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Doubts over fate of privatised power firms

Posted: Apr 21, 2015 at 1:09 am   /   by   /   comments (0)

By Obas Esiedesa,  Senior Reporter, Abuja


With a new administration coming on board next month, there are doubts about the future of the power sector reform of the President Goodluck Jonathan’s administration.

This is especially given the poor performance of the privatised succession companies of the defunct Power Holding Company of Nigeria (PHCN).

On November 1, 2013, the Federal Government handed four power generation companies and 10 electricity distribution companies over to private sector operators who had in August paid a total of $3 billion (N480 billion) for majority stakes in the assets.

But poor power supply has persisted across the country, leading to protest by electricity consumers in various cities across the country, even as many accuse the distribution companies of crazy billing and refusal to allocate pre-paid meters.

The generation companies handed over to new are: Ughelli Plant, Geregu I Plant, Kainji Hydro and Shiroro Hydro. The distribution companies are Ikeja, Eko, Ibadan, Jos, Kano, Yola, Abuja, Benin, Enugu and Port Harcourt. Kaduna was later handed over to its new owners.

In all the companies government sold 51 percent of it equity holding but retained 49 percent with a clause to take back the companies if the new owners failed to live up to the agreement to improve electricity supply to Nigerians.

Now, with almost a year and six months gone without any visible progress made in the sector, operators are concerned that the new government of President-elect Muhammadu Buhari may revisit the process that led to the sales and possibly tinker with the reforms.

Notably, even senior government officials involved in the sector are also indicating that a change may be in the offing.

The federal government at the weekend said it has met 5,500 megawatts in power generation, lamenting the loss of N1.5 billion yearly to vandalism.

Addressing a joint press briefing, Minister of Power, Professor Chinedu Nebo and Benue State Governor, Gabriel Suswam at the end of the last meeting of the Board of Niger Delta Power Holding Company (NDPHC) Limited, chaired by Vice-President Namadi Sambo, Nebo said the generating capacity is despite unrelenting sabotage of oil and gas pipelines by vandals.

He stressed that deliberate vandalism of pipelines every two weeks resulted in the nation losing about 1,600 megawatts of electricity at a particular time.

Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, has however not done anything to assuage the fear of power sector investors about what becomes of the reforms. Asked in a recent interview on the possibility that the new government may undo the privatisation power sector, Amadi said: “Everything is possible to be undone, the life itself can be undone, but there are two basic things: One is that a government that comes into power has a responsibility for making policies, they can change the policy, they can improve existing policy or they can more vigorously pursue existing policy. So to undo privatization could mean two things, it could mean using the existing framework of privatization to rewind it.

“For example the Discos who signed agreements to buy the assets, there are clauses in the agreements of things that could happen that would be supervening circumstance in which they can pull out if they are no longer satisfied or which government can pull out with cost. So from a legal point of view there’s a due process for undoing such process.

“The other one is extra-legal, maybe some kind of nationalization, it’s still theoretically possible in today’s world for government to nationalize privately owned assets. So if you are talking about can do possibility, there’s no impossibility with government to do, through due process or through extra legal actions, reverse any policy decision.

“But then consequences usually follow, some of them can be financial, some can be legal and some can be very fundamental in terms of impact on economic growth and social wellbeing. I think in my understanding of the two political parties their policies are in line with the fundamental framework of the national electric power policy and that policy was issued in 2000, although by PDP government.

“But that policy is clearly premised on privatization, on securing financial viability of the sector as a way of improving power supply by sustaining investments and improving reliability. The national electric power policy is a sound policy but can be reviewed, that will mean there are certain things we didn’t factor, for example articulation of smart grid. 2000 to date is over a decade, so there are new insights as to how things should work, we have seen how institutions work or fail to work and this means that there’s nothing wrong in government reviewing the reform process in terms of going back to the founding documents and doing some forensic.

“And find out what processes have been completed, what are we learning from those already undertaken, how do we make those processes better and what processes outlined should we not undertake, it’s all about reading backwards and looking forward. For me it’s not about undoing privatization, because privatization by itself is not a problem. We are in a new modern economy, where some people think about straight jacket, and one of the new economic straight jacket is, call it privatization or public private partnership. It is their understanding that government may not be the sole producer of goods and services, or in any case should not even produce goods and service directly, this is the convention in economic thinking today, but some people think government production should remain a mainstay of the economy.

“So there are still a residue of socialist and welfarist economic thinking, so every government is at liberty to go through the literature and make up its mind on what should be its dominant economic philosophy, and once you accept that philosophy it has a trickle effect on other policy areas especially something as significant as power”.

Amadi’s views were backed by an Abuja based lawyer, Aliyu Mohammed, who said though government could take back the companies, the cost components of such an action make it highly unlikely.

According to him, “Very strong legal documents would have being place before private individuals would down their monies to purchase these companies. Taking them back is not impossible especially if the new government discovers that the process of their sales were not transparent.

“But like I said earlier, possible but the cost implication and the message such an action will send out to potential investors make it very difficult to undertake. That said there is nothing wrong if the new government decides to take a look at the process that led to the sales and at the background of those who bought the companies”, he added.