General Uncategorized

‘The Power Reform Process Is Irreversible’

Mr. Atedo Peterside

Chairman, National Committee, National Council on Privatisation, Mr. Atedo Peterside, in a paper on power reform at a recent workshop organised by the Chartered Institute of Stockbrokers (CIS) described the current reform process in the power sector in the country as irreversible. He also spoke with Eromosele Abiodun to buttress his argument. Excerpts:

What are the critical updates on the power sector reform?
I can speak about the efforts to privatise the companies in the power sector and things that have to do with the Economic Management Team because I am a member and it is where things are tabled for discussion.

The power sector is a critical element in the whole overall National Transformation Agenda but there are also other elements apart from power and power is part of physical infrastructure. So one has to move beyond just the power sector to transportation and this is where we talk about roads and rail and it is very important because the things that hinder business in Nigeria is that the business man has to provide his own infrastructure and that’s what we want to correct because it should not be.

If you have to provide your own infrastructure then you cannot compete with the outside world because they don’t have to do the same. The government should focus at Federal and State Level in helping you to meet your infrastructural need; be it power or water or giving you motorable roads, rail routes to move your goods to the ports and get your goods out of the ports efficiently, be it your imports or your exports, which is what government owes you, getting the infrastructure moving efficiently.

The whole Agenda to transform also embraces all of the above and you are not going to transform some of those sectors relying only on government resources; you also have to open up the sectors so that the private sector can invest. That’s why when I gave example on the power sector. I said it is even more important we have cost reflective tariffs. We had a regulator that was serious and credible and then we had arrangements like the bulk trader that would make it possible for people to come in, establish their own IPPs, have an agreement with the bulk trader, provide power to him, they deliver and get paid. Because when you have that kind of arrangement that are transparent and people have confidence in you, then you can get massive inflow of funds from the private sector to invest in this same power sector.

If you don’t have that kind of clarity, you can make all the noise in the world, no private sector person is going to put his money into a sector when he thinks that he is going to walk into a trap or where there is going to be an obvious failure. So then the arrangements must make business sense. I think the arrangements we have for power, if they are allowed to function, make business sense.

Could you shed more light on all these companies you have dealt with that you think will be coming for listing on the Nigerian Stock Exchange and how soon would that be?

Yes, I explained that for the distribution companies in particular which is where the focus is concentrated, we are not selling 100 per cent to the Core Investors; it is only 60 per cent, the balance of 40 per cent would be held by the Federal Government, State Government and Staff and there is nothing wrong with that like we did once we make quick arrangements to sell those shares to the public and even if that fails or if it does not happen in some cases, it is possible that the Core Investor himself in due course may want to raise revenue to service his needs to expand his business.

Sometimes, when you are trying to raise money to grow the business then you want to take money from outside so that some of the current investors may opt eventually through raising more capital or dilute their share holding from 60 per cent to 51 per cent that would still give them control, so it’s a possibility. What I am saying is that we are making remarkable progress.

Your presentation gives so much hope on what to expect from the power reform. Can you shed more light?

Let me explain. I don’t know how old you are but from the day I was born till date, in fact especially the last forty years in particular, the power sector in Nigeria was going nowhere. Even a blind man knew that and this was so because the only sources of funding it were two; one, the tariffs you and I paid which were much too low; and two, Federal Government budgetary allocations; the sum of those two was never going to be able to provide enough money to finance the sector to grow and expand like telecoms has done in the last ten years.

Therefore, you had low funding which was going to lead to a low level equilibrium; the second thing was that the arrangements for the Sector were such that they did not make sense for the private person to bring his money in so we have to do two things: first, we have to increase the availability of funds for the sector, make the value chain healthy by raising the tariffs which has been done effective June 1, this year.

Then secondly and simultaneously, we have to change the arrangements for the sector so that the private companies can come and invest massively like they have done in telecoms. And I mention seven critical steps in the power sectors of the Federal Government and each of those seven were vital towards creating an environment that would ensure that you would move from a low equilibrium trap to what I call the high growth trajectory.

The seven steps were as follows: to empower the regulator NERC and that has been done; to bring in place a bulk trader; introduce cost reflective tariffs that were done on the 1st of June; management contractor for transmission; to privatise generating companies (gencos); to privatise distributional companies (discos); and to strengthen the fuel to power arrangements.

The interesting thing is that, as soon as you have even done the first three, you would have covered a great deal of work. If you get those steps right and don’t get me wrong if you leave out any of those seven you have a problem because if you do the first six and there are no arrangements for bringing fuel to power there is a problem.

You need those seven to work in unison and am saying that what I see and what some of us were brought in to do was to help to ensure that some of the critical steps in those seven were taken care of and that’s why I have been involved in the last fifteen months in helping to privatise transformation in terms of management contractor, distribution and also the gencos.

