Buhari’s inaugural address signals power is priority

President Buhari’s inaugural address reveals that power will be accorded a priority during his administration. The President decried the state of the country’s power situation despite huge resources spent over the past 16 years in the sector.

“It is a national shame that an economy of 180 million generates only 4,000MW, and distributes even less. Continuous tinkering with the structures of power supply and distribution and close to $20b expanded since 1999 have only brought darkness, frustration, misery, and resignation among Nigerians”, said Buhari in his inaugural address.

Buhari has showed willingness to tackle the power conundrum adding that “careful studies are under way during this transition to identify the quickest, safest and most cost-effective way to bring light and relief to Nigerians”. 

It will be recalled that the collapse of power infrastructure led to the power reform initiated by the Obasanjo regime. The reform started with the inauguration of the Electric Power Implementation Committee, which developed the National Electric Power Policy in 2001. The power policy culminated in the enactment of the Electric Power Sector Reform (EPSR) Act of 2005 and establishment of Power Holding Company of Nigeria (PHCN), after the repeal of the Act that established the National Electric Power Authority (NEPA).

After NEPA was renamed PHCN, the government also unbundled 18 successor companies from the PHCN which gave birth to six Generation Companies (GENCO); one Transmission Company and 11 Distribution Companies (DISCO).

The EPSR Act of 2005 also created the Nigerian Electricity Regulatory Commission (NERC) to regulate the entry and operations of the private sector in terms of the tariff and service delivery. The implementation of the EPSR Act was briefly suspended by the late President Umaru Musa Yar’Adua, before President Jonathan, restarted the privatisation of the assets of the PHCN in December 2010, four months after he inaugurated the Power Roadmap in Lagos on August 27, 2010.

On November 1, 2013, the Federal Government, through the BPE handed over the assets of the assets of PHCN to the private investors, after the conclusion of the privatisation process. With the successful handover of the assets to the private sector, there were high hopes that electricity supply would show unprecedented improvement, but over 18 months after the handover of the assets down, power situation has not changed.

There have been divergent views on how Buhari should handle the power sector. Some have called for a review if not total cancellation of the privatisation of the power sector but others want the new administration to be quite cautious adding that cancellation of what has been privatized is unnecessary and uncalled for.

According to a power sector analyst, “the sale of PHCN went through a long due process before it was sold. So, these buyers need to have the chance to take charge. They have not been given the chance to take charge”.

One of the major reasons by the federal government to embark on the privatisation was government’s inability to fund the power sector. The drivers of the power sector reform were of the conviction that the private sector is in a better position to attract the funding to finance power projects and manage the sector more efficiently than the government.

In line with global best practices, the private investors were supposed to have raised the money used in buying the assets by themselves (equity), that is, without borrowing and then use borrowed funds (debt) to fund the upgrade of the assets for greater efficiency. But instead of using equity to buy the assets, most of the new investors were alleged to have used 100 per cent debt to acquire the assets.

The implication was that the demand by the banks for the investors to repay the loans used to buy the assets put pressure on the new investors. The development gave them no opportunity to borrow additional funds to upgrade the assets they inherited, as they concentrated on raising money to repay the loan. Thus, instead of embarking on massive upgrading of the infrastructure and procurement of meters to increase generation and ensure adequate and transparent metering, the new investors were concerned paying back their debts.

FBN Capital Research in its report said “One of the priorities for the new administration will be the power sector. The new administration may care to look at the consistency of tariff policy. The National Electricity Regulatory Commission indicated in Abuja on March 16 that exchange rate weakness could well lead to a rise in the tariff from mid-year, yet announced a 50 per cent reduction the following day. The cut did not apply to residential users, who were granted a six-month reprieve from the increase imposed on commercial and industrial consumers with effect from January 1, 2015.”

The roadmap for the Buhari to have a handle on the power situation should start with ensuring that the generation of 7,000MW is met before the end of the year. According to Nigeria Electricity Regulation Commission (NERC) the increment in generation will materialize from the coming on stream of power projects executed under the National Integrated Power Projects (NIPPs).

However, a major impediment to the 7,000MW projection by the end of this year has remains the gas supply to fire the NIPP plants. Shortage of gas supply to the NIPP plants also stalled the privatisation of the completed plants.  President Buhari should quickly address the challenge of gas supply.

The federal government in 2014 earmarked N213 billion life-line for the new investors to address the funding shortfall experienced by the investors but the investors are yet to access the facility. The government should therefore conclude all the processes hindering the access to this life-line by the investors.

FRANK UZUEGBUNAM