Nigeria got its power sector privatisation wrong- Engr Otis Anyaeji
Long before the Federal Government decided to privatise its power sector; President of the Nigeria Society of Engineers, Otis Anyaeji, had been a key player in the industry. In this interview with ONWUKA NZESHI, he reveals how the bureaucrats in the last administration misconstrued the advocacy for private sector participation and handed over multi-billion dollar power assets to cronies who had neither the technical capacity nor the financial muscle to take charge of the power sector
lot of controversies have been trailing the recent increase in electricity tariff across the country and many have faulted the decision as well as its timing. Don’t you think that electricity supply ought to have been improved before tariffs are raised?
It is a case of chicken or egg which one comes first? But you will find that the electricity supply industry is a kind of utility business that really is vested with public interest.
That is why there is regulation so that the regulator on behalf of the government can stand at the gate of commerce between the provider and the consumer to make sure that there is fairness.
Usually, the first consideration of the regulator in trying to fix the tariffs is to make sure that the service provider makes sufficient money to cover what he has invested and also have some surplus that will encourage him to continue to invest and sustain that business.
That is usually the first principle of such public utility regulation and this issue ought to have been sorted out abinitio.
In other words, when you want to create a power market, you must ensure that the tariffs are cost reflective because if they are not, the people who are in that business cannot continue to sustain the operations of such business.
So it is not really fair to begin to say let the thing be steady before you begin to charge the appropriate tariff because if the people don’t charge appropriately, they will be losing money and if they are losing money, they cannot continue.
It’s like any other business. For instance, if somebody is baking bread and he has to sell the bread to realise less than the amount he or she puts into the baking, in no time the business will fold up.
The people doing this business of electricity supply – either distributing it, transmitting it or generating it- have some heavy hardware cost they have to deal with and it is not just in the holding cost but even in the operating cost.
If a turbine were to break down, you have to change the blades of the turbines because perhaps, there is so much impurities getting into the blade and then the blade fails and you have to fix them. It costs quite a lot of money.


How do you then justify tariff increase without improvement in power supply?
Well, changes can come in various forms but the change I believe that people desire is a change where people are doing this business of power supply and earning returns on that such that they continue to do that business.
But it really hasn’t been that because the way we pursued the privatisation was a bit narrow-minded and hasty. Of course, at that time, we had the so-called Economic Management Team that operated on the basis of only their own opinion that mattered and any solution they proffered to any problem was the only thing and the last word to the problem.
We went about privatisation in a manner to push government out of business. That was a very wrong move because even in the United States of America, government is still involved in the power sector. Even the regulator there for the transmission side of things, gas and hydro is under the Federal Energy Regulatory Commission (FERC).
The government owned power entities are exempted from their regulation. So it is wrong to say that government should not be involved here.
The kind of privatisation we should have had is the one where government is forced to try some decentralisation of the facilities under its charge and then encourage private hands to build new facilities in addition to what exist.
But some people came and psyched up everybody and even got the media to begin to support that government should get out of everything. Such things were just said for the benefit of those people saying it and a few other persons, because in the United States of America, the government generates till today about 250,000 mega watts.
America as a whole generates about one million mega watts of electricity. The private sector generates about 750, 000 mega watts but the government, including the state, municipal and counties collectively generate about 250,000 mega watts.
Nigeria is struggling with merely 5,000 mega watts and then you say government should get out of it. This is a country where government is the biggest ‘businessman.’ Government doesn’t want to get out of doing business in oil and gas; they get the biggest stakes in the oil business.
Meanwhile, you have a near non-existence private sector but you are saying that they are the ones that should take charge. So, that was the mistake the government or the country made-wrong choice!
The government ought to have continued managing the facilities they had but if it appoints some persons to run a facility, it should hold such persons accountable. In addition, government ought to encourage the private sector to play its part.
Before now, the power sector was a monopoly run by the government but when the reforms came, it allowed other people to come in but then there was that mistake of tying everything to what existed which is the installed capacity of about 600,000 mega watts.

You’ve just said that the Federal Government got our privatisation of the power sector wrong; how do we get out of this mistake or are we going to live with it?
Yes, we got it wrong completely. Let me give you another dimension of the mistake, but it’s not really the end of the world.
In generation, the plants have been given out, but even if the government decides today to build new power plants as they have been doing, they have privatized the Power Holding Company of Nigeria (PHCN) plants.
They completed the National Integrated Power Project (NIPP) plants and they have started also the process of privatising them and they want to go into another phase of building another set of power plants that might be based on hydro and other sources of energy.
This is what should have been happening and it ought to continue to happen. There is a hydro-power plant coming up in Zungeru, Niger State; there is another 250 megawatts power plant in Kaduna and there is also the Mambilla hydro-power plant in Taraba State.
When they complete all these projects, they can privatise them but that doesn’t mean outright sale. Privatisation could be by management contract, leases or Build Operate and Transfer (BOT) basis.
As for transmission, the Federal Government gave the Transmission Company of Nigeria to Manitoba on management contract but it is still the owner of the facility.
However, in power distribution, which is where it matters most because they bring power to our homes, we went ahead to sell all the facilities and also sold the territories to the same people. It is wrong. Look at what happened in the Enugu distribution axis.
Somebody who was building a power plant in Aba and part of the arrangement was to also have some distribution franchise for Aba and its environs. It has now become a big issue because the people who bought the Enugu Electricity Distribution Company claimed that Aba is part of their territory and they will not allow any other firm to participate in power distribution there.
It tingles the ear to hear that a government used its own hand to sell off territories under its control to people in the name of privatisation. It is just completely unacceptable.
They should have privatised the facility themselves but not give that type of exclusivity to the territories because there is still a lot more to do in that distribution end. We are not quite connected up to 50 per cent of the territory.


