The stage for power sector reform was set with the development of the National Electric Power Policy (“NEPP”) and the subsequent enactment of the Electric Power Sector Reform Act of 2005 (the “EPSRA”) which inter alia, provides for the repeal of the National Electric Power Authority (“NEPA”) Act and consequently the de-corporatization of NEPA.
The EPSRA also provides for the replacement of NEPA by an Initial Holding Company, the Power Holding Company of Nigeria (“PHCN”) which was to be subsequently unbundled into a number of successor companies carrying on the business of generation, transmission and distribution respectively.
PHCN was incorporated in 2005 and between November 2005 and November 2006, the successor companies were incorporated to carry on the separate functions of power generation, transmission and distribution with the intention of ultimately privatizing these companies.
In, came President Yar’Adua and the reform program as recommended, in both the NEPP and EPSRA, was suspended. This suspension culminated in the suspension of the Chairman and Commissioners of the Nigerian Electricity Regulatory Commission (“NERC”) in early 2009. At this point, all reform activities in the electric power sector came to a halt.
Upon assumption of office by the current administration, a decision was taken to begin, once again, implementing the reform program, as spelt out in the NEPP and EPSRA. Further, in August 2010, a Roadmap for Reform in the Power Sector, which evinces the Federal Government of Nigeria’s (“FGN”) desire to implement the reform program as stated in the NEPP and EPSRA, was launched by the incumbent President.
A fortnight ago, the Power Ministry liquidated the Power Holding Company of Nigeria (PHCN), meaning that the PHCN no longer exists as a corporate entity (at least as far as the law is concerned). On the other hand, the eighteen (18) successor companies etched out from the PHCN are now in the process of being privatized through sale of equity and grant of concessions.
There are challenges with the process, but the Presidency and the Minister of Power appear quite determined to see this through as the FGN has risen up to many of the challenges and made compromises here and there in a bid to encourage private sector investments in the sector. The FGN has also given prospective investors the comfort of acquiring only assets and no liability although many of them would be buying equity in already existing companies with assets and liabilities.
To show its sincerity in this respect, the Nigerian Electricity Liability Management Company (“NELMCO”), some sort of equivalence of Chike Obi’s AMCON, was formed to mop of the liabilities of the entire successor companies. Other actions that are being considered by the FGN include reducing the percentage of funds payable by the hydro power companies from thirty (30%) of their income to about 10% of their profits, as opposed to income, the HYPPADEC, the NDDC power sector equivalent entity.
Very often too, the FGN received recommendations from would-be investors and tries to effect many of these to show its willingness to succeed at the current endeavours.
Also because many private sector investors may fear investing in generation, because more often than not, distribution companies are unable to recover their monies (the concept of ATC & C losses playing a role), the FGN set up a functional bulk trader with third party collateral support, to buy from generation and then on-sell to the discos. In all of these the Bretton Woods organization, the World Bank, appears heavily involved.
Without prejudice to the foregoing, the appointment of Prof Nnaji as the Minister of Power, with his incredible antecedent and credentials, appears also to be a key success factor for the program. Generally, it would appear that there are round pegs in round holes in the power sector reform program. It would also appear that there is currently, the will power to succeed, on the part of the FGN.
On the other hand, amongst key reasons for some fear on the part of participants in the reform process is the incessant shifts in the reform program calendar and the unfortunate comparison with the NITEL privatization debacle. We would continue to watch as events unfold. The ongoing reform program in this all important sector would continue to be a key issue in year 2012 and probably beyond depending on how the FGN deals with the challenges.
Some of these challenges would include how to adequately manage the transition in a way that guarantees support from key stakeholders, balances contending interests and sustaining the critical integrity of the proposed market design, structure and regulatory arrangements. All of these have proven to be huge tests in other reform processes, and may prove to be so, for the ongoing power sector reforms.
Ayodele Oni ( ayodeleoni@yahoo.com), a solicitor, specializes in international energy (oil, gas & power) investment law.
Credit: Chinwe Ezeigbo
NUTSHELL:
"Please Hold Candles Nigeria" (PHCN) has become the mockery ascribed to Nigeria's Power Holding Company of Nigeria (PHCN) formerly known as NEPA. The problems still exist! According to Jeffrey Immelt, Global CEO of GE (General Electric) the country requires about 40GW of electricity but has been stagnating on between 3 - 5 GW for the past decade. What is the way out for the country? Maybe increased commercial interest from private companies such as General Electric -which plans to sell at least 10GW of electricity to Nigeria in the next decade. Power to the people..!!! What is your take?
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