13 November 2012

Nigeria: Budget 2013 - House Faults Zero Allocation to PHCN

The House of Representatives Monday raised further questions on the 2013 Appropriation Bill, saying the non-allocation of funds to the Power Holding Company of Nigeria (PHCN) and its successor generation and distribution firms in next year's budget could put the power sector in jeopardy.

Chairman, House Committee on Power, Hon. Patrick Ikhariale, who fielded questions from journalists on the issue, said though the privatisation of the power generation and distribution companies had reached an advanced stage, there was need for the Federal Government to put in place a back-up plan to ensure that the nation was not thrown into darkness in the event of any delay or failure of the new investors meeting up with the payment procedures.

The executive arm of government, Ikhariale said, must take a second look at making provision for the generation and distribution companies in the 2013 budget in such a way that the privatisation would glide smoothly to an expected end.

The National Council on Privatisation (NCP) and Bureau for Public Enterprises (BPE) recently concluded the bid process for the sale of the power generation plants and distribution companies, amidst protests.

Under the guidelines for the sales, bid winner are expected to pay 25 per cent of the bid sum 15 days after the bids were announced while the remaining 75 per cent must be paid six months later.

Ikhariale said that following the announcement of the bid winners, the next steps would be payments, signing of agreements and transfer of the power companies to the new owners.

He, however, observed that the processes would take some time because of the financial implications on the core investors, adding that there was no guarantee that all the bid winners will keep to the time table in terms of beating the payment deadline.

He said that it was imperative that Federal Government made the necessary allocations even though the sale process was still in progress.

The lawmaker argued that allowing a funding gap in the process could lead to unpleasant circumstances and a scenario of total collapse of the power sector.

"The ongoing process is not one that you can put a fixated time-frame on looking through the terms and agreements. If within this period of six months the generation and distribution are left idle and unfunded in the 2013 budget, the logical implication is that Nigerians are being told systematically to be ready to buy more candles and lanterns than they have done in the past.

"If there is a major breakdown in any of the generation and distribution companies as a result of lack of funding, we are going to have a situation that will lead to a floodgate of litigation from buyers.

"Many bidders may be tempted to pullout of whatever bid or financial agreement they may have entered into during the bid exercise.

"If the plants are grounded just as they are about to take over, it may be a dangerous signal that could discourage many investors," Ikhariale said.

According to the lawmaker, government must take all necessary steps that could lead to a smooth transition between the buyers of the power infrastructure and the Federal Government as Nigeria cannot afford to have a failed privatisation process again.

Nigeria has had a history of failed privatisation exercises in the past 10 years.

The privatisation of the Nigeria Telecommunication Limited (NITEL) and its sister company, Mobile Telecommunications (MTel) failed several times due to failure of bid winners to meet payment schedules.

The government recently opted for the liquidation of the two firms which were monopolies in the telecommunications sector before the liberalisation of the sector.

Similarly, privatisation of the Ajaokuta Steel Company and the Delta Steel Company also had their own fair share of hitches and have remained inconclusive till date.

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