The Nigerian electricity sector has yet to fully serve its purpose of driving growth and development Since it was handed over to private businesses. Will the Ministry of Finance Incorporated (MOFI) take over make a difference? BENJAMIN UMUTEME, asks in this report.
It started as the Electricity Company of Nigeria (ECN), later it became the National Electric Power Authority (NEPA) before being rechristened the Power Holding Company of Nigeria (PHCN).
All these were part of a process to rebrand the country’s electricity sector and make it more efficient. Alas, despite the various efforts by successive governments (both military and civilian), the sector was still held captive by inefficiency and massive corruption.
In a bid to wane itself by ceaselessly putting money in a ‘bottomless pit’, as it were, the federal government finally decided to handover PHCN to private investors. And in November 2013, the government fulfilled its promise and handed its electricity assets (generation and distribution) to private hands.
Speaking at the handover ceremony of PHCN, President Goodluck Jonathan said: “Today’s event signals a major step forward in the implementation of our power sector road map,” President Jonathan said. “I congratulate the signing parties for reaching this significant target in our collective efforts to revitalize this sector, which is so important to our lives and development.
“Previous state sell-offs in Nigeria were blighted by political infighting and graft, which have caused years of delays. Regulators say this process was more transparent. Although it has appeared to favour established Nigerian oligarchs, some of them with scant experience of operating power companies, most have teamed up with capable technical partners like Siemens,” he added.
Analysts have opined that power outages cost Nigeria billions of dollars on imported diesel for generators and in lost output. Many also questioned power output at about 4,000 megawatts for a country of 170 million people as of 2013. And fast forwards to 2014, not much has been achieved in terms of increasing the output by the DisCos.
Meant to be a milestone in the country’s annals, the management of the electricity sector by ‘investors’ has got many Nigerians wondering whether the federal government’s decision to sells 60 per cent of its stakes was worth the while after all as the power situation continued to be plagued by its pre-privatisation woes.
In spite of the best efforts of the Bureau of Public Enterprises (BPE), industry watchers say there has not been a significant upgrade in the country’s power situation since the private hands took over.
With myriads of complaints from millions of electricity users and the various unsanctioned infractions by the power distribution companies (DisCos), it was only fitting that the sector is in dire need of rescue.
MOFI berths
When the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, directed the Ministry of Finance Incorporated (MOFI) to take over its 40 per cent stake in the DisCos, analysts and industry watchers said redemption may just be around the corner for electricity consumers.
The takeover by MOFI followed the termination of the Power of Attorney, POA, granted by MOFI to the Bureau of Public Enterprises, BPE, in 2012, to hold the shares on behalf of the federal government.
MOFI is a statutory corporation-sole established by the MOFI Act, 1959. Under the Act, MOFI remains the holder and manager of all assets acquired by way of debt or equity capital from the funds of the FGN.”
There have been widespread allegations of unsatisfactory handling of assigned responsibilities and mismanagement of proceeds thereof.
According to a statement signed by the Managing Director/CEO of MOFI, Dr Amstrong Takang, the takeover is in line with its mandate and to ensure efficiency in running those companies, as well as raise revenue for the government.
The statement read: “MOFI’s resumption of its rights of management of the FG’s 40 percent shareholding in the eleven electricity distribution companies and the various equity stakes in related energy sector companies is an essential element of this consolidation.
“It will drive operating efficiency, best corporate governance practices and ultimately maximise the value derived from these electricity assets, in alignment with President Bola Ahmed Tinubu’s economic growth agenda.
“As a reformed and active entity, MOFI is taking significant steps to ensure that these assets deliver full value to the country. We look forward to collaborating with our key stakeholders and, through our concerted efforts, making a tangible impact in contributing to a thriving, resilient, and growing Nigeria.”
Takang further explained that the legislative intent of the MOFI Act was and remains that the corporation is constituted as the holder and manager of all assets acquired by way of debt or equity capital from the funds of the FGN.
“Obviously, these assets include the investments in the defunct National Electric Power Authority; which, under the repealed Electric Power Sector Reform Act, 2005 (EPSRA), evolved into Power Holding Company of Nigeria Plc and subsequently unbundled into the various electricity “successor companies”, including the eleven distribution companies (Discos).
“Acting under the Public Enterprises (Privatisation and Commercialisation Act) (“the NCP Act”), 1999, the National Council on Privatisation (NCP), a body in which the Minister of Finance is a statutory member and Vice-Chairman, decided in 2011 that the privatisation of the electricity successor companies would be by the sale of shares. At the time, Nigerian company law did not provide for a single shareholder company hence it was legally impossible for MOFI to be the sole holder of the shareholding of the FGN. This made it necessary that a second entity hold the shares in addition to MOFI,” he said.
MOFI, as a reformed and active entity, is “taking significant steps to ensure that these assets deliver full value to the country.”
Encourage investments
There have been reactions from Nigerians following the action by MOFI. While they applauded the action, others were of the opinion that it would make no difference.
