Nigeria’s long and tortuous journey to electricity reforms seems to be coming to an end.President Goodluck Jonathan will Monday hand over certificates and licences to buyers of the successor companies of Power Holding Company of Nigeria (PHCN), heralding the end of an era and the beginning of another. The handover is expected in the next few weeks.
But it is not clear what becomes of two of the utilities whose cases are either in court or being subjected to final scrutiny.
There is already excitement in government circles. It is hoped that the coming of the private sector to take over the nation’s generation and distribution companies (gencos and discos) would lead to efficient electricity. The failure of government’s monopoly personified by the battered PHCN is one reason the majority of Nigerians have supported the privatisation of the utilities.
The ceremonial event, which would be held at the Banquet Hall of the Presidential Villa, Abuja, heralds government’s direct disengagement from the management of the plants and networks. Government would, however, continue to oversee the transmission network in the interim.
On its part, the Nigerian Electricity Regulatory Commission (NERC) has assured of a better regulated electricity sector where industry rules are obeyed and where consumers are kings. The commission, which has been doing some kind of shadowboxing for months now, says its regulatory powers would be more effective on private owners.
And following the request of the owners, there would be a synchronised handover of the gencos and discos.
Besides, serious criticism has trailed the privatisation and the scheduled handover. The Northern Civil Society Coalition (NCSC) said the decision of the Federal Government to sell the public corporation “stands condemned.”
The leader of the NCSC, Malam Shehu Sani, in a statement Sunday, said that “the exercise by the government is nothing but a criminal robbery of our collective assets by a few bourgeois elite.”
The government of Jonathan, according to the civil rights activist, “will go down in history as the government that has approved, executed and presided over the dispossession of our collective assets and its criminal handover to a predatory and parasitic class of Nigerians.”
In an interview at the weekend, NERC Chairman, Sam Amadi, stressed that the declaration of the Transitional Electricity Market (TEM) would not be done simultaneously with the handover of the utilities.
He said the declaration would be done between December and January, while the new owners, the regulator and the stakeholders, had agreed on some interim rules to guide the operations of the new owners pending when the TEM is declared.
He said: “What we discovered is that most people talk about TEM without understanding what it is. TEM has real consequence for the market, and before now, we had given to the minister a report articulating the changes when TEM is declared. The report articulates clearly to guide the minister because we discovered a gap. People are talking about TEM without reference to market rules, without understanding the Electricity Power Reform Act of 2005.
“We also met with the Disco Roundtable who asked that TEM should not be declared immediately, which is in line with NERC’s thinking that there should be no deviation without testing the market. What we had done before now was to plan for testing of the market. We got consultants through the help of USAID to design a protocol for testing the market in readiness for TEM. So, when the Disco Roundtable came up that they wanted TEM delayed till after handover, it was in line with NERC’s thinking and that it was like NERC was proactive. We already thought ahead that the market needed to be worked, reviewed and kind of tightened through experts and we have informed them of the USAID-procured consultants on what they are going to do. So, in our meeting with the Bureau of Public Enterprises (BPE), we agreed also that TEM will not be declared before the handover date being proposed.”
He added: “So, the handover will happen without TEM. To deal with the issue of how the market will work, NERC set up a small committee to work with the bidders to establish interim rules that will guide the market before TEM will be declared by December 31 or shortly thereafter. The key point is that we want to ensure that the various risks in the market will be managed even under TEM such that a disco is not supposed to suffer any adverse impact or possibly we will have interim measures to deal with any impact of market shortcomings reported.
“The regulation agrees to allow new owners do loss studies which NERC will verify because there are issues that the losses in the MYTO (Multi Year Tariff Order) are less than what they take whether total losses, commercial or any other, so there will be no problem. There will be an obligatory act for them to hire consultants to do their losses studies to bring to NERC for verification approval with the understanding that, once that is done, NERC will use the regulatory frame-work to make good any loss they have suffered. So, with this, the new owners are much more comfortable to go into take-over while the frame-work for TEM is fully developed and ready for take-over by the end of December or January.”
He further explained TEM. According to him, “TEM means that before you get to a medium term market where there will be adequacy of supply, we have the transitional stage. The key thing about the transitional stage is that market rules come into play. The key point about TEM is that settlements and markets are based on contracts. Power supply consumers registered with discos are expected to settle their invoice for power they consume. The generator is also bound by its Power Purchase Agreement (PPA) and the risk allocation of the PPA follows.
“So, in practical terms, in the past, we have had instances where the ministry could approve for Yola Electricity Distribution Company, for example, to be able to pay salary based on the money other people have generated from the market. Yola for sometimes has not put in any money to the market operator and then NERC will be asked to approve that some should be paid to Yola. Then, it was probably feasible even though it doesn’t make it right. Under TEM, there is no such thing. Each disco has a contract with the bulk trader. The bulk trader has a contract with the gencos and there is an allocation formula in the market and each person will be required to settle for the power consumed. So, from now on, the disco would have been able to put up a guarantee to immunise the bulk trader. The bulk trader has a responsibility to genco that he will pay once an amount of power is offered.”
