NIPPs: FG Must Avoid 2013 Privatization Blunder

AFTER interminable delays, the Federal Government is finally set to privatize some of the National Integrated Power Projects assets. According to the Bureau of Public Enterprises, five thermal-fired plants would be sold to private investors. Already, 16 of the 36 applicants have scaled the pre-qualification hurdle. With Nigeria’s chronic electricity shortages, the asset sale could herald a new dawn if it is handled transparently.

Ten in all, the Federal Government plans to privatize five of them in the first instance, said the BPE. The five are Geregu, Kogi State; Omotosho in Ondo State; Olorunsogo, Ogun State; Calabar, Cross River State; and Benin-Ihovbor, Edo State. Alex Okoh, the BPE Director-General, explained that the intention of the government was to ensure that “assets within the sector were fully utilized and transformed into world-class facilities, through the injection of private sector capital and deployment of more efficient and technical capacity.”

It is easy to agree with this. The critical area of concern though is that the antecedents of the 16 preferred bidders are little known.

Undoubtedly, Nigeria is notorious for its electricity poverty. Research says 43 percent of Nigerians have no access to grid electricity. With the average national output oscillating frequently between 3,000 megawatts and 4,000MW, businesses and homes rely essentially on standby generators. A June 2022 survey released by consultants, Stears and Sterling, stated that Nigerians spent $500 million buying generators from 2015 to 2019.

The African Development Bank estimates that Nigerian businesses and households spent $14 billion yearly on diesel and petrol to power their self-supplied generators. The Manufacturers Association of Nigeria adds that erratic electricity imposes an additional burden of 45 per cent on the cost of goods, making them uncompetitive.

To remedy this seemingly incurable malady, the Federal Government initiated the NIPPs in 2004 with a seed fund of $2.5 billion. The money was contributed by the federal, state, and local governments and facilitated by the National Council of State and the National Assembly. The initiative took off amid high hopes that Nigeria would have attained 20,000MW by 2020.

Sadly, that target has not been achieved. The first sign of trouble came in 2007 when the Olusegun Obasanjo administration ended its tenure. Disagreements among the owners hindered the project until reason prevailed in 2008 after the National Economic Council and NASS approved $5.37 billion to complete the plants. The NIPPs have added 4,927MW (net) to the national installed capacity, though utilization is a different thing altogether.

Essentially, privatization, which has gained traction globally, is a core tenet of the NIPPs programme. To establish more NIPPs, government is to sell off 80 per cent of the assets to fund the second phase. The current plan by BPE was mooted in 2019. As expected, the resistance of the Major General Muhammadu Buhari (retd.) regime to privatization, and opposition by organized labor created further delay. This must end.

Nonetheless, there is an asphyxiating sense of déjà vu in the proposed sales. In particular, the 2013 auction of the generation and distribution assets to private investors gave privatization a very bad name. Nearly nine years after the Goodluck Jonathan administration rigged the sales in favor of incapable investors, most of the GenCos and DisCos are in distress.

The DisCos have made scant improvements to the companies they purchased. They give their customers arbitrary bills because they do not provide prepaid meters. Cables, transformers, and other accessories replacement is rare. The GenCos grumble that DisCos reject power; the Bulk Electricity Trading Company is aghast at the level of indebtedness.

Things worsened early in July when the Federal Government, which owns a 40 per cent stake in the companies, and the banks they exposed themselves to, foreclosed on five of the DisCos. The crisis is real. In the five months to May, the national grid collapsed 15 times, according to the regulator.

The transmission infrastructure, still wholly owned by the government, is very weak. It cannot wheel beyond 5,000MW.Beyond that, it would collapse. This is negligible to power Africa’s largest economy with a GDP of $440.78 billion. A 2019 World Bank survey said Nigeria averages 4,600 hours of power cuts annually, the worst on the continent. In joint distant second place are Ghana and Cameroon, who suffer a cumulative blackout of 790 hours per year.

Indeed, all that Nigeria boasts of is its installed 12,522MW capacity. Transmission hardly exceeds 4,000MW. In 2021, the World Bank estimated that the Nigerian economy lost between N7 trillion and N10 trillion annually to power cuts. This is colossal. Kaduna State Governor, Nasir el-Rufai, said the government had spent N1.7 trillion to support the sector. In contrast, South Africa’s generating capacity stands at 58,095MW. In 10 years, Egypt doubled its output to 48,000MW, climbing to 59,063MW in 2021.

Despite this ugly situation, there is surprisingly still resistance to privatization in some quarters – from labor, state governors, and northern groups and die-hard left-leaning activists. It is absolutely misplaced. It is time for these groups to cast their glances abroad. Under Margaret Thatcher, the United Kingdom privatized 12 regional electricity companies in 1990. Currently, the ‘Big Six’ energy companies (British Gas, E.ON, EDF Energy, nPower, Scottish Energy and SSE) efficiently supply 77 per cent of all UK households with electricity and gas. Nigeria needs such a model.

However, privatization will only bring rewards if the fatal pitfalls of 2013 are avoided. The fresh exercise should be suspended because the current preferred bidders are all local companies with no track record to deliver the goods; they will only replicate the disastrous experience being witnessed currently. After a proper review, renowned international electricity companies should be targeted. Apart from injecting the needed foreign direct investment needed to boost the economy, they will also channel their technical expertise into the sector.

This should be undertaken swiftly. Anything short of it will only prolong the pains of darkness hanging over the country. Buhari and the current BPE leadership should avoid the mistakes of 2013 at all costs.


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