21 November 2013, Lagos – After decades of efforts by the government to fix the power sector, albeit without success, the Goodluck Jonathan administration has relinquished the responsibility to the private sector. Whether this exercise will translate to a steady power supply is the question on every body’s lips, report Emeka Ugwuanyi, Akinola Ajibade and John Ofikhenua.
November 1 marked the beginning of a new era in the power sector . That day, the Federal Government, after decades of failed efforts to fix the sector, finally completed its sale and handover to private investors.
The government sunk billions of dollars on the sector, yet could not generate up to 5,000 megawatts(MW) of electricity for a population of 160 million.
Besides, the transmission network is so weak that it is incapable of conveying more than 4,000MW, hence the frequent system collapse, which results in massive power failure across the country.
Therefore, the takeover of the utility from the Power Holding Company of Nigeria (PHCN) by the private sector is seen as a big relief. Nigerians are full of expectations from the new owners.
The Niger Delta Power Holding Company (NDPHC), which superintends the 10 power plants built under the National Integrated Power Project (NIPP), has also in quick succession, begun processes for the privatisation of the power stations and is expected to announce the preferred bidders in January 2014, the Managing Director, James Olotu, said.
These arrangements have revived hopes that by 2015, there would be steady power supply. The new investors said that if Ghana could achieve considerable stable electricity supply, why shouldn’t Nigeria attain the same feat, with all the resources available to it. They foresee a revolution akin to what happened in the telecoms sector. But the question is: how soon will this materialise?
Since the handover, the investors have been holding meetings with the former managements of the generation and distribution companies unbundled from the defunct PHCN. The former managements are being retained to ensure seamless transition.
It was learnt that some PHCN staff were handed only severance letters; others got both severance and temporary retention letters. Those who got retention letters are seen as those whose services could be retained. The new owners, it was also learnt, are holding series of consultations with the old management to ensure seamless integration of the new owners with the companies.
This engagement involves understudying the old hands to be acquainted with the state of things, what plans they have and the challenges they were facing before they (new investors) came in.
It involves the processes and motivation for moving forward, how will they (new investors) come in to ensure that things are operated on different level and enhancement of their services, among others.
The Chairman of NEDC/Kepco Consortium, owners of Ikeja Electricity Distribution Company, the largest distribution company in the country in terms of revenue collection and customer base, and core investor in Egbin Power Generation Company, the largest generation company in the country, Mr. Kola Adesina, told The Nation that the former management is still working with the new owners.
He said for the generation companies, they are deliberating on the extension programme, and on how to increase the generation capacity of the power stations, in addition to carrying out maintenance and overhauling of the turbines, training of personnel and modernisation of processes to optimise output from the assets for the benefit of Nigerians.
The installed generation capacity of Egbin was 1320MW, but due to lack of maintenance, output from the plants hover between 600MW and 800MW.
On the consortium’s plan for Ikeja DISCO, Adesina said they were still assessing the system with a view to drastically reducing commercial and technical losses, increasing revenue collection and ensuring reliability of supply through facilities’ upgrade.
Amperion Power Distribution Consortium, owners of Geregu Generation Company, said it would increase the plant’s capacity to over 600MW in the short to medium term. Geregu power plant phase 1 has installed capacity of 414MW, but currently works at very sub-optimal level because of lack of gas supply. The Group Managing Director of Forte Oil Plc, Akin Akinfemiwa, said the optimisation output from the plant, would be a demonstration of the company’s commitment to help bridge the current power deficit in Nigeria and help actualise the expectations that Nigerians have of the power sector.
Other companies, especially the distribution companies, are assessing what they inherited from the PHCN and how to improve on them, not just for service delivery and customer satisfaction, but as to recouping their investments in record time.
Cost of privatisation
The privatisation process led to the creation of 18 successor companies from PHCN comprising 11 distribution, six generation and one transmission companies. The transmission company was not sold like others but the government hired an international company, Manitoba Hydro International, to manage it.
The electricity distribution companies (DISCOs) include Abuja DISCO bought by KANN Consortium Utility, chaired by Alhaji Shehu Malami, Benin DISCO by Vigeo Power Consortium led by Chief Gbolade Osibodu, Eko DISCO by West Power and Gas, led by Mr. Charles Momoh, Enugu DISCO, bought by Sir Emeka Offor-led Interstate Electrics Limited and Ibadan DISCO by Integrated Energy Distribution & Marketing Limited.
