What in your view has been the most challenging experience for the new owners since handover?
I would say apart from trying to understand the business they have taken over in the absence of a thorough due diligence at the time given labor related issues, regulation and liquidity issues in the sector. Electricity business in Nigeria was not a regulated business until 2005 when the Nigerian Electricity Regulatory Commission was established and operational. Since then elements of the regulation of the sector are clearly being developed on a day-by-day basis.
For example, tariffs have not yet been set at cost-reflective levels, which was the expectation of the private owners when they took over. Another example was the setting up and operation after handover of temporary interim rules intended to be for just a few months but lasting for a year. These rules led to a substantial sector deficit that was subsequently funded by a CBN facility set up specifically for that purpose.
In April (2015) NERC took a decision to disallow collection losses in establishing tariffs leading to a drastic reduction in tariffs and causing Discos to be unable to fully meet sector cash flow needed to meet key obligations for operation. Then there was an order that empowered customers not to pay fixed charges if there was no supply of electricity to them over 15 days. This of course increased collection losses for Discos.
Sudden and constant changes in regulation no doubt make financing very difficult. But all said, it is pertinent to state that privatization and regulation in the power sector is still in an infant stage so I expect that so much has been learnt since November 2013 when the private sector took over and hopefully the required stability in regulation and improvement in electricity supply will be achieved.
What is your vision for the industry?
My vision for the industry is the existence of a functional bilateral market for the electricity industry in a stable regulatory environment. We know from our in-depth analysis of the sector that this is readily achievable. Nigeria has ample energy resources – oil and gas, some coal and significant renewable resources especially solar.
The privatization design while complex provides a workable structure. The new private owners of the sector have plans that will introduce metering for all and reduce losses to acceptable levels and we see this as being doable within five years.
Once this is achieved with significant ramp up in generation levels we may see tariff levels drop. Two elements are essential if this is to occur: stable and fair regulation and short to medium term cash flow support. These issues are understood and we believe being adequately addressed by the sector players. Our vision is to continue to contribute to the process.
You are chairing a very dynamic panel from the private sector at WAPIC, “The Good, the Bad & the Future: Voices from the Private Sector”, giving a perspective from the private sector about doing business in the power sector. What are you expecting from this discussion?
I am expecting extensive and insightful discussions regarding private sector involvement in the power sector so far experienced given the caliber of speakers on the panel. I also hope that the discussions that will ensue will throw light on the challenges and efforts being made to overcome them such that it encourages further private sector participation.
Nigeria is the largest economy in Africa and projected to become a significant world economy in the medium term. Yet it has one of the least well developed electricity sectors in the world – generation per person is a tiny fraction of that in the developed world and small even for Africa – e.g. it is 1/10th of that in Botswana. So the potential market for goods and services provision to electricity supply in Nigeria is unmatched anywhere else.
Click here for part 1