THE call for Expressions of Interest from investors to purchase five state-owned electricity power generation companies raises both hope and trepidation. The Bureau of Public Enterprises, on behalf of the National Council on Privatisation and the Niger Delta Power Holding Company, is putting the GenCos on the auction block as part of the ongoing reforms and the privatisation programme, to improve the country’s troubled power sector and raise funds. Investor and public optimism is however tempered by the dismal outcome of the flawed 2013 power asset sales and fear that this round could well go the same sordid way.
For the country’s economic survival, the regime of the President, Major General Muhammadu Buhari (retd.), should ensure that this exercise aligns with global best practices to achieve set national objectives.
Government here is never good at managing the business. The private sector should be the country’s chief economic force while the government limits itself to regulation. Five of the 10 GenCos built under the Nigerian National Integrated Power Projects and run by the NDPHC – Geregu with 506 megawatts; Benin 507MW; Calabar 634MW; Omotoso 513MW; and Olorunsogo 754MW – are on offer. Uniquely, unlike previous divestments where the government retained 49 per cent stake and the ‘core investor’ 51 per cent, investors are to take 100 per cent holding, thus moving closer to the ideal of restricting the state to regulation. The BPE’s director-general, Alex Okoh, gave no hint of how much the asset sales are expected to realise, but said it was in furtherance of the Nigerian Electricity Power Policy and Electric Power Sector Reform Act. Last year, the government had signed a funding MoU with InfraCredit to provide a standby credit facility of N300 billion for prospective investors in the GenCos.
Nigeria’s power sector is an awful mess; it falls short on every parameter, from generation to transmission, distribution, regulation, and pricing. Asset sales that would see state monopoly give way to private-sector competition failed to deliver on the projected economy-boosting outcomes when the Goodluck Jonathan administration manipulated the privatisation, allowing mostly unprepared operators to take control of the 17 power firms.
Though the current sale is not as transformative as the 2013 privatisation as no DisCo is on sale or the transmission facility, nevertheless, if done honestly and with national interest paramount, it could give reputable investors a toehold in the power sector and open the door to desperately needed foreign direct investment and expertise.
For Buhari, under whom the economy is reeling and the Vice-President, Yemi Osinbajo, as statutory chair of the NCP, the Minister of Power, Mamman Saleh, and Okoh, this is an opportunity to change the narrative of corrupt, manipulated asset sales in Nigeria. They should not, like the Jonathan team, betray the public trust. The chicanery that delivered most of the 10 distribution companies and six GenCos unbundled from the defunct Power Holding Company of Nigeria into the hands of incompetent investors should be avoided. The power sector is in crisis and the economy is hamstrung because of the manipulated 2013 privatisation. A country of 206 million people cannot defeat poverty or realise its productive potential with only an average of 4,000MW of power incompetently delivered daily.
Privatisation has clear objectives: The United Nations Development Programme outlines five; these are to increase efficiency and reduce the size of the public sector in the economy, reduce public debt/deficit and raise funds, strengthen the stock markets, facilitate productivity and competition, and stimulate sustainable job creation. Nigeria’s reforms also targeted meeting the IMF’s estimates of $5 billion investment needed annually over 10 years to optimise national requirements. The investment was expected to boost the SMEs and informal sectors, job creation and attract foreign technical expertise. Starved of investment for over three decades, investors were expected to inject funds into the sector to upgrade and replace obsolete equipment.
The sale must avoid the cronyism that effectively kept competent global companies away and ended up transferring the firms to emergency Nigerian consortia lacking the global recognition, financial muscle, and technical know-how. The result has been catastrophic. Power has not improved significantly as the emergency investors could not muster sufficient FDI for plant upgrade and replacement. Instead, they borrowed mostly from local banks and found it difficult to meet up repayment as the naira windfall they had expected did not materialise. They neither understood nor prepared for the complex market they had gate-crashed.
Disdaining the 2013 perfidy, attracting FDI and established global power sector champions must now be uppermost. BPE should if necessary, consider the targeted sale option of negotiating directly with globally rated power firms. Beyond its provision of at least one proficient foreign firm as a technical partner in interested consortia, prospective buyers should also show proof of investment plans where most of the funds/credit would be sourced offshore. Those who participated in the 2013 shoddy sale and are underperforming should be disqualified.
Organisers should collaborate with the Asset Management Company of Nigeria and the Central Bank of Nigeria to disqualify heavily indebted individuals and companies. Agencies should be efficient in their due diligence duties. Shamsuddeen Usman, who as Minister of National Planning, was part of the 2013 sham, has admitted that “most of the transaction principles were sidestepped” and that officials secretly used their positions to leverage their interests. Osinbajo and the BPE should resist power brokers.
Undoubtedly, deep problems pervade the entire power sector value chain, from generation to transmission, distribution, and governance; the weakest link however remains distribution where the DisCos, through ownership and legal cover, have the country at their mercy. If they cannot optimally accept and distribute generated and transmittable power, other segments are helpless. The government needs to engage in very strong, creative measures to loosen this stranglehold, including leveraging and selling its own 49 percent equity in the DisCos to attract new, capable operators. Beyond asset sale privatisation, there is the need to consider other forms of privatisation, especially share issue, which allows for mass participation by basically selling state-owned enterprises’ shares on the stock market.
The sale of these five GenCos will make a maximum impact only if first, the right investors take them up and ultimately, if the government can resolve the distribution quagmire, expand, and privatise the equally problematic transmission and reform the regulatory framework for efficiency and investor confidence-building.
Ultimately, it is only the dismantling of the present centralised regulatory framework that will end the inefficiency and corruption in the energy sector. The generation, transmission, distribution, and regulation of electricity should therefore be completely decentralised as is the case now in many countries, including the United Kingdom and Kenya, to allow for innovation and competition. This will dramatically reduce the reliance on the central grid network.
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