Others are: Ikeja DISCO bought by Sahara Energy, led NEDC/KEPCO Consortium and chaired by Mr. Kola Adesina, Jos DISCO by Aura Energy Limited and chaired by Alhaji Tukur Modibbo, Kano DISCO by Sahelian Power SPV Limited, Port Harcourt DISCO by 4Power Consortium, and Yola DISCO by Integrated Energy Distribution & Marketing Limited.
The power generation Companies (GENCOs), are Shiroro Genco by North-South Power Company, Kainji Genco by Mainstream Energy Solutions Limited, Geregu Genco by Chief Femi Otedola led Amperion Power Distribution, and Ughelli Genco bought by Transcorp Power Plc.
The privatisation of Afam Genco and Kaduna Discos is on-going because the investors that submitted bids for the assets did not meet the bid criteria, thereby prompting the National Council on Privatisation (NCP) and the Bureau of Public Enterprises (BPE) to carry out a fresh privatisation procedure for the two assets.
The BPE said that on or before 2015, the Federal Government would have concluded the sale of all power assets. The NDPHC is also carrying out evaluation of the bids submitted for its 10 assets through a committee specially set up for the purpose.
The BPE said of the 14 successor companies handed over, a total of $2, 525,824,534 was realised as proceeds. It also explained that out of the amount, $1,256,000,000 came from the DISCOs, while the GENCOs raked in $1, 269,824,534.
It also said the Federal Government has set aside the entire proceed of N384 billion from the transaction to settle labour liabilities. The money covers workers of the Kaduna DISCO and Afam Genco, whose privatisation exercises have not been concluded, as well as the staff of the Transmission Company (Transco), which is yet to be privatised. The essence of the payoff is so that the Transco staff would be strictly working as private sector employees under the Transco management.
The likely investments from the new owners of the DISCOs and GENCOs in the next five years may exceed, or be equal to the cost of purchasing the assets. For instance, the chairman of West Power and Gas, new owner of Eko DISCO, said to get the required improvement and service delivery in its coverage area, the company would spend $250 million on rehabilitation and upgrade of its network, while the asset was bought for $135 million, thus reflecting over 150 per cent of the cost.
If the new investors inject 100 per cent of the cost of purchasing the assets into the rehabilitation and upgrade of their networks and plants, it would amount to $2, 525,824,534.
The BPE said that there would be steady and uninterrupted power supply in the years ahead, adding that it expects the sector to witness huge investments as the private investor will bring in state of the art equipment and heavy machinery to boost power generation and distribution.
The Director-General, BPE Mr. Benjamin Dikki, who represented the Vice President and Chairman NCP, Mohammed Namadi Sambo, at the handover of Ikeja DISCO to the new owners, said: “The participation of the private sector would bring about higher generation capacities through the provision of more efficient and cost effective power stations and improvement in electric power distribution, in the areas of billing, collection and transmission networks.
Such capital injection and efficiency have been inadequate in PHCN over the years, resulting in gross inadequate power supply with the attendant negative effects on the citizenry and the economy at large.
“We appreciate you core investors for your faith in the process and your faith in the Nigerian government and economy. We want to point out that the challenge is now for you to ensure that the successor company that is being handed over to you, is transformed to a world class company of reference in terms of the quality of service delivery, social corporate responsibility, customers’ satisfaction and profitability
“Let me state clearly here that both the Nigerian Electricity Regulation Commission and the BPE will continually monitor the operations of the successor companies and would not hesitate to sanction any core investor that does not deliver on the performance agreement that was executed with the government. Let me assure you all that there is hope that Nigeria will rise and shine brightly very soon.”
Adesina said the new investors will bring huge improvement in the power sector and service delivery, stressing that this could be achieved with the cooperation of the Nigerian people. He enjoined customers, particularly institutional customers to pay their bills on time, protect electricity infrastructure and learn to conserve electricity by switching off appliances not in use.
Sambo admitted that the challenges facing the electricity sector are enormous, but we are equally convinced that the opportunities in the sector are enormous. But the Federal Government is committed to creating the enabling environment that would incentivise private sector investors to take on these challenges and opportunities.”
