Has Privatization Failed the Power Sector?

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Following his press release on the state of the power sector, the minister of power, works and housing (MoPWH), Mr Babatunde Fashola, has been involved in a squabble with ANED’s executive director, Mr Sunday Oduntan over the minister rating them (DisCos) as non-performers.

10 Things lessons from Fashola’s press brief

Earlier this month, Mr Fashola called out the DisCos on their disappointing performances and had mandated NERC in line with the law to prevail on the DisCos to improve their distribution equipment and capacity to take up the available 2,000MWs.

He had said that NERC should enforce the contract of DisCos to supply meters and act to ensure speedy supply and installation of meters to eliminate estimated billing and promote efficient industry market structures. His press release also put the exclusivity of the DisCos under question.

In a season of corporate clapbacks, ANED’s executive director, Mr Sunday Oduntan, issued a response to Mr Fashola, faulting the directive to NERC to prevail on the DisCos. Mr Oduntan also spoke about the wrong timing of the declaration of customers’ eligibility by the minister.

Over a year after the blame game, the story remains the same- Power sector stakeholders trading blames on who is at fault on the shortcomings of the power sector. This has caused observers to call for a review of the privatization process and ask the question, “Has privatization failed the power sector?”

Almost five years after privatization, power supply hovers between 3000MW and 5000MW, with claims of an extra 2000MW being available but undistributed. Customers continuously complain about estimated billing and DisCos are yet to bridge the metering gap which was part of their agreement. To the average Nigerian, privatization has not been able to solve the problems it was called on to solve. However, we need to look deeper to see the full picture.

With the unbundling of PHCN, the federal government called on private investors to transform the power sector. This had worked with telecoms and was perceived as what the sector needed. Private firms invest and do everything in their power to get their profits. The federal government and the private firms had different perspectives but a shared goal- giving power to the people. Every part of the power sector value chain was privatized but the transmission, The Transmission Company of Nigeria (TCN) remains 100% owned by the government and this may be part of the problem as it is the weakest link in the NESI chain.

All you need to know about TCN

TCN whose sole responsibility is transmitting power generated by the GenCos is suddenly involved in a program which does not cover their scope. Mr Oduntan pointed out that they rather use their limited funding to expand and stabilize the grid for increased energy to customers instead of continuously engaging in opaque “Eligible Customer” transactions. He also did not understand how an entity without a distribution license was allowed to do so.

The ministry was also accused of playing a part to the current shortcomings. They were accused of consistently promoting policies that resulted in sector-wide confusion. One of such policies is the current tariff. At this point, I must ask, how do the DisCos perform in a capital-intensive sector when they have been forced to sell their product at price lower than its cost?

Across the world, the average retail price for electricity is ₦80/kWh but due to policies driven by the ministry, the average retail price in Nigeria is ₦32/kWh. This has caused the whole system to run at a loss, not to mention cases of vandalisation and electricity theft. This pricing gap only means a continuous growth of the current market shortfall which stands at ₦1.3 trillion. Instead of trading verbal blows, the Ministry of Power, Works and Housing should sit with various power sector players to determine a tariff and draw up policies that will drive the much-needed efficiency by providing infrastructural investments needed to turn around 62 years of underinvestment in NESI. It’s interesting to note that the MoPWH has never mentioned tariff in his statements.

The ministry has also been accused of infringing on the responsibilities of various sector players, imposing its agenda on the regulator, compromising its independence, creating a lack of respect for contracts as well as distorting and redefining the law of privatization.

Here’s the thing:

The ongoing bickering between the MoPWH and the executive director of ANED shows that we have not achieved the desired outcome from the power sector reform. Instead of trading blame and pointing fingers, all power sector stakeholders need to come together to plan and strategize a way forward. Roles and agreements must be clearly defined and interference from external bodies must be limited. Some may call for another restructuring but restructuring the power sector will be a waste of time if the issues on ground are not addressed and closed out.

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