3 October 2012

Nigeria's Privatising Power Play

Photo: Leadership
Electric transmission lines

Can Nigeria's power sector reforms survive Nnaji's resignation and withstand the influence of influential vested interests?

Back in August, it seemed that things could only get better for Nigeria's power sector. Power generation had recently reached its highest level since independence, peaking at 4,477 MW per day; Minister of Power Barth Nnaji was enjoying hopeful, though cautious, praise; and to many it seemed as if Nigeria's long-underperforming power sector might be beginning to fulfil its potential.

Fast-forward to now, however, and Nnaji's resignation and the slowness of naming his successor have begun to cast doubts over the government's seriousness in truly reforming this crucial sector.

Transforming power

Power generation in Nigeria over the past few decades has suffered from underinvestment, corruption and mismanagement, leading to a stagnating power supply. An attempt at revamping the sector began after the return to civilian rule in 1999 and ended in 2007 with an estimated $16 billion frittered away through the awarding of dubious contracts, cronyism and a lack of oversight.

In 2007, a new set of power sector reforms were initiated by President Umaru Yar'adua with the objective of propelling Nigeria into an advanced industrial nation by the year 2020. Upon his death in 2010, the framework was adopted by his successor, Goodluck Jonathan, whose government began unbundling and privatising the power utilities previously owned by the state's Power Holding Company of Nigeria (PHCN).

After winning the 2011 election, Jonathan described the "transformation" of the power sector as one of his main objectives. Since then, generation has increased from 2,800 MW per day to its current level of around 4,300 MW per day. This increase in generation has been credited to ongoing rehabilitation at the country's main power stations and higher gas supplies from the Nigerian Gas Company, a subsidiary of the Nigerian National Petroleum Company. While promising, however, it should be noted that these figures remain meagre in comparison to South Africa's 40,000 MW per day and Egypt's 30,000 MW per day.

Responsibility for these changes has largely been attributed to Nnaji, who resigned in August after little more than a year in the job. Nnaji's resignation at the end of August was officially explained as necessary to avert a "conflict of interests" as a company he is linked to was said to be involved in the bidding process for some of the soon-to-be privatised assets of the PHCN - but this episode was unusual in Nigerian politics and many believe there was more Nnaji's stepping-down.

Some suggest the minister's resignation was forced by pressure from highly-placed business and political figures in favour of the status quo. Fola Fagbule, Vice President of Origination and Coverage at the Africa Finance Corporation (AFC) told Think Africa Press: "Losing the power minister, who was a major champion of the reforms, is a setback for the process, and I sincerely hope the government does not now cave in to the vested interests that are heavily opposed to the critical changes required".

Privatisation (and depoliticisation) for development

Ensuring adequate power supply is a prerequisite to achieving meaningful development. But electricity generation, transmission and distribution are capital-intensive activities which require huge resources and some argue that the Nigerian government cannot bear the costs of expansion and modernisation on its own.

The unbundling of PHCN assets is therefore aimed at encouraging private sector participation in the power industry and seeks to attract foreign and local investment. Previous attempts at the privatisation of government-owned enterprises, however, have routinely been hijacked by well-connected public officials including former presidents, ruling party bigwigs alongside foreign collaborators. In early September, local media was awash with reports that two former heads of state - Ibrahim Babangida and Abdulsalami Abubakar - as well as former Governor of Lagos State and leader of the Action Congress of Nigeria (ACN), Ahmed Bola Tinubu, promoted some of the consortium bidding for the PHCN assets.

While political interference in the privatisation process is perhaps unavoidable, Doyin Okupe , Senior Special Assistant to the President on Public Affairs, has attempted to reassure the public over the credibility of the privatisation process and the need to forestall a situation in which panic, underhand tactics and a lack of confidence in the government takes root is clear.

It is worrying therefore that the privatisation of Nigeria's power sector may be antithetical to the interests of some of Nigeria's elite. The generator and diesel market in the country is worth an estimated $13.35 billion per annum, and importers' profit margins have been burgeoning thanks to the erratic power supply from the PHCN. A more reliable and better-run electricity supply is thus not in the interests of the diesel 'cartel'. Behind-the-scenes trading amongst this elite could thus attempt to ensure the non-completion of the 'transformation' programme or perhaps try to guarantee powerful individuals are positioned where they can gain the greatest advantage from the process.

Overcoming challenges

Regular vandalisation and sabotage of the power lines, insufficient infrastructural surveillance and security, alongside outdated technology, adds extra importance to the completion of the ongoing privatisation process. If transparently completed and effectively regulated, the power sector reforms could bring about the same competitiveness and levels of growth now being witnessed in the telecommunications sector. This in turn could have a positive effect on employment levels, reduction in crime, and the access to competitive tariffs for low-end electricity users. There is a strong correlation between the availability of electricity and socio-economic development.

Nnaji speaking this May in a public lecture entitled 'The New Direction: A Reflection on Nigeria's Electric Power Sector Development', concluded: "I would like to assure this distinguished audience and the Nigerian people that once power supply begins to pick up, this time, it will not be reversible". Nnaji's resignation and the uncertainty in the power sector, alongside the questions it poses, however, may prevent Nigeria attaining this much needed irreversibly stable power supply.

Lagun Akinloye, a British Nigerian, studied Sociology and Social Policy at the University of Leeds. He is particularly interested in the history and politics of West Africa, specifically Nigeria. Follow him on twitter @L_Akinloye.

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