Challenges and prospects of power sector privatisation




The need for power cannot be underrated, especially when it comes to the development of a nation. The power sector is, therefore, very essential to the development of Nigeria. Power is sought for daily businesses, infrastructural and industrial activities.

 Many nations in the world have adequate supply of electricity. Nigeria has been an exception. In spite of her rich human and natural resources, the country has struggled to maintain a stable and efficient power sector. This is even more hurtful, considering the array of technocrats that the nation parades, the series of meetings between stakeholders and regulatory interference, all availing to nothing.

Some other African countries, including Ghana, have celebrated no less than three years of uninterrupted power supply. South Africa, with a population of about 60 million, produces 51,309MW, while Nigeria, with a population of about 190 million, produces just 4,000MW. As the centrepiece of Africa, we still are unable to produce sufficient megawatts for more than half of the population.

The privatisation process was aimed at improving the sector and to ensure stable electricity supply to homes and industries.

Over the years, the Federal Government tried various means, strategies and reforms to grow the power sector and to make it work, but all attempts have been an exercise in futility. Under the Electric Power Sector Reform Act of 2005,, the Power Holding Company of Nigeria was established to take care of the functions, assets, liabilities and employees of the then National Electric Power Authorit, which, at one time, was a sing-tune. The government then unbundled the PHCN into eighteen successor companies; six generation companies (GENCOs), eleven distribution companies (DISCOs) and one national power Transmitting Company of Nigeria (TCN).

By 2010, the power sector still yielded no tangible result. This called for another reform known as the roadmap of the power sector reform. This reform set the momentum for further privatisation and by September 30,  2013, the successor companies, aside the transmission company, were privatised with a $2.5bn transaction. PHCN, therefore, ceased to exist. The legal control of the power sector formally belongs to and is now being monitored by the government through the Nigerian Electricity Regulatory Commission in a kind of arrangement that is not too clear. However, it is owned by individual stakeholders.

The privatisation process has been a massive catastrophe for the nation’s economy. It has caused untold hardship for the people already living on the fringe of poverty. More than 60 per cent of Nigerians have no access to electricity. Those who have, hardly enjoy its benefits due to erratic supplies.

The process of privatisation itself was not effective. It featured a flawed process that worked on the bases of estimations and assumptions. In reality, most technical partners were invited only as technical operators. The hostility of some Electricity Union workers prevented physical inspection of assets by bidders as part of the process initiated by the Bureau of Public Enterprise.

The administration that carried out the exercise was accused of selling the companies to the cronies of the past administration. The process was for the few privileged elites. Some of the estimations include the Multi Year Tariff Order, which was assumed to be sufficient to raise enough revenues from DISCOs in order to fund the value chain and a N100bn transitional subsidy to DISCOs that would prevent rate shock. DISCOS were assumed to be financially viable.

The power sector lacks cost reflective electricity tariffs. Nigerians are groaning over costly electricity tariffs, despite the fact that they do not enjoy adequate power supply. The government hikes electricity tariffs by almost 100 percent, claiming to make profit for the private enterprise. This has rather increased public suffering for private gains.

Based on the operations of the privatised power sector, it is obvious that funds have been mismanaged and mishandled. There has been a mismatch between the funds channeled by the government towards restoring the sector and the service currently provided by the operators. In the last five years, there has been a consistent supply of funds by the Federal Government through the CBN, USAID- founded energy initiative, the Japanese Government and the World Bank, among others.

 According to the Nigerian Electricity Supply Industry, the losses incurred by the sector translate to an average of about N1.5bn monthly, totaling about N90bn in five years. This loss is attributed to water, gas and transmission line constraints. In spite of the release of funds to the DISCOS, they have not effectively distributed the generated energy. While about 7000MW is generated, only 4000MW is distributed. Also, the meters have not also been installed in many areas. DISCOS undertook to provide meters and they are not fulfilling their promises.

The problem of revenue generation and collection is another issue that has destroyed the power sector. In spite of holding the ninth largest gas reserves in the world, one of the main challenges currently faced by thermal GENCOs is insufficient gas supply. Due to poor gas infrastructure, domestic gas supply has remained a major challenge in Nigeria.

As a point of inferred probity, it is recommended that the elite should cease to interfere in the privatisation process; that the DISCOs should be more transparent and accountable in their financial dealings; that an agreement be reached by the NERC and DISCOs to ensure that only prepaid meters are used, since billing and estimation have proved to be ineffective. Also, the administration and management of the power sector should be effectively reviewed to ensure proper maintenance and positive output.

In conclusion, the power sector failed to produce rapid transformation to the economy. The privatisation of Nigeria’s electricity industry, is still plagued by numerous challenges such as; mismanagement of funds, poor administration and it was formed on the bases of estimations and assumptions, poor revenue generation and collection. However, these challenges can be resolved. If the recommendations listed above are duly put into consideration, it will usher in the much-needed development to the country.

Humwapwa is a corps member with the Institute for Peace and Conflict




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