According to Partner at Bloomfield Law Practice, Dr Ayodele Oni, the move would encourage new investments and investors into the electricity market as well as break the monopoly in the market.
“MOFI was set up pursuant to Sections 2 and 3 of the MOFI Act 1959, as an asset holding company vested with the responsibility of being the sole manager of all federal government investments, interests, estates, easement and rights.
“The BPE was, however, set up for the purpose of privatising public enterprises, carrying out sector reforms and liberalisation of key economic sectors.
“It was, thus, an anomaly to have BPE continue to hold, on behalf of the federal government of Nigeria, those shares of the electricity distribution companies as MOFI was set up, to do just that.
“The step, now being taken by the government, in my view, is indicative of the government’s seriousness to improve the quality of the government’s investments in the Discos.
“This is so, because, whilst the BPE does not have the powers to make investments, as its primary purpose is the privatisation of entities, MOFI on the other hand has far-reaching powers to make investments.
“Not only does the MOFI have such powers, it does have a decent asset base from which to deploy resources to possibly support and or rescue the Discos from their financial doldrum,” he said.
Portfolio investors
A Financial Analyst Aliyu Ilias, in a chat with Blueprint Weekend said MOFI’s action was a good development. He noted that they only came with their portfolios and refused to invest in the business they bought.
“It is good news to hear that the federal government has taken over their 40 per cent shares in DisCos. Most of us have been condemning the agreement with DisCos and how it came about. It’s over 10 years that that agreement was signed and the agreement states that once you get to that particular year, it can be reviewed.
“I think it’s a welcome development because DisCos close to 11 years now have not invested in that sector.
“For me, if they had invested in that sector, we would have been far ahead just like what we have in telecommunication. So, if you look at it, the people in the community will buy the pole, they will buy the wire, and these same DisCos will still come and collect their bill at the end of the month.
“Till now, the government is still helping to fund pre-paid meters, the federal government is still funding that. If you also look at most areas, they still do estimated billing, and you know that they are actually making more money for themselves when people don’t have meters because they will just go and charge them, they will not calculate appropriately through the transformer.
“And as a stakeholder through ‘Save The Consumer Initiative’, we have looked at the deal very well and it is quite clear that these DisCos are shortchanging the country very well. If you look at those that bought the DisCos, you will discover that it is our elites who sold it to them without telling them to bring considerable investment. So, they are just there to take the money. It’s a good one. Perhaps, there are still a lot of issues about the government paying subsidies in that area.
“If they take over, I think it will be much easier for them to handle. “You could also see the problem that erupted with the DisCos. From one owner to the other, they also say they are not making profit. If they are not making profit, it is better for the government takeover, at least 50 per cent. If it does not work as expected, the federal government should take over because you know that any country that fails to invest or has special interest in its energy sector, it’s a problem. We must have energy security and to have energy security, it’s just like the way the government is its own refinery. If the three refineries work, we have energy security,” Ilias said.
Government participation
On his part, Economist Adefolarin Olamilekan told this reporter that with the action by MOFI, space has been opened for the government to participate in the electricity distribution channel and end users’ target.
He said, “Interestingly this is a good time for the energy sector in Nigeria, if the opportunity is effectively utilized for the overall benefits of the nation. However, we hope MOFI is not just to pump funds without proper evaluation of the current asset of DisCos.
“Unfortunately, we expect the government full participation in the electricity distribution channel, not just leaving it in the hands of private companies alone. Critically, the activities of the private companies handling the electricity distribution have not been without challenges that made the government to keep granting intervention funding for DisCos across the country. Meanwhile, this DisCos performance has not really brought the yielded expectations of energy electricity sector privatisation over a decade.
“In this regard we expect MOFI must strive hard to bring a positive bearing on electricity in Nigeria.”
Better power supply
Adefolarin, who is also a development researcher, stressed that the takeover of FG’s 40 per cent stake in the DisCos would lead to better electricity distribution.
“But we must not rule out the inherent problem associated with the other value chain talk about electricity and generation, transmission, bulk stocking and distribution.
“On the other hand, the efficiency in the management of most debt on the DisCos must be effectively carried out. Because a look at the DisCos suggest debt is a major hindrance to their successes. Also is the problem of top management extravagantly spending that burden on the revenue of DisCos.
“Overall, we look forward to the fact that MOFI’s participation would re-engineer a better and efficiency in service delivery from the DisCos, having a better customer relations service, provides enough materials and necessary tools of electricity power distribution, better welfare for worker at the middle and lower ladder, and quick responses to distress call on power cut, low shielding and drop on current.”
Going forward, he said MOFI must demonstrate professionalism if it is to “avoid the politics with the electricity sector rendering it ineffective over the years.
“Similarly, MOFI must ensure transparency and accountability in its participation in the sector. We also expect MOFI to also diversify into other critical sub-sectors in our economy.”
