Inefficiencies, political uncertainties stall BPE’s planned sale of power assets
The planned sales of some power assets with the aim to use the revenue to bolster 2018 budget have been stalled due to macro-economic challenges, volatile foreign exchange, uncertainty in the economic environment, thanks to heightened political tensions and uncertainties as the 2019 election draws near.
According to sources, investors decided to pull back from the exercise in order not to get their money stocked because they are apprehensive of what could be the outcome of next year’s elections.
Investors are said to have expressed fears that they do not want to take the risk of putting down their money, and if another party forms the government they will have to start renegotiating all over again, which will put their investment under risk.
Ayo Akinwumi, head of research at FSDH Limited, says the current scenario occurs in all election periods across the world, as investors are always sceptical before election because they can buy an asset and another new administration comes in to reverse the transaction, which we saw under late President Yar’dua’s administration.
Reacting on how the government will fund the budget if the sale of the power assets fails to proceed, “The government has a constitutional power to keep spending money up to a particular limit until another budget is approved,” Akinwumi states.
The assets slated for sale include the Geregu Power Plant 2, with an installed capacity of 434 megawatts (mw); Omotsoho 2, with installed capacity of 450mw, and Calabar Power Plant, with an installed capacity of 561mw.
Dolapo Ashiru, managing partner at Nirvana Communication, says the matter is beyond 2019 elections, as BPE may be struggling to sell those assets because the government still fix and control price.
“The main questions we should be asking is, are the power companies in Nigeria value chain viable or profitable?” Ashiru asks.
All efforts to reach Amina Tukur, head of public communications at BPE, proved abortive as all phone calls and text messages yielded no response.
In July this year, Alex Okoh, BPE director-general, disclosed that most of the Distribution Companies (DISCOs) were technically insolvent, and harped on the need to immediately solve the challenges bothering on price structure and liquidity of DISCOs.
“We need to solve the liquidity challenge. How do we make the industry viable in terms of liquidity? If we take all the energy that the DISCOs buy and the energy sold, assuming there is a minimal loss on collection side, we find it difficult that there is enough revenue to push us through,” he noted.
The fate of Yola Electricity Distribution Company and Afam Power Plant slated for privatisation in January 2019 is also hanging on the balance because of the elections, as no fewer than 19 firms have indicated interest to acquire the two companies.
While seven companies submitted bids to buy Afam, 12 others submitted for the Yola Disco at the close of the submission of bids for the Expression of Interest (EoIs) for the two power companies.
However in a statement shortly after the 1pm deadline for the submission of EoIs for Yola and Afam on September 26, 2018, the BPE’s head of communication had said among the bidding companies were renowned players in the power sector.
Although Yola Disco was successfully privatised and handed over to the core investor in 2013, a force majeure was declared in 2015 by the core investor, citing insecurity in the North-East region of the country after which the company was duly repossessed by the Federal Government.
The transaction for Afam Power Generation Company, on the other hand, fell through due to the delay in signing the Gas Supply Agreement (GSAA) and the Gas Transportation Agreement (GTA).
In 2017, the National Council on Privatisation (NCP) gave approval for a fresh transaction to privatise the two power companies.
Since inception, the Bureau of Public Enterprises (BPE) has privatised some 142 enterprises but no privatisation has happened since 2015, a period that coincides with acute revenue shortfalls.
In two years, 2016 and 2017, the Federal Government had only managed to raise N5 billion from privatisation of public assets, 14 times less than it raised from the single sale of Eleme Petrochemicals as far back as 2006.
The government had in the past disclosed plans to fund the budget with money from other sources other than oil. To this effect, the BPE made a commitment to the tune of N306 billion, most of which it is now trying to raise through the planned privatisations.
“This idea will not only yield revenue for government and lighten its debt burden, but will also ensure that some of the public assets which are under-utilised are fully utilised,” MKO Balogun, CEO, Global Properties and Facilities International (Global PFI), notes in a telephone interview.
Balogun advises that where such public assets as National Arts Theatre, Tafawa Balewa Square, National Stadium in Lagos and Abuja cannot be sold outright, they can be given out on long lease, in which case, the government can eat its cake and still have it.
The poor implementation of the 2018 budget has not augured well for the Nigerian economy, which recently emerged from a debilitating economic recession. To worsen the situation, the 2018 appropriation bill, the largest in the nation’s history, was premised on key revenue assumptions of oil price benchmark of $51 and 2.3 million barrels per day, is looking shady as oil prices currently look shaky.
Now, as the election season approaches fast, there are growing concerns that the present economic situation may become exacerbated due to huge spending that may ultimately drive up inflation.