Nigeria’s Power Privatization is an Economic Dead-end
The continuation of: Nigeria’s Power Privatization is an Economic Dead-end
Indeed, between 1999 and 2007, the Obasanjo government was reported, by the House of Representative Committee on Power, to have spent over $16 billion (more than N2.4 trillion) on power sector, with over 30 percent of this spent on existing PHCN power plants, without any tangible result. This amount, $16 billion is more than a quarter of the $60.9 billion estimated by IEA in its 2008 World Energy Outlook, needed to provide universal access to all Nigerian households.
Yet, more than 60 percent of Nigerians have no access to electricity (with less than 10 percent of the rural dwellers having access), while those who have hardly enjoy its benefits due to erratic supply, itself occasioned by dilapidated infrastructures and outdated equipments. Worse still, those who have contributed severally and collectively to this ridiculous state are the ones now bidding to take over the carcass of PHCN.
For instance, firms with links to ex-generals like Generals Abdulsalami Abubakar, Ibrahim Babangida, Olusegun Obasanjo, etc; and big businessmen and women associated with looting of public fund under the guise of privatization (like Transcorps, Otedola’s Forte Oil, Arumemi’s Rockson, and several other consortia of big businesses) have won bids to take over the nation’s electricity infrastructures.
Moreover, the Nigerian governments in order to guarantee continuous profit making for the private businesses hiked electricity tariff by up to 100 percent. This is meant to make PHCN profitable for the private big businesses, while Nigerians are groaning under costly electricity tariffs. This hike has not led and will not lead to better and constant supply of electricity. Rather than ameliorate the financial costs of procuring electricity, it will add to it. The simple implication of this is that private businesses are being subsidized with public suffering.
One of the grand plans to make PHCN a cash cow for private investors is the organized attacks on the workers of the corporation by the government. These attacks, heightened by the disgraced former minister, Barth Nnaji (himself a private bidder for one of the PHCN firms), are meant to not only retrench the workforce and consequently reduce the labour cost (by making fewer workers do the work of other sacked workers, even when the corporation is already inadequately staffed), but to deny workers of their entitlements as a way of making the privatized firms profitable for their buyers.
Private Involvement will never resolve power problem
The central and puerile argument of the government for these shenanigans is that the firms must be made profitable for private investors to invest their capital in the expansion and maximum functioning of the firms. The reality and facts on ground however have torn this argument to shreds. In the first instance, the so-called investors are mere predators with no interest in any serious investment. As said earlier, most of the private bidders are the same set of people associated with various crises in different sectors of the economy e.g. the banking crises. More than this, most of the bidding companies are mere venture capitalists, with little or no previous investment in power generation. The few with serious investment in power generation like Oando, only generate a few megawatts mainly for their business uses.
Also, the Edo State governor, Adams Oshiomhole, in protesting the sidelining of the company he and three other governors promoted (Southern Electricity Distribution Company), claimed that, Vigeo Power Consortium, the company that won the bid for Benin Distribution Company, only have a geographical operation capacity of merely 500 square kilometers, but it won the bid to run a distribution company with coverage of over 57, 000 square kilometers!
Therefore, it is clearly absurd to hand over huge and important organ of the economy to this set of people. Of course, they (the bidders) claim to have foreign technical partners, but this is just a façade. The reality is that most of the technical partners are only invited as technical operators of the companies, not as owners. What this mean is that it is the venture capitalists decide which areas to concentrate operations on in order to maximize profit.
Meanwhile, the technical partners will be paid fees based on their international profit level, with the cost of operation and fees denominated in hard currencies. This, aside leading to further pressures on the exchange rate (and attendant economic problems expected in an importing economy like Nigeria’s), will mean pricing the power supply out of the reach of the working and poor people. Therefore, the privatization is nothing short of handing over of PHCN to shylocks to make big bucks and not to expand and guarantee supply to all Nigerian; not in the distant future.
This is further underscored by the fact that many of the so-called investors have no capital even to pay up the rock-bottom prices of these auctioned firms. Showing the bankruptcy of the government, and its desperation to serve the interests of the predatory capitalists, all the bidders need to show their readiness to buy the firms is Letter of Credit from banks. This simply means that, there are no fundamental criteria for buying off the nation’s patrimony, possibly except your connection to the corridors of power. The so-called criteria, including the purported Average Technical, Commercial and Collection (ATCC) loss criterion, for distribution companies, are nothing but mere guesswork, that have no connection with reality, as revealed by Oshiomhole, in his reported protest conference. With this, the nation’s power sector will be controlled by financial capitalists and banks, whose sole task is the predatory extraction of profits.
It is important to note that it was through this same process (of using letter of credit from banks) that fuel importation and subsequent subsidy scams were perpetrated. Trust Nigerian capitalists, they never learn new lessons – and they could not have, as their desperation for profits always blind their sense of judgment.
Indeed, the process is so ridiculous that many shameless bank debtors, who owe government and thus the public, through AMCON, of over N2 trillion even rushed to banks to get letters of credit. It was so embarrassing that the central bank had to issue directive to stop further loans to the 419 (number of people on the debtors’ list) debtors. Possibly, this little effort might have saved banks from another immediate crisis; however, on the long-term basis, this will lead to monumental crises.
For instance, one of the debtors, Femi Otedola, who owes AMCON over N149 billion in debts was able to wriggle himself out through a clearly fraudulent process, and was able to buy one of the power generating firms! Surely, as general as CBN’s directive may sound, there will be several sacred Otedolas among the buyers, who will have to be given preferences. This is aside the fact that the privatization will lead to a cul-de-sac in the nearest future.
Foreign Investors as a way out
Even in cases where foreign investors directly own the privatized firms, this does not translate to improved or expanded power supply to Nigerians. On the contrary, with the virtual collapse of basic infrastructures and the precarious state of global capitalist economy, this will mean that they would be assured of their investment returns through hike of electricity tariff to average global level before thinking of any investment. Even, the cost of maintenance of the existing power plants is enough to throw any plan of investment in expansion to the last rung of the priority ladder.
For instance, the cost of importing parts and equipment for maintenance will be denominated in dollar, which will lead to hike in cost of production, and subsequently higher prices for generated electricity. Also, the cost of procuring gas for gas-fired plants is enough to weigh down on such foreign investor to think of any serious investment in expansion.
A case in point is the privatization of the Ugandan electricity utility company, Uganda Electricity Board, to a British private equity and investment company, Actis. According to David Hall of the PSIRU (Public Service International Research Institute), “It was privatized in 2005…but the privatization has proved to be a disaster.
An official report in 2009 concluded that Umeme (the new company – K.I) had ‘defrauded the government of Uganda to the tune of Shs 452 billion (USD $197 million) over the last four years by over-declaring losses’; 2,000 consumers have brought a lawsuit against Umeme for over-charging, and blame privatisation: ‘consumers are being exploited more since the Uganda Electricity Board (UEB – the former public utility) was disbanded in 2001’; Umeme was rated as one of the most corrupt institutions in the country by a Transparency International survey; and the regulator has said that Umeme’s contract ‘would have been terminated a long time ago’, but a punitive compensation clause in the contract means that Ugandan consumers ‘are stuck with Umeme for the next 15 years since the 20-year contract was signed only five years ago!’” Yet, Actis declared Nigeria’s power reform as ‘fantastic’!
What this will imply is that: (1) there will be hike in cost of production and hike in tariff, (2) in case the companies face financial problems in this process and the power sector is to collapse, government will come in by using public fund to bail out private businesses, just as over N3 trillion, that could not be invested in infrastructures, was used to bail out handful of banks and their owners.