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THE POWER SECTOR ROADMAP

By NBF News

With the unveiling last week of the Roadmap to Power Sector Reform, President Goodluck Jonathan appeared to have finally recognised that time was running out for his administration to demonstrate its seriousness in addressing the nation's power crisis. As the President was unfolding the plan, one consequence of the government's tardiness in implementing the Electric Power Reform Act was on display when the 33,000 workers of the inefficient monopoly, Power Holding Company of Nigeria, shut down power plants, plunging the nation into darkness to press for the release of their N57 billion monetisation benefits.

Under the new plan, the Federal Government promised to immediately privatise the 17 electricity generation and distribution firms and secure private sector management of the transmission firm earlier unbundled from the PHCN. Details of the roadmap indicated that the PHCN successor thermal generating plants would be privatised through the sale of a minimum of 51 per cent equity to core investors that clearly demonstrate the technical and financial ability to operate and expand each plant.

The President also announced that the National Integrated Power Project plants would be managed under Operation and Maintenance contracts now being prepared by the Niger Delta Power Holding Company, the parent company of these plants. Under the roadmap, the Transmission Company of Nigeria would be handed over to a credible private sector company in a five-year management contract. In addition, the government has provided the N57 billion required to settle the arrears of monetised benefits of the PHCN workers. But investors say the roadmap to reform will need to be backed up by cast-iron guarantees on the regulatory framework. A retreat is scheduled for investors from around the world in mid-October to further explain the plan.

The power sector road map is anchored on the 2005 Power Sector Reform Act initiated by the Olusegun Obasanjo administration, but which was reversed and later abandoned by the succeeding Umaru Yar'Adua government. In November 2001, a blueprint for the restructuring and unbundling of the defunct National Electricity Power Authority was prepared ahead of a phased privatisation. In 2002, the National Council on Privatisation had approved the implementation blueprint for the restructuring of PHCN (former NEPA) and prepared the necessary bill to back the privatisation process.

In the original plan, it was envisaged that the restructuring programme would be concluded by 2005 while the divestiture of the government's interest in the power sector would have been completed by 2007.

As a result of policy inconsistency and deep-rooted corruption that attended the reform implementation, electricity supply still remains almost at the level it was in 1999. Today, apart from epileptic power supply, the Federal Government is saddled with huge wage bills and other costs.

Unreliable power supply has hobbled the country's economic growth with alternative power supply, adding up to 40 per cent extra costs to industrial production. The cost of power in Nigeria is estimated to be nine times higher than in China and four times higher than in Europe, leaving the nation's industries unable to compete. Despite its oil wealth, the country relies on diesel generators to power everything from phone chargers to luxury hotels because of constant power outages. The Central Bank of Nigeria put the cost incurred by Nigerians to fuel power generators at N1.56 trillion annually. Nigeria accounts for 40 per cent of the small generator sets imported into Africa.

It is heartening that a renewed attempt at solving the nation's lingering electricity problem has finally been made. A critical factor in the roadmap will, however, be how far transparency is entrenched in the bidding process for the 17 firms up for partial sale. Indeed, past experience in the privatisation of government enterprises raises considerable anxiety on the success of the scheme. Efforts in the last decade to privatise the nation's refineries, the Nigerian Telecommunications Limited and the Ajaokuta Steel Company for instance, had been repeatedly bungled.

The BPE and the Presidential Task Force on Power should break with the sordid past and ensure utmost transparency in the bidding for the 51 percent stake in the unbundled units. Too often, a clique of officials and their collaborators form shell companies to take majority equity in state-owned firms without the financial and technical capacity to run them.

Already, there are signs for concern. Three days after Jonathan unfurled the timeline, global news agencies revealed that three firms were being considered to run Transyco—the transmission firm. When were the bids and negotiations opened? It is this type of opacity that had aborted past dreams to privatise state firms.

It is noteworthy that Jonathan recognises the weakness inherent in relying too much on thermal power plants, which are subject to the vagaries of supply and pricing of gas. The government should therefore act quickly to create the enabling environment and encouragement for private interests to develop coal, hydro, waste, wind and solar energy sources.

The only viable solution to the nation's electricity crisis lies in the private sector's effective involvement in the power sector. The committee should, therefore, be mindful of this onerous task at its disposal and make transparency its watchword. The success of the sale and the reform itself will depend to a considerable extent on qualified operators winning the bids. Unqualified firms with no pedigree in the power sector should not be allowed to take over the firms. They will only be a setback to the reform process.