electricity market is even a bigger and more lucrative market. One can make a decision not to use a cellular phone but I doubt if anyone can avoid electricity. So, the stakes and the profits will be higher, hence the need to rein in individual and corporate greed. Regulation must therefore be very scrupulous and meticulous to balance the interests of all stakeholders.

    One sore issue is still outstanding. In many parts of Nigeria, especially in the South-East zone, communities mobilised and raised funds running into tens of millions of naira to bring electricity to their communities. Launchings were held, levies were imposed on both the old and the young and age grades went about collecting these levies from community members at the pain of punishment. Individuals who had a large heart contributed as they deemed fit. The writer is from one of these communities and made his own contribution to one of such projects. All the contributions were done in the spirit of service to the community and community ownership of the electricity assets. And if the government and its electricity corporation had been alive to their responsibilities, the communities would not need to task themselves. So, all these community assets have become part of the property of the owners of the new DISCOs! Can someone tell me it is not true? It is my submission that these communities need to be compensated by government because the NCP could not have transferred title to a property or assets it did not own in the first place. In law, you can only transfer what belongs to you or what you have a legal title over.

    Finally, Nigerians should know that the new companies will not enjoy immunity from suit and legal process in the event they cause harm or inflict damages on electricity consumers. The full weight of the law is available to descend on them. So, let no one shy away from using the legal system to hold them accountable. Consumers will pay their bills and in return they expect good service that will not expose anyone to bodily harm or damages to property.

    •Follow me on twitter @censoj

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