Ayanruoh: Reversal will take us back several decades
Felix Ayanruoh is an American based energy lawyer. He is Partner/Global Head, Energy, Infrastructure and Project Finance Group. In this interview with EMEKA ANUFORO, he speaks on the contentious debate on reviewing the electricity sector privatisation.
Do you support recent calls for the review of electricity privatisation?
The calls for reversal of the privatisation of the power sector is, to say the least, political, mischievous, specious, and filled with smoke and mirrors, innuendos and intellectual sleight of hand. The objective is to inject politics and self-interest into our economic development. It is undeniable that years after the reform process, there are little signs of improvement and the potential for further improvements. Despite recent successes, Nigeria faces many challenges in sustaining the growth in the sector and improving its development indicators.
What are the implications of a possible reversal?
The implications for a reversal are so monumental that such cause of action will bring us back several decades of improvement and costs to several billions of dollars. To illustrate the point, consider the establishment of a well-structured regulatory agency, the Nigerian Electricity Regulatory Commission (NERC), the incorporation of Nigeria Electricity Liability Management Company Ltd (NELMCO), the establishment of the Nigerian Bulk Trading PLC (NBET), the establishment of the Electricity Management Services to provide ancillary and support services to the Nigerian Electricity Supply Industry, the introduction of cost-reflective tariffs; establishment of Transmission Company of Nigeria (TNC) and privatisation of generation companies (GENCOs), and the privatisation of distribution companies (DISCOs). The establishment of the National Gas Plan is also a case in point.
Furthermore, the recall of Power Holding Company of Nigeria (PHCN) workers and the accompanying problems associated with the old structure is impracticable and a mere wish. Challenges and resentments of energy sector reform in general and power sector in particular in emerging economy such as Nigeria is ubiquitous. What the government should do at this juncture is a review of the process. Also, benchmarks should be set for both GENCOs and DISCOs. Failure to meet such benchmarks should lead to fines or revocation of licenses.
How can Nigeria best address the liquidity challenge in the power sector?
With the present economic downturn in the country, there is the need for financing and liquidity stability in the sector. The GENCOs need adequate liquidity for the procurement of turbines, parts and accessories, which requires foreign exchange since they are largely manufactured abroad. Also, the DISCOs require a lot of operating capital for the supply of meters, upgrading distribution equipment like transformers, ring mains units, feeders and funding, especially in foreign exchange. Liquidity issue in the sector can be best addressed by looking at the tariff structure in the sector. Potential investors can only invest in a sector where electricity is not sold to consumers below the short-run and long-run marginal cost of production and even the most rudimentary understanding of basic economics and common sense dictates that this is not a sustainable business model.
Quite simply, power generation, transmission and distribution will be a failure if potential investors cannot get fair returns of their investments, as no investor will be willing to invest in the sector. With the new Multi-Year Tariff Order, investment in the Nigerian power sector is now a bankable venture. It is now left with both the GENCOs and DISCOs to source the capital market for financing.
More than 50 percent of Nigerians are said not to have access to electricity. Is rural electrification the way out?
It is common knowledge that Nigeria has one of the most problematic electricity sectors in the world, with an estimated installed electricity generation capacity of 8,644 MW, and available capacity of only approximately 3,718MW to cater for the needs of a population of more than 160 million.
By comparison, South Africa, with a population of just 50 million, has an installed electricity generation capacity of over 52,000 MW. On a per capita consumption basis, Nigeria is ranked a distant 178th with 106.21 KWh per head, – well behind Gabon (900.00); Ghana (283.65); and Cameroon (176.01); and Kenya (124.68).
The historic gap between the demand for electricity and the available capacity has led to the current widespread power shortage and inefficiency and, consequently, it is estimated that more than 50 percent of Nigerians and only about 26 percent of rural households have access to electricity. In response to shortages of power supply and access to electricity, the Federal Government adopted the National Electric Power Policy (NEPP) in March 2001, setting out some corrective measures, including the establishment of a Rural Electrification Agency (REA).
The Rural Electrification Agency (REA) is a Federal Government Parastatal under the Federal Ministry of Power. It was established by the Electric Power Sector Reform Act of 2005 (EPSRA) with the statutory functions of promoting, supporting and providing electricity access to rural and semi-urban areas of the country. Section 88(11) of the EPSRA establishes the Rural Electrification Fund (REF) to be administered by the REA.