19 February 2013

Nigeria: Reviewing the Power Roadmap


Now that Prof Chinedu Osita Nebo has taken over as the new power sector minister, this is a good point to take stock of the entire power-sector reform project, to see where we are, what has been achieved, and whether the Roadmap can benefit from new insights. The Presidential Task Force on Power (PTFP) has already announced such a review.

I was in the Centre for Leadership Support and Social Progress (CLSSP) team that worked on an independent review of the Roadmap, which (in CLSSP's review report of April 2012) advanced several interesting suggestions for building on the Roadmap. The following are a few thoughts on the reform.

The federal government is clearly not getting enough credit for the achievements recorded in the sector in the last two years. Therefore, a very strategic task for the new minister will be the management of our national expectations from the reform. Government will help the reform by structuring the deliverables in a way that will not only resonate with the public, but also make it easier for the president to take (undisputed) credit for his achievements in the sector. This is also politically expedient, considering that the duty of the opposition is to deny government any kind of credit, even when such credit may be well-deserved!

Another issue is the sector's propensity for "gain reversal". Recall that following (former minister) Prof. Barth Nnaji's exit, there was a noticeable deterioration in the level of power supply. Media speculations at the time, suggested that the power-sector workers, who openly celebrated Nnaji's exit, wasted no time in resorting to their business-as-usual tactics, once they were free from the Professor's iron grips! Old excuses, such as inadequate gas supply, overgrown vegetation, vandalism, high vibration, high exhaust temperature, and so on, resurfaced!

The real challenge here is the sector's constant need for the "iron grip" of the Minister! Any performance that depends so helplessly on the presence of a strong character is not yet sustainable. Even if such a system is doing well (for example, with a Prof Nnaji) experience shows that it will only be a matter of time! The strong character will one day cease to be there, or even become overwhelmed by the enormous force of our national vices.

The only enduring solution is to explore ways of making the sector "self-propelling" - i.e. to start creating its own internal incentives for improvement, as well as automatic consequences for failure to improve! This is already happening in some other sectors of our economy! For example, we don't need any iron grip of a Minister to get improvements from our telecoms sector! The steady innovation we are seeing from Etisalat, MTN, and others, has nothing to do with the government! It is the sector itself that is driving its own improvement!

Some people may initially think that our power sector is different from (and should not be compared with) our telecoms sector; but that is not correct, because in terms of fundamental principles of reform, these sectors are not that different! What is required is some creative reform homework!

Private-sector involvement is a crucial component of the power-sector Roadmap. Government has already taken a decisive step in this direction, with the successful privatisation transactions of last year. We must however appreciate that handing over these assets to the private sector, does not, by itself, automatically guarantee private-sector performance! Additional steps are required to "factor in" the conditions that drive performance in the private sector - i.e. "market forces". It is "market forces" that make the private sector what it is, and differentiate it from the public sector. In a corrupt environment, private sector without market forces may become worse than the public sector!

Very significantly, we have not yet factored "market forces" anywhere in the sector's entire value chain! The electricity distribution companies (Discos) are now in private hands; but each of them will be a monopoly in its area; so there is really nothing to seriously force it to sit up. Similarly, the electricity generating companies (the gencos) will all have power-purchase guarantees, which (effectively) assure them that they will be paid for whatever power they are able to generate, even if that power cannot be evacuated! To complete the cycle, we can also note that the transmission segment is already a natural monopoly. Therefore, nothing is seriously forcing anybody in the sector to truly sit up - and this is a sector with a history of being rewarded for failure, and where corruption and political interference can be legendary!

In particular, with the sector's assets in the hands of a profit-minded private sector, the absence of the sanitising effect of "market forces" could make the job of the industry regulator (NERC) an outright nightmare! Where will NERC start from? Already in Okeafa district of Lagos state (within the Ikeja Zone), some consumers whose monthly bills used to be about N1,500, suddenly started receiving bills of over N6,000. This District, under pressure to account for the energy it receives, has found a clever way out: It simply subtracts the energy used by its metered consumers (from the total energy it receives) and divides the balance by the number of un-metered households, and the answer becomes the bill of each such household! It does not matter that much of the energy the district receives, gets dissipated as technical losses! It does not matter whether you occupy a room or a duplex, or that your transformer has been down for 3 weeks! What matters is that the district has managed to account for all the energy it receives! Of course, such a district is not in a hurry to distribute meters to consumers!

Zowam is Executive Director, Centre for Leadership Support & Social Progress, Abuja

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