But let me explain this, if you have a value chain where the consumer alone is paying very low tariffs because the tariffs are too low there is not enough money flowing from the consumer to distribution through transmission to gencos and back to the supplier of fuel. Whereas if the consumer is paying enough money upfront, the money he is paying pays for distribution, transmission, generation and the fuel as well so if the price is right and you pay the right price which we are doing now there is enough money to finance every budget in the value chain all the way to the value supplier.

In telecoms some of us don’t understand why there is growth in telecoms and it’s because the tariffs you are paying are enough to finance the entire value chain so even up to the people that supply fuel to MTN or Globacom for the cell sites are paid for everything. And what we have in Power is not just to have the single tariffs that are cost reflective on June 1 this year, we have in place the multi layer  tariff order, so there is a formula which will adjust naturally already  built into it. There are things like the cost of fuel, inflation and others in it so that it would adjust naturally so that your tariff is not set once forever and ever and then a fight would ensue when it’s been changed. It’s something that would be changed constantly. The tariffs would reflect other realities. For instance, if the price of fuel comes down your tariff comes down naturally, and that’s why investors are buying into that formula which they see as satisfactory.

Some say your independent approach to issues could be a critical factor in making the reform process to work…

I don’t want us to personalise anything because a tree cannot make the forest as there are many people who are involved in this process right from the President all the way down to the lowest level employee so it is not good to personalise it.
I was brought in to add value which is what I have been doing but some of the things am talking about here are almost irreversible.

For instance I mentioned seven things, if you have cost reflective tariffs and you put in place a formula for the Multiyear Tariff, whether am here or not or you are here or not if a formula is in place the formula stands. Somebody would have to come and destroy it for it not to be effective anymore. And I tell you one thing, there are some things that as soon as you put them in place they are so logical everybody gets the benefits, and they are difficult to destroy.

That’s why I wanted all of you to be the advocates because if all of you understand how the seven steps are important, as soon as somebody gets up to destroy it, you will be the one shouting, stop this man, he is a nuisance. That is why you have to sell the reform programme to a wider audience which is why I came today. Let all these people in the capital market join in understanding this reform and then defending, and protecting it making sure they hold on to the gains because it’s only these reforms, the seven steps that would bring light to your house and my house forever and ever. So if you are convinced about these you on your own, you will start shouting when anybody takes any step to reverse the reforms.

For the winners of gencos is there a possibility of fast-tracking delivery of power even before that target period given to them?

If you look at the documentation carefully when I put the next steps on the board, the next steps said after they negotiate and pay 25 per cent, within six months they pay the balance. They didn’t say after six months. They said within so that somebody that has sorted out everything can pay earlier than the six months and take possession and move on. Then and again some of them are eager to move as fast as possible. Why would you want to pay for something partially and allow it drag because once you take money out you take money out, you only begin to get money in after you step in there and take possession.

Like I explained, the beauty of this for me, why this should succeed is because there is now a proper alignment of goals which we never had between those in charge of the power sector and you and I as the consumers that want light in our houses. I explained earlier that inside the old arrangement the government employee in PHCN whether he gives you light or not, gets his salary which is assured even if you are in darkness he collects his money and goes home. Now the union is fighting for their entitlements nobody is asking if they gave you light or not they are just demanding whatever they think they were promised.

And when you move to this arrangement that is privatised then there is alignment of goals in the sense that the only time a distribution company gets money is when there is power supply in individuals houses and the meter is running. So he is the one that is more interested than even myself to keep the meter running same as with telecoms if the system is down they would put it back up because they want to charge you and they cannot charge you when things are down, they can only charge you when you can make a phone call.

So we are moving into a system that is market oriented but there is a regulator to ensure discipline and there are rules that would make it possible for the private sector to come in and invest massively because we need massive investment from the private sector to leap forward and for once for all break out of these vicious circle and then allow the power situation in Nigeria to improve dramatically in the next 2/3 years and forever.

Just how important can stabilised power be to the economy?
Whatever you say, I believe that the single most important incubator to economic growth in Nigeria in terms of people’s businesses and why people have not been able to compete has to be power. Power has to be number one; you can talk about number two transportation or something else. But don’t forget that when you don’t give people power from the national grid, they have to get power by themselves; they buy generators, fuel them on diesel or petrol. Look, the most efficient generator you can buy for yourself is about four/five/six times more expensive than power from the grid.

If you are a business man, doing any kind of business, if you can move away from wasting your money on generators, maintain them and fueling them to just paying your bills to a disco and bring your cost down there are possibilities that you can compete and  create more jobs etc. So when the cost of generating electricity personally is out of the way, a business man can expand his business because he has brought his cost down and has been able to compete more and grow his business. So when he grows his business, he employs more people so it’s all linked.