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Three developments motivate my piece today.
First, I came across a video of the 7th Bola Tinubu Colloquium address by Babatunde Fashola, the former governor of Lagos State, now Minister for the triple ministries of power, works and housing. In the address, he said: “we do not have power, not because power is difficult to generate”, but “we are in darkness because the economy is being run by “Gbatueyos” – incompetent people”.
The second motivation is the recent advertisement by the generating companies (GENCOS) on the monies being owed them by the Nigerian Bulk Electricity Trading Company (NBET). The GENCOS claim in the publication that NBET owe them N160 billion.
The third is a report in ThisDay Monday 15th August page 59, in which the electricity workers under the umbrella of Senior Staff Association of Electricity and Allied Companies (SSAEAC) argued that the privatisation of the power sector was a mistake.
All these developments are underlined by unrealistic expectations, especially as the opponents of the privatisation process, such as the electricity workers, can point to the fact that much has not improved. But I hope this piece serve two purposes. First, to remind us that our expectations were unrealistic, given two decades of underinvestment in the sector. Second, that, there is a “a stitch in time saves nine” lesson here for other industries still in the ineffective and poor grip of the federal government, including the Transmission Company of Nigeria (TCN) and the Nigerian National Petroleum Corporation (NNPC).
Though mistakes were made during the privatisation process, with the main one being that short-term loans were used in the purchase of long-term assets, it is still one of the best fiscal policies of the last decade. This mismatch of assets and liabilities is one of the key problems now affecting our GENCOSs and a key reason why the investments some of us thought will automatically follow privatisation has not materialised. And because some of these assets were in various levels of precarious conditions, there was very little foreign appetite.
Though privatised, TCN remains in government hands, and in the face of deteriorating economic conditions, the government lacks the ability to provide the required investment. So, though, the country is generating close to 10,000 MW at its peak, the TCN can only distribute less than 5,000 MW. It is no wonder that the professional and competent Fashola that replaced the “gbatueyos” and incompetent former administration has opted for a very (ambitious) realistic 5,000 MW distributable power before the end of the year.
I actually think the reasons why the sector was privatised should even be clearer to everyone. Today, though the investments are trickling in, rather than rushing, the outlook is much better today than it was before privatisation. We have seen investment decisions in Azura, and the recent remarkable Solar power investments by 12 different firms with NBET.
At the distribution level, for which collection only averages about 40 percent, it is a reflection of the legacies of poorly metered and identified houses, especially in towns, but also in cities that are poorly planned. There are also mismatch of ownership and responsibilities. The consequence is a very high level of power theft. My understanding is that the fixing of prepaid meters, while it will help, is not sufficient to deal with all the theft, as these are done outside of the system.
The DISCOS thus face serious collection, identification, security and income risks, while the GENCOs face mainly investment and income risks, which flows from that faced by the DISCOS. In between these two groups is the government owned TCN facing a potentially lingering investment crisis except the government changes its approach. Indeed, my suspicion is that the Ministry of Power, irked by the inability to “control” things, may see this as the only viable scapegoat for the usual government control shenanigans.
Following the risks, especially because the power sector is still a fledgling market, with miserable collection rates by the DISCOs, foreign currency risks, and general investment risks because of the potential to default, is there any wonder that foreign investors continue to request for sovereign guarantees? But with the historical embarrassments of Enron, I also understand why the government would not and I do not support blank guarantees. The market will mature with time.
In conclusion, the privatisation process was not concluded for the purpose of few years of power availability. It was meant to correct 30 years of underinvestment, corruption, and poor management. Yes, there are still instances of these symptoms of failure, but the framework for long-term success is in place. Thus, no matter how long it takes to appreciate it, and not minding the current issues being faced by the sector, privatisation of the sector is the right approach.
However, as progress, no matter how slow is being made in the power sector, perhaps because of the revenues, no one has noticed that the oil and gas industry is in decline. We have been at the same spot and declining for years. In the process, we have stagnated at 2 million barrels per day, the industry bill stalled, and the government still in charge. Ultimately, as we have done with telecoms, banking, power, so we will with oil and gas. I can only hope that it will not be too late and too bad. I thank you.
Ogho Okiti