The Chairman of Ikeja DISCO, Kola Adesina, told The Nation that the challenges that face the DISCOs are natural bottlenecks in the sector. He said that the transmission facility requires upgrade and where necessary complete replacement adding that they are working on reducing technical and commercial losses to improve revenue generation. He also identified the challenge of gas supply to generation companies as a major setback. He noted that they are generally conducting sectoral analysis, identifying weakness and verifying possible solutions.
Another major challenge is repayment for cost of facilities built or installed in various DISCOs by the NDPHC under the NIPP to improve power supply. Such installations are not included in the assets bought by the new owners. The Managing Director of NDPHC, Mr. James Olotu, told The Nation that he is currently discussing with the new investors on the issue. He explained that in some DISCOs such as Ikeja, NIPP power installations are about 100 per cent of the PHCN assets. But he allayed fears of the new investors saying that the board of the company has approved 10 years repayment period for them.
He said: “The meeting we held with them (new investors) is also to let them know that what they purchased or bought into, doesn’t include anything that NIPP is doing. The assets don’t include NIPP facilities. For instance, in Ikeja Distribution Company, we have about 34 projects being done by NIPP. We explained to them that these are equipment provided by the three tiers of government. They are not part of what you bought but these are what the equipment and facilities can do for you and already doing for you.
“We are not saying pay us for these now, we will discuss that later. We want them to take note that we are taking inventory (stock) of all the equipment and items. What we are doing for Ikeja is about 100 percent of what they have. That is in terms of aggregate value of the MVAs we are putting into their network, which amounts to 100 per cent of what they have. The new investors didn’t know.
“However, the board of NDPHC had agreed prior to the time we handed over these sub-stations that we will do an inventory of items. The inventory will enable anyone know what is the make, year and capacity of the transformers? When were they brought into Nigeria? How many of the same items are here? Evaluators are putting values to the items. But as a regulator, we look at the evaluation and ensure it is not inflated because if it is over-valued, it translates to what the tariff will be, which will be passed to the consumer, so we need to balance it.
“The board of NDPHC has given the investors 10 years to recover and pay us back the money and also NDPHC board with the owners (the three tiers of government) has also approved that when we get the money, it will be reinvested into the power sector where there are still bottlenecks.”
The money will be huge because NIPP installed facilities especially distribution and transmission transformers in the DISCOs are huge and distribution companies that do not make enough revenue and profit might be unable to pay back despite the lengthy repayment period.
Illegal connection, which is the act of bypassing meters the record consumption by utility customers, is another challenge the new investors will face because it hugely contributes to commercial losses. The practice thrives despite installation of prepaid meters.
Another challenge will be the issue of tariff. With the coming on board of the private sector, electricity tariff certainly will be increased but survey conducted by The Nation showed that the majority of Nigerians are willing to pay more if electricity supply will be regular.
PHCN workers’ view on blackout Workers of the defunct PHCN, however, blamed the Federal Government for the woes in the power sector. The accused government of diverting the funds meant for power sector development and maintenance, which has been responsible for the regular blackout in the country.
Former President, National Union of
Electricity Employees (NUEE), Comrade Mansur Musa, told The Nation that the recurrent blackout in Nigeria is caused by underfunding of the power sector. He said the problem of the sector has always been underfunding. Government did not fund the sector for 28 years. He said that all the monies voted for the improvement of power were not expended on power adding that the fund was spent on other sectors, especially politics, where almost all the former ministers of power became governors.
He said: “The money did not go into power sector revamping but political campaigns and things like that.” He also accused former President Olusegun Obasanjo of mismanaging the $16billion that was appropriated for power sector development.
The former Managing Director, Abuja Electricity Distribution Company, Abdulganiyu Umar, also noted that there is a lot of ground to cover. He was of the view that the country was too large for an easy coverage. “The truth also is that the country is pretty large, we have a big population and we have a lot of work to do to step up to the level we desire to be.”
Other PHCN staff said that there is no difference between the PHCN and new
owners now as they use the same equipment and same power generation level, hence the recurrent blackout. They said that most of the transformers are overloaded and the equipment obsolete begging for overhauling and replacement. They also attributed the frequent outage to weak transmission adding that supply must match demand to provide a stable power supply in Nigeria.
Mansur Musa said the solution to the situation should be a Private Public Partnership (PPP) as being done in the Niger Delta Power Holding Company (NDPHC). He said the private sector alone cannot transform the power sector.
He said: “I am an engineer. The power sector is always there. There are lots of opportunities in the power sector. So, we should be ready to grab it and continue to be players.”
– The Nation