A New Power Sector

I have been writing on power sector reform since this column commenced. I was researching and teaching on the subject even earlier than that! It’s been clear to me for decades that optimizing Nigeria’s economic potential was not going to happen until the country did something about our shocking deficit in electricity generation and distribution and I have long understood that the government monopoly, National Electric Power Authority (NEPA) which became Power Holding Company of Nigeria (PHCN) was never going to be the vehicle for redressing that embarrassing power shortfall. Like its other inefficient and failed peers (NITEL, Nigeria Airways, Nigerian National Supply Company (NNSC), Nigerian National Shipping Company (NNSL), Ajaokuta Steel etc., the company’s incentives were in no way aligned towards innovation, efficiency, service delivery or sustainability. Like the country itself, these organizations were debilitated by corruption, ethnicity, and nepotism and were structurally unable to accomplish any meaningful outcomes. It was clear that our “deliverance” in power would not come from incremental improvement in NEPA, but through structural change. I was therefore excited when I heard of a new power sector policy at the Bureau of Public Enterprises (BPE) which aimed to create a structurally different power sector in which NEPA would be unbundled into its generation, distribution and transmission components; a new regulatory infrastructure would be created; the issues of pricing would be addressed; and the generation and distribution entities would be privatized, while the transmission monopoly would be concessioned to private sector managers. I celebrated this new approach, which was formulated as far back as 2001 thinking that our salvation from self-inflicted darkness was at hand, but then I was naïve about Nigeria! This 2001 policy which was encapsulated into draft legislation, the Electric Power Sector Reform Bill of 2001and sent to the National Assembly same year was held up in parliament till 2005 when it was apparently reluctantly passed. It was amazing that a nation could treat a law to redress probably its most important socio-economic malaise in this manner, but then haven’t we always underrated the corrupt bureaucrats and regional politicians who have combined to undermine our prospects as a nation? You would think again that when the Electric Power Sector Reform Act (EPSRA) was eventually passed in 2005 that we finally were free! Instead President Obasanjo whose administration championed the reform, by this time had other priorities-a constitutional amendment to facilitate a third term for the two-time, second term president was now the regime’s top policy objective and the transformation of the power sector did not receive the required attention. More curiously the government’s power policy actually then moved in the opposite direction to that suggested in the new law with the government investing in a rash of power projects under the so-called National Integrated Power Projects (NIPP)!!! Such was the confusion that it was only after the failure of “third-term” that Obasanjo returned to the EPSRA and the matter was not concluded until Umaru Yar’adua took over as President. Yar’adua, with wrong-headed advice from Rilwanu Lukman discountenanced EPSRA and reverted to a failed policy prescription based on government control of the power sector, achieving nothing until his unfortunate demise. To his credit, President Jonathan recognized the imperative of radical action on power and enunciated a power sector road map in April 2010 based on EPSRA. That road map appears finally to have reached a point of no return on August 21, 2013 with substantive conclusion of the privatization of most of the unbundled PHCN entities. In specific terms, the government has successfully concessioned the transmission company to Manitoba Hydro of Canada against many odds; it has essentially concluded the sale of 9 distribution companies with outstanding payment issues with one (Enugu), while Kaduna Disco privatization is ongoing; 5 generating firms’ sale have also been completed, with some payment outstanding in respect of only one (Sapele) while Afam transaction is also pending. The government has received over $2.7billion in sales proceeds so far, with additional payments still expected. The process of selling off 80% of government stake in the NIPPs has already been started by BPE and the Niger Delta Power Holding Co Plc with positive market sentiments. By and large, Jonathan and his aides have accomplished the transformation of our power sector from one controlled by government into a private sector dominated industry. There are heroes in this affair! Mr Atedo Peterside, accomplished banker and Chair of the National Council on Privatisation’s (NCP) Technical Committee stands out. Professor Barth Nnaji who served variously as Special Adviser and later Minister of Power also does. No one would remember the contributions of the quiet but effective Ms Bolanle Onagoruwa who was unfortunately removed as BPE Director-General while the process was ongoing. But it is not yet uhuru! The BPE appears to be mismanaging the fallout of Interstate Electricity’s default in payment for Enugu and eroding the credibility of an otherwise sound exercise; regulation, consumer protection and competition issues must now take the front burner; the NIPP privatisation must be successfully completed; the transmission “limiting factor” must be carefully managed, with transmission decentralization and captive generation considered whenever possible; we must now stimulate huge private sector investment in new generation capacity across the country; and the management of the highly technical electricity market must be insulated from political and other interference.