‘Cash crunch may crumble power sector’

Recently, the press reported you saying that the power sector is broke but the Minister of Power Chinedu Nebo said it is untrue. The power sector is broke and has been broke for a very long time because the tariff structure for a very long time has not been cost effective; that’s one. Two, the […]

Recently, the press reported you saying that the power sector is broke but the Minister of Power Chinedu Nebo said it is untrue.
The power sector is broke and has been broke for a very long time because the tariff structure for a very long time has not been cost effective; that’s one. Two, the gas that PHCN companies hitherto used to get from Nigeria Gas Company, they were never paying for the gas. They are not paying as and when due. So, I knew there were billions of outstanding debts to be paid. Thirdly, the few Independent Power Producers (IPP) which are mostly International Oil Companies (IOCs) have supplied power to PHCN for many years and they too, they have not been paid.
You say the supplied power?
Yes, they generated power, supplied to the grids and they have not been paid; they too as they say, ‘as and when due.’
Who are they?
Shell and Agip for example; particularly Shell and Agip and Total, and now Chevron, they are also trying to have their own power plant. So, if you say IOCs, there are quite a number of them coupled with the fact that PHCN also owed so many contractors and so many other people. So, in reality, the consultants that are consulting for the distribution companies that bought the distribution companies told us here last week that based on their own estimation, they also believe that the Nigerian power sector is broke and that for it to really become viable and stable, government must inject something close to, according to their figure, $8 billion as cash injection to the whole sector to ensure it becomes commercially viable.
So, it was really a wonder when government said that the sector is not broke and already, there are certain distribution companies like Ibadan, Abeokuta and even the one in Port Harcourt that staff, the few staff they are even able to hold on to are not being paid as and when due. It is a real fear that if something is not done, this sector could crumble because of liquidity problems.
It was not long ago that they finished all the privatization exercise; distribution companies (discos), generating companies (gencos) and the rest. If the sector was broke, did the buyers not see it?
This is also another area that is quite puzzling because what government says is that a very transparent, honest and prudent exercise was done. But it became quite clear very early that majority of people that bought these companies are not financially viable themselves nor are they financially stable.
Most of them borrowed money from Nigerian banks and these Nigerian banks are already very jittery because of the high exposure they have in the power sector and they have in fact said that they are no more willing to invest anymore Nigerian banks’ money in Nigeria power sector.
What of claims that the hard times the sector is going through are all teething problems which they would overcome soon?
Teething problems are teething problems and yes, true they are teething problems and virtually anything new will have teething problems but my biggest worry here is that many of these issues that are real teething problems are things that are foreseen and are things that many people had mentioned before; that they should look after this, otherwise this would happen.
Primarily, my take in the whole matter is that, which I have said when I was in office, the whole process was rushed. It was rushed because privatization became the principle; it became the only thing that everybody was seeing rather than allow common sense prevail. I am glad when the minister (Power) came about, they came to visit the committee; he said that in the history of the world, our privatization was the biggest that has ever been done. But to me, that should not be a credit because it shows that we have not really been as careful as we could be. This thing could have been programmed in a way that it would not bring these sudden teething problems.
In what way should it have been programmed?
 I will explain what I mean by this; everybody knew when I was in government that my position was that those companies must first of all be made to practice commercial activities and let all these parameters that people are saying they do not know now, like losses, the teething problems we are talking about, they would all have appeared if these companies were operated as commercial entities for a period and be given performance targets. If this was done, a year or two of practice of this would have given government a proper value of these companies and all the teething problems would have surfaced and corrections would have been made and this issue of teething problems becoming the theme would not have risen in the way it is arising now.
That would have allowed government to understand the extent of liquidity problems in that sector because the tariff would have been raised, the structures would have been done, rightsizing would have been done, performance level would have been known so that the correct structure of the power industry would have been known. That was my position but many people thought that we just didn’t want to leave office. Well, we have left office but the problems have persisted.  
What Nigerians are saying is that, whatever it is that you have done, they will judge you by the amount of power they see in their houses and if in 1998 Nigeria was generating 2000 megawatts and still in 2014, 16 years down the road they are still generating 2000 megawatts for whatever reason, something must be wrong. Some of us believe that by this time, Nigeria should be talking about 15,000 to 20, 000 megawatts not 2000 or 4000 megawatts that every day you hear about. This is not what will bring Nigeria out of thess current problems.
In one of your interviews, you talked about the lopsided nature of an IPP arrangement…
That is the Enron one.  
In this latest round, does the arrangement shortchange the country?
The recent one is not an IPP, it is a privatization exercise. That IPP arrangement with Enron that was the first time an independent person is coming from outside, spend his money and come and send power he generated to the national grid. That is a different arrangement. Now, the private people are buying both the generation and distribution companies to run themselves. Some of them, we learnt, are making wonderful proposals of how to expand those power stations. Everyone knew, including myself, that yes, private sector must be made to participate because of the added value they may bring and because of the extra investment that would come in and augment whatever government is doing. But my biggest quarrel with the whole process is that we wasted more than a decade talking about how to sell the 2400 megawatts that we had.
If the nation had concentrated and looked at other ways, and there are so many other ways of generating electricity, so many other ways of solving our problems while at the same time looking at how private sector can participate, we wouldn’t be talking about 4000 megawatts, we would be talking 40, 000 megawatts.
You spoke about some of the new companies making wonderful proposals; does nay of the proposal involve financial intervention by government?
No, what I meant is, they gave us an example of Ughelli Power Station, Delta Power Station it is called, that currently is trying to expand the station which was sold to them from 300 megawatts to even 1000 megawatts. You can see that is a very good example of how private sector participation has been. Well, I am saying that could have been done without really stopping everything and saying we are doing privatization.