19 August 2012

Nigeria: Power Sector Privatisation - X-Raying the Challenges, Intrigues

As the federal government continues its reform agenda in the nation's power sector for effective service delivery, JULIET ALOHAN takes a look at the unfolding intrigues and challenges facing the initiative

The power sector reform which has in its thrust the unbundling of the Power Holding Company of Nigeria (PHCN) into 18 successor companies when successfully implemented is expected to turn around the ugly power situation which has bedeviled Nigeria for decades. The initiative is one which the President Goodluck Jonathan administration has vowed to deliver in order to redeem its promise of stable power to Nigerians.

Although the reform has recorded significant progress with power supply reaching a record high of 4.237Mega Watts (MW), excluding spinning reserves, as disclosed by the Minister of Power, Prof. Barth Nnaji, last week, however, there are issues which still need to be addressed for the process to reach a successful completion.

According to the minister of power, as at December, 2011, the nation could technically have produced 5,500MW, thereby exceeding its 5000MW target, but only a little over 4,000MW was generated because of gas constraints. Records show that 70 per cent of Nigeria's power is generated from thermal stations while only 30 per cent is from hydro stations.

Gas constraints account for the decline in power availability, and it is expected that the 12-month emergency gas to power supply recently declared by the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, will substantially improve in gas supply to the power sector in order for the trapped capacities at the various thermal stations to be added to the grid.

The current power generation which is the highest power output ever generated in Nigeria, has however, been attributed to the sharp increase of gas availability to the thermal plants, even as Prof. Nnaji informed that when fully stabilised, the country's power supply could easily hit 5,000MW.

While this news is cheery, the transmission infrastructure remains a source of worry, but in the meantime, the Minister has expressed happiness that the transmission backbone has been able to wheel the current quantum of power produced effortlessly.

As government continues to make more recoveries from existing plant capacities even as more National Integrated Power Projects (NIPPs) and Independent Power Projects (IPPs) come on stream, transmission infrastructure might pose a challenge.

Against this background, the lingering dispute between the federal government and power sector workers could take its toll on a smooth transition to private driven power sector, as the development is already affecting the smooth takeover of the Transmission Company of Nigeria (TCN) by the contracted managers.

Although Manitoba Hydro International Limited, the Canadian based firm, with which government has signed a memorandum of understanding for the contractual management of the TCN has assumed management of the company, the dispute between government and electricity workers may pose a hindrance to their smooth take-off, as the workers who continue to agitate for their severance packages, pension and gratuity, might distract them from immediately settling down to work since the TCN is housed at the PHCN building.

Nnaji had in April assured that there would be considerable improvement in power supply from the end of July 2012 because of the scheduled increase in gas supply from the Nigerian Gas Company, a subsidiary of the Nigerian National Petroleum Corporation (NNPC), and in the volume of water at the lakes in the nation's three hydro power stations at Kainji, Shiroro and Jebba, but with this increase comes the need for a strong transmission infrastructure backbone.

In August 2010 when the country generated 3,800MW for the first time in history, up from the previous 2,800MW at the onset of the present administration, the existing transmission infrastructure crashed as it could not wheel the quantum of power, invariably calling for the need to expand transmission capacity.

Although the construction of a Super Grid of 765kv have been approved, the quick implementation of this project however, is crucial to attaining a viable power supply as the present infrastructure may not be able to cope with growing power generation.

Analysts are however, worried that the lingering labour issues with PHCN workers if not properly managed may escalate into discouraging potential investors from coming through with their bids and taking over the utilities, and with more investments critically needed in the power sector within the next decade to enable Nigeria generate 40,000MW, the lingering dispute between government and workers in the nations power sector must once and for all be put to an end.

The accusations and counter accusation between government officials and the workers union is increasingly becoming embarrassing and if care is not taken, may have a negative effect on the privatisation process as investors may become doubtful of committing to the full process.

According to the National Union of Electricity Employees (NUEE) Zonal Coordinating Secretary for North Central, Temple Iworima, "the contentious issue is that government is not sincere about the workers entitlements". He said that the power minister has ordered the accounts department to deduct 7.5 per cent of their salary to be remitted to a Retirment Savings account (RSA) in line with the 2004 pension reform act, a move the workers are kicking against, arguing that they have not opened any RSAs of their choices.

