The ongoing power privatisation programme finally reached a significant milestone last Thursday with the National Council on Privatisation (NCP) approving the sale of 70 per cent of Egbin Power Plant to KEPCO, alongside other transactions in the power sector, after a rigorous and daunting exercise, which was adjudged as fair and transparent.
It is becoming a well-understood fact that economic growth in Nigeria can only be achieved with reliable electricity supply. However, achieving this goal is definitely easier said than done as the last three civilian governments can attest. Fixing the electricity supply industry in the country meant reversing decades of rot, corruption, mismanagement and underfunding that have plagued the government controlled industry, a task most administrations lacked the political will to enforce.
Former President Olusegun Obasanjo's administration took a drastic solution by liberalising and selling off all the generation and distribution assets owned by the government. After all, this strategy had worked fantastically well in the telecommunications industry.
In 1998, the now defunct Nigerian Telecommunications Limited (NITEL) had less than 100,000 mobile phone lines in operation, but today, 14 years later, the number has exploded to about 115 million mobile subscribers. It was hoped that the success in the telecommunications sector could be replicated in the power sector.
In 2010, President Goodluck Jonathan kick-started the power reform and privatisation process with the announcement of his power privatisation roadmap, which included the reform of the sector and the sale of government-owned electricity generation and distribution assets.
The privatisation process, spearheaded by the Bureau of Public Enterprise (BPE) has been reasonably successful with the selection of buyers for the six generating companies and 10 out of 11 distribution companies put up for sale.
The buyers that emerged from the process signed key industry documents on February 21 and according to BPE's timetable, have until the March 21 to pay the first tranche of 25 per cent of the purchase price of the assets. The remaining 75 per cent is to be paid up before the end of the first half of this year.
If that happens, Nigeria would have completed the largest electricity asset sale ever done in the history of the world, something all Nigerians can be proud of. However, before we bring out the champagne bottles and start celebrating, Nigeria needs to understand that we are not out of the woods yet with regards to the privatisation process. Things can still go horribly wrong.
The current group of preferred bidders for the 16 assets have put in a lot of work and money into preparing the bids that got them selected in the first place. BPE has tried, throughout the process, to make sure that only credible buyers with good technical partners and adequate balance sheets have scaled through to the final round.
But the truth is that Nigeria has very little experience evaluating and purchasing assets this large and this expensive and a lot of investors possess inadequate technical experience to manage the assets they seek to acquire. The BPE has done what it can with its limited budget and resources to make sure that selected bidders have technical partners with the appropriate level of knowledge and expertise to manage the assets.
But the truth is that there are probably preferred bidders, who have very tenuous relationships with their technical partners, relationships that would not survive the transfer process of the assets from the government to the new owners. More specifically, there is no contingency plan to ameliorate the negative effects should this concern prove to be true.
Another problem is the lack of capacity to evaluate large state-owned assets for acquisition in Nigeria. The last privatisation attempt, which was the sale of NITEL, ended in a debacle. It would be disastrous if this should happen in the power sector. Part of the problem was that NITEL was over-valued and the preferred bidder could not come up with the required amount when due.
Among the 16 preferred bidders, there will undoubtedly be some who do not have the required capacity to purchase the assets. They will try to delay the process and seek deadline extensions in a bid to gain more time to raise the required capital.
This must not be allowed to happen as experience has shown that once the government takes this path, the process eventually unravels. BPE should observe the timelines and allow for the laid down procedures to take their course.
They must stick to the timelines and avoid anything that will cast doubt on the integrity of the entire exercise. This government has staked too much in the power privatisation exercise, just as the Nigerian people have invested their patience, hopes and huge expectations in this process, in the belief that its success will signal a new era.
Therefore, how the government ultimately concludes the exercise will determine how the international community views it going forward.