PHCN Reform – Investors want to Rip us off Again!

Power Sector Reform – From Bad to Worse!

Following the receipt of their certificates of ownership of the unbundled PHCN companies, the new owners of  Discos and Gencos in Nigeria are already asking for increases in tariffs for electricity yet to be generated or delivered to poor Nigerians. This no doubt betrays their ignorance at least in the whole subject of electricity supply business. I first expressed my concern as to the realisation of electricity in Nigeria when I saw the calibre of companies who have won the bids for the unbundled PHCN utilities. My main concern was that most of the winners have no idea of how electric current flows. Unlike many businesses that could be managed by entrepreneurs from Economics and Finance backgrounds, experience reveals that the business of electricity generation, distribution and supply requires more than econometrics. More is involved in the way of understanding how current flows!

The new owners of the recently privatised PHCN companies have demanded an upward review of the provisions of the Multi-Year Tariff Order (MYTO) which means they want an increase in price of electricity they are yet to deliver to our homes. Ofcourse this is not the first time poor Nigerian consumers have had to pay electricity bills for electricity they have not consumed. Nigerians have always paid for the corruption of a few cartel and the ineptitude of those who pretend to offer invaluable services to us. Much like in the days of NEPA and PHCN, where there was no change except for name and acronyms, it seems the “Privatisation of the Electricity Supply Industry” in Nigeria is heading for a world acclaimed disgrace. Why do I so say?

The Discos and Gencos are claiming that the stipulated tariffs in the draft of interim rules and regulations spelt out by NERC prior to their take-over of plants and or networks, were inadequate to guarantee a healthy return on investment. One expects that any serious investor in an industry that is capital intensive such as this would carry out appropriate due diligence and feasibility before agreeing to pay down for the Assets. Claiming that the price is inadequate and wanting an increase in tariff immediately after receiving certificates of ownership is both dubious and incredible. This in itself is an indication of lack of interest in the business. Perhaps they thought it would be “business as usual”. Nigeria is moving from one cartel to another. These investors may yet form another cartel that Nigeria will have to contend with much like the “cartel” that delayed the implementation of the reform in the first place or the “cartel” that imports Generators, or all the other “cartels” that Nigerians have had to contend with.

The solution is a fully independent Regulator whose chief role is to protect the interest of consumers and ensure that investors do not reap us off! The Regulator, NERC, however has promised there will be no increases in price for now saying that to increase the tariffs at this early stage is suicidal bearing in mind the expectations of consumers and other industry stake holders. What the new owners should concentrate on for now is how to ensure stable electricity supply within the next few years and Nigerians will be more than happy to pay more for electricity consumed. Unfortunately, NERC has been forced to cower to pressures from the powers that be in the past but it must be noted that such inconsistencies in policies and inability to put their foot down on matters of this scale of importance, will spell doom for the Nigerian Electricity Supply industry as serious Investors will hold back from participating in a highly volatile environment. Going forward, NERC must strike a balance between the investment required by new owners to upgrade the dilapidated electricity network they have inherited with the yearnings and aspiration of Nigerian consumers. In doing this, NERC must be fair to Investors who have borrowed money to finance their businesses. A cost-reflective tariff must be put in place to enable investors recoup their investment over the long term. One way to obtain value for money is for NERC to link revenue with delivered outputs by using the “output measure” technique used in other privatised electricity systems. This will make sure that the investors do not reap off the consumers and or “sweat” the assets to gain short-term profit and abandon the network worse than they have met it.

Some have argued blindly that since Nigerians pay more in the way of buying Diesel and Petrol for Generators, they are sure to be able to pay increased tariff. This has nothing to do with the revenue from an investor except if the investor wishes to simply move the money around the Nigerian economy from the buying of petroleum products to the payment of premium for developing the electric power network. This will be a good juxtaposition if the new investors are the same “cartel” selling Petroleum products!


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