He went on: “So, the critical thing about TEM is that settlement will be based on contract. The implication of that is there will be a change in the relationship between participants in the market and those outside the market. The role of the ministry will change; the role of the regulator will probably not change but may get more exciting and active. The Bureau of Public Enterprises will have a different role to play and the bulk trader will have a much more enhanced role than it does now.
“For the consumers, it will change in terms of expectation. Consumers want to have power, affordable and regular. But for the Independent Power Producers (IPPs) and people who are buying companies, who are now going to be bound by contract and regulatory performance, TEM means something. That is why the preferred bidders are urging that we make haste slowly. They want to see that those concerns are being addressed before they are going to sign up and that is what our interim rules are focused on. It will determine what obligations to extract in that short three months window before we conclude studies and verification and before the regulator advises the minister on TEM. So, this interim rule will operate, it’s going to be a full complement of the market rules.”
“From day one to date, these companies will be run the way they manage private companies, with board members, and management approved by NERC and the companies will have liberty to take corporate decisions to achieve regulatory obligations. So, TEM does not affect corporate governance,” he stressed.
He observed that the existing electricity workers would not be disengaged outright. Instead, he said that they would be disengaged and re-engaged for a period on contract basis by the new owners pending when they think that their services are no longer needed.
But it is not all rosy yet for the electricity sector as allegations of disregard for regulatory processes are pervasive.
Two key things stand out from the concerns expressed by some stakeholders last week. One is the recruitment of 522 engineers by the Transmission Company of Nigeria (TCN) and the other is the recent establishment of a new agency, Electricity Management Services Limited. Why government is privatising and creating a new agency in the same sector is a subject of debate.
It is alleged that the recruitment of the engineers, who resumed two weeks ago at TCN, did not have the right approvals in line with the sector rules, while government may have been wrongly advised on the establishment of EMS to take over some non-core functions of the soon- to-be defunct PHCN.
The Electricity Management Services Limited, whose board was inaugurated by government on September 10, was established to take over all functions of the PHCN that were left after it was unbundled into 18 successor companies.
According to the Power Ministry, “The EMS is, therefore, to take over the responsibilities of some non-core professional and subsidiary services of the defunct PHCN and its successor companies. Its mandate includes providing all needed ancillary and support services to the Nigerian Electricity Supply Industry (NESI). These services include engineering laboratory, meter test stations, central stores system, testing and certification of major electrical power equipment. Other activities will include providing the platform for standardisation in the industry, achieving the power sector data and information management.”
The ministry had charged the new management of the EMS to respond to the need for sustenance and improvement of electricity supply and service delivery.
But responding to the allegations that EMS may have been ill-advised, NERC Chairman, Amadi, noted that government had the right to establish agencies it deemed fit.
He pointed out, however, that EMS would not be a regulatory company and should not be given such roles, as it amounted to illegality.
His words: “It is not a licensee, it has no statutory duty. It has no statutory mandate to do technical regulation. NERC is the only entity that is allowed in this country by the EPSR Act to do technical regulation, including supervising the network and very soon, because of government reform, you will see it becoming more effective. So, EMS has no such mandate. EMS ought to be licensed by NERC to be a meter testing representative. Even in meter testing, it has no exclusive mandate. NERC may only license it for meter testing stations. So, what we can do for EMS is to give it a licence for meter testing. We can also license other private meter-testing companies.
“But I want us to understand that EMS has no exclusive jurisdiction or mandate over even meter-testing. It could be licensed by NERC. EMS was designed to be a private sector consultancy much more like the CPCS of Canada. I don’t think the private sector in Nigeria is going to patronise EMS. I am a lawyer of considerable competence; I don’t see an owner of disco going to EMS to ask them to do PPA. Even Nigerian lawyers are finding it difficult to enter into this market because of the clear gap. The new owners have foreign consultants who may partner local firms.
“So, the problem is that it is inconsistent to be thinking about privatisation and creating agencies. But the thing is that EMS is not a licensee and has no mandate. I don’t imagine EMS going to the new owners or preferred bidders and mandating them to do anything because it is not in their license. NERC is the sole regulator who has the mandate of the law to monitor and standardise network, and we are not going to allow any distortion.”
He described recruitment of engineers at TCN one that failed to follow regulatory approval as required by law.
His words: “I have to make this clear. The regulator is very critical, it should be allowed, encouraged, helped to regulate transmission, like it is being done in generation and distribution. If we don’t do that, we are going to fail. All research in the world has shown that what makes privatisation work is regulation and what makes reform work is regulation. If you don’t regulate well, if you allow one corporate organisation to politicise decision-making, what it means probably is that you get people who are not qualified to be there.
“It becomes so obvious and becomes an additional risk. As we move further in what is happening in the transformation, we will spare enough effort to make sure transmission gets better. But thankfully, government is thinking in that line, with all the increased activity of funding transmission and engaging Manitoba. Manitoba itself should put in effort to make decisions that are in line with the mandate.”
The Federal Government through the Electricity Power Reform Act (EPSR) 2005 established PHCN (the initial holding company) to take over the National Electric Power Authority (NEPA), a wholly state-owned enterprise responsible for generation, transmission and distribution.
PHCN was subsequently unbundled into 18 successor companies and officially meant to last only a few months before giving way.
Information from Guardian was used in this report.