"In the negotiations these are the issues that are outstanding, the severance package, the gratuity, and the pension. We have not agreed but the minister of power instructed them to deduct 7.5 per cent from our salaries and we told them we will not accept that, so based on that, they have not paid us salary for last month", Iworima said, while addressing journalists at the PHCN headquarters Abuja, recently.

Also buttressing his claim, Vice president of the union in charge of Lagos and Ogun, Mbang Etietie, who could not contain his frustrations lamented: '"Look at the condition we find ourselves, we cannot do anything here. They just want to frustrate the situation and frustrate their own agenda.

We went into negotiations that became inconclusive because government was not shifting ground; they say we should lose our gratuity. The conditions of service which is the law of our employment stipulates that I am entitled to gratuity and you say I should lose it after putting in 28 years of service?" he asked.

On the other hand, the ministry is accusing the workers of frustrating the sectors privatisation due to their stiff resistance to the process and rejection of 15 per cent severance in line with the 2004 Pension Reform Act (PRA).

Nnaji explained that the existing scheme is unacceptable to government as it contravenes the 2004 PRA and insisted that with effect from July 1, 2012, PHCN must operate its pension scheme in line the 2004 pension reform act.

While a Committee under the Chairmanship of Mr. J. O. Ajibade, former Auditor General of the Federation, was set up by the minister to investigate the PHCN pension scheme is yet to submit its report, the situation has taken a new turn.

According to the minister, no PHCN worker ever contributed 25 per cent of their salaries to any pension account and are therefore not entitled to 25 per cent pay off as they are demanding. Furthermore, there is no N88 billion which the workers claimed accrued from the 25 per cent deductions from their salaries, Nnaji said.

On the other hand, the workers who are adamant on being paid in line with the 25 per cent deducted from their salaries into the fund, say there will be no privatisation until they are paid off. Secretary General of National Union of Electricity Employees (NUEE), Joe Ajearo, has called on the EFCC and National assembly to investigate the matter. He said this has become necessary in order to find out if the workers had their salaries deducted for the purpose of their pensions and also to find out if the union leaders had been the ones managing the fund.

Beyond the need to put to rest the puzzle surrounding the PHCN worker's pensions money, in the interest of moving the power reforms forward, another major area of interest in the reform agenda is that of rural electrification as provided for in the Power Sector Reform Act.

Unfortunately, this aspect suffered some setback following the suspension of the operation of the Rural Electrification Agency (REA) in 2009 due to the discovery of an alleged fraud to the tune of N5.2 billion involving top management of the REA, officials of the Ministry of Power and some members of the National Assembly.

With the REA now reactivated funds for its operations is another source of concern as the Minister of power has disclosed that although the REA has a reasonable vote in this year's budget, the funds are still a far cry from its requirements. Nnaji explained that there are about 2,000 communities in Nigeria without electricity, adding that by the time the REA's operations were suspended in 2009, there were about 1,970 ongoing electricity projects in various rural communities in the country while the contractors of those projects are currently being owed N3.2 billion.

According to the Chairman of the Nigeria Electricity Regulatory Commission (NERC), Dr. Sam Amadi, there is need to empower the REA to be able to deliver on alternative energy to complement the existing power supply especially in rural areas which are still cut off from power supply.

Amadi explained that in planning for the future there is need to have a proper renewable master plan executed through the REA. "Renewable is the way to go in the future, as technology improves it will get cheaper, today it is expensive but it is going to be cheaper in the future. We can't avoid renewable energy increasingly becoming a major chunk of our energy mix".

The NERC boss stated that the best way renewable energy can be used is at rural electrification project. "I opposed the rural electrification project in the past because I saw it as a form of contract market, because the way it works all over the world is to make it a central piece of renewable energy so you have to link it to renewable energy plan. You go to a community and do a survey of their resource base if it's solar or wind and do renewable energy along the resource base. That is how you can tie renewable energy to grow electricity projects", he said.

However, Nnaji has said that the Power ministry is working in conjunction with the ministry of water resources for the development of small dams across the country while studies are also being conducted to develop solar energy on a substantial scale.

But for Nigeria to come to some degree of less energy deprivation, the NERC boss stressed that there is need to focus on improving gas to power. "I think the major challenge today is for us to have increased capacity and gas is the main ingredient for that to happen, but we need to plan for the future, have a proper renewable energy master plan. But in the next three to four years, the prospect of renewable energy making any impact on our energy capacity is near zero", Amadi submitted.

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