Why are investors in the generation and distribution companies complaining of lack of funds to run the enterprises sold to them?
The people who went into these businesses are all lamenting that when they were bidding for these companies, they did not have access to what exactly they were purchasing because the PHCN unions would not allow them go in at the time.
Of course what was more important to government at the time were the schedules and timelines they set to accomplish these things instead of making sure that these people had full access, full disclosure and full understanding of what was in the facilities they are taking over.

Nigeria got its power sector privatisation wrong- Engr Otis Anyaeji
That didn’t happen and so there were assumptions. The bids and proposals made were based on assumptions which at the end of the day when they now had access to these places; they found that the situation wasn’t what they thought it was.
If somebody is involved in this type of transaction, it becomes a bit tricky to at the same time begin to talk about further investments.
They now have the issue of non cost-reflective tariff; they probably thought that the loses were at a certain level but have found out that the loses are even much more.
Even the proposals for reducing these loses are no longer feasible. If you produce 100 mega watts and you are losing 40 mega watts, it is a loss because you can’t earn that quantum of money. So that is the situation on ground.
There was no due diligence in the transaction because of accessibility constraint as at the time the privatisation exercise was conducted.

Aside from these factors you have highlighted, what in your opinion, is the biggest flaw in the power sector reform?
Well, the reform somehow has many flaws. The most fundamental in terms of the regulation, the reform packaged the entire entity under one body, the Nigeria Electricity Regulatory Commission (NERC) and you really can find a parallel to that so easily because if you ask anybody in that community what they would tell you is that the commission is like the American FERC. However, it is not so.
The FERC in the US is regulating energy while NERC is regulating electricity. The FERC scope covers what you call inter-state commerce which consists of transmission, gas, electricity and they have responsibility for hydro and nuclear power but the other conventional types of power are regulated by the state while the distribution is regulated by local governments.
In fact, regulation in America is done by thousands of entities because they have thousands of local governments and these are the ones that regulate the distribution. They have 50 states and they are involved in one way or the other.
For instance, if you want to build a thermal power plant, gasbased power plant, coal based power plant or something like that, it is the state that regulates that and of course the environmental aspect is regulated by the environmental regulatory agency.
But here we bundled all these things under one office and the way the enabling law was made it says that all those who want to be commissioners in that commission should be person that have experience in generation, transmission, power system operation, distribution and marketing.

I don’t get it; electricity is about electrical engineering and I don’t know how anybody can dispute that fact. Production of electricity is pure electrical engineering and you want to get electrical engineering from lawyers, economists and accountants?

Then it says of course, somebody with experience in law, management, economics, finance or something like that.
These are two tiers of commissionership over there, they to run the commission and there is no department for generation, there no department for transmission, no department for power system operation and no department for marketing and distribution rather you will be hearing things like the department for management, legal, licensing and all those kind of things that just bring confusion to the whole business of regulating the electricity supply industry. This mistake has been repeated over and over again.
I don’t get it; electricity is about electrical engineering and I don’t know how anybody can dispute that fact. Production of electricity is pure electrical engineering and you want to get electrical engineering from lawyers, economists and accountants?
That is just not possible. The same commission also has the responsibility for the strategic development of the industry. How can somebody who is not grounded in this electrical engineering business dream dreams in it? How can you see vision in what you don’t know? When you are leading a sector, you lead by visioning.
The entire business of strategy is founded on visioning.
There is no way a lawyer can dream dreams better than an electrical engineer in the electric power supply industry. It is not possible.

Going by the structure of the commission and the calibre of persons currently running it, what are the chances of Nigeria getting out of the woods?
As it is today, Nigeria needs more than 50,000 mega watts of electricity to make any headway. Studies have also shown that by around 2017 or 2020, we should be talking about 180,000 mega watts.
We don’t have anything near that; we have maybe about 12,000 mega watts in terms of installed capacity but you can’t wheel more than 5,000 megawatts in the transmission grid. So there is just no way out.

The people who have been running this game can’t see all these and they don’t want to see.

