For those who are advocates of a free market solution to the electricity debacle, the suggested replacement of a state producer with a private sector hardly represents a radical step in the direction of a free market in electricity generation or even in providing steady power supply in the country.
It is difficult to imagine the privatised energy producers not engaging in collusive behaviour and engaging in fiercely competitive struggle over prices, level of service provision and so on. It is equally difficult to see how the consumers who lack the bargaining power of industrial companies, will be any more favorable positioned as a result of these changes, that the Government is about to introduce.
Now, it may be that this rather neutered version of privatised solution, the selling-off of the eleven distribution companies, and the six generation companies, is an unwilling de facto recognition by the Government of economic and technical limits to privatisation in an industry such as electricity generation. We should not confuse the achievement made in the communications sector (with its GSM revolution) to what could be achieved in the power sector, if electricity is privatised. We should bear in mind that these are two dissimilar things, in terms of the structure of their vehicles for conveying services to their consumers. After all, it is difficult to see how the electricity consumer, except in a very indirect sense, can be provided with an effective choice of producers unlike in the communications sector where people can have a variety of service providers to choose from. Are all houses, offices and factories to be rewired, with a red set of plugs drawing on power from one generating company, a blue set from another and so on?
Again, it may be the Government way of acknowledging that it is simply infeasible to have thousands of small business entrepreneurs springing up to produce electricity. Hundreds of little producers, all with windmills in their backyards and vigorously competing with one another to produce electricity, suggest image of a fairy-tale, Don Quixote rather than efficient energy production in a developing economy in the 21st century. Electricity supply doesn’t lend itself to this sort of solution. Electricity industry is capital intensive for competition to be possible and electricity is by nature, monopoly. What this raises is the question of why the Government wanted to disinvest in generation and supply, while retaining the ownership of the transmission (system and networks) the so call national grid company.
The Government’s privatisation proposal brings little comfort to those of us who believe that an efficient national energy supply industry, based on environmentally and socially responsible use of finite resources, requires something other than a free market solution. Hence for the on-going privatisation exercise to be successful, the Government must retain 40% to 49% stake in the generation and supply (seventeen companies) to create an environment that encourages wider participation of people with a stake in electricity development in Nigeria. Otherwise, a rigid structure of private sector monopoly might be put in place and that will be a real disaster for the country.
On the other hand, from the investors’ perspectives, there are four major obstacles to investment in the power sector which should be carefully considered; otherwise their investment will be down the drain.
Firstly, the Government must publicly disclose the true level of the indebtedness of the PHCN and how much of it will be carried into private ownership. Secondly, the Government must publish a detailed account of all the money stolen from the power sector (to date and by whom). Those so indicted should not be allowed to buy shares in the electricity industry, with stolen public money, to launder. It is an open secret in the country that huge sums of money were stolen from the power sector by some privileged few individuals in the past eleven years and there are insinuations that this must have prompted the premature privatisation of the PHCN to cover-up. However, if this is not done now by the Jonathan government, if another party (other than PDP) wins the forthcoming general elections at the centre, the new government may nationalise the electricity industry in order to probe the power sector.
Thirdly, the problem of fixing the share price for the 6 Generation companies and 11 distribution companies will be exceptionally complex because of three reasons; which I argued in my article entitled: Is NEPA Ready to Face New Challenges? (Published, ThisDay of Tuesday, May 20, 1997, Part 1 and Thursday, May 22, 1997, Part 2). First, the share is not for a new company, neither is it an issue of the entire shares of the whole PHCN company. Second, the share issue is Government backed and hence, will attract investors from members of the general public who have no knowledge of the stock market, but who are looking for a quick profit. Third, the state of the stock market needs to be predicted on the very day of issue in order to fix the price of the share. When this is not predicted correctly the whole share issue will be complete failure.
Fourth, no investor should be allowed to own more than a 15% stake in either generation or distribution companies and that the Government must keep a 49% golden share in the privatised companies for the privatisation to be successful.
The other reservations about some of the proposals and detailed aspects of them-in particular on tariff, on the level of PHCN debt (estimated at over N 733.181 billion as far back in 2003. This was too high and could put the sale at risk) which the new privatised companies should be encumbered, if the Government completely disinvest in the generation and supply companies, and on the institutional arrangements, are good enough reasons why the Government must maintain a stake in them. It is difficult to see what has changed since May 2007, to improve the chances of a successful sale. To make matters worse, in attempting to make the industry more attractive to potential investors, the Government may have to reduce its liabilities and this will cause a lot of public outcry.
The fear about the rigid ‘structure’ of private sector monopoly, which may seek to exploit the people, being established with its attendant hiking up of tariff through collusive behaviour which I mentioned earlier, is real. The danger of creating a constraining and conservative environment which would be inflexible to the changing demands of the future; and adding to the confusion of the existing power sector cannot be over-stated.
The scale and complexity of the proposals cannot be underrated, and there is (deliberate) vagueness in the Roadmap Plan as to the timescale when the whole project will be completed and brought on stream, it seems unlikely that it would be completed in the next two decades. If this is the case, then why can’t the Government scale-down its over-ambitious project to a manageable size that it can easily bring to fruition within the next five years to benefit the nation and to lay a solid foundation for the future? Bearing in mind that there is already in existence in the PHCN system, a generating capacity of 5906MW, which is in excess of 3444MW of what the existing consumers of the country need at peak load 2470MW. What this simply means, is that if the PHCN could generate, at any given time, a quantity of electric energy greater than the peak load 2470MW,and deliver the same, through effective and efficient management of the existing electric energy supply chain: generation, transmission and distribution, the existing consumers in the country will no doubt enjoy uninterrupted electricity supply, without any hitches or difficulties within a short-time. New demand of up to 3444MW (at the current annual demand growth rate of 6%) could be connected in most parts of the system, without requiring major transmission reinforcements between zones; local reinforcements at the grid supply point would of course, be required. This is not to talk of the new generating capacity being anticipated from the NIPP, which we were told is nearing completion and could be available to the national grid in due course. Surely, there will be more than sufficient generating capacity in the country, even if we allow for redundancy of system, there will be too much generating capacity in the country than necessary, without the need to add any new generating capacity from the Jonathan power project. Please note, most of the statistics provided in this article, apart from one or two extrapolations, can be found in the National Council on Privatisation publication, National Electric Power Policy March 2001; anyone interested in the figures should consult that document.
The social costs of implementing the proposals will be considerable. So too will the costs of unemployment, since for every job created in the new electricity companies about half a dozen will be lost in the PHCN that will be dismantled. This will lead to further social upheaval in our country and would add to the security nightmare, never mind the assertion that most of the workforce will be paid their severance packages.
The Roadmap Plan on Power has not, certainly, looked at other better options to privatisation, which I have put forward in my recent article, Is privatization the Best Option to Electricity Development in Nigeria?, published in Dessert Herald 3rd-10th August 2010, and 10th-17th August 2010.
The Roadmap Plan on Power, then, clearly adds up to a sorry apology for a sensible energy policy which our country is now saddled with, the repercussions of which will be felt in the years ahead. Thus, the Roadmap Plan on Power is bound to fail, unless re-directed. What are we to make of them? Are they a product of incompetence and muddle thinking? Or were they constructed with a different aim in mind? If so, the intriguing question remains as to what was the real issue on the Government hidden agenda?
Concluded
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