9 July 2019

Nigeria: BPE - Nigeria's Power Sector Can Be Salvaged

Abuja — The Bureau of Public Enterprises (BPE) has said that Nigeria's electricity sector reform that saw the privatisation of the generation and distribution companies of defunct Power Holding Company of Nigeria (PHCN) but now facing difficulties can still be revived.

To the agency, if the Power Sector Recovery Programme (PSRP) initiated by the federal government in 2016 with support from the World Bank is fully implemented, the reform could get back on track.

The BPE also gave reasons why it adopted the Aggregate Technical, Commercial and Collection (ATC&C) losses framework for the sale of PHCN successor distribution companies (Discos), and noted the approach failed to yield results because the Nigerian Electricity Regulatory Commission (NERC) allegedly jeopardised the initiative by cancelling it in 2015.

In a rebuttal to claims made by a former chairman of the NERC, Dr. Sam Amadi, of how the BPE changed the terms of engagement during the power privatisation exercise to accommodate unqualified interests - a reason Amadi had said was responsible for the challenges with the power sector reform - the BPE stressed that there was still hope making the exercise achieve its objective.

"It is important to restate that all hope is not lost in bringing the implementation of the reform back on track," the BPE stated in a rebuttal made available to THISDAY.

According to the agency, "It would be recalled that the federal government of Nigeria and the World Bank had in December 2016 set up a joint committee to examine the challenges facing the privatised power sector and proffer solutions.

"After four months of intensive work, the committee submitted its report. The report was approved by the Federal Executive Council in March 2017 and the board of the World Bank in April, 2017. The implementation of the recommendations is on-going, even if slow.

"However, it is cheering to note that in recent months the implementation has picked up pace. The BPE is of the firm belief that the faithful implementation of the Power Sector Recovery Plan will return the power sector reform back on track which it lost when Dr. Amadi carried out his ill-advised removal of collection losses from the contract with investors," it added.

While defending its choice of ATC&C loss framework in the privatisation exercise, the privatisation agency explained that it was a collective agreement by relevant stakeholders, including the NERC, to adopt the model in the exercise.

It also alleged that the abolition of collection loss from the Discos tariff in 2015 by the NERC under Amadi's headship was a wrong decision that has impeded the market's growth.

"We make bold to say that the removal of collection loss component of the Aggregate Technical, Commercial and Collection (ATC&C) losses was the single most devastating decision so far taken in the power sector.

"The bidders had competed on the basis of aggressive reduction of ATC&C losses within a period of five years and preferred bidders were those who had scored 75 per cent and above on technical evaluation and had the highest ATC&C loss reduction offer," it insisted.

It further stated: "The challenge of implementing this structure was that in the Multi-Year Tariff Order that NERC had released ahead of the transaction, it had estimated the ATC&C to average around 25 per cent. BPE informed NERC that based on its own assessment the losses were between 40 per cent and 50 per cent.

"It was then agreed between BPE, NERC and the investors that the transaction would go ahead with NERC's assumed loss level of 25 per cent but that after the handover to the preferred bidders, the new core investors in the distribution companies would work with NERC and within a maximum of one year come up with the actual loss levels.

"It was also agreed that once the actual losses were determined MYTO 2 would be adjusted to reflect reality. It was on this understanding that the Bureau proceeded with the transaction.

"After the handover to the core investors on November 1, 2013, a NERC supervised study was conducted and the actual losses were determined to be 49 per cent, which vindicated the earlier position of the Bureau. In line with the agreement, NERC in December 2014 released a new MYTO that took effect on February 1st 2015."

"The impact of this new tariff on the revenues of the distribution companies was immediately felt as the distribution companies were able to pay up to 75 per cent of their power invoices which collapsed to 25 per cent when the effect of the collection loss removal hit the market," the BPE added.

Nigeria

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