You have just touched on the neglect of Nigerian engineers in a sector where they ought to be in charge, as the President of the Nigeria Society of Engineers (NSE) what is your vision towards ensuring that Nigerian engineers are fully involved in the power sector?
We have been trying to engage government at the highest level. We have seen the Vice President to complain to him about this insufficient number of engineers in the policy space in Nigeria.
We complained to the government that in America for example, the government there has just 15 ministries but they have 225 ministers.
Here we have 26 ministries and we have 36 ministers and usually the ministers are people who don’t know where they are sent to.
In the US, they have 15 cabinet secretaries or maybe 19 because in defence alone and they have four cabinet secretaries who are equivalents of full ministers.
There is a secretary for the Army, Air Force, Navy and then under each of these secretaries has under secretaries, deputy secretaries and assistant secretaries who are appointed the way the secretaries are appointed.
They are nominated to the Senate, relevant Senate Committees screen them before they are given clearance for appointment.
But here you take one person and make him or her a minister and almost by definition, he does not know where he is going to because when such a ministerial nominee is being screened by the Senate, the lawmakers don’t even know where such a person is going to serve as a minister.
So, tell me how you can interview somebody who you don’t know the job he is going to do? It is a conspiracy to mismanage the entire economy to the highest levels.

With this scenario playing out in the power sector at the moment, is there any possibility of attracting additional investments to the sector?
The NIPP power plants were sold almost two year ago but because of gas issues, commercial issues, tariffs and the rest of them the people who bought them have not paid. People bided and won eight of the plants which the Federal Government put up for sale.
The gas piping issue is still there and because of the commercial implications, there is a stalemate. An oil company cannot just go and begin to develop a well if it doesn’t know who is getting what it wants to produce and what it stands to get.
During the military regime, maybe the army could browbeat the people and of course see how to possibly get the money from other ways and put the pipeline and supply to wherever, and if anything happens they just leave it there.
But in a civilian regime, you can’t do that.
The man wants to know who is buying the gas and at what rate. An investor would want to know if he is going to make some profit from the venture before he starts to develop the well. If you go and develop the well when nobody needs the gas, what does that mean?
You just spent money to do a big toy. What do you think we can do as a nation to find our way back on track in this sector? Well, the way to get back on track is for the government to get responsible.
The type of arguments made to push privatisation at the time it was done, were really very pitiable because they were saying that the government is irresponsible and it should have nothing to do with anything that provides service for the people.
Who says so? Why is there a government then? It is sort of giving license to government to be irresponsible. First of all, we have to reaffirm that government has to be responsible and in certain critical and strategic businesses, they have to be there and they have to do it responsibly. The private sector has to be there as well, doing their own thing.
In a country where all the money is in the hands of the government, why would you exclude government from investing in a critical sector of the economy? You want to abandon your responsibility to the private sector that has no fund to do the big job?
It just doesn’t work like that; it is the government that should even be giving money to the private sector because they collect a lot of money from taxation, from pension and from oil business. In other countries, it is such money that is apportioned to be used for developmental purposes from year to year.

You cannot be producing five per cent of your needs and importing 95 per cent. 

That is how Japan developed. So for us to really get to grips on the whole economy, you have to be disciplined, you have to first of all decide that everything we need we must produce with exception of a few maybe in certain percentages depending on the items involved.
You cannot be producing five per cent of your needs and importing 95 per cent. You can’t meet up. You would have left all your people stranded, all your youth will grow up to age 18 or 50 and have never done anything in their lives
How do we go into manufacturing when we do not even have something as basic as steady power supply?
That is a wrong argument. When we started to industrialise as a nation, the power wasn’t there either. The power was not there and we didn’t say oh, we don’t build Ajaokuta Steel Mill, we d o n ’ t build the Delta Steel because the power wasn’t there. You build and also develop power that is needed for the industries.
You don’t say build the power first before you begin to build the industries. No, they all come up at the same time. In fact, you need to have a clear programme for industrialization? What is your programme for agricultural, mechanical industrialization? What is your programme for urbanization, vertical city development and all such things.
You need to have them before you begin to think about what quantum of power you will need. You just mentioned one part of our industalisation that has been abandoned, the steel sector. In your view, is there still hope that the steel sector can be revived?
It depends on the government. The Delta Steel Company for example can be revived if given to the Nigeria Society of Engineers.

The Delta Steel Company for example can be revived if given to the Nigeria Society of Engineers.

We will revive and run it effectively. We will put together the Special Purpose Vehicles ( SPVs) to run that place and you will be alarmed at the speed with which that will be done. The NSE can provide an SPV that will be professionally and commercially modeled to get that place running.
However, there are infrastructural deficits around it which again are the responsibilities of the government. For the rail line to function between Itakpe and the Delta Steel complex in Aladja, the government has to fix it.
It is not part of the steel business. If we need the Escravos estuary to be dredged, is it not steel business that will do that but the federal government.
So, that is it and the money to do that is there. If they want, we can show them where the money is.

Do you think the DISCOs under their present ownerships have what it takes to run the power supply business effectively?
If they have the right tariff and the support of the financial system, they ought to be able to get the business going. Having the manpower is always a challenge to anybody who has a system to manage. It is your duty to train people to do the job.
So it is matter of those amongst them who want to succeed and run sustainable organisation and those who want to cut corners and deceive themselves until their system collapses on their heads.

First published on Telegraph Online

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